Abhishek Nagarmal Jangid Vs PCIT (Central) (ITAT Nagpur)
Summary: The appeal was filed by the assessee against the order of the PCIT (Central), Nagpur passed under Section 263 of the Income-tax Act, 1961 for Assessment Year 2018-19. The assessee had originally declared income of Rs.5,82,720/- in the return filed on 23.10.2018. The assessment was subsequently reopened under Sections 147 and 148, pursuant to which the assessee filed a return declaring income of Rs.9,13,980/-.
A search and seizure action under Section 132 was conducted in the case of Dr. Rahul Mahajan on 20.02.2019. Documents seized during the search revealed cash payments exceeding one crore allegedly made by Dr. Rahul Mahajan to the assessee for construction of Chinmay Hospital and a residential building. Thereafter, a survey under Section 133A was conducted and the assessee’s statement was recorded under Section 131 on 03.04.2019. The assessee voluntarily offered additional income of Rs.13,00,000/- comprising Rs.8,00,000/- towards unrecorded sales and Rs.5,00,000/- towards initial investment.
The Assessing Officer completed assessment under Section 143(3) read with Section 147, making an addition of Rs.5,00,000/- and assessing total income at Rs.14,13,980/-. Subsequently, the AO proposed revision under Section 263 on the ground that the assessment was erroneous and prejudicial to the interests of Revenue. The PCIT issued notice under Section 263 identifying, inter alia, failure to make inquiries or verification which should have been made and failure to inquire into the claim.
The assessee submitted that it was engaged in furniture trading and that the sales made to Dr. Mahajan had been disclosed in the return filed in response to Section 148 proceedings. The assessee stated that purchases corresponding to the sales were supported by invoices and that it had offered profit at 8% of the sales during survey proceedings. It also explained that the business was generally conducted on an order basis, with advances received from customers and credit periods allowed by suppliers. The assessee therefore requested that the Section 263 proceedings be dropped.
The PCIT, however, observed that the assessee had claimed purchases which were not recorded in the books and that the assessment records did not show any third-party inquiry regarding those purchases. The PCIT further noted that the purchase bills were allegedly in the range of Rs.20,000/- and above, potentially attracting Section 40A(3). According to the PCIT, the AO had failed to ascertain the correct facts instead of taxing the entire unrecorded sales of Rs.41,40,666/-. The assessment was therefore set aside for fresh assessment.
Before the Tribunal, the assessee contended that the AO had examined the issue during reassessment proceedings and that complete details, including purchase invoices, supplier declarations, business-model explanation, gross profit rate and source of investment, had been furnished. It was argued that merely because the PCIT considered further inquiry desirable, the assessment could not be revised under Section 263. The assessee also submitted that the PCIT’s observations regarding possible cash payments and Section 40A(3) were based on presumptions and amounted to fishing and roving inquiries.
The Department relied upon judicial precedents concerning the scope of inquiry by the Assessing Officer, including Malabar Industrial Co. Ltd. Vs CIT and Gee Vee Enterprises Vs Addl. CIT. Reliance was also placed on Nagesh Knitwears Pvt. Ltd. and NIIT Vs CIT (Central-II), among other authorities.
The Tribunal examined the assessment records and found that the AO had accepted additional income of Rs.3,31,254/-, representing 8% of unrecorded sales of Rs.41,40,666/-. The Tribunal noted that the assessee had disclosed total turnover of Rs.2,21,88,785/- in Form No.3CD and that the unrecorded sales were over and above the turnover disclosed in the books. It found no finding in the assessment records establishing that corresponding unrecorded purchases had been made. The Tribunal further observed that regular business expenditure had already been debited to the profit and loss account and that no contemporaneous documentary evidence regarding corresponding expenditure had been produced during assessment proceedings.
The Tribunal held that the AO was not justified in accepting only 8% profit on the unrecorded sales without proper verification. It further found that the AO had failed to examine the applicability of Section 69A in respect of the unrecorded receipts and the consequential taxation under Section 115BBE.
The Tribunal also noted that the purchase invoices aggregating to Rs.39,14,500/- were furnished for the first time during the Section 263 proceedings and that there was nothing on record to establish that the AO had independently verified the genuineness of the purchases or determined the actual profit embedded in the transactions. It therefore held that the lack of inquiry was apparent from the records and attracted Explanation 2 to Section 263.
The Tribunal considered the decision of the Delhi High Court in PCIT Vs Delhi Gurgaon Super Connectivity Ltd., including the discussion concerning Pr. Commissioner of Income Tax-II v. Shri Braham Dev Gupta. Following the above decision and considering the facts, the Tribunal found no infirmity in the Section 263 order.
The Tribunal further observed that the assessee had failed to honour the surrender of Rs.8 lakh and had offered only Rs.3,31,254/- in the return without establishing a nexus with the Rs.1 crore received in cash. It concluded that Rs.4,68,746/- had effectively escaped taxation and that the twin conditions of an erroneous order and prejudice to the interests of Revenue were satisfied.
Accordingly, the Tribunal upheld the revisionary order passed under Section 263 and dismissed the assessee’s appeal.
Cases Discussed
- Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. — (1987) 2 SCC 107
- Inder Singh Vs. State of Madhya Pradesh — 2025 INSC 382
- Malabar Industrial Co. Ltd. Vs. CIT — (2000) 243 ITR 83 (SC)
- CIT Vs. Nagesh Knitwears Pvt. Ltd. — 345 ITR 135 (Del.)
- Gee Vee Enterprises Vs. Addl. CIT — 99 ITR 375 (Del.)
- NIIT Vs. CIT (Central-II) — [2015] 60 taxmann.com 313 (Delhi-Trib.)
- PCIT Vs. Delhi Gurgaon Super Connectivity Ltd. — [2026] 487 ITR 173 (Delhi)
- Pr. Commissioner of Income Tax-II v. Shri Braham Dev Gupta — 2018 SCC Online Del 1996
FULL TEXT OF THE ORDER OF ITAT NAGPUR
This appeal filed by the assessee is directed against the order of PCIT (Central), Nagpur passed u/s. 263 of the Income Tax Act, 1961 (for short, “PCIT”), dated 05.03.2024 for Assessment Year (A.Y.) 2018–19.
2. Registry has pointed out that there is a delay of 323 days in filing the instant appeal. Application for condonation of delay along with affidavit and medical prescriptions has been filed. In the affidavit, it has been stated that assessee was in prolonged treatment and best rest for hypertension and diabetes, due to which he could not approach his Tax Consultant. Considering the reasons mentioned in the affidavit, we find that sufficient cause prevented the assessee from filing the present appeal in time and the delay is not intentional and therefore adopting justice oriented approach and also taking guidance from the judgments of Hon’ble Apex Court in the case of Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. [(1987) 2 SCC 107] and in the case of Inder Singh Vs. State of Madhya Pradesh judgment dated 21.03.2025 (2025 INSC 382), hereby condone the delay of 323 days in filing of the instant appeal before this Tribunal and admit it for adjudication
3. The only effective ground raised by the assessee in this appeal is that, Ld.PCIT erred in passing 263 order directing the Ld. AO to frame fresh assessment.
4. Brief facts of the case are that assessee, an individual, filed his e-return of income for A.Y. 2018-19 declaring income of Rs. 5,82,720/- on 23.10.2018. The case was reopened u/s. 147 and issued notice u/s. 148 of the Act. In response to the notice issued u/s. 148, assessee filed return of income declaring income of Rs. 9,13,980/- on 06.03.2021. A search and seizure action u/s 132 of the Act was carried out in the case of Dr. Rahul Mahajan by the ADIT (Inv.)-1, Nashik on 20.02.2019. During the course of search, some documents were seized, which reveal that cash payment of more than one crore was made by Dr. Rahul Mahajan to the assessee for the construction of Chinmay Hospital & residential building. Thereafter, a survey action u/s. 133A of the Act was conducted and statement of the assessee was recorded u/s. 131 of the Act on 03.04.2019, where assessee voluntarily offered additional income of Rs. 13,00,000/- on account of unrecorded sales (Rs. 8,00,000/-) and initial investment (Rs. 5,00,000/-). Consequently, Ld. AO completed the assessment u/s. 143(3) r.w.s. 147 making addition of Rs. 5,00,000/- and assessed the income at Rs. 14,13,980/-.
5. Thereafter, Ld. AO vide letter dated 17.01.2024 has submitted a proposal to the PCIT to revise the assessment order u/s. 263 of the Act as the assessment is erroneous and prejudicial to the interest of Revenue. Accordingly, Ld. Pr.CIT, after verification and meticulous examination of the assessment records, issued notice under section 263 dated 13.02.2024 to the assessee on the following points:–
a) The order is passed without making inquiries or verification which should have been done;
b) The order is passed allowing relief without inquiring in the claim.
He observed that Ld. AO has failed to analyse the addition u/s. 69A r.w.s. 115BBE. In response to the notice, assessee filed the following written submissions on 28.02.2024:-
1. Assessee is engaged in the business of trading of furniture related items. Gross Profit percentage in this business for FY 2017-18 was 5.02%. However, As per the statement & letter accompanying it the assesee had offered the Income of sales made to Dr. Mahajan while filing Income tax return under section 148. Therefore, the assessee had not retracted his statement. Further, it is to be appreciated that even if no records were found in possession of assessee relating to sales made to Dr. Mahajan. Assessee had just to cooperate with the Income Tax Department and had accepted the sales of Rs. 41,40,666/-. At the time of survey action, assessee had also explained the fact to the officers that sales was backed by the purchases. For which he had also produced the invoices for verification with the Assessing officer at the time of assessment.
2. Officer conducting the survey action asked the assessee to declare the higher profit i.e. 8%. On this just to avoid the dispute with the income tax Department the assessee had agreed to declare the profit of Rs. 3,31,254 (i.e. 8% of 41,40,666). Further, while filing the ROI u/s 148 assessee had declared the same and also paid the tax due along with the interest. Also after receiving the assessment order assessee had also paid the penalty.
3. Assessee had purchased the material of Rs. 39,14,500/- (Copies of invoices are attached) (Page No. 1 to 54) from various parties declaration from them is also attached herewith (Page No. 55 to 60). Further, it is to be noted that the assessee had earned only Rs. 2,26,166/- (41,40,666 39,14,500) in this transaction with the Rahul Mahajan. Still the assessee had remained stuck with his statement given at the time of survey and offered the excess profit @ 8% ie. 3,31,254/- in ROI.
4. Also, in reference to Initial Investment added of Rs. 5 lakh in income it is noted that- Assessee was in the business of furniture material, where material was supplied only after choosing the colour and quality of material. Therefore, most of the business was done as per order basis. The assessee generally takes advance from the customer for supplying the material. On the other hand, the assessee was doing this business for the last 3 years, so suppliers had allowed a credit period to the assessee. This fact had also been dealt by the assessing officer while concluding the assessment u/s 148.
By filing the above explanation, assessee requested the PCIT to drop the proceedings initiated u/s. 263 of the Act.
6. Considering the above explanation of the assessee, Ld.PCIT observed that assessee has claimed to have made purchases as well, which are not recorded in the books of accounts. Record does not show that the Ld. AO has conducted any third party inquiry in this regard. As the purchase bills are out of books, the assessee would have been made the payment in respect of these purchases in cash, which is also not verified by the Ld. AO. As seen from the bills, those are all in the range of 20,000/- and above inviting potential invocation of section 40A(3). Therefore, Ld. AO has completely failed to ascertain the correct facts and conduct inquiry in this case instead of taxing entire unrecorded sales of Rs.41,40,666/-. Therefore, Ld. PCIT held that assessment order passed by the Ld. Ld. AO, dated 28.03.2022 is erroneous insofar as it is prejudicial to the interest of revenue and set aside the assessment to the Ld. AO for framing fresh assessment.
7. Ld. counsel for the assessee submitted that the assessment order passed by the Ld. AO u/s. 143(3) r.w.s. 147 of the Act was neither erroneous nor prejudicial to the interest of Revenue and, therefore, assumption of jurisdiction by the Ld. PCIT u/s. 263 of the Act is bad in law. It was submitted that during the course of reassessment proceedings, the Ld. AO had examined the issue relating to alleged unrecorded sales made to Dr. Rahul Mahajan and the consequential disclosure offered by the assessee during survey proceedings. He further submitted that assessee had furnished complete details before the Ld. AO including copies of purchase invoices, confirmations/declarations from suppliers, explanation regarding business model, gross profit rate and source of investment. After considering the material placed on record, Ld. AO consciously accepted the additional income offered by the assessee and completed the assessment. Therefore, it cannot be said that no inquiry or verification was conducted by the Ld.AO. Learned counsel further submitted that the purchases corresponding to the sales made to Dr. Rahul Mahajan were duly substantiated through invoices and supporting evidences. Merely because the Ld. PCIT was of the view that further inquiry ought to have been conducted, the assessment order cannot be revised u/s. 263. It was further submitted that assessee, in order to buy peace and avoid litigation, had voluntarily offered additional profit @ 8% on the alleged sales during survey proceedings and the same was duly offered in the return filed in response to notice u/s. 148. Therefore, there was complete disclosure on the part of the assessee and no prejudice was caused to the Revenue. Ld.counsel argued that Ld. PCIT invoked the provisions of section 263 merely on presumptions and surmises by observing that cash payments might have been made for purchases and that third-party inquiries were not conducted. Such observations are only for conducting fishing and roving inquiries, which is impermissible under section 263 of the Act. Accordingly, it was prayed that the impugned order passed u/s. 263 be quashed.
8. Per contra, Ld. DR strongly supported the order passed by the Ld. PCIT and submitted that the alleged inquiry made by the Assessing Officer was, in effect, no inquiry at all because the Assessing Officer has to discharge twin functions of adjudicator as well as investigator. Merely obtaining certain details or papers from the assessee and keeping it on record cannot amount to making a proper inquiry expected from an Assessing Officer, particularly when he has remained a passive spectaror.
8.1 Reliance is placed on the ratio of Hon’ble Supreme Court laid down in case of Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC). The Hon’ble Supreme Court has ruled that the phrase ‘prejudicial to the interests of the revenue’ is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. It has also been held that an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category falls orders passed without applying the principles of natural justice or without application of mind.
8.2 Reliance is placed on the ratio of Hon’ble Delhi High Court laid down in case of CIT Vs Nagesh Knitwears Pvt. Ltd. 345 ITR 135 (Del) where it has been held that it is incumbent upon the AO to investigate facts required to be examined and verified to compute the taxable income. If the AO fail to conduct the said investigation, he commits an error and the word ‘erroneous’ includes failure to make enquiry.
8.3 Reliance is placed on the ratio of Hon’ble Delhi High Court laid down in case of Gee Vee Enterprises Vs Addl. CIT (99 ITR 375 (Del) where it has been held that AO is having role of an investigator and it is the duty of AO to ascertain the truth of the facts stated in the Return when circumstances would make such an enquiry prudent. It has clearly held that the order becomes ‘erroneous’ because such an enquiry has not been made.
8.4 While deciding the case in NIIT Vs CIT (Central-II) [2015] 60 taxmann.com 313 (Delhi-Trib), the Hon’ble E bench, ITAT Delhi has analysed plethora of judgments on the issue and through order dated 27.03.2015, gave a ratio that the AO is required to conduct inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry. The relevant portion of the order of Hon’ble ITAT is reproduced below:-
“28.1 Ld. Special counsel has rightly pointed out that the expression, ‘inquiry’, ‘lack of inquiry’ and ‘inadequate inquiry’, have not been defined and, therefore, when the action of the AO would be suggestive of lack of inquiry or inadequate inquiry, will depend upon the facts obtaining in a particular case. What emerges as a broad principle from the various decisions is that where the AO has reached a rational conclusion, based on his inquiries and material on record, the Commissioner should not start the matter afresh in a way as to question the manner of his conducting inquiries. It is not the province of the Commissioner to enter into the merits of evidence; it has only to see whether the requirements of essential inquires and of law have been duly and properly complied with by AO or not.
28.2 It is well settled that before the Commissioner can invoke his powers u/s 263, he has to arrive at a conclusion that the assessment order is erroneous in so far as it was prejudicial to the interests of the revenue. Then only the powers u/s 263 can be invoked. Therefore, if AO accepts or rejects any claim of the assessee without due application of mind and if such failure causes prejudice to revenue, the Commissioner would be well within his powers u/s 263 to intervene in the matter. An inquiry which is just farce or mere pretence of inquiry, cannot be said to be an inquiry at all, much less an inquiry needed to reach the level of satisfaction of the AO on the given issue. The level of satisfaction would obviously mean that he has conducted the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry…” (emphasis supplied).
Finally, he prayed that the order passed by the Pr. CIT under section 263 be sustained.
9. We have heard rival submissions and perused the material available on record. On verification of the assessment records, it is noticed that the Assessing Officer accepted the additional income offered by the assessee at Rs.3,31,254/-, being 8% of the unrecorded sales of Rs.41,40,666/- made to Dr. Rahul Mahajan. It is further observed from the Tax Audit Report in Form No.3CD that the assessee had disclosed total turnover of Rs.2,21,88,785/- during the relevant previous year. The aforesaid unrecorded sales of Rs.41,40,666/- were over and above the turnover disclosed in the books of account and reported in the audit report. There is no finding in the assessment records to establish that corresponding unrecorded purchases were also made by the assessee. Further, all regular business expenditure already stood debited in the profit and loss account. Therefore, prima facie, there remained no allowable expenditure to be deducted against the unrecorded sales receipts. In such circumstances, when the assessee failed to disclose the impugned sales in the regular books of account and no contemporaneous documentary evidence regarding corresponding expenditure was produced during assessment proceedings, the Assessing Officer was not justified in accepting only 8% profit on such unrecorded sales without conducting proper verification. It is also evident from the record that the Assessing Officer failed to examine the applicability of section 69A of the Act with respect to the unrecorded receipts of Rs.41,40,666/- and consequential taxation u/s. 115BBE of the Act. Thus, the assessment order dated 28.03.2022 passed u/s. 143(3) r.w.s. 147 of the Act was rightly held by the Ld. PCIT to be erroneous insofar as it is prejudicial to the interest of Revenue. During the course of survey proceedings conducted on 03.04.2019, the assessee admitted that sales amounting to Rs.41,40,666/- were made outside the books of account and offered profit @ 8% amounting to Rs.3,31,254/-. There is no whisper in the order as to how 8% is deemed reasonable by Ld. AO which smacks of object non-application of mind and flagrant of jurisprudence. However, no documentary evidence regarding purchases was furnished before the Assessing Officer during assessment proceedings. The copies of purchase invoices aggregating to Rs.39,14,500/- were furnished for the first time during proceedings u/s. 263 of the Act, which tantamount non-verification by the Ld. Ld. AO. Even otherwise, there is nothing on record to show that the Assessing Officer made any inquiry whatsoever to verify the genuineness of such purchases or to ascertain the actual profit embedded in the impugned transactions. The Assessing Officer merely accepted the declaration made by the assessee without any independent verification. The assessee attempted before the Ld. PCIT to contend that the profit already offered was higher than the actual income earned. However, the Assessing Officer was duty-bound to objectively determine the correct taxable income based on proper inquiry and verification, which he utterly failed to do. The lack of inquiry is apparent from the records and squarely attracts Explanation 2 to section 263 of the Act, which deems an order to be erroneous and prejudicial to the interests of Revenue where it is passed without making inquiries or verification which should have been made. Before us, Ld. AR failed to controvert the specific findings recorded by the Ld. PCIT regarding lack of inquiry by the Assessing Officer. The Hon’ble Delhi High Court in the case of PCIT vs. Delhi Gurgaon Super Connectivity Ltd. [2026] 487 ITR 173 (Delhi) has considered the issue of lack of inquiry by the Assessing Officer with regard to genuineness of the transactions. The relevant findings at para 40 are as follows:-
40. In the case at hand, it shall be apposite to take note of the decision of Coordinate Bench in Pr. Commissioner of Income Tax-II v. Shri Braham Dev Gupta: 2018 SCC Online Del 1996. The order of the assessing officer in this case had been set aside under Section 263 of the Act, but the learned ITAT had restored the order of the assessing officer. The Coordinate Bench, while setting aside the order of the learned ITAT had observed that the fact, that out of 80 debtors, the assessee therein had furnished particulars of only 22 and even PAN particulars of most of them were not provided, would lead to a conclusion that the AO had not conducted inquiries regarding the genuineness of the transactions. The relevant portion of the decision is reproduced as under:
14. In this Court’s opinion, such findings and reasoning are clearly indefensible; they amount to putting a gloss over the AO’s glaring omissions. Repeated decisions have emphasized that the AO should – at least as regards what appears from the record, and what are issues inquired into, during scrutiny assessment, indicate the briefest of reasons, accepting or rejecting any argument. In this case, the mere fact that out of 80 debtors, particulars of 22 were furnished and that PAN particulars of most of them were not provided (for AY, cannot lead to the conclusion that the doubting of genuineness of those transactions was unwarranted, under Section 263).
15. For AY 2012-13, the CIT, pertinently observed – with regard to expenditure claimed towards purchases, as follows:
“It was informed to the assessee that a number of parties have not responded to the notices. The assessee has admitted that only 37 parties out of 114 have responded to the notices. Other parties out of 114 have not even responded to the notices. Therefore the genuineness of these documents i.e. purchases could not be verified. At least the matter needed further examination.”
16. Again, the ITAT did not say how this observation was unwarranted. On the other hand, the AO’s order made originally is silent about this aspect altogether.”
(Emphasis added)
10. Following the above referred to decision of Hon’ble Delhi High Court and considering the facts and circumstances of the case, we find no infirmity in the order passed u/s. 263 of the Act. The revisionary order passed by the Ld. PCIT on the ground of lack of inquiry is found to be justified and sustainable in law. The assessee have even failed to honour his surrender of Rs. 8 lakh and only offered Rs. 3,31,254/- in return of income without establishing a nexus of Rs. 1 crore received in cash. The Ld. AO has remarked that there was a mistake in computation of gross profit at the time of recording survey statement. So effectively, Rs. 4,68,746/- has escaped from the clutches of taxation which satisfies the twin conditions of erroneous and prejudicial to the interest of Revenue. The watertight order u/s. 263 leaves no scope for tinkering.
11. In the result, appeal filed by the assessee stands dismissed.
Order pronounced on 18/05/2026 under Rule 34 of Income Tax (Appellate Tribunal) Rules–1963.
