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Facts
The Principal Commissioner of Income Tax (PCIT) initiated proceedings under Section 263 for Assessment Year 2018-19 against the assessee, Bhavna Impex. The PCIT found the original assessment order, passed under Section 147, erroneous and prejudicial to the revenue for not making an addition of Rs. 15,32,921/- for alleged accommodation entries received from Shri Sanjay Agarwal, a known hawala operator. The AO was directed to make this addition along with a 3% commission under Section 69C.
Held
The Income Tax Appellate Tribunal (ITAT) held that the PCIT's order was not sustainable as the Assessing Officer (AO) had already examined the issue of accommodation entries during the original assessment proceedings and taken a plausible view after considering the assessee's detailed submissions and evidence, which denied any transactions with the alleged parties. The ITAT noted that the PCIT's order failed to address the evidences presented by the assessee and was thus in violation of natural justice.
Key Issues
Whether the PCIT could invoke Section 263 to revise an assessment order on the grounds of alleged accommodation entries, when the AO had already examined the issue and formed a plausible view after considering the assessee's submissions and evidence.
Sections Cited
263, 143(3), 147, 144B, 132, 148A, 143(2), 69C
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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI SANJAY GARG & SMT. ANNAPURNA GUPTA
The present appeal has been filed by the assessee against the order of the Ld. Principal Commissioner of Income Tax, PCIT, Ahmedabad-1 (hereinafter referred to as “PCIT”), dated 05.03.2025, passed under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2018-19.
Impex vs. PCIT] A.Y. 2018-19 - 2 – 2. The grounds of appeal raised by the assessee read as under:
“1) The learned CIT has erred in law and on facts in passing order u/s 263, setting aside the assessment order passed by the learned AO u/s143(3) r.w.s 147r.w. s 1448 of the Income Tax Act with direction to make fresh assessment, which was neither erroneous nor prejudicial to the interest of the revenue. The conditions of section 263 having not been satisfied the learned CIT has no jurisdiction to invoke provisions of section 263. It be so held now and the order passed by CIT under section 263 be cancelled. 2) The learned CIT has further erred in law and facts in not accepting the detail submissions dated 25.11.2024 where from it was evident that the learned AO has taken a correct and legally permissible view after raising specific quarries, detail scrutiny and application of mind. The learned AO finally concluded as under while passing assessment order. (Para.3 of order). "After examining the details and the explanations submitted on line by the assessee during the re-opening proceedings no adverse inference is drawn and the return of income filed by the assessee is accepted". It be so held now and the order u/s 263 be cancelled. 3) The learned CIT has erred in law and facts in not accepting the contention of the assessee raised vide letter dated 25.11.2024 stating that the assessee's case was re-opened u/s 147 r.w.s 144B of the Income Tax by the department alleging that the assessee is one of the beneficiaries who has availed accommodation entries to the tune of Rs 15,32,927/- from Sanjay Agarwal and from concerns controlled by him. The learned AO raised various queries and sought for explanation on this specific issue by issuing notices u/s 148A, dated 09.03.2022 and u/s 143(2) dated 29.11.2012and 16.01.2023. The assessee submitted all the details along with explanation vide letters dated 14.03.2022, 01.12.2022 and 23.01.2023. The above facts clearly establishes that while finalizing the assessment the assessing officer has applied his mind and accepted the assessee's contention submitted during the course of assessment proceeding, It be so held now.
Impex vs. PCIT] A.Y. 2018-19 - 3 – 4) The learned CIT has erred in law and facts on not accepting the settled legal position with regard to revision of assessment u/s 263 that "when the assessing officer adopts one of the course permissible in law and it has resulted in loss of revenue or where two views are possible and AO has taken one view with which the commissioner does not agree it cannot be treated as erroneous order prejudicial to the interest of the revenue, unless the view taken by the AO is unsustainable in law. It be so held now, 5) The learned CIT has erred in law and facts in not considering the submissions of assessee stating that the allegations of receiving accommodation entries are neither supported by any documentary evidence nor contain any details such as date of receipt, mode of receipt, che.no, name of bank and amount of each transaction. It be so held now. 6) The learned CIT has erred in law and facts in not considering the submission of assessee stating that the assessee has maintained proper books of accounts along with quantitative details and are audited by independent chartered accountant. It be so held now. 7) The learned CIT has erred in law and facts by overlooking following recent judgements referred to by the assessee vide letter dated 25.11.2024 where in facts of the assessee's case are similar to the facts of both these cases. ACIT vs Amal Corporation (ITAT) Mumbai ITA по 674/MUM/2024 and Konark Fixtures Ltd Vs DCIT Mumbai (ITA No 2028/MUM/2014). It be so held now. 8) The order of learned CIT u/s 263 is wholly unjust, illegal, invalid and bad in law. The learned CIT ought to have dropped the revision proceedings erroneously initiated by him. It be so held now and order passed by CIT under section 263 be cancelled.”
The order of the Ld. PCIT reveals that he found the assessment order passed u/s.147 of the Act in the case of the assessee for the impugned year to be erroneous causing prejudice to the Revenue on account of the AO having not made any addition despite being in possession of information that the assessee had Impex vs. PCIT] A.Y. 2018-19 - 4 – availed / obtained accommodation entries totaling to Rs.15,32,921/- from an entry operator Shri Sanjay Agarwal alias Sanjay Tiberewal. The order reveals the assessee to have been given opportunity of hearing during the course of revisionary proceedings and, thereafter, the Ld. PCIT held the assessment order passed to be erroneous causing prejudice to the Revenue for the aforestated reason. He noted the fact relating to the information on record, that pursuant to a search action u/s.132 of the Act carried out on 12.04.2019 in the case of Shri Sanjay Agarwal alias Sanjay Tibrewal, it was revealed that he was involved in providing accommodation entries thereby layering unaccounted funds of various persons through various bank accounts so that such money was recorded in the books of account without payment of taxes. The search action revealed that Shri Sanjay Agrawal received commission for providing accommodation entries and was the key person who had managed and organized tax evasion racket. Ld. PCIT noted that as per the information available with the AO, the assessee was one of the beneficiaries who had availed accommodation entries totaling to Rs.15,32,921/- from the following concerns run and managed by Shri Sanjay Agrawal: i. Aust Vinayak Textiles Rs.2,82,920/- ii. Ganpati Textiles Rs.11,14,620/- iii. Hanuman Fabrics Rs.1,35,381/- Total Rs.15,32,921/- Impex vs. PCIT] A.Y. 2018-19 - 5 – 4. The Ld.PCIT held that in view of the specific information that the assessee was beneficiary of accommodation entry totaling to Rs.15,32,921/-, however, the AO made no addition and the under assessment of income by the AO as a result, had caused loss to the Revenue. Accordingly, exercising powers of revision provided by section 263 of the Act he set aside the order passed by the AO and directed him to pass fresh assessment order after making addition of Rs.15,32,921/- on account of accommodation entries received by the assessee. The AO was also directed to make addition on account of cash commission @ 3% of such accommodation entries u/s.69C of the Act. These findings of the Ld. PCIT are contained at para 5 to 5.2.1. of his order.
Before us, Ld. Counsel for the assessee contended that the order passed by the Ld. PCIT was bad in law and was not sustainable for the reason: i. That the issue has been examined during assessment proceedings, wherein assessee had denied having entered into any transactions with the aforestated entities, had corroborated its statement with evidences and AO accordingly had taken a plausible view accepting assesses explanation and making no addition on account of any accommodation entry availed by the assessee. Ld.Counsel for the assessee pointed out that the assessee had demonstrated to the Ld.PCIT that the case of the assessee was reopened for the specific reason of the assessee having availed accommodation entry from Shri Sanjay Tiberewal of Impex vs. PCIT] A.Y. 2018-19 - 6 – Rs.15,32,921/- and during the re-assessment proceedings the assessee had explained with all evidences, including books of accounts & ledger accounts of all purchases made by him, that the assessee had made no purchases from the parties identified as managed and controlled by Shri Sanjay Tiberewal as noted above. He drew our attention in this regard to the reply submitted by the assessee to the Ld. PCIT dated 25.11.2024 alongwith all annexures placed at paper book page nos. 3 to 7. Our attention was also drawn to the reply filed during re-assessment proceedings to the AO pointing out that no purchases were made by the assessee from the parties identified as managed and controlled by Shri Sanjay Tiberewal, vide reply dated 14.03.2022, 01.12.2022 & 23.01.2023 placed at paper book page nos. 11 to 12, 27 to 32 & 37 to 39; respectively. From the reply dated 14.03.2022, it was pointed out that the assessee had categorically denied having made any purchases from the impugned parties to the AO. From the reply dated 01.12.2022, it was pointed out that the assessee had reiterated not having entered into any financial or other transactions with the impugned parties and also stating that there are no ledgers of such parties in its books of accounts. From the reply dated 23.01.2023, it was pointed out that the assessee submitted all details including its balance sheet and P&L account and tax audit report, copy of bank statement for the impugned year, details of purchases and sale, invoices/vouchers for purchases made for the month of May and September, evidence of payments towards purchases having been made by account payee cheques and no bank draft having been Impex vs. PCIT] A.Y. 2018-19 - 7 – issued, details of transportation charges and copies of L/R on sample basis and the ledger account of the suppliers. Ld. Counsel for the assessee contended that having so demonstrated to the AO that the assessee had not made any purchase from the identified parties, the AO was satisfied that the assessee had taken no accommodation entry during the year and accordingly, made no addition to the income of the assessee.
ii. That even before the Ld.PCIT the assessee had demonstrated on merits that there was no error in the assessment order passed pointing out with evidences that it had not conducted any transaction with the entities allegedly managed and controlled by the accommodation entry provider. Ld.Counsel for the assessee contended that despite all facts and record being placed before him demonstrating that the issue had been examined by the AO during assessment proceedings who had taken a plausible view and even on merits demonstrating that there was no case for the assessee having taken any accommodation entry, the Ld. PCIT, completely ignored all the submissions made by the assessee giving no reason for rejecting the same and went on to hold that the assessee had taken accommodation entry and directed the AO to make addition on account of the same. He contended that the finding of error by the Ld. PCIT was grossly unjustified considering the voluminous records placed before him demonstrating the facts relating to the issue. He, therefore, contended that the order passed by the Ld. PCIT was bad in law, there being no error in the order of the AO Impex vs. PCIT] A.Y. 2018-19 - 8 – making no disallowance on account of any alleged accommodation entry availed by the assessee to the tune of Rs.15,32,921/- and the said order, therefore, he pleaded needed to be set aside.
Ld. DR though supported the order of the Ld. PCIT, however, he was unable to controvert the factual contention made by the Ld. Counsel for the assessee before us that the issue had been examined during the assessment proceeding and the assessee had demonstrated with voluminous records that it had not made any purchase from the impugned parties and, therefore, there was no occasion to hold that he assessee had availed the benefit of any accommodation entry from the said parties. He was also unable to controvert the fact that the above facts were duly demonstrated to the Ld. PCIT also, who had chosen to ignore the same while holding the assessment order being erroneous causing prejudice to the revenue.
In the light of the above, we have no hesitation in holding that the impugned order passed by the Ld. PCIT is not sustainable, since, the Ld. Counsel for the assessee has sufficiently demonstrated before us that there was no case at all for the assessment order being held erroneous on account of no addition being made of alleged accommodation entry taken by the assessee amounting to Rs. 15,32,921/- from parties noted above in our order at para 3. As noted above, the assessee had demonstrated with evidences to the AO and also to the Ld. PCIT that the assessee had not entered into any transaction with the parties Impex vs. PCIT] A.Y. 2018-19 - 9 – identified as owned and managed by the alleged accommodation entry provider Shri Sanjay Tiberewal. There is no finding by the Ld. PCIT of any perversity in the facts pointed out by the Ld. Counsel for the assessee as above nor was the Ld. DR able to demonstrate so before us. It is clearly evident therefore that the issue was examined by the AO during the assessment proceedings and considering the fact that the assessee had demonstrated no transaction entered into with the impugned parties, the AO, we hold, had taken a plausible view and made no disallowance or adjustment to the income of the assessee on account of any alleged accommodation entry taken by it. The Ld. PCIT’s order surprisingly skips this very vital fact by holding the assessment order to be erroneous causing prejudice to the revenue. Even on merits, the Ld. PCIT has given no finding as to why the evidences furnished by the assessee demonstrating that it had not indulged into any financial transaction with the impugned parties was not genuine or could not be relied upon. In fact, again he has not commented on the evidences filed by the assessee before him while holding the assessment order erroneous causing prejudice to the revenue.
Summarizing our findings, it is clear that the Ld. PCIT has passed the impugned order in gross violation of the principles of natural justice without discussing and dealing with the contentions made by the assessee before him, sufficiently demonstrating that there was no error in the order of the AO making no addition on Impex vs. PCIT] A.Y. 2018-19 - 10 – account of any alleged accommodation entry availed by the assessee.
In view of the above, we have no hesitation in holding the impugned order passed u/s.263 of the Act to be not sustainable in law.
In the result, appeal of the assessee is allowed.
This Order pronounced on 20/08/2025 Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 20/08/2025 S. K. SINHA आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. संबंिधत आयकर आयु� / Concerned CIT 3. 4. आयकर आयु�(अपील) / The CIT(A)- �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,