PRAMUKH KRUPA CORPORATION,GANDHINAGAR vs. PRINCIPAL COMMISSIONER OF INCOME TAX, AHMEDABAD - 3, AHMEDABAD

ITA 1405/AHD/2026Status: DisposedITAT Ahmedabad12 October 2026AY 2019-209 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal partially allowed the assessee's appeal. Regarding the issue of interest-bearing unsecured loans (Ground No. 2), the Tribunal held that the appeal before the CIT(A) only covered a part of the addition made by the AO. The PCIT's revisionary power under Section 263 was validly exercised on the balance amount of Rs. 5,26,28,101/-, as this portion was not considered and decided in appeal, and the doctrine of merger did not apply. The Tribunal relied on CIT v. Shri Arbuda Mills Ltd. (SC). For the issue of capital introduction by partners (Ground No. 3), the Tribunal accepted the assessee's contention, following Gujarat High Court decisions, that a partnership firm is not required to prove the source of its partners' capital. The Tribunal held that the PCIT erred in exercising revisionary powers on this issue. Concerning the utilization of funds for assets (Ground No. 4), the Tribunal found that no inquiry was conducted by the AO, thus attracting Explanation 2 to Section 263. The Tribunal held that the PCIT's exercise of revisionary power was justified on this issue. Consequently, Grounds 1, 2, and 4 were dismissed, and Ground 3 was allowed.

What were the facts?

The assessee, Pramukh Krupa Corporation, a partnership firm, is in appeal against an order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The PCIT had set aside the assessment order for Assessment Year 2019-2020, passed by the Assessing Officer (AO) under Section 147 read with Section 144B. The AO had made an addition of INR 2,22,07,025/- on account of unexplained cash credit under Section 68, comprising interest-free unsecured loans and 20% of interest-bearing loans. The assessee had challenged this addition before the CIT(A). The PCIT initiated revision proceedings, alleging that the AO had failed to conduct proper inquiries regarding unsecured loans, introduction of capital by partners, and utilization of funds in assets, making the assessment order erroneous and prejudicial to the interest of revenue.

What were the issues?

1. Whether the revisionary power under Section 263 of the Act can be exercised by the PCIT on the issue of interest bearing unsecured loans amounting to Rs. 5,26,28,101/-, when a part of the addition related to unsecured loans was already subject to appeal before the CIT(A)? (Question of law) - Assessee: Contends that the issue of addition under Section 68 is subject to appeal before the CIT(A), and thus the PCIT lacks jurisdiction under Explanation 1(c) to Section 263. - Revenue: Argues that the PCIT exercised revisionary power on the balance interest-bearing unsecured loans which were not part of the appeal before the CIT(A), and the doctrine of merger does not apply to unconsidered matters. 2. Whether the PCIT erred in exercising revisionary power under Section 263 for the issue of introduction of capital by partners amounting to Rs. 5,73,90,475/-? (Question of mixed law and fact) - Assessee: Relies on Gujarat High Court rulings in CIT vs. Vaishnodevi Refoils and Solvex and CIT vs. Rohini Builders, stating a partnership firm cannot be asked to prove the source of its partners' capital, and the AO was not required to examine the 'source of source' prior to AY 2023-2024. - Revenue: Contends that the AO failed to inquire into the source of capital introduction, making the assessment order erroneous and prejudicial to revenue. 3. Whether the PCIT erred in exercising revisionary power under Section 263 for the issue of utilization of funds in the form of assets amounting to Rs. 2,45,43,289/-? (Question of mixed law and fact) - Assessee: Argues that an addition under Section 68 was made by the AO and challenged in appeal before the CIT(A). - Revenue: Contends that no inquiry was carried out by the AO regarding the source of funds for asset utilization, attracting Explanation 2 to Section 263.

Which sections of the Income-tax Act were involved?

Section 263,Section 147,Section 144B,Section 68,Section 115BBE,Section 69,Section 271AAC

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, C” BENCH, AHMEDABAD

Per Rahul Chaudhary, Judicial Member:

1.

The present appeal has been preferred by the Assessee against the Order, dated 25/03/2026, passed by the Learned Principal Commissioner of Income Tax Ahmedabad-3 [hereinafter referred to as the ‘PCIT’] under Section 263 of Income-Tax Act, 1961 (for short ‘the Act’) whereby the Assessment Order, dated 26/03/2024, of the Act for the Assessment Year 2019-2020 was set aside.

2.

The Assessee has raised following grounds of appeal:

1.

Notice issued u/s 148 as well as reassessment order u/s 147 are bad in law and therefore, th

The order continues below.

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