CP Wholesale India Private Limited Vs PCIT (ITAT Delhi)
Delhi ITAT Quashes Section 263 Revision of ₹93 Crore Foreign Share Capital: PCIT Cannot Order “Deeper Enquiry” When AO Had Already Examined Identity, Genuineness & Creditworthiness
The Delhi ITAT quashed the PCIT’s revisionary order under section 263 concerning share capital and premium of approximately ₹93 crore received from the assessee’s foreign parent, holding that the PCIT cannot revise an assessment merely because he believes the AO should have conducted a “deeper enquiry” into an issue already examined during scrutiny.
During assessment, the AO had specifically sought details concerning the share capital, including the applicability of section 56(2)(viib) and subsequently the creditworthiness of the investor. The assessee explained that section 56(2)(viib) was inapplicable since the investment was from a non-resident and furnished extensive evidence regarding the foreign investor. The AO ultimately made only a transfer-pricing adjustment and accepted the creditworthiness of the investor without making any section 68 addition.
The investor, Makro ROH Company Ltd., was the assessee’s immediate foreign parent and an existing shareholder. The assessee had furnished its Thai corporate registration, directors’ details, income-tax returns, audited financial statements, evidence of substantial net worth, bank remittance documents, SWIFT/telegraphic transfer confirmations and contemporaneous correspondence relating to the investment. The Tribunal found that these documents established that the money had moved transparently through banking channels and supported the identity, genuineness and creditworthiness of the investor.
Significantly, the same shareholder and similar share-capital transactions had also been examined in AYs 2017-18 and 2018-19 without adverse inference. Referring to CIT v. Escorts Ltd., the Tribunal emphasised the principle of consistency and held that section 263 cannot ordinarily be invoked on fundamental aspects of transactions on which the Revenue had already accepted a particular view in earlier years.
The ITAT rejected the PCIT’s reasoning that the assessment order did not discuss the share-capital issue in detail. Silence in the assessment order does not mean absence of enquiry. Whether an enquiry was made must be determined from the entire assessment record, not merely from what is expressly recorded in the assessment order. Relying on Sunbeam Auto Ltd. and Vikas Polymers, the Tribunal reiterated the crucial distinction between “lack of enquiry” and “inadequate enquiry.”
The Tribunal further held that if the PCIT considered the AO’s enquiry inadequate, he was required to conduct his own enquiry, at least minimally, and record a categorical finding demonstrating how the AO’s conclusion was erroneous. He could not simply set aside the assessment and direct the AO to re-examine the very same material.
Following Malabar Industrial Co. Ltd., Delhi Airport Metro Express Pvt. Ltd. and D.G. Housing Projects Ltd., the ITAT held that a different opinion regarding the manner or depth of enquiry does not satisfy the twin requirements that the assessment order must be both “erroneous” and “prejudicial to the interests of Revenue.” The section 263 order was accordingly quashed and the assessee’s appeal allowed.
Cases Discussed
- PCIT Vs. Delhi Airport Metro Express Private Limited (Delhi HC), ITA No.705/2017 order dated 05.09.2017
- ITO Vs. D.G. Housing Projects Ltd. (Delhi HC), (2012) 343 ITR 329 (Del)
- Commissioner of Income-tax vs. Vikas Polymers (Delhi HC), [2012] 341 ITR 537 (Delhi)
- CIT v. Sunbeam Auto Ltd. (Delhi HC), (2011) 332 ITR 167 (Del)
- CIT v. Escorts Ltd. (Delhi HC), [2011] 9 com 222 (Delhi)
- Malabar Industrial Co. Ltd. v. CIT (SC), (243 ITR 83)
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is preferred by the assessee against the order dated 27.03.2026 of the Ld. PCIT, Delhi-1 (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘Revisionary Authority’) in DIN & Order No: ITBA/REV/F/REV5/2025-26/1088017470(1) arising out of the assessment order dated 23.11.2023 u/s 143(3)r.w.s 144C(3)r.w.s 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by Assessment Unit, Income Tax Department, for AY: 2020-21.
