KUMAR BUILDERS,NAGPUR vs. PRINCIPAL COMMISSIONER OF INCOME TAX(CENTRAL ) NAGPUR, NAGPUR

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ITA 450/NAG/2026Status: HeardITAT Nagpur12 June 2026AY 2022-2314 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the PCIT wrongly exercised powers under Section 263. It found that the Assessing Officer had conducted necessary inquiries and verified evidence, and that the PCIT had not considered the rectification order passed by the AO and the prior approval for assessment.

What were the facts?

The assessee, a partnership firm engaged in construction, filed its return showing income of Rs. 76,17,040. The assessment was completed under Section 143(3). The PCIT invoked Section 263, holding the assessment order erroneous and prejudicial to revenue, citing issues with bogus expenses and incorrect commission income addition.

What were the issues?

Whether the PCIT correctly invoked Section 263 by finding the assessment order erroneous and prejudicial to revenue, considering the AO's inquiries and subsequent rectification.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3),Section 154

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, NAGPUR BENCH :: NAGPUR

For Appellant: Shri K. P. Dewani, Adv
For Respondent: Shri Pankaj Kumar, CIT DR
Hearing: 11.06.2026Pronounced: 12.06.2026

PER ANUBHAV SHARMA, JM:

This appeal filed by the assessee is directed against the order of Ld. Principal Commissioner of Income Tax (for short, “PCIT)”), dated 24/03/2026 passed under section 263 of the Income Tax Act, 1961 (for short, “Act”), for the Assessment Year (AY) 2022-23.

ITA No. 450/NAG/2025 (Kumar Builders) 2. Heard and perused the record.

3.

The assessee is a partnership firm and engaged in the construction and maintenance of road on contract and sub contract basis. The return for the year under consideration was filed tendering income of `. 76,17,040/– and the assessment was completed under Section 143(3) of the Act. After selecting the case for compulsory scrutiny assessment on the basis of CBDT instructions dated 24.05.2023 as there was search and survey action under Section 132 and under Section 133A of the Act in Tri Connect Group, the Ld. Assessing Officer examined the payment of `.1,47,12,318/– through bank to different parties and considering the same to be a bogus expenditure, the assessee’s submissions and evidences were rejected and on the basis of a gross profit margin @ 15% of `. 1,45,40,521/– which works out to `. 21,81,078/–, the addition was made.

3.1 Further a commission income @ 5% as per the alleged prevailing market trend on the basis of providing

ITA No. 450/NAG/2025 (Kumar Builders) accommodation entries to one of the searched parties was made thereby the total income was determined at `. 1,11,73,170/–.

4.

Ld. PCIT (Revisional Authority) has held the assessment order to be erroneous so far as prejudicial to the interest of Revenue on two issues. The first, holding that the alleged bogus purchase or sub contract expenses should have been subject to full rejection as non–genuine expenditure and restricting addition to profit rate is not justified for which decision of Hon'ble Bombay High Court in PCIT –5 Mumbai vs. Kanak Impex (India Ltd.) ITA 791 of 2021 was relied.

4.1 Then Ld. Revisional Authority had alleged that the accommodation entry, addition has been incorrectly made of `.13,75,056/–, but the same should have been `.23,18,818/–

5.

Ld. Counsel appearing for the assessee has submitted that the impugned order passed under Section 263 of the Act is erroneous as Assessing Officer had conducted all the enquiries and all relevant evidences about genuineness of

ITA No. 450/NAG/2025 (Kumar Builders) purchases were filed which have been examined by Ld. Assessing Officer. It is also contended that the decision relied on by Ld. Revisional Authority in the case of Kanak Impex (India Ltd.) (supra) is not applicable as in that case the assessee had failed to prove the genuineness of purchases with documentary evidences.

5.1 As with regard to second issue, Ld. Counsel submitted that though the Assessing Officer had made addition of `.13,75,056/– in Assessment under Section 143(3) of the Act, but, thereafter, rectified the same by passing an order under Section 154 of the Act mentioning addition of `. 41,28,168/– being 15% as against original amount taken at 5% at `. 13,75,056/– and the same have been left out of consideration.

6.

Ld. DR has heavily relied on the impugned order of Ld. PCIT submitting that in para 6.1, Ld. PCIT has contended as to how the Assessing Officer has failed to make relevant and necessary enquiry in the case.

ITA No. 450/NAG/2025 (Kumar Builders) 7. We have given thoughtful consideration to the material on record and we find that in para 14, Ld. Revisional Authority has concluded that provisions of explanation 2(A) to Section 163 of the Act are applicable and for that reason, the impugned assessment order is erroneous so far as it is prejudicial to the interest of Revenue. In this context, we find it relevant to observe from para 6.7 of the impugned order that the Ld. Revisional Authority observes as follows:–

“In the present case, the facts clearly demonstrate that the AO failed to conduct necessary inquiries and verification which ought to have been made. The assessment record reveals that the AO did not independently verify the authenticity of the documents submitted by the assessee, did not verify whether the alleged suppliers are actually existing, did not verify the manufacturing or trading capacity of the alleged suppliers, did not examine whether the goods were actually received, did not verify the transport documents with actual transporters, etc. More importantly, despite having seized material and recorded statement clearly establishing that the purchases were bogus and amounts were received back in cash, the AO mechanically applied 15% gross profit rate without providing any reasoning or factual foundation for doing so. This is not a case of the AO adopting one of the two permissible views after inquiry; instead, it is a case of passing an order without making necessary inquiries and without proper application of correct legal

ITA No. 450/NAG/2025 (Kumar Builders) provisions, which falls squarely within the ambit of Explanation 2(a) to section 263 of the Act.”

8.

Now going through the material before us, at the outset, we of the considered view that once rectification order was passed by Assessing Officer under Section 154 on 29.03.2023 and the cognizance of the same has not been taken by the Revisional Authority while issuing notice under Section 263 of the Act dated 27.01.2026 so that itself shows that the Ld. Revisional Authority has not perused the records completely so far as to say that the impugned assessment order was erroneous so far as prejudicial to the interest of Revenue.

9.

More particularly, with regard to the issue of additions made by Ld. Assessing Officer on the alleged seized loose paper, Revisional Authority’s conclusion was to make a further addition of `. 9,43,762/–. While in fact by way of rectification order, addition was already enhanced to 41,28,168/– being more than the same alleged to have been escaped by AOs alleged lack of enquiry.

ITA No. 450/NAG/2025 (Kumar Builders) 10. Then, we find from the impugned assessment order that notice under Section 142(1) was duly issued to the assessee. The Assessing Officer had directed the assessee to furnish the details of business activities, copies of bank statement, books of accounts for verification and in para 4 Assessing Officer observes that the same were filed and the same were verified on test check basis.

11.

We find that a specific notice under Section 142(1) was issued on 31.12.2023 wherein the assessee was asked to explain the payments of `.1,47,12,138/– made to different parties and in context to that the assessee had submitted the reply which has been reproduced in para 6 of the assessment order and the relevant para of the same is also reproduced herein below for completeness :– “3. Assessee encloses herewith ledger account confirmation of aforesaid parties along with bills and documentary evidence to substantiate the purchases and sub-contract expenses recorded in the books of account on day to day basis at Rs. 1,45,40,521/-. The figure noted in the annexure to notice u/s 142(1) is factually not correct on account of arithmetical mistake. The bills and delivery of goods and execution of contract work is established by placing legal evidence on 7

ITA No. 450/NAG/2025 (Kumar Builders) record. The aforesaid goods have been used/consumed in the course of activity of business. The contract work has been executed by parties in the course of activity of business. Assessee in order to substantiate the submission made in respect of expenses claimed as mentioned above, will also obtained affidavit from the parties to the effect that goods have been supplied and contract work have been executed by them and payment has been received by them through proper banking channel. All the parties are assessed to Income Tax and transactions made with assessee are recorded in the books of account/income tax return/GST return of respective parties. Sufficient legal evidence has been placed on record and thus there is no iota of doubts/dispute in regard to transaction of assessee with such parties through proper banking channel. In the affidavit given by parties they made specific averment that no cash has been paid by such parties to assessee firm. In the course of search no evidence has been found to show that any amount out of Rs.1.45 crores debited in books has been refunded to assessee. Considering the facts and evidence on record there is no scope to allege the aforesaid sum as bogus expenditure in respect to purchase made and sub-contract expenses in order to make disallowance at the hand to assessee. It is settled position of law that no addition can be made merely on inference. In view of above it is humbly submitted that disallowance as proposed in the annexure be not made.”

12.

We find that thereafter taking into consideration the alleged incriminating material and the submissions of the

ITA No. 450/NAG/2025 (Kumar Builders) assessee, Ld. Assessing Officer had concluded that the assessee booked bogus purchases of claim expenses and received back in cash form.

13.

In the light of the aforesaid discussion, we fail to appreciate the allegation of Ld. Revisional Aurhority that there was lack of enquiry on the part of the Assessing Officer so as to invoke provisions of 263 of the Act by recourse to explanation 2(A). The directions issued by Ld. Revisional Authority for further enquiries and an investigation in comprehensive manner is nothing but an attempt to substitute a higher wisdom to the one exercised by Ld. A.O.

14.

The Enquiry Officer has meticulously examined the issue by raising all relevant queries and drawing inferences to the submissions and evidences of assessee and in no manner the Ld. Assessing Officer’s proceedings of the assessment lack any effort to examine the issue in right perspective and thereby to draw the conclusion.

ITA No. 450/NAG/2025 (Kumar Builders) 15. We find from the material before us that the assessee had placed on record all vital and material evidences like affidavit of the parties, ledger confirmation, tax invoices along with e–way bills, GSTR–2B from GST portal to establish the genuineness of the purchases.

16.

Assessing Officer specifically mentions in the assessment order that the assessee has produced books of accounts for inspection and the same has been verified on test check basis but no discrepancy whatsoever was pointed out of the books of accounts. 17. Then where Ld. PCIT alleges lack of enquiry, we find that as per the purpose of Section 263 of the Act, the order to be erroneous should be established by the some facts coming up from the assessment record or otherwise on enquiry by Ld. Revisional Authority to show that order passed by Assessing Officer was not sustainable in law and no enquiries had been made. In this regard, reference may be made to Hon'ble Bombay High Court decision in Commissioner of Income Tax (Exemptions) v. Impact Foundation (India) [2026]186

ITA No. 450/NAG/2025 (Kumar Builders) taxmann.com 143 (Bombay), wherein Hon'ble High Court has reiterated the proposition with following findings;– “10. We are also of the view that the ITAT has rightly placed reliance on the decision rendered in CIT v. Gabriel India Ltd. [1988] 41 Taxman 237 (Bombay)/[1989] 176 ITR 349 (Bombay), wherein the term "erroneous" has been interpreted. The ITAT has also rightly placed reliance on the decision in CIT v. Nagesh Knitwears (P.) Ltd. CIT v. Nagesh Knitwears (P.) Ltd. [2012] 22 taxmann.com 309 / 210 Taxman 145 / 345 ITR 135 (Delhi), wherein the Delhi High Court has elucidated and explained the scope of the provisions of Section 263 of the Act, and has therefore rightly come to the conclusion that when the AO had conducted an inquiry on the issue, in that event, the Commissioner, before holding that an order is erroneous, should conduct necessary inquiries or verification in order to ascertain that the findings arrived by the AO on that issue are erroneous, perverse and/or unsustainable in law. In the facts of the present case, this exercise has not been carried out by the CIT (Exemptions) and therefore the ITAT has rightly come to the conclusion that the CIT (Exemptions) could not show that the order passed by the AO was unsustainable in law and no inquiries had been made.”

18.

Rather, we are of the considered view that what all Ld. PCIT alleges to be lack of enquiry on the part of Ld. Assessing Officer, were actually not required from the perspective of Ld. Assessing Officer where Ld. Assessing Officer has discredited all

ITA No. 450/NAG/2025 (Kumar Builders) the material evidences of the assessee out rightly and without pointing out any infirmities in the merits of the evidences placed on record by the assessee.

19.

Thus, Once the transactions are duly recorded in the books of accounts and corroborated by material evidences discussed above and further no quantitative discrepancy was discovered on the basis of contract work executed by the assessee and reported in the form of income, corroborated duly by the GST return of respective parties, then the conclusion drawn to allege bogus purchases may be rather prejudicial to the interest of assessee, least to the Revenue.

20.

During the hearing, Ld. Counsel has also raised an issue that the assessment has been concluded after prior approval of Additional Commissioner of Income Tax, Central Range–2 and thereby holding the impugned assessment order to be erroneous or prejudicial to the interest of Revenue is not sustainable without examining the record leading to grant of approval.

ITA No. 450/NAG/2025 (Kumar Builders) 21. In this context, we find that the issue has been examined by Delhi Benches in ITA No. 1890 to 1893/Del/2024 and the Bench held as follows:– “We find that in the impugned order the Ld. PCIT has not taken account of the fact that the assessments were completed after prior approval of the competent authority. Thus, we are of the considered view that at the time of examining the issue as to if the assessment order is erroneous so far as prejudicial to the interest of the Revenue, the ld. revisional authority is not only supposed to see the assessment record of AO, but also the record of the approval which as far as the revisional authority is concerned becomes "record" of the quasi judicial authority whose order is being examined by invoking the revisional jurisdiction. Therefore, without giving a finding that the prior approval u/s 153D was vitiated and was also erroneous so far as prejudicial to the interest of the Revenue, the assessment order independently cannot be held to be erroneous so far as prejudicial to the interest of the Revenue.”

22.

We find that the Coordinate Bench of Delhi has relied on Pune Bench order in Ramamoorthy Vasudevan v. PCIT (IT Appeal Nos. 967 & 968/Pune/2016] and Hon'ble Madhya Pradesh High Court decision in PCIT vs. Prakhar Developers (P) Ltd. (2024) 162 taxmann.com 48 (MP).

ITA No. 450/NAG/2025 (Kumar Builders) 23. In the light of aforesaid discussion, we are of the considered view that Ld. Revisional Authority has wrongly exercised its powers under Section 263 of the Act and the grounds raised deserve to be sustained. As a consequence of aforesaid, the appeal of the assessee is allowed. The impugned order is quashed.

Order pronounced in open Court on 12.06.2026 Sd/– Sd/– ANUBHAV SHARMA KHETTRA MOHAN ROY ACCOUNTANT MEMBER JUDICIAL MEMBER

Nagpur: Dated: 12/06/2026 Z.U, P.S Copy to: 1. The Assessee 2. The Revenue 3. The Pr.CIT concerned. 4. The DR, ITAT, Nagpur 5. Guard file. By order

Sr.PS/PS ITAT, Nagpur

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