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Facts
The assessee filed its return of income for AY 2016-17. Subsequently, the case was reopened under Section 148 and then reassessed under Section 153C following a search at a third party's premises. The PCIT initiated revision proceedings under Section 263 against the assessment order passed under Section 153C.
Held
The Tribunal held that the PCIT erred in invoking revisionary jurisdiction under Section 263 without challenging the prior statutory approval granted under Section 153D for the assessment order. The Tribunal quashed the revision order passed by the PCIT.
Key Issues
Whether the PCIT can assume revisionary jurisdiction under Section 263 over an assessment order passed under Section 153C without first challenging the mandatory prior approval obtained under Section 153D.
Sections Cited
139(1), 143(3), 14A, 148, 148A(b), 148A(d), 153C, 153D, 263
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Income Tax Appellate Tribunal, DELHI “E” BENCH: NEW DELHI
Before: SHRI SUDHIR KUMAR & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
The present appeal is filed by assessee against the order dated 31.03.2025 of Ld. Pr. Commissioner of Income Tax (Central), Delhi-3 [“Ld. PCIT”] passed u/s 263 of the Income Tax Act, 1961 [“the Act”] pertaining to Assessment Year 2016-17.
Brief facts of the case are that the assessee had filed its return of income u/s 139(1) of the Act on 28.11.2016, declaring total income of INR 148,20,71,490/-. The case of the assessee was selected for scrutiny and in terms of the assessment order passed u/s 143(3) dated 18.12.2018, total income of the assessee was computed at INR 1,48,20,77,144/- by making disallowance of INR 5,654/- u/s 14A of the Act. Thereafter, the case of the assessee was re-opened in terms of the notice issued u/s 148 of the Act on 30.06.2021. The said notice was held as the notice issued u/s 148A(b) of the Act by following the order of Hon’ble Supreme Court in the case of Union of India vs Ashish Agarwal and order u/s 148A(d) of the Act, was passed on 31.08.2023 wherein AO alleged that income to the tune of INR 3,37,51,414/- has escaped the assessment and accordingly, notice u/s 148 of the Act dated 31.08.2024 was issued to the assessee.
3. Against the said order, assessee filed Writ Petition before the Hon’ble Jurisdictional High Court who vide its order dated 09.10.2024 in Writ Petition No.1431/22024 has quashed the notice issued u/s 148 by holding the same as barred by limitation. In the meantime, based on the documents found and seized during the course of search carried out in the case of Bakshi Group (Oriental Group) on 29.11.2019, the AO of the searched person i.e. Oriental Group has recorded his satisfaction that the documents found from the possession of Oriental Group pertained to assessee in terms of his satisfaction note dated 16.02.2022. Based on this satisfaction note, notice u/s 153C of the Act was issued on 07.05.2022. Thereafter, order U/s 153C of the Act was passed on 29.03.2023 by ACIT, Central Circle-26, New Delhi i.e. AO of the person searched after obtaining statutory approval from Adl. CIT, Central Range-7, New Delhi u/s 153D of the Act. Subsequent to that, ld. PCIT in terms of the show cause notice issued u/s 263 dated 24.02.2025 proposed that order passed u/s 153C of the Act is erroneous and pre-judicial to the interest of the Revenue as the purchases of INR 3,37,51,414/- made from M/s. Vinayak Traders is bogus for which proceedings u/s 148 were initiated however, no enquiry or verification was made by the AO in the course of assessment proceedings u/s 153C though the AO was aware of this fact since the reassessment proceedings u/s 148 were initiated only for this issue.
4. After considering the submissions filed by assessee in this regard, PCIT vide impugned order dated 31.03.2025 held the assessment order passed u/s 153C of the Act as erroneous and pre- judicial to the interest of the Revenue and direct the AO to re-frame the assessment after making fresh inquiries and verification with respect to the purchases claimed by the assessee.
5. Aggrieved by the said order, the assessee is in appeal before the Tribunal by taking following grounds of appeal:-
1. “That on the facts and circumstances of the case and in law, the order passed by the Hon'ble Principal Commissioner of Income Tax (Central), Delhi-3, (hereinafter referred to as "PCIT") under section 263 of Income Tax Act, 1961 ("the Act") dated 31.03.2025 is bad in law and on facts.
2. That on the facts and circumstances of the case and in law, the action of the Hon'ble PCIT in assuming jurisdiction under section 263 of the Act and in holding that the order passed by the Assistant Commissioner of Income Tax, Central Circle-26 (hereinafter referred to as "the AO") dated 29.03.2023 under section 153C of the Act is erroneous in so far as prejudicial to the interest of the revenue, is illegal, bad in law and without jurisdiction.
2.1 The assumption of jurisdiction by the Hon'ble PCIT in the Instant case is without satisfaction of the mandatory twin conditions under section 263 of the Act, namely that the assessment order must be both erroneous and prejudicial to the interest of revenue in the absence of such satisfaction, the impugned order passed in pursuance thereto is liable to be quashed.
3. That on the facts and circumstances of the case and in law, the Hon'ble PCIT has erred in passing the impugned order, which arises from an assessment order that is itself invalid, passed without jurisdiction, and non-existent in the eyes of law. 3.1 That the Hon'ble PCIT has failed to appreciate that the initiation of proceedings u/s 153C for the impugned AY were invalid, as admittedly, as per the satisfaction note, no incriminating material relating to the impugned AY was found during search. in the absence of such material, which is a sine qua non for invoking section 153C, the consequential assessment order is void ab initio. Therefore, such an order, being non-existent in the eyes of law, cannot be subjected to revision under section 263 of the Act.
4. That on the facts and circumstances of the case and in law, the Hon'ble PCIT has failed to appreciate that in the absence of any incriminating material pertaining to the impugned assessment year found during the course of the search, the assessment under section 153C of the Act could not include any addition based on other material or information.
That on the facts and circumstances of the case and in law, the Hon'ble PCIT has failed to consider that, as on the date of issuance of notice under section 153C on 07.05.2022. there were no valid proceedings pending for the impugned assessment year. Therefore, the assessment under section 153C could only be made on the basis of incriminating material found during the search. Since the material/information relied upon by the PCIT was not found during the search, the Ld. AO's alleged non-consideration of the same cannot be a ground to invoke section 263 of the Act.
6. That on the facts and circumstances of the case and in law, the Hon'ble PCIT has erred in not appreciating that no valid proceedings under section 148 were pending and that the impugned assessment year was already concluded.
7. That on the facts and circumstances of the case and in law, the Hon'ble PCIT has grossly erred in law and on facts in holding that the assessment order was passed by the Ld. AO without conducting proper enquiry and investigation.
8. That the impugned order passed by the Hon'ble PCIT is vague, non- speaking and without dealing with each and every objections raised by the Appellant.
9. That on the facts and circumstances of the case and in law, the Hon'ble PCIT has erred in law in invoking Explanation 2 to section 263 of the Act for passing the revisionary order, without establishing the foundational requirements under the main provision of section.
10. That the grounds of appeal
are independent and without prejudice to each other.
11. The assessee craves leave to add, amend, alter, remove, rescind, forgo or withdraw any of the above grounds of appeal, which are without prejudice to one another, before or at the time of hearing of the appeal in the interest of natural justice.”
The assessee during the course of hearing, filed an application under Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963 (ITAT Rules, in short) and raised additional grounds wherein assessee has challenged the revision order u/s 263 on the ground that the assessment order under revision was passed u/s 153C of the Act after getting statutory approval from the authorized Authority and such approval has not been annulled by ld. PCIT before holding the assessment order passed u/s 153C as erroneous and pre-judicial to the interest of the Revenue. Additional grounds of appeal so raised by the assessee read as under:-
(i) “That on the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income Tax grossly erred in invoking revisionary jurisdiction under section 263 of the Act in respect of an assessment order dated 29.03.2023 which had been passed after obtaining mandatory prior approval under section 153D of the Act. It is a settled position of law that once an order has been subjected to the rigours of approval under section 153D, the same cannot be revised under section 263 unless a clear finding is recorded that such approval itself was erroneous insofar as it was prejudicial to the interests of the Revenue. In the absence of such a finding, the assumption of jurisdiction under section 263 is bad in law and liable to be quashed. (ii) That on the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income Tax has erred in passing the impugned order which arises from an assessment order that itself is invalid and without jurisdiction as the same has been passed under section 153C of the Act in the absence of a valid satisfaction recorded by the Jurisdictional Assessing Officer that the seized material had any bearing on the determination of the total income of the Assessee for the relevant assessment year. Hence the very initiation of proceedings under section 153C of the Act is bad in law and not sustainable and such proceedings cannot be revised under section 263 of the Act.”
The ld. AR submits that the additional grounds of appeal now raised are purely legal grounds and goes to the root of the matter and requires no fresh verification of facts thus the same may be admitted and adjudicated first.
On the other hand, ld. CIT DR opposed the admission of the additional grounds of appeal and submits that the issues raised in additional grounds of appeal requires verification on the part of the AO and thus should not be admitted.
After considering the submissions of both the parties and looking to the nature of additional grounds raised by the assessee, we find that in these grounds the assessee has challenged the legality of approval granted by the Adl. CIT in terms of section 153D which is purely a legal ground and requires no further verification. Further the assessee has challenged the jurisdiction of the ld. PCIT to hold the assessment order passed u/s 153C as erroneous and prejudicial to the interest of revenue though he has not doubted /annulled the approval granted by the Adl. CIT u/s 153D of the Act. It is seen that this issue also requires no fresh verification and can be verified from the assessment orders and revision orders placed before us. Thus, in the interest of justice and in view of the ratio laid down by the hon’ble Supreme court in the case of NTPC Ltd. reported in 229 ITR 383 (SC), the additional grounds of appeal raised by the assessee are admitted for consideration. First, we taken up the additional ground of appeal No. 1 for adjudication.
10. Before us, ld. AR for the assessee in support of the Additional Ground of appeal No.1 submits that the assessment order under revision was passed u/s 153C of the Act after obtaining statutory approval from Adl. CIT, Central Range-7, New Delhi. The ld. PCIT assumed jurisdiction u/s 263 of the Act wherein the assessment order so passed was held as erroneous and prejudicial to the interest of revenue without annulling the statutory approval granted u/s 153D of the Act by the Range head i.e. Adl. Commissioner of Income Tax, Central Range 7, Delhi. Ld. AR submits that the jurisdiction assumed by Ld. PCIT u/s 263 is fundamentally flawed as the approval u/s 153D is not a mere administrative formality but statutory safeguard, forming an integral part of assessment proceedings under chapter XIV of the Act. He submits that unless such approval itself is withdrawn or held to be invalid by the competent forum, Ld. PCIT cannot invoke the provision of section 263 of the Act to indirectly nullify the same. For this, he placed reliance on the judgement of the Co-ordinate Bench of Delhi Tribunal in the case of Devender Kumar Gupta vs PCIT reported in 166 taxmann.com 95 and further in the case of Alankit Associates P. Ltd. vs PCIT in ITA No.2051/Del/2024. Ld. AR therefore, prayed that the order passed u/s 263 of the Act is bad in law and deserves to be quashed.
11. On the other hand, Ld. CIT DR submits that proceedings u/s 148 of the Act were abated and stood merged in the proceedings u/s 153C subsequently initiated in the case of assessee after recording necessary satisfaction on the basis of documents found and seized during the course of search of third person. He further submits that in the order passed u/s 153C of the Act, no inquiry was made nor any addition was made on the issues for which the satisfaction of escapement of income was reached in the reasons recorded before issue of notice u/s 148 of the Act. Regarding the approval by Adl. CIT u/s 153D of the Act, the ld. CIT DR submits that the ld. PCIT is the higher authority and who has the power to examine the approval so granted. He thus submits that action of Ld. PCIT in holding the order passed u/s 153C as erroneous and pre-judicial to the interest of the Revenue is valid and deserves to be uphold on this count.
Heard the contentions of both the parties and perused the material available on record. At the outset, it is seen that the assessment order which is subject matter of revision u/s 263 was passed u/s 153C of the Act after getting statutory approval u/s 153D of the Act from the higher authorities i.e. Adl. CIT/JCIT. In the present case, the Adl. CIT in terms of his letter F. No. Addl. CIT/CR- 7/2022-23/3424 dated 28.03.2023 has accorded statutory approval on the draft assessment order submitted by the AO and thereafter the AO has passed the final assessment order u/s 153C of the Act dated 29.03.2023. Further, from the perusal of the order of Ld. PCIT passed u/s 263 of the Act, it is seen that such approval has not been doubted/challenged/annulled by Ld. PCIT.
Identical issue had come for consideration before the Co- ordinate Bench of Delhi Tribunal in the case of Alankit Associates P. Ltd. (supra) wherein the Co-ordinate Bench vide its order dated 25.11.2024 has made following observations:-
“We have heard the rival submissions and perused the material available on record. The return of income for AY 2013-14 was filed by the assessee on 29.09.2013 declaring total income of Rs. 8,090/-. A search and seizure action u/s 132 of the Act was carried out on 18.10.2019 at Alankit Group of companies. During the search & seizure proceedings, documents/ incriminating materials related to the assessee were found. Hence, notice u/s 153C of the Act stood issued to the assessee on 26.02.2021 and assessment proceedings were completed on 31.03.2022 u/s 153C of the Act determining income of Rs. 6,71,48,270/-. The assessee had preferred an appeal before National Faceless Appeal Centre (NFAC) and the same is pending. Pending this appeal, the ld PCIT sought to revise the order passed by the ld AO dated 31.03.2022 by treating the order passed by the ld AO erroneous and prejudicial to the interest of the revenue.
Admittedly, the assessment order sought to be revised was framed by the ld AO u/s 153C of the Act on 31.03.2022 and this assessment was framed after obtaining the prior approval of the ld Additional CIT, Central Range-7, New Delhi vide letter F. No. ADDL.CIT/CR-7/153D/2021-22/1759 dated 30.03.2022. This approval obtained from the ld Addl. CIT was not considered erroneous and prejudicial to the interest of the revenue by the ld PCIT in his revision order u/s 263 of the Act. The ld AR before us argued that the ld PCIT in order to revoke his revision jurisdiction u/s 263 of the Act should also hold even the approval proceeding granted by the ld Addl. CIT u/s 153D of the Act to be erroneous and prejudicial to the interest of the revenue. He placed reliance on the decision of this Tribunal in the case of Devender Kumar Gupta Vs.
to 1893/Del/2024 for AYs. 2015-16 to 2018- 19 dated 30.08.2024 in support of his contentions. We have gone through the said decision and we find that the ratio decidendi of the said decision squarely applies to the facts of the instant case before us. The relevant operative portion of the said decision is reproduced herein:- “9. We find that in the impugned order the ld. PCIT has not taken account of the fact that the assessments were completed after prior approval of the competent authority. Thus, we are of the considered view that at the time of (examining the issue as to if the assessment order is erroneous so far as prejudicial to the interest of the Revenue, the Id. revisional authority is not only supposed to see the assessment record of AO, but also the record of the approval which as far as the revisional authority is concerned becomes "record" of the quasi judicial authority whose order is being examined by invoking the revisional jurisdiction. Therefore, without giving a finding that the prior approval u/s 153D was vitiated and was also erroneous so far as prejudicial to the interest of the Revenue, the assessment order independently cannot be held to be erroneous so far as prejudicial to the interest of the Revenue. 9.1 The catena of judicial pronouncements relied by the ld. AR have also laid down the same proposition of law and we will like to refer specifically to the judgement of the Hon'ble Madras High Court in the case of PCIT vs. Prakhar Developers (P) Ltd. (supra) where the Hon'ble Madras High Court has taken into consideration the fact that the Pune Bench order in the case of Ramamoorthy Vasudevan v. PCIT [IT Appeal Nos. 967 & 968/Pune/2016] wherein it was held that the order passed by the PCIT is unsustainable due to lack of jurisdiction in invoking section 263 of the Act for the reason that the same was passed upon taking prior approval u/s 153A of the Act, was not challenged by the Department before the Hon'ble High Court or the Hon'ble Supreme Court and, thus, the Hon'ble Madras High Court in its judgement dated 01.04.2024 has held as follows:- "8. Even otherwise, as per Section 263 of the Act, the Principal Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act and if he considers that any order passed therein by the Assessing Officer, is erroneous in so far as it is prejudicial to the interests of the Revenue may make enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. For passing any order under Sections 143(3) & 153A of the Act, prior approval of Joint Conders Sections required under Section 153A of the Act, or Principal Commissioner or Commissioner as the case may be. Therefore, once prior approval had already been taken by the Assessing Officer and accepted the return submitted by the assessee, then the same authority cannot exercised power under Section 263 of the Act to reverse the order of Assessing Officer."
The judgement which the Id. DR has relied is not applicable as in that judgement, this aspect was not actually examined at all and only for the reason that there also the impugned assessment order was passed u/s 153A of the Act, does not lay down a view contrary to the one we are relying above.
In the light of the aforesaid discussion, we are inclined to allow grounds No.2 and 3 for AYs 2015-16 and 2016-17; and ground No.3 in AYs 2017-18 and 2018-19. Consequently, the appeals are allowed and the impugned orders in respective years are quashed.”
5. Respectfully following the same, we hold that the revision order passed u/s 263 of the Act by the ld PCIT deserves to be quashed and is hereby quashed. Accordingly, grounds raised by the assessee are allowed.”
In the aforesaid order, the Co-ordinate Bench of Delhi Tribunal has followed the order of Hon’ble Madhya Pradesh High Court in the case of PCIT vs Prakhar Developers P. Ltd. reported in 162 taxmann.com 48 (M.P) and also of the Delhi Tribunal in the case of the Devender Kumar Gupta vs PCIT (supra).
The Co-ordinate Bench of Delhi Tribunal under identical circumstances, in the case of Aditya Gupta in vide order dated 23.07.2025 has also expressed the same view.
In view of above discussion and by respectfully following the judgement of Hon’ble Madhya Pradesh High Court and Co-ordinate Benches of the Tribunal as stated above, the revision order passed u/s 263 of the Act by the ld. PCIT is hereby quashed. Accordingly, Additional Ground of appeal No.1 raised by the assessee is allowed.
Since we have already allowed additional Ground of appeal No.1 raised by the assessee, other grounds of appeal including other additional ground of appeal require no separate adjudication.
In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 12.12.2025.