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. VikasPolymers (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.
2. Heard and perused the records. The facts are that assessee’s return of income was subjected to scrutiny notice u/s 143(2) of the Act and on 08.02..2022 the Ld. AO issued questionnaire u/s 142(1) seeking various information including details of parties to whom share capital is issued and share valuation report for the purpose of section 56(2)(viib) of the Act. On 22.02.2022 the Appellant filed response providing details of the non-resident investor in the given format and confirmation from such investor. The Appellant also explained since the investment was made by non-resident shareholder provision of section 56(2)(viib) shall not apply. On 21.07.2023 the ld. AO issued questionnaire u/s 142(1) asking to establish creditworthiness of the investor and seeking the details of the investor such as ITR, B/S & P/L, bank statement, correspondence copies. details of directors, nature of business of investor. and net worth of the investor and vide reply dated 03.08.2023 the Appellant furnished the response giving all details as asked by the AO to establish the creditworthiness of the investor, which inter alia included name, address of investor, nature of business of the investor, net worth of the investor both in INR/Thai Baht, financial statement of the investor, copy of ITR of the investor, bank outward remittance details and correspondence exchanged between the company and the investor. On 23.11.2023 the ld. ld. AO passed the final assessment order making addition only with respect to transfer pricing adjustment thereby accepting the creditworthiness of the investor.
2.1 Further the similar issue was also examined in AY 2018-19 and AY 2017-18 wherein no adverse inference was made in relation to the issuance of share capital.
3. However, the Ld. PCIT while exercising his revisionary powers issued a show cause notice u/s 263 of the Act on 12.01.2026, on the aforesaid issue of allotment of share capital under section 68 of the Act. Assessee responded to notice but vide impugned order dated 03.03.2026 the Ld. PCIT held that there was failure to carry out deeper inquiry with respect to the creditworthiness of the investor would call for revision of assessment order under Section 263 of the Act and directed Ld.AO to re-examine the records of the case and again pass order after satisfying himself about the 3 essential ingredients of the section 68 of the Act. The assesse has challenged the same with following grounds;
“1. On the facts and circumstances of the case & in law, the order dated March 27, 2026 passed by the Learned Principal Commissioner of Income tax (‘Ld. PCIT) under section 263 of the Income Tax Act 1961, (the Act) is erroneous and bad in law.
Improper assumption of jurisdiction under section 263 of the Act:
2. On the facts and circumstances of the case & in law, the Id. PCIT erred in assuming revisional jurisdiction under section 263 of the Act and directing the Ld. AO to re-examine the amount of share capital received by the Appellant in light of condition to invoke section 68 of the Act, and in doing so grossly erred in:
2.1 Invoking provision of section 263 of the Act without satisfying the mandatory twin conditions that the assessment order dated November 23, 2023 is both “erroneous” and “prejudicial to the interests of the Revenue”.
2.2 Not appreciating the fact that Ld. AO had already examine and completing enquired in respect issuance of share capital during the course original assessment proceeding, and only thereafter taken view not to proceed with addition under section 68 of the Act in the case of appellant which Ld. PCIT cannot substitute by his own view in the grab of invoking provisions of section 263 of the Act.
2.3 Not appreciating the fact that Explanation 2 to section 263 of the Act had no application on the facts of case as the Ld. AO as proper and complete enquiries in respect of issuance of share capital being carried out in the original assessment proceeding.
2.4 Not appreciating that recourse to revisional powers under section 263 cannot be exercised in a case where the transaction has been examined and accepted by the revenue in the previous assessment year, such an approach is against the principle of consistency,
2.5 Not appreciating that the concluded assessment proceedings cannot disturbed merely on the change of opinion of the Ld. PCIT on the issue which is already examined and decided by the Ld. AO in the course of assessment proceedings.
Incorrect invocation of Section 68 of the Act on the share capital and share premium
3. On the facts and circumstances of the case & in law, the Ld. PCIT erred in alleging that the entire share capital & premium of INR 92,99,99,910 as unexplained cash credit under section 68 r.w.s.115BBE of the Act, in doing so grossly erred in:
3.1 Not appreciating that the Appellant has duly discharged its onus under section 68 of the Act by establishing identity, genuineness and creditworthiness of the investor through adequate supporting evidence.
3.2 Failed to appreciate that the investment being made by the Shareholder during the year in compliance and in conformity with the FEMA regulations and through proper banking channel issued by the Reserve Bank of India (RBI).
3.3 Failed to appreciate that the creditworthiness of Makro ROH Company Limited (Shareholder/Makro ROH) is duly established by the appellant and being duly supported by financial capacity and adequate net worth of the investor and the PCIT erred in making irrelevant reference that the investor is a loss-making entity.
3.4 Failed to appreciate that the non-resident shareholder being an existing shareholder
whom fresh share capital being issued during the year and in the initial year of subscription original share capital, the same being accepted by examining the issue under section 68 of the Act while completing the assessment under section 143(3) of the Act for the AY 2018-19.
The Appellant craves leave to alter, amend, or withdraw all or any of the Grounds of Appeal herein above or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary either before or during the hearing.”
4. On hearing both sides, we find that primarily the contention of assesse is that the issues was well examined by the ld. AO and Ld. DR rebuts that same by relying impugned order and submitting merely raising of queries is not sufficient.
5. We have considered the rival contention and examined the material before us. Revenue cannot dispute that the Ld. AO had made enquiries regarding the issuance of share capital by the Appellant to its existing shareholder, not only in relation to section 56(2) (viib) of the Act but also section 68 of the Act, and the Appellant duly responded to all such enquiries. These facts have also been acknowledged by the Learned PCIT in his directions. But, the Ld. PCIT in its impugned order alleged that the Ld. AO did not discuss the issue in detail in its assessment order. Extract from the order of Ld. PCIT is mentioned as below:
“6.7…….. In fact, in the assessment order, the AO has not even discussed this issue in detail ……….”
6. Admittedly appellant issued shares to its existing shareholder, MakroRoh, and the identity, nature of the transaction, genuineness and creditworthiness of this shareholder in respect of earlier tranches of share capital had already been examined in AY 2018-19 & AY 2017-18. The Delhi High Court in CIT v. Escorts Ltd. [2011] 9 com 222 (Delhi) has categorically held that where the assessee has been consistently engaged in similar transactions inearlier years and the Revenue has accepted a particular view, the Commissioner “could have had no occasion to take recourse to revisional powers under section 263 of the Act on the fundamental aspects of the transactions in issue on which a view had been taken and, not shown to us as having been challenged”.
7. Admittedly the assessment was completed under section 143(3) of the Act after issuance of detailed queries duly responded. Factually, during the course of assessment the Appellant duly submitted that the investor, Makro ROH, is the immediate parent company of the Appellant. The Appellant also placed on record Thai corporate registration details, director information, and income-tax returns of Makro ROH. To establish the genuineness of the share capital transaction, the Appellant has furnished, Audited financial statements of Makro ROH, wherein the investment in the Appellant is duly reflected (page no. 109-132 of paperbook), Bank documents evidencing outward remittances from Makro ROH to the Appellant through regular banking channels, including SWIFT/outward telegraphic transfer confirmations from Standard Chartered Bank, carrying dates, reference numbers and foreign exchange details (page no. 177-179 of paperbook), Sample copies of contemporaneous correspondence with Makro ROH preceding the issuance of shares, demonstrating that the transaction was pre-planned and duly documented (page no. 180-184 of paperbook).These documents clearly demonstrate that the funds have moved from the bank account of the foreign parent to the Appellant in a transparent manner, leaving no scope to doubt the genuineness of the transaction. As with regard to the creditworthiness of Makro ROH, its financial statements showing substantial net worth and capital base and the capital structure and availability of sufficient funds to make the investment in the Appellant were filed. The appellant’s comprehensive details, explanations and supporting documents in respect of share capital, furnished vide replies dated 22/02/2022 (page 93-97 of PB) and 03/08/2022 ( Page 99-105 of PB), have all the relevant facts which primarily needed to examine the creditworthiness, which were duly taken on record by ld. AO to reach a conclusion that transaction was genuine and chose not to make any addition under section 68 of the Act.
8. Now, the Ld. PCIT, while exercising powers under section 263, has sought to set aside the assessment for ‘deeper enquiry’ of the same material that was already on record, merely on the premise that deeper enquiry on creditworthiness was required and that the issue needs to be “re-examined”. Thus actually directing ld. AO to revisit the view taken earlier which is not permissible under the law. In this regard, we are of considered view that it is a settled position of law that the Ld. PCIT cannot invoke revisionary provision just because he has different opinion in respect of manner of enquiry and the conclusion drawn from the same sets of facts placed before the Ld. AO. Reliance is placed on the decision of Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT (243 ITR 83) where Hon’ble Apex Court has held that where the AO has adopted one of the possible courses permissible in law, resulting in a loss of revenue, such order cannot be treated as “erroneous” merely because the Commissioner does not agree with that view, unless the view taken by the AO is unsustainable in law.In the case in hand as we appreciate the impugned order and findings of ld. PCIT, we find no word of discussion to show how the evidences filed by the assessee were not relevant or inadmissible in law to arrive at conclusion that transaction was genuine.
9. Addressing contention of ld. DR that assessment order is silent on enquires and resultant findings, we are of considered that on its own this cannot lead to inference that no enquiry was made. In this regard we are of considered view that the sufficiency or absence of AO’s enquiry must be ascertained from the assessment records as a whole, not merely from the written order.
9.1 Then settled legal position is that the existence and adequacy of enquiry must be determined from the entire assessment record and surrounding circumstances, and not solely from the face of the assessment order.Reliance in this regard is placed on the decision of Hon’ble Delhi High Court in case of CIT v Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del)) held as:
“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission 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.”
9.2 Similarly Hon’ble Delhi High Court in case of Commissioner of Income-tax vs. VikasPolymers [2012] 341 ITR 537 (Delhi) held that:
“18 …..This is for the reason that if a query is raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision.”
10. Coming to fundamental allegation of ld. PCIT, that the Ld. AO conducted only a “grossly inadequate enquiry” and that “deeper enquiry” was required in relation to the share capital issued at premium. The Ld. PCIT himself records that the Ld. AO examined the Appellant’s replies and details of the share subscribers/investors, but considers such enquiry to be insufficient and not exhaustive, without adding further to the issue by his own enquiry or factual assertions from the material on record in assessment record that the conclusion of acceptance of transaction as genuine was not sustainable in law. Therefore, if the ld. PCIT intended to hold that there is any error in the order of the Assessing Officer, which can be corrected by further enquiry then ld. PCIT should give a categorical finding by his own enquiries and investigations, howsoever, minimal be that. Hon’ble Delhi High Court in the case of PCIT Vs. Delhi Airport Metro Express Private Limited vide ITA No.705/2017 order dated 05.09.2017 has held that for the purpose of exercising jurisdiction u./s. 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interest of the revenue has to be preceded by some minimal inquiry. If the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. If he does not conduct such basic exercise then the PCIT is not justified in setting aside the order u/s. 263 of the Act. Reliance for this can also be placed on the Hon’ble Delhi High Court decision in ITO Vs. D.G. Housing Projects Ltd. (2012) 343 ITR 329 (Del), whereby the Hon’ble High Court held as under :
“16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.”
11. Thus we are inclined to sustain the grounds. The appeal is allowed and impugned order is quashed.
Order pronounced in the open court on 07.08.2026
