Section 263 Valid Where AO Dropped Bogus Purchase Addition Without Enquiry: ITAT Chandigarh

By CA Vijayakumar Shetty Income Tax Judiciary August 7, 2026

TaxGuru Citation: 2026 taxguru.in 10351
Case Name: Subhash Kumar Dua Vs PCIT (ITAT Chandigarh)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2022-23
Courts: All ITAT, ITAT Chandigarh

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Subhash Kumar Dua Vs PCIT (ITAT Chandigarh)

Chandigarh ITAT Upholds Section 263 Revision: AO Cannot Drop Proposed Bogus Purchase Addition Without Completing Enquiry or Recording Reasons

The Chandigarh ITAT dismissed the assessee’s appeal and upheld the Principal CIT’s revisionary order under Section 263, holding that where the Assessing Officer himself records that purchases are unverifiable and even proposes a disallowance, he cannot subsequently drop the proposed addition without conducting further enquiry or recording reasons as to how his doubts stood resolved. Such an assessment order is both erroneous and prejudicial to the interests of the Revenue.

The assessee, engaged in the wholesale scrap business, was selected for scrutiny under CASS on the issue of low income from TCS receipts. During assessment, the AO issued notices under Section 133(6) to ten suppliers. While replies were received from only a few parties, the AO observed that purchases from several suppliers remained unverifiable and even issued a show-cause notice proposing 25% disallowance of such purchases. However, without making any further enquiry or explaining how the deficiencies were overcome, the AO accepted the assessee’s explanation and completed the assessment without any addition.

The Tribunal held that this was not a case of adopting one of two possible views, but a case of incomplete enquiry and non-application of mind. The principle of a “possible view” is available only where the Assessing Officer has conducted adequate enquiry, examined the material and consciously reached a legally sustainable conclusion. It cannot protect an assessment where the AO himself found the purchases to be unverifiable but abandoned the proposed addition without proper verification or reasons.

Accordingly, the Tribunal upheld the exercise of revisionary jurisdiction under Section 263 and directed the Assessing Officer to re-examine all documentary evidence, including confirmations, bank statements, e-way bills and other supporting documents, conduct such further enquiries as necessary, and pass a fresh speaking order after granting adequate opportunity to the assessee. The Tribunal clarified that it had expressed no opinion on the merits of the proposed addition, leaving all issues open for fresh adjudication.

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