KHODAY INDIA LIMITED,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE 1(1), BENGALURU

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ITA 770/BANG/2025Status: DisposedITAT Bangalore12 June 2026AY 2020-216 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that since the assessee had not claimed the impugned commission expenditure, the PCIT's finding that the AO allowed it without verification was devoid of merit. Consequently, the assessment order could not be considered erroneous and prejudicial to the revenue.

What were the facts?

The PCIT initiated revisionary proceedings under Section 263, alleging that the Assessing Officer (AO) allowed a commission expenditure of Rs. 18,84,425/- without proper verification, deeming it potentially illegal. The assessee contended that no such expenditure was claimed or paid, and therefore, the PCIT's order was erroneous.

What were the issues?

Whether the PCIT correctly invoked Section 263 to revise an assessment order where the assessee claimed no such expenditure was claimed or paid, and if the AO's order was indeed erroneous and prejudicial to the revenue.

Which sections of the Income-tax Act were involved?

Section 263,Section 153A,Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE

Before: SHRI PRASHANT MAHARISHI, VICE – & SHRI KESHAV DUBEY

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE – PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No. 770/Bang/2025 Assessment Year : 2020-21

M/s. Khoday India Limited, The Deputy Commissioner of Brewery House, 7th Mile, Income Tax, Kanakapura Road, Central Circle – 1(1), Vs. Bengaluru – 560 062. Bengaluru. PAN: AAACK6734C APPELLANT RESPONDENT

: Sri V. Sridhar, AR Assessee by : Sri Shivanad Kalakeri – CIT DR Revenue by

Date of Hearing : 23-03-2026 Date of Pronouncement : 12-06-2026

ORDER PER PRASHANT MAHARISHI, VICE – PRESIDENT

1.

ITA No.101/Bang/2026 is filed by Khoday India Ltd. against the revisionary order passed by the Principal Commissioner Of Income Tax (Central), Bangalore [ld. PCIT] for assessment year 2020 – 21 dated 20 February 2021 wherein the assessment order passed by the ld. AO under section 153A of the Income Tax Act, 1961 [the Act] dated 31st of March 2023 was held to be erroneous and prejudicial to the interests of the revenue and therefore assessee is aggrieved with the same and has preferred this appeal.

2.

The assessee has raising following grounds of appeal:- “1. The order of the learned Principal Commissioner of Income-tax, (Central), Bengaluru (hereinafter referred to as PCIT, for short) passed u/s. 263 of the Income-tax Act in DIN & Letter No:ITBA/COM/F/17/2024-25/

ITA No.770/Bang/2025 Page 2 of 6 1073530144(1) dated:20.02.2025, is opposed to law, weight of evidences, probabilities and facts and circumstances of the case. 2. The order of the learned PCIT is opposed to principles of natural justice, as the appellant in its reply had sought an opportunity to more fully explain the appellant's view of the matter on hand, but the same was not granted by the PCIT. 3. The learned PCIT erred in setting aside the order of the Assessing Officer passed under section 153A rws 143(3) rws 153D of the Income-tax Act dated: 31.03.2023 for the assessment year 2020-21 with a direction to the AO to complete the assessment after making the required inquiries and verification regarding the commission of Rs.18,84,425/-. 4. The learned PCIT erred in not giving categorical finding that the order of the AO is erroneous insofar as it is prejudicial to the interests of the Revenue. 5. The learned PCIT erred in not establishing that the appellant has made payment of commission which is illegal. 6. The learned PCIT has not established that the appellant has claimed the alleged commission as expenditure either as commission or as any other payment under any other head of expenditure. 7. The learned PCIT has not provided any documents to establish the nexus between the appellant and the parties named in the show cause notice. 8. The learned PCIT erred in not providing opportunity to cross-examine any of the alleged payees which was specifically requested at the time of submission of reply to the show cause notice. 9. The learned PCIT failed to provide complete information on the basis of which he has come to the conclusion that the appellant has allegedly paid a commission of Rs.18,84,425/- which needs to be disallowed. 10. The learned PCIT was conscious of the fact that the information with regard to alleged transaction was not available with the AO at the time of passing the order of assessment. In such circumstances the learned PCIT ought to have come to a conclusion that the alleged transactions exist and that there was prejudice caused to the interests of revenue on account of the alleged expense claim. In the absence of conclusive proof of existence of the expense claim, prejudice to the interest of the revenue has been wrongly presumed. 11. The learned PCIT erred in not appreciating the search action u/s. 132 took place in the premises of the appellant on 09.02.2021 and the assessment has been completed u/s. 153A after going through all the material which was in possession of the AO including the books of account. There is no evidence

ITA No.770/Bang/2025 Page 3 of 6 on record to establish any connection between the appellant and the alleged payees. 12. The learned PCIT erred in not appreciating that in the absence of the transaction itself, the question of making enquiries or verification by the AO on the alleged payments does not arise. 13. The learned PCIT failed to observe that the appellant had provided all the transaction details in respect of the sole sales promoter appointed by the appellant viz., M/s Om Sai Agency for the States of Chattisgarh and Madhya Pradesh. 14. The learned PCIT has relied upon the case laws which have no relevance to the facts of the case. 15. The grounds of appeal raised herein may be read as without prejudice to each other. 16. The appellant craves leave to add, delete, amend or substitute any of the grounds of appeal raised herein. 17. For these and other grounds that may be urged at the time of hearing, the appellant prays that the Hon'ble Income tax Appellate Tribunal may be pleased to cancel the impugned order of the Principal Commissioner of Income-tax, (Central), Bengaluru passed u/s. 263 of the Income-tax Act dated:20.02.2025, as illegal, in the interests of justice.” 3. Briefly stated facts of the case show that the assessee has filed its original return of income under section 139 (1) of the Income Tax Act, 1961 [the Act] on 31st of December 2020 declaring a total loss of ₹ 30,622,529. Further an action under section 132 of the Act was conducted in case of the assessee on 9 February 2021. Pursuant to that the assessment proceedings were initiated under section 153A of the Act on 13 October 2021. The assessee responded to notice under section 153A of the Act on 27 August 2022 by filing the return of income showing Nil income. The assessment proceedings were completed by making an addition of ₹ 727,023 on 31st of March 2023.

4.

On examination of the record the ld. PCIT noted that a payment aggregating to ₹ 1,884,425 have been made by the assessee is a commission expenditure but the true nature of these payments appear to be illegal payments. Such payments are not allowable deduction u/s. 37 of the Act. The ld. PCIT noted that this issue has not been examined or verified by ld. AO during the assessment proceedings thus rendering the impugned assessment order

ITA No.770/Bang/2025 Page 4 of 6 erroneous and prejudicial to the interests of revenue. Therefore the show cause notice was issued to the assessee on 30 August 2024.

5.

The assessee replied that assessee is unable to quantify the amount of ₹ 1,884,425 and also the source of information that above payment is illegal. It was further stated that the basis for coming to such conclusion is also not discernible from the notice issued by the ld. PCIT. However the ld. PCIT once again issued the notice on 8 January 2025 wherein it was stated that during the course of search operation on 27 February 2020 in case of Tuteja, Bhatia and Dhand group of cases engaged in liquor sale wherein it was found that a sum of ₹ 18,84,425 has been paid as a commission for sale of India Made Foreign Liquor [IMFL] by the assessee. The material evidences were also shown to the assessee in the show cause notice. Based on this, after giving opportunity of hearing to the assessee, order u/s. 263 of the Act was passed on 20.2.2025 wherein held. PCIT held that the AO has not examined the issue nor has he conducted any verification and therefore the assessment order is passed without making necessary enquiries and verification.

6.

Thus, the only issue was that certain payments amounting to Rs.18,84,425 shown as commission as allegedly illegal payments not allowable u/s. 37(1) of the Act has been allowed by the ld. AO without verification.

7.

We have heard the rival contentions, perused the assessment order and revisionary order. Core issues is whether as claimed assessee has claimed deduction of the impugned expenditure at all, if so then the issue arises that same is allowed by ldAO with due verification or without.

8.

At the time of hearing, the ld. AR, Shri V. Sridhar, vehemently submitted that in this case the ld. PCIT has initiated revisionary proceedings u/s. 263 of the Act on the basis of proposal submitted by the ld. AO. The ld. AR further submitted that assessee has not claimed any such expenditure of commission payment of Rs.18,84,425 for the FY 2019-20 and therefore nothing is allowed to the assessee as deduction as claimed by the ld. PCIT. He further submitted that despite asking for the details, wherefrom the ld. PCIT has got this information,

ITA No.770/Bang/2025 Page 5 of 6 despite repeated requests, no information was provided. Even otherwise, he submitted that the assessee has asked the evidences as well as for cross- examination of the person. He further submitted that assessee has not transacted at all with any of the persons which are named by the ld. PCIT. He therefore submitted that the ld. PCIT has issued show cause notice as well as passed the order without making any basic enquiry and therefore there is no error in the order passed by the ld. AO.

9.

The ld. DR submitted a report wherein it was submitted that during the course of search of Tuteja, Bhatia and Dhand group, some information was found which was forwarded by the DCIT, Central Circle 8, Delhi to the Office of AO on 27.1.2023. This was a satisfaction note drawn by the AO of the searched person. Based on such satisfaction note, a proposal was submitted on 19.8.2024 to the PCIT (Central) for initiating proceedings u/s. 263 of the Act and based on which the revisionary order u/s. 263 was passed on 20.2.2025. The satisfaction note was also forwarded with the written submission of the AO.

10.

The ld. AR further submitted that the report of the AO clearly shows that the satisfaction note was the basis of foundation of 263 proceedings. Thus it is clear that the ld. PCIT has passed the order on the basis of proposal sent by the AO and he submitted that the proceedings concluded u/s. 263 passed on the proposal sent by the AO suffers from jurisdictional deficit and therefore deserves to be quashed. He relied upon the decision of the Coordinate Bench in the case of ITA No.466/Bang/2020 and the decision of the Pune Bench in the case of Alpha Laval Lund AB v. CIT in ITA No.1287/Pun/2017 dated 2.11.2021. he submitted that in this case the revisionary proceedings initiated by the ld. PCIT are with respect to commission of Rs.18,84,425 which was allowed by the AO in the assessment proceedings without verification.

11.

However, the assessee has stated that it has not paid any such amount to the persons named in the show cause notice. The assessee has submitted the financial statements to show that no such expenditure is claimed by the assessee. if the assessee has not claimed any expenditure, the findings of the ld. PCIT and consequent revisionary order passed u/s. 263 of the Act stating

ITA No.770/Bang/2025 Page 6 of 6 that the AO has allowed the above deduction without verification is devoid of merit. Despite making a specific statement by the ld. AR before us and also before the ld. PCIT in the revisionary proceedings that no such expenditure was allowed to the assessee for the reason that no such expenditure has been claimed, neither the ld. PCIT in his revisionary order passed u/s. 263 of the Act nor the ld. CIT(DR) before us could show that in fact assessee has been allowed such expenditure. Thus, when the expenditure itself has not been claimed by the assessee, there is no reason to hold that the assessment order passed is erroneous and prejudicial to the interests of the Revenue where the revisionary order holds that such expenditure is allowed to the assessee without verification. In view of this, we do not find any reason to uphold the order of the ld. PCIT. Accordingly the order passed u/s. 263 of the Act is quashed. 12. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 12th June, 2026.

Sd/- Sd/- (KESHAV DUBEY) (PRASHANT MAHARISHI) JUDICIAL MEMBER VICE-PRESIDENT Bangalore, Dated, the 12th June, 2026. *TNTS*/Desai S Murthy/ Copy to: 1. Appellant 2. Respondent 3. CIT 4.CIT(A) 5. DR, ITAT, Bangalore By order

Assistant Registrar, ITAT, Bangalore

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