Case Law Details
NJ India Invest Private Limited Vs PCIT (ITAT Surat)
In a decision concerning revisionary powers under Section 263 of the Income-tax Act, the Income Tax Appellate Tribunal quashed the order passed by the Principal Commissioner of Income Tax against the assessee for Assessment Year 2021-22. The assessee-company, engaged in the business of acting as a broker, sub-broker, and distributor of financial products, had filed its return declaring total income of Rs.2,05,54,38,900/-. The case was selected for complete scrutiny under CASS on the allegation that substantial purchases were made from suppliers who were either non-filers or had filed non-business returns or disclosed lower turnover. The assessment was completed under Sections 143(3) read with 144B, accepting the returned income.
Subsequently, the Principal Commissioner examined the assessment records and initiated revision proceedings under Section 263 on the ground that the Assessing Officer had failed to properly verify certain transactions reflected in the Insight Portal, particularly GST/TAS data. Notices under Section 133(6) had been issued to nine parties. Out of these, two parties did not respond, while one party allegedly denied having entered into transactions with the assessee despite GST data reflecting purchases. Based on this, the Principal Commissioner concluded that an amount of Rs.85,06,543/- was liable to be treated as unexplained expenditure under Section 69C read with Section 115BBE. The assessment order was therefore set aside with a direction to frame a fresh assessment after proper verification.
Before the Tribunal, the assessee argued that it operated as a broker and commission agent for canvassing mutual fund products and therefore there could not be any question of substantial purchases from suppliers. It was submitted that the Assessing Officer had already conducted inquiries during assessment proceedings by issuing notices under Sections 142(1) and 133(6), calling for details, and examining the material furnished. During the Section 263 proceedings, the assessee also produced ledger accounts, KYC documents, holding statements, transaction reports, confirmations, and bank statements relating to the concerned parties. The assessee further contended that the transactions with the non-responding parties represented investment facilitation activities and did not contain any income element. Reliance was placed on the Supreme Court ruling in Malabar Industrial Co. Ltd. v. CIT to argue that both conditions—an erroneous order and prejudice to the interests of Revenue—must coexist before invoking Section 263.
The Tribunal examined the assessment records and observed that the Assessing Officer had indeed issued notices under Sections 142(1) and 133(6), sought explanations on various issues, and received replies from seven out of nine parties. The non-response from two parties was already part of the assessment record. The Tribunal held that merely because the assessment order did not contain elaborate discussion, it could not be presumed that no inquiry had been conducted. Therefore, it was not a case of complete absence of inquiry.
The Tribunal further noted that the Principal Commissioner primarily relied on GST data available on the Insight Portal for treating the amount as unexplained expenditure under Section 69C. However, no categorical finding had been recorded to establish that the assessee incurred expenditure from undisclosed sources. The assessee consistently maintained that the disputed transactions related to client investments. The Tribunal also observed that the materials produced during revision proceedings, including ledger accounts and bank statements, had not been found false or fabricated. It held that discrepancies in third-party data, without proper reconciliation or independent verification, could not by themselves render the assessment order erroneous. The Tribunal additionally noted that the assessee was subject to statutory audit and had disclosed substantial taxable income of Rs.2,05,54,38,896/-, reflecting a net profit ratio higher than earlier years.
Holding that the Assessing Officer had examined the issues and accepted the assessee’s explanations after inquiry, the Tribunal concluded that the Principal Commissioner failed to demonstrate how the assessment order was both erroneous and prejudicial to the interests of Revenue. Applying the principles laid down by the Supreme Court in Malabar Industrial Co. Ltd., the Tribunal held that the twin conditions required for invoking Section 263 were not satisfied. Consequently, the revisionary order passed under Section 263 was quashed and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT SURAT
This appeal filed by the assessee is directed against the order passed by the learned Principal Commissioner of Income-Tax, Surat-1, Surat [herein-after referred to as “PCIT”] dated 28.03.2025, in exercise of revisionary powers under Section 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year (AY) 2021-22.
2. The assessee has raised following grounds of appeal :-
“1) The ld. PCIT has erred in law and on facts in passing the order u/s. 263 of the Act when the Id. AO has not failed to make the inquiries or verification which should have been made and hence when the order of the Id. AO is not erroneous.
2) The Id. PCIT has erred in law and on facts in passing the order u/s. 263 of the Act when the order of the Id. AO is not prejudicial to the interest of the revenue.
3) The Id. PCIT has erred in law and on facts in assuming jurisdiction u/s. 263 of the Act on the basis of incorrect data reflected on insight portal.
4) The Id. PCIT has erred in law and on facts in passing the order u/s. 263 of the Act on misappreciation of facts of the appellant’s case.”
3. The briefly stated facts of the case are that the assessee-company is engaged in the business of acting as “broker, sub-broker and distributor of financial products”. The return of income for the year under consideration was filed on 28.02.2022 declaring total income of Rs.2,05,54,38,900/-. The case was selected for “complete scrutiny” under CASS on the ground that the assessee had allegedly made substantial purchases from suppliers who were either non-filers or had filed non-business returns or reflected lower turnover. The assessment was completed u/s 143(3) r.w.s. 144B of the Act on 21.12.2022 accepting the returned income.
3.1 Subsequently, the Ld. PCIT examined the assessment records and issued show cause notice under section 263 of the Act on the ground that the Assessing Officer had failed to properly verify certain transactions reflected in the Insight Portal, particularly GST/TAS data. It was observed that notices u/s 133(6) were issued to nine parties, out of which two parties did not respond and one party, namely Interglobe Hotels Pvt. Ltd., denied having entered into any transaction with the assessee, whereas GST data allegedly reflected purchases. The Ld. PCIT concluded that an amount aggregating to Rs.85,06,543/- was liable to be treated as unexplained expenditure u/s 69C r.w.s. 115BBE of the Act. The Ld. PCIT also observed that the Assessing Officer had failed to make proper inquiries regarding expenses claimed by the assessee. Accordingly, the assessment order was set aside with a direction to frame fresh assessment after proper verification.
4. Aggrieved by the order of the Ld. PCIT, the assessee is now in appeal before the Tribunal.
5. The Ld. AR submitted that the assessee-company carried on the business of acting as a Broker, i.e. commission agent for canvasing financial products (Mutual Funds) and, therefore, there cannot be any question of making substantial purchases from suppliers. It was submitted that the Assessing Officer had issued notices u/s 142(1) and 133(6), called for details and examined the material furnished. During the proceedings u/s 263 of the Act, the assessee furnished ledger accounts, KYC documents, holding statements, transaction reports, confirmations and bank statements in respect of the concerned parties. The Ld. AR argued that the transactions with the two non-responding parties represented investment facilitation and no income element was embedded therein. The Ld. AR relied upon the judgment of the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT, 109 Taxman 66, and contended that both the conditions of an order being erroneous and prejudicial to the interests of the Revenue must co-exist before invoking section 263 of the Act.
6. The Ld. DR, on the other hand, supported the order of the Ld. PCIT.
7. We have heard the rival submissions and perused the material available on record. The scope of revision under section 263 is well settled. The Hon’ble Supreme Court in Malabar Industrial Co. Ltd. (supra) has categorically held that for invoking jurisdiction under section 263, the order of the Assessing Officer must be erroneous and it must be prejudicial to the interests of the Revenue. Both the conditions are to be satisfied. On perusal of the assessment records, we find that the Assessing Officer had issued notice under section 142(1) calling for details on various points and had also issued notices under section 133(6) to nine parties based on data available on the Insight Portal. Replies were received from seven parties and the non-response from two parties was a matter on record. The mere fact that the assessment order does not contain elaborate discussion cannot lead to the conclusion that no inquiry was conducted. Therefore, in the present case, it cannot be said that there was complete absence of inquiry.
7.1 The Ld. PCIT has primarily relied upon GST data reflected in the Insight Portal to the unexplained expenditure u/s 69C of the Act. However, no categorical finding has been recorded that the assessee incurred expenditure out of undisclosed sources. The assessee has consistently maintained that it operates as a broker and that the transactions in question relate to client investments. The materials furnished during the revision proceedings, including ledger accounts and bank statements, were not found to be false or fabricated. Discrepancy in third-party data without proper reconciliation or independent verification cannot render the assessment order erroneous. It is also pertinent to note that the assessee is subject to statutory audit and had disclosed substantial taxable income amounting to Rs.2,05,54,38,896/-, reflecting a net profit/income ratio of 23.27% which was higher than earlier years.
7.2 The Assessing Officer had called for details and accepted the explanation
furnished. The Ld. PCIT has not demonstrated that the view taken by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In view of the above, considering the totality of facts and the legal position laid down by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd., we hold that the twin conditions required for invoking section 263 are not satisfied in the present case. The order passed by the Assessing Officer u/s 143(3) r.w.s 144B of the Act cannot be termed as erroneous insofar as it is prejudicial to the interests of the Revenue. Accordingly, the impugned order passed by the Ld. PCIT is hereby quashed.
8. In the result, the appeal of the assessee is allowed.
The order is pronounced in the open Court on 27.03.2026
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