AGRASEN POLYTEX PRIVATE LIMITED,JAIPUR vs. PRINCIPAL COMMISSIONER OF INCOME TAX-2, JAIPUR, JAIPUR

ITA 808/JPR/2026Status: DisposedITAT Cochin28 September 2026AY 2019-2013 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the PCIT had rightly invoked powers under Section 263 of the Act. The Tribunal disagreed with the assessee's contention that the AO had made adequate inquiries and formed a plausible opinion. The Tribunal noted that the AO was in possession of adverse information regarding ICPL, including investigation reports and statements from its directors admitting to providing accommodation entries. Despite this, the AO failed to conduct any inquiries or confront the assessee with this adverse material. The AO merely accepted the documents filed by the assessee, which established identity, creditworthiness, and genuineness, without verifying them against the adverse information. The Tribunal found this to be a case of improper/inadequate inquiry, amounting to an abdication of duty by the AO. Explanation 2 to Section 263 explicitly deems an order erroneous if passed without making necessary inquiries or verification. The Tribunal distinguished the cited cases of *Shreeji Prints Pvt. Ltd.* and *Shri Nirav Modi* as being factually different, where the AO had made inquiries and was satisfied with the evidence. Therefore, the PCIT rightly held the assessment order to be erroneous and prejudicial to the revenue. The grounds raised by the assessee were dismissed.

What were the facts?

The assessee, Agrasen Polytex Private Limited, filed an appeal against an order passed by the Principal Commissioner of Income Tax (PCIT)-02, Jaipur, under Section 263 of the Income Tax Act, 1961. The PCIT had held that the assessment order passed by the Faceless Assessing Officer (FAO) under Section 147 was erroneous and prejudicial to the interest of the revenue. The reassessment was initiated based on information that the assessee had taken unsecured loans amounting to Rs. 1,19,50,000/- from M/s Innovative Commercial Private Limited (ICPL), which were allegedly accommodation entries. The FAO had passed the assessment order without making any addition, accepting the documents submitted by the assessee. The PCIT directed a de novo assessment on the issue of unsecured loans.

What were the issues?

1. Whether the order passed by the PCIT under Section 263 of the Income Tax Act, 1961, is illegal and bad in law, considering the facts and circumstances of the case? 2. Whether the PCIT erred in holding that the FAO's order under Section 147 was erroneous and prejudicial to the revenue by directing a de novo assessment on unsecured loans of Rs. 1,19,50,000/-, on the grounds that the FAO failed to conduct proper inquiry on the genuineness and creditworthiness of the lender, ICPL, and failed to apply correct legal principles, ignoring investigation reports? Assessee's Contentions: - The AO made due inquiries and formed a correct opinion; it was not a case of no inquiry. - Even if the inquiry was inadequate, the PCIT could not invoke powers under Section 263. - Relied on *PCIT Vs. Shreeji Prints Pvt. Ltd.* [2021] 130 taxmann.com 294 (SC) and *CIT Central III Vs. Shri Nirav Modi* (Bombay High Court) for the proposition that Section 263 cannot be invoked for inadequate inquiry. - The assessee had submitted loan confirmation, bank statements, ITR acknowledgments, CIN/PAN of ICPL, and demonstrated ICPL's creditworthiness. - The AO had noted that the assessee had explained the identity, creditworthiness, and genuineness of the loan. Revenue's Contentions: - The PCIT's order was based on information that ICPL was used to provide accommodation entries. - The AO failed to consider adverse information in his possession, including investigation reports and statements recorded under Section 132(4) of the Act from ICPL's directors admitting to providing accommodation entries. - The AO did not conduct inquiries in accordance with the information available, particularly regarding ICPL's lack of physical presence and the creation of its net worth through circular transactions.

Which sections of the Income-tax Act were involved?

Section 263,Section 147,Section 132(4)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR BENCHES, “A” BENCH, JAIPUR

For Appellant: CA (thru
Hearing: 30.06.2026Pronounced: 28.09.2026

Per Annapurna Gupta, AM:- The present appeal has been filed by the assessee against the order passed by the Office of the Principal Commissioner of Income

P a g e | 2 Agrasen Polytex Private Limited Tax, PCIT Jaipur 02(hereinafter referred to as “Ld. PCIT”), dated 05.03.2026under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

2.

The grounds raised by the assessee read as under:-

1.

Based on the facts and circumstances of the case and in law, the order passed under section 263 of the Income-tax Act, 1961 by the Ld. PCIT -2 is illegal and bad in law.

2.

Based on the fact

The order continues below.

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