ITAT Mumbai: Section 263 Revision Quashed as AO Had Examined Purchases and Issue Was Pending in Appeal

Cupid Diamonds Private Limited Vs PCIT (ITAT Mumbai)

ITAT Mumbai: Section 263 Revision Quashed as AO Had Examined Purchases and Issue Was Pending in Appeal

The assessee, engaged in manufacturing and trading laboratory-grown cut and polished diamonds, filed its return for A.Y. 2021-22 declaring total income of Rs.2,41,89,710/-. The case was selected for complete scrutiny to verify the genuineness of business purchases. The assessment under Section 143(3) read with Section 144B of the Income-tax Act, 1961 was completed at Rs.3,37,35,741/- after an addition of Rs.95,46,031/- under Section 37 relating to unverified purchases.

The Assessing Officer had issued notices under Section 133(6) to suppliers. Purchases of Rs.9,41,47,312/- from three parties remained unverified, while Rs.1,31,301/- relating to another party remained unverified to the extent of the difference between the amounts confirmed and claimed. The AO made a total addition of Rs.95,46,031/-, comprising 10% of the Rs.9,41,47,312/- purchases and Rs.1,31,301/-.

The PCIT subsequently invoked Section 263, holding that the entire Rs.9,41,47,312/- should have been treated as unexplained expenditure under Section 69C and taxed under Section 115BBE. The PCIT directed the AO to take further necessary action and examine initiation of penalty proceedings.

The assessee challenged the revision, contending that the AO had conducted detailed inquiries and that the assessment issue was already pending before the CIT(A). The assessee also relied on the requirement that an order must be both erroneous and prejudicial to Revenue for Section 263 revision.