PRAKASH RE ROLLERS PVT. LTD.,BHAVNAGAR vs. THE PR.CIT-1, AHMEDABAD

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ITA 2490/AHD/2025Status: DisposedITAT Ahmedabad15 May 2026AY 2017-186 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the AO had not conducted proper inquiries into the suspicious transactions, including the source of funds provided by M/s. Rati Diamond Pvt. Ltd. The PCIT was justified in exercising revisionary powers under Section 263 of the Income Tax Act as the assessment order was erroneous and prejudicial to the interest of the revenue.

What were the facts?

The Assessing Officer (AO) reopened the assessee's case based on information that the assessee received accommodation entries from M/s. Rati Diamond Pvt. Ltd. However, the AO made no addition to the income. The Principal Commissioner of Income Tax (PCIT) found the AO's order to be erroneous and prejudicial to the revenue as no proper inquiry was conducted into the source of funds.

What were the issues?

Whether the PCIT was justified in revising an assessment order passed by the AO without conducting adequate inquiries into suspicious transactions, and if revisionary powers can be exercised on the same issue for which reopening was done.

Which sections of the Income-tax Act were involved?

Section 263,Section 147

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD

Before: SHRI SANJAY GARG & SMT. ANNAPURNA GUPTA

For Appellant: Shri Bandish Soparkar, AR, Shri V K Singh, CIT.DR
For Respondent: Shri V K Singh, CIT.DR
Hearing: 19/02/2026

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 2490/Ahd/2025 (िनधा�रण वष� / Assessment Year : 2017-18) बनाम Prakash Re Rollers Pvt. The Pr.CIT-1 Ahmedabad Ltd. / Plot No.51/B-1-2-3-4, Bhav Vs. Vijay, Opp. Suchak Hospital, Gharshala Road, Kalubha, Bhavnagar, Gujarat- 364001 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AABCP2866P (Appellant) .. (Respondent) अपीलाथ� ओर से /Appellant by : Shri Bandish Soparkar, AR ��यथ� क� ओर से/Respondent by : Shri V K Singh, CIT.DR Date of Hearing 19/02/2026 15/05/2026 Date of Pronouncement O R D E R PER ANNAPURNA GUPTA, AM: The present appeal has been filed by the assessee against the order of the Ld. Principal Commissioner of Income Tax, Ahmedabad-1 (hereinafter referred to as “PCIT”), dated 28.11.2025 passed under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2017-18.

2.

The grounds of appeal raised by the assessee read as under: “1 On the facts and in the circumstances of the case as well in law, the Ld. PCIT Ahmedabad 1 has erred in law and on facts in setting aside the Assessment Order dated 13.05.2023 for the A.Y. 2017-18

ITA No.2490/Ahd/2025 [Prakash Re Rollers Pvt. Ltd. vs. PCIT] A.Y. 2017-18 - 2 – under Section 263 of the Income Tax Act holding it to be erroneous and prejudicial to the interest of the Revenue. 2 On the facts and in the circumstances of the case as well in law, the Ld. PCIT Ahmedabad I has erred in law and on facts in holding that the assessment order dated 13.05.2023 for the A.Y. 2017-18 is passed by the A.O., without making proper examination of the transactions with Rati Diamonds Pvt Ltd when the Assessment was reopened precisely for the same issue and the Assessing Officer had made exhaustively examined the issue.” 3. We have heard both the parties.

4.

The facts on record reveal that the order found by the Ld.PCIT to be erroneous causing prejudice to the Revenue so as to exercise his power of revision u/s.263 of the Act was the order passed by the AO u/s.147 of the Act in the case of the assessee. The assessee had filed return of income declaring income of Rs.1,37,68,973/-. Thereafter, on the basis of information in the possession of the AO received from the Investigation Wing of the Department that the assessee was the beneficiary of accommodation entry from one M/s. Rati Diamond Pvt. Ltd. during the impugned year, the case of the assessee was reopened. However, assessment was framed making no addition on account of alleged accommodation entry. The Ld.PCIT found from the records of assessment that the AO had conducted no enquiry on information in his possession and had simply accepted the reply of the assessee, which reply revealed no detail or justification given by the assessee regarding the purpose or necessity of obtaining substantial loans. Therefore, he invoked his revisionary powers u/s.263 of the Act issuing notice to the assessee to the show cause as to why the order passed by the AO be not held to be erroneous causing prejudice to the Revenue. Reply was submitted by the assessee stating that the issue was examined

ITA No.2490/Ahd/2025 [Prakash Re Rollers Pvt. Ltd. vs. PCIT] A.Y. 2017-18 - 3 – during assessment proceedings. The Ld. PCIT, however, rejected the contention of the assessee noting that the AO in his order passed had himself recorded that owing to the limited scrutiny nature of the proceedings only the bank credits in the account of M/s. Rati Diamond Pvt. Ltd. were examined. That verification of source of the source of such credits was not done being beyond the scope of scrutiny assessment. The PCIT noted that the bank entries of the M/s. Rati Diamond Pvt. Ltd. revealed all debit entries to be immediately preceded by the corresponding entries, indicating circular movement of funds without genuine business rationale. He further noted that in the succeeding assessment year reopening done for the same reason had culminated in addition being made on account of unsecured loan taken by the assessee from M/s. Rati Diamond Pvt. Ltd. in the said year. He held that the AO having not conducted the enquiry on the issue, for which, reopening was done, the order passed by making no addition on account of the reason for which reopening was resorted to, was erroneous causing prejudice to the Revenue. Accordingly, he set aside the assessment order passed u/s.147 of the Act with the direction to the AO pass a fresh assessment order in accordance with law and after duly examining the facts of the case.

5.

Clearly, the case of the Ld. PCIT was that the AO had not examined the issue for which, reopening was resorted too i.e. the assessee being the beneficiary of accommodation entry from one M/s. Rati Diamond Pvt. Ltd. The contention of the Ld. Counsel for the assessee is that the issue was examined during assessment proceedings, but, the Ld.PCIT, we find, has noted the fact

ITA No.2490/Ahd/2025 [Prakash Re Rollers Pvt. Ltd. vs. PCIT] A.Y. 2017-18 - 4 – mentioned by the AO in his order himself, that he did not examine the source of the source i.e. the source of M/s. Rati Diamond Pvt. Ltd. for advancing loans to the assessee. The Ld. PCIT has also noted that, as per the bank statement of M/s. Rati Diamond Pvt. Ltd., the debits in its bank account were immediately preceded by corresponding credit entries, revealing a circular movement of funds. These notings of facts by the Ld. PCIT / CIT are very pertinent to the issue and clearly support the conclusion drawn by the Ld. PCIT that the issue was not adequately or sufficiently examined by the AO during assessment proceedings. This is for the reason that as per the information available with the AO, which is recorded in the order of the Ld.PCIT also, the assessee had availed accommodation entry from M/s. Rati Diamond Pvt. Ltd. through layering, with the information revealing that M/s. Rati Diamond Pvt. Ltd. was managed by Shri Shripal Vora who was engaged in a racket of providing accommodation entry through various concerns. That the operation of providing accommodation entry involved the operation of multiple concerns including M/s. Rati Diamond Pvt. Ltd. The facts on record clearly revealed the transaction of the assessee with M/s. Rati Diamond Pvt. Ltd.to be suspicious and lending credence to the information of funds being circulated, by way of there being immediate corresponding credit entries in the bank account of M/s. Rati Diamond before the debit entries of providing loan to the assessee. Undoubtedly, the AO was required to look into the source of the source from where the funds had come to M/s. Rati Diamond Pvt. Ltd. to advance to the assessee, considering the information in his possession that the assessee had allegedly availed accommodation entry from M/s Rati Diamonds. The AO

ITA No.2490/Ahd/2025 [Prakash Re Rollers Pvt. Ltd. vs. PCIT] A.Y. 2017-18 - 5 – himself admitting that he had not enquired into source of the source establishes, therefore, without any doubt, the AO had not conducted proper enquiries in the present case. The AO stating in his order that he is debarred by law from enquiring into the source of the source is incorrect. There is no debar in law to enquire into source of the source of credit entries specially when information reveals the transaction to be bogus or suspicious and the fact relating to the transaction also reveals the source to be suspicious. In such circumstances, the AO is required to look into the source of the source so as to complete his investigation and arrive at a conclusion whether the information in his possession was correct or not. There cannot be any debar in law for the AO to go to the entire length in his investigation in such facts and circumstances. We have no doubt, therefore, that assessment order passed by the AO in the present case was without conducting enquiry which were warranted, in fact, it is a case of no enquiry conducted by the AO. Further, the fact noted by the Ld.PCIT that in the subsequent year transactions with M/s. Rati Diamond Pvt. Ltd. was treated as unexplained credits / accommodation entry by the AO in re-assessment proceedings, further, strengthens the case that the AO had conducted incomplete / inadequate enquiry on the similar transaction with M/s. Rati Diamond Pvt. Ltd. in the impugned year. Therefore, we hold the Ld. PCIT had rightly held the assessment order passed in the present case to be erroneous causing prejudice to the Revenue.

6.

The only argument advanced by the Ld. Counsel for the assessee before us was that revisionary powers could not be

ITA No.2490/Ahd/2025 [Prakash Re Rollers Pvt. Ltd. vs. PCIT] A.Y. 2017-18 - 6 – exercised on the very same issue for which the reopening was resorted. He has referred to various decisions in support of his contention.

7.

We do not find any merit in the contention of the Ld. Counsel for the assessee. There is no blanket proposition of law that revisionary powers cannot be exercised on the very same issue on which reopening has been resorted too. For the simple reason that, as in the facts of the present case, where the AO has not conducted proper enquiries, the assessment order passed in reassessment proceedings can still be held to be erroneous. The judgments relied upon by Ld. Counsel for the assessee are all distinguishable on facts and the contention of the Ld. Counsel for the assessee, therefore, merits no consideration. In the light of the above, the appeal of the assessee stands dismissed.

8.

In the result, the appeal filed by the asessee is dismissed.

This Order pronounced on 15/05/2026

Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 15/05/2026 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. संबंिधत आयकर आयु� / Concerned CIT 3. 4. आयकर आयु�(अपील) / The CIT(A)- �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad

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