Bombay HC upholds ITAT Order quashing Revision by PCIT, rules in Favour of Gehna Jewellers despite Non-Furnishing of Carat Wise Details [Read Order]

The Bombay High Court dismissed the Revenue’s appeal against the Income Tax Appellate Tribunal’s order that set aside the Principal Commissioner of Income Tax’s revision under Section 263 for Assessment Year 2012–13, holding that the Tribunal’s factual findings were neither perverse nor legally incorrect.

The Principal Commissioner of Income Tax‑12 (PCIT) exercised powers under Section 263 of the Income Tax Act, 1961 and set aside the assessment order passed by the Assessing Officer for AY 2012-13 on 24 March 2017. The PCIT recorded five points of objection and proceeded on three issues, finding the assessment erroneous and prejudicial to Revenue.

The assessee, Gehna Jewellers Pvt. Ltd., challenged the revisional order before the ITAT which allowed the appeal and directed the ITO to reassess. The Revenue then approached the High Court.

The PCIT’s revisional action rested on three central complaints: (1) alleged non‑furnishing of carat‑wise details of gold and diamond jewellery and inadequate enquiry by the ITO; (2) genuineness of an advance of Rs.55 lakh received from a third party; and (3) reasonableness of payments to a vendor under Section 40A(2)(b) of the Income Tax Act.

Revenue argued that the Tribunal’s order was both erroneous and prejudicial to the interest of the Revenue and raised substantial questions of law on whether inadequate enquiries by the AO could render an assessment amenable to revision under Section 263 and on the retrospective interpretation of the Explanation to Section 263 of the Income Tax Act.

The assessee countered that the ITAT had recorded detailed factual findings showing the AO had made enquiries and applied his mind; inadequacy of enquiry alone did not make an order susceptible to revision under Section 263 of the Income Tax Act if material on record supported the AO’s view.

The High Court reviewed the Tribunal’s reasoning on each of the three issues and endorsed factual conclusions by the Income Tax Appellate Tribunal. On the carat‑wise details point the Tribunal found the PCIT’s observations vague and contrary to the record and noted that month‑wise and carat‑wise details were on record and had been examined by the ITO. On the advance of Rs.55 lakh the Tribunal recorded that the ITO had made necessary enquiries and applied his mind before completing assessment.

On the payment to Anmol Jewellery the Tribunal observed the payments related to purchases effected in the earlier year and thus the reasonableness of payment could not be examined in AY 2012-13. The High Court thus held that where the AO has taken a view based on enquiries and material, mere disagreement by the PCIT does not make the AO’s order erroneous or prejudicial unless the view is unsustainable in law. The Court found no perversity in the ITAT’s findings and held no substantial question of law arose.

The Income Tax Appeal filed by the Revenue under Section 260A was dismissed. No costs were awarded.

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