AO Disallowed 25% of Purchases; PCIT Wanted 100%: Mumbai ITAT Quashes Section 263 Revision

Boxcoworld Logistics India Private Limited Vs PCIT (ITAT Mumbai)

Summary: Where the Assessing Officer has examined disputed purchases, called for supporting records, issued notices to suppliers and then made a 25% disallowance, can the PCIT revise the assessment because, in her view, 100% should have been added? The Mumbai ITAT answered that question in favour of Boxcoworld Logistics India Pvt. Ltd. It quashed the revision order under section 263, noting both the enquiries conducted by the AO and the fact that the purchase additions were already under challenge before the CIT(A). The order also dealt with the PCIT’s objection that an addition made under section 69C had been taxed at 30% rather than 60% under section 115BBE. The Tribunal treated the rate issue as connected with the disputed addition pending in appeal. It did not separately decide whether section 69C or the 60% rate ultimately applies to that amount.

How Did the Purchase Dispute Arise?

The company filed its return for AY 2022-23 declaring income of ₹1,06,22,900. The assessment under section 143(3) read with section 144B determined income at ₹13,48,06,619 after additions on several issues. Two purchase related additions became the subject of the revision proceedings.

First, information obtained from two suppliers showed sales to the assessee exceeding the purchases recorded by it. The AO treated the difference of ₹1,72,80,113 as unaccounted purchases and added it under section 69C read with section 115BBE.

Second, confirmations were not received from certain other suppliers. The AO questioned purchases totalling ₹31,28,51,043 and disallowed 25%, amounting to ₹7,82,12,760, on the ground that their genuineness remained unverified. The assessee challenged the additions before the CIT(A) by filing Form 35 on 22 April 2024.

Why Did the PCIT Invoke Section 263?

The PCIT issued a revision notice on 11 April 2025. She identified two alleged errors in the assessment. In respect of the ₹1,72,80,113 addition under section 69C, she said the AO had charged tax at 30% instead of the 60% rate prescribed by section 115BBE, resulting in a short levy stated to be ₹1,13,17,060 including interest.

For the other purchases, the PCIT held that the AO should have added the entire ₹31,28,51,043, rather than restricting the disallowance to 25%. In her view, the absence of confirmations from 22 suppliers meant that the genuineness of the full amount had not been established. She regarded the remaining ₹23,46,38,283 as underassessed income.

The company responded that the purchases were recorded in its books and that it had provided supplier details, PANs, invoices and bank payment records. The AO had also carried out independent enquiries by issuing notices under section 133(6). The company argued that the PCIT could not use section 263 merely to replace the AO’s conclusion with her preference for a larger disallowance, particularly when the purchase issues were already pending before the CIT(A).

Inquiry Was Made, Though the PCIT Wanted a Different Result

The Tribunal examined the assessment record and found that the AO had called for details under section 142(1). The assessee had furnished a purchase register containing supplier particulars and amounts, along with sample vendor invoices. The AO had independently issued section 133(6) notices. After considering the material and the absence of some confirmations, he chose to disallow 25% of the disputed purchases.

On these facts, the ITAT held that the case could not be described as one in which the AO had made no inquiry or failed to apply his mind. Whether further inquiry might have been made was a different question. Referring to CIT v. Sunbeam Auto 332 ITR 167 (Delhi), the Tribunal drew the distinction between a lack of inquiry and a complaint that the inquiry conducted was inadequate. A disagreement over the extent of inquiry or the percentage of disallowance did not, on its own, justify revision of this assessment.

Purchase Issues Were Already Before the CIT(A)

The timing also mattered. The assessee’s appeal against the assessment had been filed in April 2024, almost a year before the PCIT issued the section 263 notice. The Tribunal found that both matters taken up in revision—the addition for alleged unaccounted purchases and the estimated disallowance of unverified purchases—were pending adjudication before the CIT(A).

The PCIT had argued that the assessee appealed against the 25% disallowance, whereas her revision concerned the remaining 75%. The Tribunal did not accept that division of the same purchase issue for the purposes of this case. It held that the purchase disallowance could not be subjected to re-verification and re-adjudication by the PCIT from a different perspective while it was before the CIT(A), having regard to Explanation 1(c) to section 263(1). It also viewed the section 115BBE rate question as connected with the underlying addition.

The ITAT followed the approach taken in Cupid Diamonds Pvt. Ltd. v. PCIT and M. P. Trading Company v. PCIT. It set aside the PCIT’s section 263 order and allowed the company’s appeal. Since revision itself was quashed, the Tribunal did not separately adjudicate the company’s remaining grounds.

Author’s Comments

The decision is strongest on its assessment record: the AO sought documents, received purchase details, made third party enquiries and reached a quantified conclusion. Section 263 could not be invoked here merely because the PCIT considered 100% disallowance preferable to 25%.

The relief has an important limit. Quashing the revision does not delete the AO’s additions. The assessee’s appeal against those additions remains to be decided by the CIT(A). Likewise, this order is not a final ruling that section 115BBE cannot apply to the ₹1,72,80,113 addition. Those substantive disputes must be distinguished from the question the Tribunal decided: whether this PCIT’s revision of the assessment could stand.

Cases Discussed/Relied Upon

• Cupid Diamonds Pvt. Ltd. Vs PCIT (ITAT Mumbai); ITA No. 478/Mum/2025 — Followed. The Tribunal reproduced and applied this decision on both material aspects: a detailed inquiry by the AO cannot be treated as absence of inquiry merely because the PCIT prefers a different conclusion, and a purchase-disallowance issue already pending before the CIT(A) cannot be re-verified and re-adjudicated from a different perspective under section 263.
• M. P. Trading Company Vs PCIT (ITAT Mumbai); ITA No. 1107/Mum/2026 — Followed. The Tribunal expressly recorded that the decision in Cupid Diamonds Pvt. Ltd., which substantially applied to the present case, had also been followed in this more recent Mumbai Bench decision.
• CIT Vs Sunbeam Auto Ltd. (Delhi High Court); 332 ITR 167 (Delhi) — Relied upon/applied. The Tribunal referred to the distinction between “lack of inquiry” and “inadequate inquiry”; where the AO has in fact made inquiry, section 263 cannot be invoked merely because the Commissioner considers that further inquiry should have been undertaken.
• CIT Vs Gabriel India Ltd. (Bombay High Court); (1993) 203 ITR 108 (Bom.) — Discussed through Cupid Diamonds. The quoted precedent relied upon it for the limits of section 263 and the principle against fishing and roving enquiries where the assessment record does not establish the requisite error.
• Oil India Ltd. Vs CIT (Calcutta High Court); 138 ITR 836 (Cal.) — Relied upon in Cupid Diamonds. The quoted precedent referred to this decision while considering the restriction on revisional jurisdiction where the relevant subject matter is already in appeal.
• Jute Corporation of India Ltd. Vs CIT (Supreme Court); 187 ITR 688 (SC) — Relied upon in Cupid Diamonds. Cited concerning the plenary powers of the first appellate authority and its ability to deal with matters arising from the assessment.
• CIT Vs Kanpur Coal Syndicate (Supreme Court); (1964) 53 ITR 225 (SC) — Relied upon in Cupid Diamonds. Cited for the principle that the first appellate authority has plenary and co-terminus powers in disposing of an assessment appeal.
• PCIT-2, Meerut Vs Canara Bank Securities Ltd. (Supreme Court); [2020] 114 taxmann.com 545 (SC) — Discussed in Cupid Diamonds. The quoted precedent stated that the Supreme Court dismissed the Revenue’s SLP where the AO had made enquiries and taken a plausible view in law.
• CIT Vs Amitabh Bachchan (Supreme Court); (2016) 384 ITR 200 (SC) — Relied upon by the PCIT. Cited in the revision order in support of the PCIT’s view concerning the scope of section 263.
• ITO Vs DG Housing Projects Ltd. (Delhi High Court); (2012) 343 ITR 329 (Delhi) — Relied upon by the PCIT. Cited among the authorities relied upon in support of exercise of revisional jurisdiction.
• Malabar Industrial Co. Ltd. Vs CIT (Supreme Court); (2000) 243 ITR 83 (SC) — Relied upon by the PCIT. Cited on the statutory requirements governing revision under section 263.
• CIT Vs Bhagwan Das (Allahabad High Court); (2005) 272 ITR 367 (Allahabad) — Relied upon by the PCIT. Cited among the judicial authorities supporting the revision order.
• CIT Vs Nirav Modi (Bombay High Court); (2017) 390 ITR 292 (Bom.) — Relied upon by the assessee. Cited in support of the contention that section 263 cannot be used merely to substitute the PCIT’s judgment where the AO has examined the matter and adopted a permissible view.
• Smt. Renuka Philip Vs ITO (Madras High Court); (2018) 409 ITR 567 (Madras) — Relied upon by the assessee. Cited in support of the challenge to revisionary jurisdiction where the relevant assessment issue was already in appellate proceedings.
• Kirit Brajlal Babaria Vs DCIT (ITAT Mumbai); ITA No. 2939/Mum/2009 — Relied upon by the assessee. Cited among the authorities supporting the challenge to the exercise of section 263 jurisdiction.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The captioned appeal by the assessee arises out of order dated 24/03/2026 by the Ld. Principal Commissioner of Income-tax (in short, PCIT) in exercise of revisionary powers under section 263 of the Income Tax Act, 1961 (in short, the Act) for Assessment Year 2022-23.

2. The grounds of appeal are as under:-

Ground 1:

“1.1. The Ld. Principal Commissioner of Income Tax – 6, Mumbai (“Ld. Pr. CIT”) has erred in law and in facts and in circumstances of case in initiating revision proceeding under section 263 of the Income tax Act, 1961 (“the Act”). The said revision proceeding is to be set aside, and order passed u/s 263 of the Act is required to be quashed.

1.2. The Ld. Pr. CIT has erred in law and in facts and in circumstances of the case in passing order under section 263 of the Act and failed to consider the fact that the order passed under section143(3) r.w.s. 144B of the Act (“assessment order”) by the Assessment Unit, Income Tax Department (“Ld. FAO”) is not erroneous in so far as it is prejudicial to the interests of the revenue.

1.3. The Ld. Pr. CIT ought to have appreciated the fact that the assessment order has been passed by the Ld. FAO after making proper inquiries or verification which should have been made, hence the said assessment order is not erroneous in so far as it is prejudicial to the interests of revenue requiring revision proceeding u/s 263 of the Act.

1.3(a) The Ld. Pr. CIT erred in setting aside the assessment order which was made under section 143 (3) r.w.s. 144 B of the Act for making roving inquiry which is not permitted in law.

1.3(b) The Ld. Pr. CIT ought to have appreciated that when two views are possible, then proceedings under section 263 of the Act are not permitted as per various judicial pronouncements.

1.4. The Ld. Pr. CIT failed to appreciate the fact that disallowance made as per the assessment order is subject matter of appeal before the Commissioner of Income Tax (Appeals) and as per explanation 1(c) of section 263(1) of the Act, the powers of the Ld. Pr. CIT shall extend to such matters as had not been considered and decided in such appeal, hence setting aside of assessment and direction for fresh assessment in respect of alleged bogus purchase in the order u/s 263 of the Act is required to be deleted.

Ground 2:

2.1. The Ld. Pr. CIT has erred in law and in facts and in circumstances of the case in setting aside the assessment in respect of alleged bogus purchase and directing the Assessing Officer (“AO”) to make a fresh assessment enhancing addition to Rs.31,28,51,043 as against addition of Rs.7,82,12,760 made by Ld. FAO, without appreciating the fact that the Ld. FAO has made proportionate disallowance of Rs.7,82,12,760 after making proper inquiries or verification which should have been made, hence setting aside of assessment and direction for fresh assessment in respect of alleged bogus purchase of Rs.31,28,51,043 in the order u/s 263 of the Act is required to be deleted.

Ground 3:

3.1. The Ld. Pr. CIT has erred in law and in facts and in circumstances of the case in considering difference in amount of Rs.1,72,80,113 of purchase/ expenses as per books of the Appellant and information received in response to notice under section 133 of the Act as unexplained expenditure under section 69C of the Act and applying provision of section 115BBE of the Act.

3.2. The Ld. Pr. CIT has erred in law and in facts and in circumstances of the case in treating the purchase / expenses of Rs.31,28,51,043 as bogus purchase only because response to notice issued under section 133(6) was not received and ignoring the other corroborative documents submitted before the Ld. FAO.

3.3. The Ld. Pr. CIT has erred in law and in facts and in circumstances of the case in not considering confirmation obtained from parties after completion of assessment proceeding, aggregating to Rs.31,26,73,234 and submitted during the course of proceeding under section 263 of the Act.

The Appellant craves leave to add, to alter, to amend or withdraw all or any of the grounds of appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the time of hearing of the appeal.”

3. The facts of the case are that the assessee company filed its return of income for A.Y.2022-23 on 03/11/2022, declaring total income at Rs.1,06,22,900/-. The assessment was finalised under section 143(3) r.w.s 144B of the Act on a total income of Rs. 13,48,06,619/-, after making additions on various issues, including Rs.1,72,80,113/-for alleged unaccounted purchases and Rs. 7,82,12,760/- for stated bogus purchases. After seeking details from the assessee, and pursuant to obtaining information through issue of notices u/s 133(6) of the Act, the Ld. AO found that 2 suppliers had recorded sales which were higher than the purchases recorded in the books of account of the assessee. This difference, totalling to Rs. 1,72,80,113/-, was added back as unaccounted purchases of the assessee u/s 69C r.w.s.115BBE of the Act. Similarly, with respect to parties from whom confirmations were not received, the Ld. AO disallowed 25% of such purchases (i.e. Rs. 7,82,12,760/-, out of total purchases of Rs. 31,28,51,043/-), stating that the genuineness of the purchases had remained unexplained.

4. Notice under section 263 of the Act was thereafter issued to the assessee on 11/4/2025. Relevant portion of the notice is reproduced here under:-

“…2. On perusal of assessment order u/s 143(3) r.w.s. 1448 of the Act passed on 26.03.2024 it is observed that the assessment order is erroneous and prejudicial to the interest of revenue for the following reasons:

2.1 On verification of the records, it is seen that the assessee has opted for Concessional Corporate Tax Regime (CCTR) u/s 115BAA. However, the AO taxed special income of Rs. 1,72,80,113 u/s 69C at the rate of 30% instead of the correct rate of 60% as mandated under the Act read with section 115BBE This resulted in short levy of tax of Rs. 1,13,17,060 (including interest u/s 234B).

2.2 It is further seen that the AO made an addition of Rs. 7,82,12,760 on account of bogus purchase, being 25% of total purchases amounting to Rs. 31,28,51,043 for which no confirmations or supporting evidence were submitted. However, since the genuineness of the entire purchase amount was not established, the full amount ought to have been added as income. This omission has led to underassessment of income by Rs. 23,46,38,283 and short levy of tax of Rs. 3,93,69, 175 (excluding interest).

3. In view of the above, it is seen that the order passed u/s 143(3) r.w.s. 144B of the Act on 26.03.2024is erroneous and prejudicial to the interests of revenue and is required to be set-aside on the above issue by invoking the provisions of section 263 of the Act. Hence, it is requested to show-cause as to why the same should not be quashed/set aside for fresh adjudication after considering the facts as discussed above…”

4.1 Before the Ld. PCIT, the assessee made various submissions, broadly covering the following points:

• That the entire purchases were duly recorded in the assessee’s books of accounts, and that party-wise details of the suppliers, together with their addresses, PAN details, copies of GST/tax invoices, and bank statement highlighting payments made to the parties, had been provided to the Ld. AO on specific requisition made by him.
• That the Ld. AO had made indepth independent enquiries in respect of the impugned purchases by issue of notices u/s 133(6) of the Act.
• That, in view of the above, the impugned assessment order cannot be considered erroneous and prejudicial to the interests of revenue in terms of Explanation 2 to section 263 of the Act.
• That section 69C of the Act is inapplicable in the case of the assessee because payments for purchases were made through normal banking channels and were duly reflected in the assessee’s books of account, and the Ld. AO had never disputed the source of funds used for the said purchases.
• That nothing was brought on record by the Ld. AO to show that the parties from whom the company has purchased goods or services were bogus parties involved in providing bogus accommodation entries.
• That, where an order passed by the Assessing Officer has been made the subject matter of appeal, the powers of the PCIT or CIT cannot extend to such matters which had been considered or decided in such appeal. In other words, since the assessee has already filed appeal before the learned CIT(A), inter alia, on the issue of alleged unaccounted/bogus purchases, revisional jurisdiction cannot be exercised by the PCIT in a manner which would result in depriving the appellate authority of the power to examine the correctness of the order under appeal.

4.2 The Ld. PCIT, however, held the impugned assessment order to be both erroneous and prejudicial to the interests of Revenue. The gist of her contention was that –

• Although addition had been made by the AO of Rs. 1,72,80,113/- as unaccounted purchases u/s 69C of the Act, the tax rate applied by him was 30% instead of 60% as per the provisions of section 115BBE of the Act. This resulted in short levy of tax of Rs. 1,13,17,060/-, including interest under section 234B of the Act, rendering the assessment order both erroneous and prejudicial to the interests of revenue.
• Since the AO had himself mentioned that the impugned purchases were unexplained, there was no basis to treat only 25% of the said purchases as bogus purcases. Further, considering that there was no response from 22 suppliers to notices issued u/s 133(6) of the Act, the AO was duty bound to add back 100% of the unexplained purchases instead of restricting the disallowance to only 25%, resulting thereby in under-assessment of income.
• Notwithstanding the assessee’s appeal on the same issue or some other issue, the PCIT can very well consider all issues relating to the order of the Assessing Officer u/s 263 of the Act if the issues are erroneous and prejudicial to the interest of revenue. Even otherwise, while the assessee was in appeal before the Ld.CIT(A) against addition of 25% of bogus purchases, the present revision proceedings are on the issue of the balance 75% of bogus purchases which has not been added by the AO and is, therefore, not a subject matter of appeal.
• A catena of judicial pronouncements has been cited by the learned PCIT to support her view as above. These include –

a) CIT v. Amitabh Bachchan (2016) 384 ITR 200 SC.

b) ITO v. DG Housing Projects (2012) 343 ITR 329 (Delhi)

c) Malabar Industrial Company Ltd (2000) 109 Taxman 66(SC)

d) CIT v Bhagwan Das (2005) 272 ITR 367(Allahabad).

5. Before us, the Ld. Authorised Representative (AR) on behalf of the assessee submitted a written statement wherein the following points have been taken up to counter the stand taken by the PCIT in the proceedings u/s section 263 of the Act –

• That the order u/s 263 is unsustainable because the Ld. AO had already considered and adjudicated on both the issues on which the PCIT has exercised revisionary jurisdiction.
• The AO has, after scrutinizing the submissions of the assessee, applied his mind and chosen to make a disallowance of 25% of the purchases where confirmations were not received from the suppliers.
• It is not mandatory to charge tax at the rate of 60% on application of section 115BBE if the addition is made in respect of items forming part of the business income of the assessee. This, as stated, has a number of judicial precedents which the assessee has cited in the written statement.
• The scope of section 263 does not allow the PCIT to give directions to the Assessing Officer to invoke action u/s 154 for rectifying the alleged error in not levying tax at the rates prescribed under section 115 BBE.
• The disallowances made by the Assessing Officer are a subject of appeal before the Ld. CIT(A). It is settled law that on the very same issue there cannot be a parallel exercise of jurisdiction by the PCIT as well as the CIT(A).
• Where two views are possible and the Assessing Officer has taken one of the courses permissible in law, the PCIT cannot invoke powers under section 263 to substitute his own judgment for that of the Assessing Officer.
• Since section 263 does not empower the PCIT to issue a direction which pre-decides the issue, the PCIT was wrong in directing the AO to make a 100% addition in respect of the payments treated by him as unexplained under section 69 C of the Act. Such a direction must necessarily be quashed and set aside.
• The assessee has referred to various judicial pronouncements to support its view. These include –

(a) CIT v Nirav Modi (2017) 390 ITR 292(Bom),

(b) Smt. Renuka Phillip v ITO (2018) 409 ITR 567(Madras),

(c) Kirit Brajlal Babaria v DCIT – ITA 2939/M/2009

6. Per contra, the Ld. CIT DR supported the order of the PCIT, arguing that once the AO found the supplies to be unexplained, he should have treated the entire amount of Rs 31,28,51,043/- as bogus purchases. Similarly, once he added back Rs 1,72,80,113/- as unaccounted purchases u/s 69C of the Act, he should have applied the tax rate of 60% instead of 30%. Failure on his part to do so made the assessment order both erroneous and prejudicial to the interests of revenue.

7. We have perused the rival submissions of both the parties in the light of the material placed on record, including the case laws relied upon. Admittedly, the Ld. AO has, during the course of assessment proceedings, carried out detailed enquiries regarding the impugned purchases. From the Paper Book submitted by the assessee it can be seen that detailed submissions had been made by the assessee in this regard in response to notice under section 142(1) of the Act. Copy of Purchase Register showing addresses, PAN details and total amounts pertaining to individual suppliers has been furnished together with sample copies vendor invoices. The Ld. AO also carried out his own independent inquiries by issue of notices u/s 133(6). After examining all these details he had drawn his own conclusions and had restricted addition on account of unverified purchases to 25% of the purchases claimed. In this backdrop, given the peculiar factual matrix of the case in hand, we need to make a distinction between lack of inquiry and alleged inadequate inquiry. So the larger question to be answered is whether the PCIT, by invoking revisionary powers under section 263 of the Act, can impose his own understanding about the extent of inquiry that is required in any particular case.

8. But before we answer the aforesaid question, it is important to note that in the present context the impugned assessment order has been challenged before the Ld. CIT(A) and the same is pending. It transpires from records that while appeal in Form 35 was filed before the CIT(A) on 22/4/2024, the notice under section 263 was issued much later on 11/4/2025. Thus, when the notice under section 263 was issued, the addition/disallowance on account of purchases was already a subject matter of appellate proceedings before the Ld.CIT(A). So the next question which needs to be answered is whether, in the given circumstances, the PCIT could have exercised revisionary powers over issues which were pending adjudication with the CIT(A) notwithstanding the provisions of clause (c) of Explanation 1 to section 263 of the Act.

9. It is our considered view that in the given circumstances it cannot be said that the Ld. AO had not applied his mind while making the addition/disallowance on account unverified purchases. There is sufficient material on record to show that the AO had, in the instant case, called for various details to examine the genuineness of the impugned purchases. On due analysis of material gathered by him, he come to his own conclusion regarding what needs to be added back to the assessee’s total income. Whether or not he could have conducted further enquiries is, in our view, not within the scope of determination under section 263 of the Act, unless it falls within the mischief of Explanation 2 to section 263 of the Act. We refer to the decision of the Hon’ble Delhi High Court in the case of CIT v Sunbeam Auto, 332 ITR 167 (Delhi) where it was, inter alia, held that it is the prerogative of the AO to make inquiry to the extent he feels proper.

9.1 We also agree with the Ld. AR that once the issue of disallowance of purchase is a subject matter of appellate proceedings before the Ld. CIT(A), the same cannot again be the subject matter of re-verification and re-adjudication from some different perspective by the Ld. PCIT under his revisionary jurisdiction powers u/s 263 of the Act. Doing so would amount to disregarding the provisions of clause (c) of Explanation 1 to section 263, and this has been so held by different Courts/Tribunals. In the present case, both the issues taken up by the Ld. PCIT – addition under the head of unaccounted purchases and estimated disallowance of unverified purchases – are pending adjudication before the Ld. CIT(A). The issue regarding the rate of tax chargeable u/s 115BBE of the Act also automatically gets merged with the above issues, and does not need to be separately taken up in proceedings u/s 263 of the Act.

10. We may mention that on identical facts, the Co-ordinate Bench of the Tribunal, in the case of Cupid Diamonds Pvt Ltd v. PCIT (ITA No. 478/MUM/2025) quashed the order of the PCIT u/s 263 of the Act. Relevant excerpt from the said decision is reproduced hereunder:-

“5. We have carefully examined the facts of the case. We find that as per the assessment order, the AO has discussed all the relevant facts of the above purchases and the details submitted. It was observed by him that the some of the parties did not comply with notice u/s 133(6) of the Act. Finally, he rejected the genuineness of the said purchase transaction and made part disallowance at the rate of 10% of the said unverified transactions. Thus, we notice that a detailed enquiry is evident from the assessment order. In this case, during the assessment the AO issued query memos to the assessee, calling upon it to justify the genuineness of the purchase. The assessee responded to the same by giving necessary evidence. On perusal, the AO was not satisfied and he drew an adverse conclusion w.r.t. the said purchase after making due enquiries and investigations. We find that the impugned transaction has been duly examined and consequently the AO disallowed the same although on estimated basis rather than taxing the entire disputed purchases u/s 69C and simultaneous taxing at higher rate with initiation of penalty as well as observed by the ld. PCIT.

5.1 We further note that the AO by already making the disallowance of the said purchase had caused greater prejudice to the assessee in the assessment. Moreover, the said assessment is challenged before the ld. CIT(A) and the same is pending. While this is so, we are afraid whether the same issue could be the subject matter of revision proceedings u/s 263 of the Act by seeking to look into the very same issue from different perspective. We find that the action of the ld. PCIT is in complete disregard to the specific provisions of clause(c) of Explanation to section 263(1) of the Act, which places a clear embargo on the ld. PCIT with respect to exercise of revisionary jurisdiction on assessments which have been subject matter of appeal. Reliance in this regard is placed on the decision of the Hon’ble Calcutta High Court in the case of Oil India Ltd vs CIT reported in 138 ITR 836 (Cal) wherein, the hon’ble Court while interpreting the scope of powers of the Commissioner u/s 263 of the Act held that where an appeal-is preferred before the Appellate Assistant Commissioner oner (AAC) and a subject is particularly raised, he cannot revise such an order taking into account an aspect not dealt by the AAC.

5.2. Further, we are of the considered opinion that the ld. CIT(A) having conferred with the co-terminus powers with that of the AO has got ample power to even enhance the assessment if circumstances so warrant. Just because the ld. CIT(A) had not exercised his enhancement powers in the instant case, even if it is to be done, that would not confer automatic revisionary power u/s 263 of the Act for the ld. PCIT. In this regard, the reliance placed by the ld. AR on the observations of the Hon’ble Supreme Court in the case of Jute Corporation Ltd in 187 ITR 688 and CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225(SC), the Court inter alia held that under section 31(3)(a) in disposing of such an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income-tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is co- terminus with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do…….” These observations are squarely applicable to the interpretation of section 251(1)(a) of the Act. Even otherwise, an appellate authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. The appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter.

5.3 Accordingly, we hold that the issue of disallowance of purchase is already the subject matter of appellate proceedings before the ld. CIT(A) and hence the same cannot be the subject matter of re- verification and re-adjudication from different perspective by the ld. PCIT under revisionary jurisdiction u/s 263 of the Act. Hence, the action of the ld. PCIT in invoking revisionary jurisdiction u/s 263 of the Act deserves to be quashed on this count also.

5.4 Moreover, a detailed inquiry made by the AO, cannot make the order erroneous. It is his prerogative to make inquiry to the extent he feels proper. The ld. PCIT by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There are plethora of judgments by various High Courts in this regard. The hon’ble Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between ‘lack of inquiry’ and ‘inadequate inquiry’. The hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. It was observed that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open. The hon’ble Bombay High Court in case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the following manner:

“The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.”

5.5 The hon’ble Supreme Court in the another case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd. [2020] 114 taxmann.com 545 (SC), dismissed the Revenue’s SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law.

5.6 Moreover, where two views are possible and the AO has taken one view with which the ld. PCIT does not agree, it cannot be treated as an erroneous order causing prejudice to the interests of the Revenue unless the view taken by the AO is unsustainable in law or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind. Making estimated addition on unproved purchases itself is a debatable issue with various contrary judicial decisions. In such a situation also, the AO having taken one of the plausible views cannot be faulted with.

5.7 In view of the aforesaid findings, on the facts and circumstances of the case, we are of the considered opinion that in the instant case, Id. PCIT erred in invoking revisionary jurisdiction u/s 263 of the Act on the ground of that the AO failed to apply correct provisions of the Act and failed to add back entire unverified purchases. Moreover, the ld. PCIT has taken one of the plausible views that the impugned purchase should have been taxed under the provisions of section 69C of the Act treating it to be unexplained expenditure. We are afraid, even this view of the ld. PCIT may be subjected to debate as to whether the purchases duly reflected in the books of account could be brought within the purview of this section when the book results have been accepted. It goes without saying that on the facts and the circumstances of the case, the AO did not consider appropriate to initiate penalty proceedings. The ld. PCIT therefore, cannot direct him to take a different course of action than that adopted by the AO. Besides, the (issue in hand is still pending for adjudication before the first appellate authority who himself is adequately empowered to take a different view of the matter. Accordingly, we set aside the order of the Id. PCIT quashing the same and allowing the grounds of appeal.”

11. The same decision, which substantially applies to the instant case, was followed in a more recent decision of the Mumbai Bench of ITAT in M. P. Trading Company v. PCIT (ITA 1107/MUM/2026).

12. In view of the above, it is our considered view that the action of the Ld. PCIT in invoking revisionary jurisdiction u/s 263 of the Act in this case deserves to be quashed. We, accordingly, set aside the order passed by the Ld. PCIT u/s 263 of the Act for A.Y. 2022-23.

13. Since the assumption of jurisdiction u/s 263 of the Act stands quashed in this case, other grounds do not require separate adjudication at this stage.

14. In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 25/09/2026