Profit Mismatch Between Audit Report and Return Validly Revised

Ambajee Jewellers Vs PCIT (ITAT Jabalpur)

263 partly sustained: PCIT can’t revise accepted purchases, but denovo enquiry upheld on others

Jabalpur  ITAT  partly allowed the Assessee’s appeal against revision u/s 263, holding that the PCIT overreached on purchases already accepted in first appeal, but was justified in directing denovo enquiry on remaining issues.

The case was selected for scrutiny on abnormal cash deposits during demonetisation. The AO completed assessment u/s 143(3) making an addition of ₹2.12 crore (bogus sales). The PCIT invoked section 263 alleging inadequate enquiry on (i) purchases where bills were allegedly not produced (including sister concerns/unregistered dealers) and (ii) profit mismatch between audited P&L (₹44.83 lakh) and income offered (₹34.14 lakh), and set aside the assessment for denovo consideration.

The Tribunal held that revision cannot disturb matters already settled in first appeal: where sales were accepted/held explained in the seller’s hands (e.g., purchases corresponding to Ajay Rawat’s sales, quashed by CIT(A)), they cannot be treated unexplained in the purchaser’s hands; to that extent, PCIT’s assumption of jurisdiction was invalid.

However, for other purchases (including from M/s Ambaji Hallmark Gold) where acceptance was not demonstrated, and on the unreconciled profit difference, the ITAT found no infirmity in PCIT’s action—holding that the AO did not carry enquiry to its logical conclusion. The Tribunal clarified that on remand, the AO must apply independent mind afresh and decide under appropriate provisions without being influenced by PCIT’s remarks. It also rejected the plea that 263 was vitiated merely because it followed an audit objection, relying on CIT v. P.V.S. Beedies Pvt. Ltd. (SC).

Accordingly, the revision was quashed in part (accepted purchases) and upheld in part (remaining purchases & profit mismatch); the appeal was partly allowed

FULL TEXT OF THE ORDER OF ITAT JABALPUR