SUBHASH KUMAR DUA, LUDHIANA,LUDHIANA vs. THE PCIT-1, LUDHIANA, LUDHIANA

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ITA 369/CHANDI/2026Status: DisposedITAT Chandigarh05 August 2026AY 2022-202318 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessment order was erroneous and prejudicial to the revenue as the AO's inquiry remained incomplete. The AO recorded that purchases were unverifiable but ultimately accepted the assessee's explanation without further investigation or cogent reasons.

What were the facts?

The Assessing Officer completed the assessment without making any additions after the assessee provided purchase-related documents and confirmations. The PCIT invoked Section 263, stating the AO failed to conduct proper inquiries into the genuineness of purchases.

What were the issues?

Whether the PCIT rightly invoked Section 263 when the Assessing Officer conducted inquiries and accepted the assessee's explanation, despite initial doubts about the genuineness of purchases.

Which sections of the Income-tax Act were involved?

Section 263,Section 133(6),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH

Before: SHRI LALIET KUMAR & SHRI MANOJ KUMAR AGGARWAL

For Appellant: Shri Rohit Garg, CA
For Respondent: Smt. Kusum Bansal, Pr.CIT, DR
Hearing: 30.07.2026Pronounced: 05.08.2026

PER LALIET KUMAR, JM

This is an appeal filed by the assessee feeling aggrieved by the order passed by the ld. Pr.Commissioner of Income Tax, Ludhiana) [in short ‘the PCIT’] dated 11.02.2026 passed for assessment year 2022-23.

2.

The facts of the case are that the assessee is an individual carrying on the business of wholesale trading of waste, scrap and materials for

ITA 369/CHD/2026 A.Y. 2022-23 2 recycling through the proprietary concern, M/s Bombay Sales Corporation. The return of income for the assessment year 2022-23 was selected for complete scrutiny under CASS on the issue of "Low income from TCS Receipts - Scrap". During the course of assessment proceedings, the Assessing Officer issued notices under section 142(1) and also invoked the provisions of section 133(6) by issuing notices to ten parties with whom the assessee had undertaken purchase transactions. Out of the said notices, replies along with documentary evidences were received from four parties, including M/s Kailash Industries and M/s Ess Kay Fabrics. The assessee also furnished confirmations, purchase bills, GST returns, bank statements and other supporting documents. After considering the material placed on record, the Assessing Officer completed the assessment under section 143(3) without making any addition.

3.

Subsequently, the learned PCIT invoked the provisions of section 263 on the ground that the Assessing Officer had failed to make proper enquiries and verification regarding the genuineness of purchases from the aforesaid concerns and set aside the assessment for fresh adjudication.

4.

Feeling aggrieved by the order, the assessee is in appeal before this Tribunal.

ITA 369/CHD/2026 A.Y. 2022-23 3 5. The learned Authorised Representative (AR) submitted that the assumption of jurisdiction by the learned Principal Commissioner under section 263 of the Act is wholly unsustainable both on facts and in law. It was submitted that the assessee's case was selected for scrutiny under the CASS parameter "Low Income from TCS Receipts – Scrap" and, therefore, the very issue sought to be revised had been the subject matter of detailed examination during the assessment proceedings. It was submitted that the Assessing Officer had conducted extensive enquiries by issuing notices and calling for details on various dates, namely 26.07.2023, 18.08.2023, 29.12.2023, 29.02.2024 and 18.03.2024. In response thereto, the assessee furnished complete details from time to time, copies whereof have been placed at the relevant pages of the Paper Book. The learned AR submitted that the assessment order was thus passed only after due application of mind and after considering the material placed on record. The learned AR further submitted that, for the purpose of verifying the purchases amounting to Rs.35,24,03,407/-, the Assessing Officer exercised his statutory powers under section 133(6) of the Act and, on a test-check basis, issued notices to various suppliers. Pursuant thereto, replies along with documentary evidences were received from the concerned parties and were duly examined by the Assessing Officer. Besides the replies received under section 133(6), the assessee also furnished confirmations of accounts, GST returns, purchase invoices, e-

ITA 369/CHD/2026 A.Y. 2022-23 4 way bills, bank statements, kanda slips, bilties, vehicle registration details, driving licences of the drivers and other supporting documents establishing the genuineness of the purchases. It was, therefore, contended that the Assessing Officer had carried out adequate and effective enquiries before completing the assessment.

6.

The learned AR invited our attention to the show cause notice issued by the learned Principal Commissioner and submitted that the entire foundation of the proceedings under section 263 rests on the allegation that, out of ten parties to whom notices under section 133(6) were issued, only eight parties had furnished replies and two parties, namely M/s Kailash Industries and M/s Ess Kay Fabrics, had allegedly failed to respond. According to the learned AR, the very factual premise adopted by the learned Principal Commissioner is erroneous. It was submitted that both the aforesaid parties had, in fact, furnished confirmations of account, bank statements, e-way bills and other documentary evidences, which formed part of the assessment record. These documents, according to the learned AR, clearly established the genuineness of the transactions and disproved the observation made in the show cause notice that the said parties had not complied with the notices issued under section 133(6) of the Act. The learned AR further submitted that, during the course of assessment proceedings, the Assessing Officer had even issued a show cause notice proposing disallowance of 25% of the purchases on the

ITA 369/CHD/2026 A.Y. 2022-23 5 ground that the genuineness of certain purchases required further explanation. The assessee duly responded to the said show cause notice by placing complete documentary evidence on record. After considering the explanation and the supporting material furnished by the assessee, the Assessing Officer accepted the claim and consciously completed the assessment without making any addition. It was, therefore, contended that the Assessing Officer had taken a conscious and informed decision after making necessary enquiries and verification.

7.

It was further argued that the learned Principal Commissioner has invoked section 263 merely because, in his opinion, further or more exhaustive enquiries ought to have been conducted. Such an approach, according to the learned AR, is impermissible in law. Once the Assessing Officer has conducted enquiries, examined the relevant material and adopted one of the legally permissible views, the revisional jurisdiction under section 263 cannot be exercised merely because the learned Principal Commissioner holds a different opinion or considers that deeper enquiry was desirable. The learned AR submitted that the present case is not one of lack of enquiry but, at the highest, a case where the learned Principal Commissioner seeks substitution of his own opinion for that of the Assessing Officer. Such substitution of opinion falls outside the scope of section 263 of the Act. It was, therefore, prayed that the revisionary order passed under section 263 be quashed as being without jurisdiction.

ITA 369/CHD/2026 A.Y. 2022-23 6 In support of the aforesaid contentions, the learned AR also relied upon the detailed written submissions filed before us, particularly paragraph 6 appearing at pages 4 to 10 thereof, reiterating that the assessment order had been passed after due enquiry and verification and, therefore, the essential conditions for assumption of jurisdiction under section 263 of the Act were absent. In the submissions it was mentioned as under:-

ITA 369/CHD/2026 A.Y. 2022-23 7

ITA 369/CHD/2026 A.Y. 2022-23 8

ITA 369/CHD/2026 A.Y. 2022-23 9

ITA 369/CHD/2026 A.Y. 2022-23 10

ITA 369/CHD/2026 A.Y. 2022-23 11

ITA 369/CHD/2026 A.Y. 2022-23 12

8.

Per contra, the learned Departmental Representative (DR) strongly supported the revisionary order passed by the learned Principal Commissioner under section 263 of the Act. It was submitted that the assessment order itself demonstrates that the enquiries initiated by the Assessing Officer remained incomplete and inconclusive. Drawing our attention to paragraph 3.4 of the assessment order, the learned DR submitted that, out of the notices issued under section 133(6) of the Act,

ITA 369/CHD/2026 A.Y. 2022-23 13 replies were received only from a few parties, whereas several parties failed to respond. The Assessing Officer himself recorded that the purchases from such parties remained unverifiable and, on that basis, even issued a show cause notice proposing disallowance of 25% of the purchases. However, despite recording such findings, the Assessing Officer accepted the assessee's explanation and completed the assessment without making any addition or recording any reasons for how the doubts regarding the genuineness of the purchases were resolved.

9.

The learned DR further submitted that the mere issuance of notices under section 133(6) or receipt of replies from some of the parties cannot, by itself, be regarded as a proper or effective enquiry. The statutory obligation of the Assessing Officer does not end with the collection of documents. It was incumbent upon him to verify the authenticity and correctness of the material so received, examine the genuineness of the purchase transactions, reconcile the replies with the books of account and other supporting records, and, wherever necessary, carry out further enquiries before accepting the assessee's claim. According to the learned DR, the assessment records do not indicate that the Assessing Officer undertook any such exercise.

10.

It was further argued that the present case is not one of an inadequate enquiry but of failure to conduct an effective and meaningful

ITA 369/CHD/2026 A.Y. 2022-23 14 enquiry despite the Assessing Officer himself entertaining doubts regarding the genuineness of the purchases. Assessing Officer having reached the conclusion that the purchases from certain parties remained unverifiable and having proposed a disallowance on that basis, he could not have accepted the claim of the assessee without carrying the enquiry to its logical conclusion. Such an assessment order, according to the learned DR, clearly suffers from non-application of mind and lack of proper verification, thereby rendering it both erroneous and prejudicial to the interests of the Revenue within the meaning of section 263 of the Act. The learned DR, therefore, submitted that the learned Principal Commissioner has rightly exercised the revisional jurisdiction vested under section 263 of the Act by setting aside the assessment order for fresh adjudication after proper verification. It was accordingly prayed that the impugned order passed by the learned Principal Commissioner be upheld and the appeal of the assessee be dismissed.

11.

We have given our thoughtful consideration to the rival submissions. Upon a careful examination of the assessment order, particularly paragraph 3.4 thereof, we find that the Assessing Officer had initiated verification of the purchases by issuing notices under section 133(6) of the Act to ten parties. The assessment order specifically records that replies along with supporting documentary evidence were received only from four parties, whereas six parties failed to respond to the statutory notices. The

ITA 369/CHD/2026 A.Y. 2022-23 15 Assessing Officer further recorded a categorical finding that, in the absence of such replies, the purchases from those parties remained unverifiable. Consequent thereto, a show cause notice was issued proposing disallowance of 25% of such purchases on the ground that their genuineness could not be satisfactorily established. However, despite recording the aforesaid findings and despite initiating proceedings for making a disallowance, the Assessing Officer ultimately accepted the explanation furnished by the assessee and completed the assessment without making any addition. Significantly, the assessment order does not disclose any further enquiry having been undertaken after issuance of the show cause notice, nor does it record any reasons explaining as to how the earlier doubts regarding the genuineness of the purchases stood satisfactorily resolved. There is no discussion in the assessment order demonstrating that the material subsequently furnished by the assessee, if any, was independently verified or that the non-compliance of the concerned parties was duly explained.

12.

It is well settled that, for invoking the revisional jurisdiction under section 263 of the Act, the learned Principal Commissioner is required to satisfy the twin conditions, namely, that the assessment order is erroneous and that it is prejudicial to the interests of the Revenue. In the facts of the present case, both these requirements stand satisfied. The assessment records themselves reveal that the enquiry initiated by the

ITA 369/CHD/2026 A.Y. 2022-23 16 Assessing Officer remained incomplete. Having himself recorded that the purchases from several parties remained unverifiable and having proposed an appropriate disallowance, the Assessing Officer could not have abandoned the proposed addition without recording any cogent reasons or conducting further verification. It was expected from the Assessing Officer to take the assessment to the logical conclusion, thereby making the addition in the hands of the assessee as the assessee failed to substantiate the purchases through cogent evidence. Such an order cannot be said to be the outcome of a proper application of the mind.

13.

We are also unable to accept the contention of the learned Authorised Representative that the assessment order represents one of the possible views. The principle relating to a "possible view" applies only where the Assessing Officer has conducted adequate enquiries, examined the relevant material and thereafter adopted one of the legally sustainable views available on the facts. The said principle cannot be invoked where the enquiry itself remains incomplete or where the Assessing Officer accepts the claim of the assessee despite recording that the transactions remained unverifiable. An order passed in such circumstances cannot be regarded as a plausible or legally sustainable view; rather, it reflects inadequate enquiry and non-application of mind.

14.

It is equally well settled by the decisions of the Hon'ble Supreme Court that where the Assessing Officer fails to make the enquiries which

ITA 369/CHD/2026 A.Y. 2022-23 17 the facts of the case demand or accepts a claim without proper verification, the assessment order becomes both erroneous and prejudicial to the interests of the Revenue, thereby attracting the provisions of section 263 of the Act. In the present case, the learned Principal Commissioner has merely restored the matter to the file of the Assessing Officer for carrying out a proper examination of the relevant transactions and for deciding the issue afresh after due verification. We, therefore, find no legal or factual infirmity in the exercise of revisional jurisdiction by the learned Principal Commissioner. Accordingly, the order passed by the learned Principal Commissioner under section 263 of the Act is upheld. The Assessing Officer shall, while giving effect to the revisionary order, examine all the evidences and documentary material which the assessee may place on record, including the confirmations, bank statements, e-way bills and any other supporting documents relied upon before us, conduct such further enquiries as may be considered necessary in accordance with law, and thereafter pass a fresh speaking order after affording adequate and effective opportunity of hearing to the assessee.

15.

We make it clear that we have not expressed any opinion on the merits of the purchases or on the correctness of any proposed addition. All the contentions of the assessee are kept open. The Assessing Officer shall adjudicate the matter independently, objectively and strictly in accordance with law, uninfluenced by any observations made either in the

ITA 369/CHD/2026 A.Y. 2022-23 18 revisionary order or in the present order, except to the extent of examining the issue in the light of the deficiencies noticed hereinabove.

15.

In the result, the appeal of the assessee is dismissed.

Order pronounced on 05th August,2026.

Sd/- Sd/-

(MANOJ KUMAR AGGARWAL) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER “Poonam” आदेश क� �ितिलिप अ�ेिषत/ Copy of the order forwarded to : अपीलाथ�/ The Appellant 1. ��यथ�/ The Respondent 2. आयकर आयु�/ CIT 3. िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 4. गाड� फाईल/ Guard File 5.

सहायक पंजीकार/ Assistant Registrar

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