Nishica Impex Private Limited Vs DCIT (ITAT, Mumbai Bench)
What The CIT(A) Has Decided, PCIT Cannot Revise—Explanation 1(c) To Section 263 Closes The Revisionary Door
Summary: The Mumbai ITAT has held that once an issue arising from an assessment order has been considered & decided by the first appellate authority, the PCIT has no jurisdiction to revise the assessment order on that very issue. In view of the express restriction contained in Explanation 1(c) to section 263(1), revisionary jurisdiction extends only to matters that have not been considered & decided in appeal. The order passed u/s 263 was therefore quashed as invalid & without jurisdiction.
Facts of the case
The assessee, Nishica Impex Private Limited, filed its return of income for AY 2018-19 on 25.12.2018 declaring a total income of ₹16,39,030.
The return was selected for scrutiny & the original assessment was completed u/s 143(3) on 19.04.2021, determining the total income at ₹18,75,270.
Subsequently, information became available on the Income-tax Department’s INSIGHT portal that the CGST authorities had reported M/s Advance Computers and Mobiles Pvt. Ltd. to be engaged in issuing fake or bogus invoices for passing fraudulent input tax credit without actually supplying goods.
The AO noticed that the assessee had entered into transactions with the said party for an amount of ₹88,58,844. Based upon this information, the assessment was reopened u/s 147. :contentReference[oaicite:2]{index=2}
The AO mistook sales for purchases
During the reassessment proceedings, the AO called upon the assessee to establish the genuineness of its transactions with M/s Advance Computers and Mobiles Pvt. Ltd.
The assessee furnished documentary evidence in support of the transactions. The AO, however, remained unconvinced, particularly because a notice issued u/s 133(6) to the concerned party did not elicit any response.
The AO proceeded on the assumption that the assessee had made bogus purchases from the said party. He consequently treated the payments relating to such purchases as unexplained expenditure u/s 69C and made an addition of ₹99,21,904.
The assessee challenged the reassessment order before the first appellate authority.
CIT(A) finds that the transactions were sales
Before the CIT(A), the assessee specifically contended that the AO had completely misconceived the nature of the transactions. The assessee had not purchased any goods from M/s Advance Computers and Mobiles Pvt. Ltd. It had, in fact, sold goods to that party.
The CIT(A), by order dated 17.12.2025, recorded a categorical finding that the AO’s factual assumption was incorrect. The transactions represented sales made by the assessee & not purchases made from the concerned party.
However, the CIT(A) was not fully satisfied about the genuineness of those transactions. He observed that the assessee might have earned commission by showing bogus sales to the party. The commission income was therefore estimated at 5% of the sales turnover, resulting in an addition of ₹4,96,100.
At the same time, the CIT(A) deleted the entire addition of ₹99,21,904 made by the AO u/s 69C.
Thus, the precise issue concerning the nature & genuineness of the transactions with the alleged accommodation-entry provider was expressly examined & decided in appeal.
PCIT invokes section 263 after the appellate order
After the CIT(A) had disposed of the assessee’s appeal, the PCIT called for & examined the assessment records.
The PCIT formed the opinion that the assessment order was erroneous & prejudicial to the interests of the Revenue because the AO had wrongly proceeded on the footing that the assessee had made bogus purchases.
A show-cause notice u/s 263 was accordingly issued. Alleging non-compliance by the assessee, the PCIT passed an order dated 18.03.2026 setting aside the assessment order & directing the AO to frame a fresh assessment after conducting the necessary enquiries.
The assessee challenged the revisionary order before the ITAT, contending that the very issue on which the PCIT had assumed jurisdiction had already been decided by the CIT(A). Therefore, the exercise of jurisdiction u/s 263 was barred by Explanation 1(c) to section 263(1).
Scope of Explanation 1(c) to section 263
The ITAT examined the chronology of events & noticed that the CIT(A) had decided the assessee’s appeal on 17.12.2025. The PCIT invoked his revisionary powers only thereafter.
Explanation 1(c) to section 263(1) provides that where an order passed by the AO has been made the subject matter of an appeal, the PCIT’s revisionary powers extend only to such matters as had not been considered & decided in that appeal.
In the present case, the issue concerning the transactions with M/s Advance Computers and Mobiles Pvt. Ltd. was not merely raised in appeal. It was expressly considered & adjudicated by the CIT(A). The appellate authority examined whether the transactions represented purchases or sales, deleted the addition u/s 69C & substituted it with an estimated commission addition.
The PCIT therefore had no jurisdiction to reopen the same issue through section 263.
Delayed compliance could not create jurisdiction
The Tribunal further noticed that the assessee had brought the CIT(A)’s order to the attention of the PCIT. The PCIT apparently ignored it because the assessee’s compliance was made after the prescribed due date, though it was furnished before the revisionary order was passed.
The ITAT held that this circumstance did not alter the legal position. The statutory bar under Explanation 1(c) operated because the issue had already been decided in appeal. A delayed response by the assessee could not confer revisionary jurisdiction where none existed under the law.
Accordingly, the ITAT held that the exercise of power u/s 263 was in complete violation of Explanation 1(c) to section 263(1). The revisionary order was declared invalid & without jurisdiction and was consequently quashed.
Author’s comments
The decision is a clear application of the doctrine of merger embodied in Explanation 1(c) to section 263. Once the CIT(A) has applied his mind to an issue & rendered a decision, the assessment order merges with the appellate order to that extent. The PCIT cannot thereafter revise the AO’s order on the same subject.
Significantly, the CIT(A) need not have decided the issue entirely in the assessee’s favour. Here, the addition u/s 69C was deleted but a 5% commission was estimated. What matters is that the issue was considered & decided. The correctness of that appellate decision could be challenged only through the appellate machinery available to the Revenue-not through revision of an assessment order that had already merged with the appellate order.
Section 263 may correct an erroneous assessment, but it cannot sit in revision over the CIT(A). Once an issue has climbed the appellate staircase, the PCIT cannot bring it back through the revisionary back door.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT MUMBAI
The present appeal has been filed by the assesse, challenging the validity of the order dated 18.03.2026 passed by learned Principal Commissioner of Income Tax (Central), Mumbai-2 u/s. 263 of the Income Tax Act, 1961 (‘the Act’ for short), pertaining to the assessment year (AY for short) 2018-19.
2. We have considered rival submissions and perused the materials available on record. It is the say of the assessee that the issue on which the Revisionary Authority has exercised jurisdiction u/s. 263 of the Act was considered and decided by learned first appellate authority while deciding assessee’s appeal arising out of the assessment order subjected to proceedings u/s. 263 of the Act. Thus, he submitted, the impugned order passed u/s. 263 of the Act, being wholly without jurisdiction should be set aside.
3. Whereas, learned Departmental Representative (‘ld. DR’ for short) relied upon the observations of ld. PCIT.
4. We have considered rival submissions and perused the materials available on record. The assessee is a resident corporate entity. The materials on record reveal that for the impugned assessment year, the assessee had filed its return of income on 25.12.2018, declaring income of Rs.16,39,030/-. The return of income so filed by the assessee was selected for scrutiny and assessment u/s. 143(3) of the Act was completed vide order dated 19.04.2021, determining the total income at Rs.18,75,270/-.
5. Subsequently, as per the information available on the INSIGHT portal of the department, the Assessing Officer (A.O. for short) found that CGST authorities had reported that M/s. Advance Computers and Mobiles Pvt. Ltd. is engaged in issuing/generating/providing fake/bogus invoices for passing on fraudulent input tax credit without supplying goods. The AO observed, in the year under consideration, the assessee had entered into transactions with M/s. Advance Computers and Mobiles Pvt. Ltd. for an amount of Rs.88,58,844/-. Based on such information, the assessment was reopened u/s. 147 of the Act. In course of assessment proceedings, the AO called upon the assessee to prove the genuineness of the transactions with M/s. Advance Computers and Mobiles Pvt. Ltd. Though, the assessee furnished documentary evidences in support of the transaction, however, the AO was not convinced. He observed that notice issued u/s. 133(6) of the Act to M/s. Advance Computers and Mobiles Pvt. Ltd. did not evoke any response. Thus, he ultimately concluded that the alleged purchases made from M/s. Advance Computers and Mobiles Pvt. Ltd. is bogus and the payments made towards such purchases is in the nature of unexplained expenditure u/s. 69C of the Act. Accordingly, he added back the amount of Rs.99,21,904/- to the income of the assessee.
6. Against the assessment order so passed, the assessee preferred an appeal before learned first appellate authority. It was the specific case of the assessee before learned first appellate authority that the AO has wholly misconceived the facts and treated the sale transaction of the assessee with M/s. Advance Computers and Mobiles Pvt. Ltd. as purchases. The assessee submitted, it had actually sold goods to M/s. Advance Computers and Mobiles Pvt. Ltd., as against the allegation of purchases made from the said party.
7. The said appeal filed by the assessee was decided by learned first appellate authority vide order dated 17.12.2025. While deciding the appeal, learned first appellate authority recorded a categorical finding of fact that as against the allegation made by the AO that the assessee had purchased goods from M/s. Advance Computers and Mobiles Pvt. Ltd., in reality, the assessee had sold goods to the said party. However, learned first appellate authority held that the genuineness of the transactions are not established. Hence, quite possibly, the assessee must have earned commission by showing bogus sales to the concerned party. Accordingly, he estimated the commission at 5% on the sales turnover and added back an amount of Rs.4,96,100/-, while deleting the addition made by the AO u/s. 69C of the Act.
8. After disposal of the appeal by learned first appellate authority, learned PCIT called for and examined the assessment records and while doing so, he was of the opinion that the assessment order is erroneous and prejudicial to the interest of the revenue, as the AO has erroneously assumed that the assessee had indulged in bogus purchase of goods from M/s. Advance Computers and Mobiles Pvt. Ltd. Accordingly, he issued a show cause notice u/s. 263 of the Act to the assessee seeking reply as to why the assessment order should not be revised. Alleging non-compliance by the assessee, learned PCIT ultimately passed the impugned order on 18.3.2026, setting aside the assessment order with a direction to make fresh assessment after making necessary inquiry and providing adequate opportunity of being heard to the assessee.
9. As could be seen from the aforesaid facts and the chronological of the events, the very issue on which the assessee’s appeal was decided by learned first appellate authority, learned PCIT invoked his revisionary powers, that too much after the decision of learned first appellate authority. Explanation 1(c) of section 263(1) of the Act mandates that in case an order passed by the AO is subject matter of appeal, the Revisionary Jurisdiction u/s. 263(1) of the Act shall extend to matters not decided in such appeal. In the facts of the present appeal, not only the issue on which ld. PCIT exercised jurisdiction u/s. 263 of the Act was subject matter of appeal, but the issue was decided by learned first appellate authority much prior to even issuance of notice u/s.263 of the Act. Pertinently, though this fact was brought to the notice of ld. PCIT by the assessee, however, it was completely ignored by him, probably for the reason that compliance of the assessee was after the due date, but before the impugned order was passed. Be that as it may, fact remains that the impugned order passed by learned PCIT is in complete violation of the condition prescribed under Explanation 1(c) under section 263 of the Act. Therefore, we have no hesitation in holding that the exercise of power u/s.263 of the Act, in the facts of the present case, is invalid and without jurisdiction. Accordingly, we quash the impugned order passed u/s.263 of the Act.
10. In the result, the appeal is allowed.
Order pronounced in the open court on 09.09.2026.
