CUPID DIAMONDS PRIVATE LIMITED,MUMBAI vs. PRICIPAL COMMISSIONER OF INCOME TAX-5, MUMBAI

ITA 478/MUM/2025Status: DisposedITAT Mumbai11 August 2025AY 2021-2215 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the PCIT erred in invoking revisionary jurisdiction under section 263. Firstly, the issue of disallowance of purchases was already the subject matter of appellate proceedings before the CIT(A). The Tribunal cited the principle that an appellate authority has all the powers of the original authority, and the PCIT could not re-adjudicate the matter from a different perspective under revisionary jurisdiction. Secondly, the Tribunal distinguished between 'lack of inquiry' and 'inadequate inquiry', citing the Delhi High Court in CIT Vs. Sunbeam Auto and the Bombay High Court in Gabriel India Ltd. The AO had made inquiries, and the PCIT could not impose his own understanding of the extent of inquiry. The Tribunal noted that where two views are possible, and the AO has taken a plausible view, it cannot be treated as erroneous unless unsustainable in law or demonstrating non-application of mind. The PCIT's view that purchases reflected in books could be brought under section 69C was also debatable. The Tribunal set aside the PCIT's order. The issue of penalty proceedings was also noted as something the PCIT could not direct the AO to initiate differently.

What were the facts?

The assessee, Cupid Diamonds Private Limited, filed its return of income for AY 2021-22, declaring a total income of Rs. 2,41,89,710. The case was selected for scrutiny due to the need to verify business purchases. The Assessing Officer (AO) completed the assessment under section 143(3) r.w.s 144B, assessing total income at Rs. 3,37,35,741, after adding Rs. 95,46,031 under section 37 for unverified business purchases. The Principal Commissioner of Income-tax (PCIT) initiated revision proceedings under section 263, finding the AO's order erroneous and prejudicial to the revenue. The PCIT observed that purchases totaling Rs. 9,41,47,312 from three parties were unverified, and the entire amount should have been treated as unexplained expenditure under section 69C and taxed at 60% under section 115BBE. The PCIT directed the AO to take further action and initiate penalty proceedings. The assessee appealed this revision order.

What were the issues?

1. Whether the PCIT erred in passing the order under section 263, as the AO's order was neither erroneous nor prejudicial to the revenue, and was in line with judicial pronouncements? 2. Whether the PCIT erred in invoking section 263 when a larger issue was pending before the CIT(A), based on the principle of merger? 3. Whether the PCIT erred in directing the AO to treat the entire Rs. 9,41,47,312 as unexplained expenditure under section 69C, when the AO had made an addition of 10% based on judicial pronouncements and accepted corresponding sales? Assessee's Contentions: - The AO's order was neither erroneous nor prejudicial to the revenue, as the AO had conducted detailed inquiries and examined records. - Section 263 cannot be invoked when a larger issue is pending before the CIT(A) due to the doctrine of merger. - The purchases in question cannot be termed as bogus or unverifiable. The AO had made an addition of 10% based on judicial pronouncements, including the jurisdictional Bombay High Court and ITAT Mumbai, and had not rejected the books of accounts or accepted corresponding sales. Revenue's Contentions: - The PCIT correctly assumed jurisdiction as there was no basis for making an estimated addition when transactions could not be proved. - Relied on the decision in Kanak Impex (ITA No.791 of 2021, Bom).

Which sections of the Income-tax Act were involved?

Section 69C,Section 115BBE,Section 263,Section 143(3),Section 144B,Section 37

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Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR

For Appellant: Shri Shubhash Shetty & Shri Vinayaka Rao
For Respondent: Shri R.A. Dhyani, (CIT-DR)
Hearing: 07.07.2025Pronounced: 11.08.2025

PER PRABHASH SHANKAR [A.M.] :- The present appeal filed by the assessee emanates from the Revision order passed u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 10.12.2024 by the Principal Commissioner of Income-tax, PCIT, Mumbai 5 [hereinafter referred to as “PCIT”] pertaining to assessment order passed u/s.143(3) r.w.s 144B of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 21.12.2022 for the Assessment Year [A.Y.] 2021-22. Page 2 A.Y. 2021-22 Cupid Diamonds Private Limited The grounds of appeal are as under:

1.

The Learned Principal Commissioner of Income Tax, Mumbai

The order continues below.

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