PCIT found to have Erred in Exercising Revisionary Powers u/s 263: ITAT sets aside Revisionary Order [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has set aside the revisionary order under Section 263 of theIncome-tax Act, 1961, holding that the Principal Commissioner of Income Tax (PCIT) has erred in invoking revision. As a result, the Bench allowed all grounds in appeal.

An individual assessee filed an appeal against the order dated March 10, 2025 passed by the Principal Commissioner of Income Tax, Rohtak. It attempted to revise a reassessment order for the assessment year 2018-19.

The assessee had filed the return of income wherein a total income of ₹7.85 lakh was declared. It was alleged that the assessee had taken accommodation entries through bogus purchase invoices amounting to ₹3.02 crore from certain entities belonging to the Rajesh Mittal group. The Assessing Officer completed the reassessment under Section 147 read with Section 144B on March 13, 2023, by treating the purchases as bogus and disallowing the same under Section 37(1) of the Act. A separate addition towards commission was also made under Section 69C.

The Principal Commissioner issued a show cause notice under Section 263. It was alleged that the assessment order was erroneous and prejudicial to the interests of the Revenue. The reasoning supplied was that the Assessing Officer should have taxed the entire amount of bogus purchases at a higher tax rate. As a result, the assessment order was set aside with a direction to pass a fresh order.

The Tribunal comprising Vimal Kumar (Judicial Member) and Renu Jauhri (Accountant Member), examined whether the twin conditions required for invoking revisionary jurisdiction under Section 263 were satisfied. The Bench took note that the Assessing Officer had conducted detailed inquiries during the reassessment proceedings.

It was observed that Section 69C applies only in cases where the assessee either fails to explain the nature and source of expenditure, or where such explanation is found to be unsatisfactory. In the present case, the dispute was not regarding the source but the genuineness of purchases. The Assessing Officer had disallowed the purchases under Section 37(1), and simply non-invocation of Section 69C could not render the assessment order erroneous.

Placing reliance on coordinate bench decisions, including Sandeep Kumar v. ITO and Shashikant Bhavajjibhai Rajpara v. PCIT, the Tribunal held that the Principal Commissioner had substituted his own view for that of the Assessing Officer, which is impermissible under Section 263 of the Act.

The Bench concluded that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. Accordingly, the revisionary order passed under Section 263 was quashed and the appeal filed by the assessee was allowed.

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