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Facts
The assessee filed a NIL income return, later subjected to reassessment under Section 147 read with Sections 144 and 143(3). The PCIT initiated revisionary proceedings under Section 263, finding the reassessment order erroneous and prejudicial due to the Assessing Officer's alleged failure to adequately inquire into substantial sales promotion and packing expenses, despite the assessee claiming to have submitted extensive documentary evidence.
Held
The Tribunal held that the PCIT's assumption of jurisdiction under Section 263 was not sustainable as the PCIT failed to conduct any independent inquiry and merely alleged inadequacy of inquiry by the AO. The Tribunal noted that the AO's assessment was approved by the Addl. CIT and no specific legal error or perversity was demonstrated by the PCIT, thus quashing the revisionary order.
Key Issues
Whether the PCIT validly invoked Section 263 jurisdiction without conducting independent inquiries or demonstrating a specific legal error in the AO's order, particularly concerning the scrutiny of sales promotion and packing expenses.
Sections Cited
143(1), 143(3), 144, 147, 148, 263, 263(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Asstt.Year : 2018-19 Aahana Sales Private Limited Pr.CIT(Central) 3, Bhavya Enclave Vs. Ahmedabad. Vidhya Vihar Society Usmanpura Ahmedabad. PAN : AAJCA 1231 B (Applicant) (Responent) Assessee by : Shri Vivek Chavda, AR Revenue by : Shri R.P. Rastogi, CIT-DR सुनवाई क� तारीख/Date of Hearing : 11/11/2025 घोषणा क� तारीख /Date of Pronouncement: 28 /11/2025 आदेश/O R D E R PER MAKARAND V.MAHADEOKAR, AM:
The present appeal has been preferred by the assessee against the order dated 26.03.2025 passed under section 263 of the Income Tax Act, 1961[hereinafter referred to as “the Act”] by the Principal Commissioner of Income Tax (Central), Ahmedabad [hereinafter referred to as “the PCIT”] for the Assessment Year 2018-19. The impugned revisionary order arises from the reassessment order passed by the Assessing Officer on 30.03.2023 under section 147 read with sections 144 and 143(3) of the Act.
Facts of the Case 2.1 The assessee filed its return of income for the year under consideration on 28.09.2018 declaring total income at Rs. NIL, which was processed under section 143(1). Subsequently, on the basis of information 2 disseminated on the Insight Portal, the Assessing Officer initiated reassessment proceedings and issued notice under section 148 on 30.03.2022. The order of reassessment records that no return was filed by the assessee in response to the notice under section 148.
2.2 The Assessing Officer proceeded to frame reassessment under section 147 read with section 144 on 30.03.2023. In the course of reassessment, the Assessing Officer issued a detailed show cause notice dated 11.03.2023. By the said notice, the assessee was called upon to (i) furnish contra confirmation in respect of transactions with M/s. Shreenath Traders (Prop. Pinal Dolatray) and explain as to why the sum of Rs. 3,81,15,116/- should not be disallowed; and (ii) furnish bills and invoices related to sales promotion expenses aggregating to Rs. 46,78,688/- and packing expenses amounting to Rs. 43,85,710/-. The Assessing Officer also observed that no evidence had been produced in respect of silver coins stated to have been distributed as part of sales promotion activities.
2.3 Upon examination of the assessment records, the PCIT formed a prima facie view that the assessment order dated 30.03.2023 was erroneous insofar as it was prejudicial to the interests of the Revenue. The Principal Commissioner observed that the Assessing Officer had failed to examine the evidentiary aspects relating to substantial expenditures claimed by the assessee under the heads of sales promotion (Rs. 46,78,688/-) and packing expenses (Rs.43,85,710/-). It was also noted that the Assessing Officer had merely issued a show cause notice but did not take the enquiry to its logical conclusion, thereby rendering the assessment order non-speaking, perfunctory and passed without requisite verification.
2.4 The PCIT accordingly issued a show cause notice dated 06.02.2025 initiating proceedings under section 263. The assessee was granted opportunity to file its reply and to attend hearing on or before 20.02.2025. The assessee submitted a written reply dated 20.02.2025 contending that a detailed submission had been filed earlier before the Assessing Officer on 14.03.2023 and that the Assessing Officer had examined all the materials 3 produced before him spanning over 100 pages of documentary evidence including the ledger accounts, sales invoices, bank account statements and GST returns. It was also submitted that all the transactions were conducted through banking channels with proper GST compliance at the rate of 28% plus 160% cess.
2.5 The PCIT, however, rejected the contentions of the assessee and proceeded to revise the assessment order. It was held that the assessee had not produced any credible evidences, either during assessment or during revisionary proceedings, to substantiate the impugned expenditure and that the Assessing Officer had failed to discharge his duty of enquiry. The Principal Commissioner further held that reassessment under section 147 partakes the character of a complete scrutiny and that the Assessing Officer was empowered to examine all issues arising from the assessment records, irrespective of the reasons recorded. Relying upon Explanation 2(a) to section 263(1) and a series of judicial authorities the PCIT concluded that the assessment order was erroneous and prejudicial to the interest of the Revenue.
2.6 Being dissatisfied with the aforesaid revisionary order, the assessee has come in appeal before us and has raised the following grounds of appeal:
1.1 The order passed u/s.263 on 26.03.2025 for A.Y.2018-19 by PCIT (Central), Ahmedabad directing the AO to review the allowability of packing expenses of Rs.43,85,710/- and sales promotion expenses of Rs.46,78,688/- is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. PCIT has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced by the appellant. 1.3 The Ld. PCIT has grievously erred in law and on facts in initiating the proceedings u/s 263 when both conditions for revision - the order being erroneous and prejudicial to the interests of revenue - are not fulfilled. 1.4 That in the facts and circumstances of the case as well as in law, the Ld. PCIT ought not to have held that the AO has passed erroneous or prejudicial assessment order as enumerated in Section 263 when the Assessing Officer had examined all the documentary evidences submitted by the appellant during the assessment proceedings.
2.1 The Ld. PCIT has erred in law in holding that reassessment proceedings are complete scrutiny proceedings allowing examination of any issue, when the law clearly states that reassessment must be confined to the issues for which reasons were recorded for reopening. 2.2 The Ld. PCIT has failed to appreciate that when the AO was having limited scope of assessment u/s 147 confined to the reasons recorded, it cannot be said that the AO has committed error in not verifying the alleged expenditures. 2.3 That in the facts and circumstances of the case as well as in law, the Ld. PCIT ought not to have directed the AO to reassess the appellant for the assessment already barred by time. 2.4 The Ld. PCIT has failed to appreciate that the AO has not committed any error by not examining the alleged expenditure as the it was beyond the scope of assessment under section 147. It is, therefore, prayed that the order passed u/s 263 by PCIT (Central), Ahmedabad may please be quashed.
During the course of hearing before us, the learned Authorised Representative for the assessee reiterated the factual matrix and submitted that the assessee had duly furnished all primary documents and evidences in support of the impugned expenditures during the assessment proceedings. It was further contended that even in the revisionary order, the Principal Commissioner has reproduced the assessee’s reply dated 20.02.2025 wherein it was specifically stated that detailed submissions along with supporting material had been filed before the Assessing Officer in response to the show cause notice. The learned Authorised Representative therefore argued that the observation of the Principal Commissioner that no evidences were produced is factually incorrect, and the revisionary jurisdiction has been assumed without appreciating the material already on record.
The learned Departmental Representative, on the other hand, placed strong reliance upon the order passed by the PCIT.
We have carefully considered the rival submissions. Coming to the exercise of jurisdiction under section 263, the statute expressly mandates that the Principal Commissioner may revise an order “after giving the 5 assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary.” The second limb of this requirement, namely making necessary inquiry, is not a formality but a mandatory safeguard against arbitrary revision. On a plain reading of the impugned order, it is evident that the PCIT has not conducted any inquiry whatsoever. No independent verification has been carried out, no third- party inquiry was initiated, no books were called for, and no evidence was examined beyond what was already on record. The order merely reproduces the show cause notice issued by the Assessing Officer and proceeds to infer lack of inquiry.
5.1 The assessee has placed on record that it had filed detailed submissions before the Assessing Officer in response to the show cause notice dated 11.03.2023. The PCIT has reproduced portions of the assessee’s reply dated 20.02.2025, acknowledging that the assessee asserted having filed all supporting documents. The Principal Commissioner, however, has not examined these materials nor assigned any reason for discarding them. A mere allegation that the Assessing Officer did not conduct adequate inquiry cannot, in law, justify revision unless the PCIT himself undertakes an inquiry that establishes the error.
5.2 It is well-settled that where the Assessing Officer has taken a possible view after conducting certain inquiries, the PCIT cannot substitute his subjective standard of inquiry unless the view is demonstrably unsustainable in law. Here, the assessment order was passed with prior approval of the Additional CIT and nothing has been brought on record to show that the view adopted by the Assessing Officer was perverse or contrary to law. The PCIT has proceeded on a general assumption of inadequacy of inquiry without identifying any specific legal error.
5.3 In our considered view, we hold that the assumption of jurisdiction under section 263 is not sustainable in law. The impugned order passed by the PCIT is accordingly quashed.