Hollis Vitrified Pvt. Ltd. Vs PCIT (Gujarat High Court)
The Gujarat High Court heard an appeal under Section 260A of the Income Tax Act, 1961 against the order dated 12.02.2026 passed by the Income Tax Appellate Tribunal, Rajkot Bench in ITA No. 363/RJT/2024 for Assessment Year 2018-19. The appellant challenged the Tribunal’s decision upholding the Principal Commissioner of Income Tax’s (PCIT) exercise of revisional jurisdiction under Section 263 of the Act.
The appellant proposed four substantial questions of law. These questioned whether the Tribunal had erred in upholding the invocation of Section 263 in a case selected for limited scrutiny on the issue of large share premium despite the Assessing Officer having raised queries and received detailed replies; whether the PCIT had independently applied his mind before directing a de novo assessment concerning share capital and unsecured loans; whether the Tribunal had wrongly relied upon the assessment order passed pursuant to the PCIT’s Section 263 directions while determining the validity of the original revisional order; and whether such reliance affected the pending appeal before the Commissioner of Income Tax (Appeals).
The appeal was admitted on the proposed questions of law. With the consent of both parties and considering the Tribunal’s findings, the High Court took up the matter for final hearing.
The assessee had challenged before the Tribunal the PCIT’s order dated 31.03.2024 passed under Section 263 of the Act. The Tribunal dismissed the appeal. However, the High Court noted that in paragraph 23 of the Tribunal’s order, the Tribunal had considered the assessment order dated 14.03.2025 passed by the Assessing Officer under Section 143(3) read with Section 263 of the Act to justify the PCIT’s assumption of jurisdiction under Section 263.
The High Court also referred to paragraph 24 of the Tribunal’s order, where the Tribunal observed that the proviso to Section 68, effective from 01.04.2013, required the assessee to prove the “source of the source.” The Tribunal recorded that neither the Assessing Officer had examined the source of the source nor had the assessee produced documents and evidence explaining it. The Tribunal further observed that there were sufficient cash deposits in the bank accounts of the share applicants before the investments in the assessee company and that these had escaped examination by the Assessing Officer. It also noted that, in relation to loan transactions, the assessee had not furnished documents regarding the source. On that basis, the Tribunal concluded that the assessment order was erroneous and prejudicial to the interests of the Revenue.
The High Court held that the Tribunal could not have considered the assessment order dated 14.03.2025, which had been passed pursuant to the PCIT’s order dated 31.03.2024 under Section 263, while deciding the appeal challenging the validity of the PCIT’s assumption of jurisdiction under Section 263. According to the Court, the Tribunal could not rely upon that subsequent assessment order while adjudicating the challenge to the revisional order.
Without entering into the merits of the controversy or expressing any opinion on the issues raised in the appeal, the High Court quashed and set aside the Tribunal’s order. It directed the Tribunal to hear and decide ITA No. 363/RJT/2024 for Assessment Year 2018-19 afresh after providing an opportunity of hearing to both sides.
In view of these findings, the High Court declined to answer Questions A, B and C. It answered Question D in the affirmative, in favour of the assessee and against the Revenue. The appeal was accordingly disposed of.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned Senior Advocate Mr. Saurabh Soparkar with learned advocate Mr. Manya Anjaria for learned advocate Mr. B.S.Soparkar for the appellant and learned Senior Standing Counsel Mr. Maunil Yajnik for the respondent.
2. By this appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’), the appellant has proposed the following questions of law arising out of the order dated 12.02.2026 passed by the Income Tax Appellate Tribunal Rajkot Bench (for short ‘the Tribunal’) in ITA No. 363/RJT/2024 for Assessment Year 2018-19:
“(A) Whether the Income Tax Appellate Tribunal erred in law in upholding the invocation of revisional jurisdiction under section 263 of the Income-tax Act, 1961, in a case selected for ‘Limited Scrutiny’ on the specific criterion of ‘large share premium’, when the Assessing Officer had raised specific queries on share premium and the assessee had furnished detailed responses thereon?
(B) Whether the Tribunal erred in law in upholding the order of the Ld. PCIT u/s 263, which directed a de-novo assessment on the issue of share capital and unsecured loans, when the Ld. PCIT had not independently applied his own mind to the material on record but merely catalogued perceived deficiencies in the A.O.’s examination and whether such an order of the PCIT meets the jurisdictional requirements of section 263, namely forming a genuine ‘opinion’ that the assessment order is erroneous and prejudicial to the interest of the revenue?
(C) Whether the Tribunal erred in law in upholding the revisional order u/s 263 by referring to and relying upon the assessment order passed by the A.O. pursuant to the PCIT’s direction u/s 263 to justify the correctness of the PCIT’s original revisional action thereby importing hindsight conclusions into the jurisdiction question under section 263, which must be assessed as on the date of the revisional order?
(D) Whether the Tribunal erred in law in upholding the revisional order u/s 263 by referring to and relying upon the assessment order passed by the A.O. pursuant to the PCIT’s direction u/s 263 to justify the correctness of the PCIT’s original revisional action thereby affecting the pending appeal before the CIT(A) against the said assessment order?”
3. The appeal is admitted on the aforesaid proposed questions of law.
4. With the consent of learned advocates appearing for the respective parties and considering the findings of the Tribunal, the appeal is taken up for final hearing.
5. The appellant-assessee being aggrieved by the order dated 31.03.2024 passed by the Principal Commissioner of Income Tax (for short ‘PCIT’) under Section 263 of the Act, preferred an appeal before the Tribunal.
6. The Tribunal, after considering the facts of the case dismissed the appeal. However, the Tribunal in Paragraph No.23 of the impugned order has taken into consideration the assessment order passed by the Assessing Officer under Section 143(3) of the Act read with Section 263 of the Act dated 14.3.2025 to justify the action of the PCIT for assumption of jurisdiction under Section 263 of the Act. In Paragraph No.24 of the impugned order, the Tribunal, upon setting aside of the original assessment order dated 01.04.2021 by PCIT, has observed as under:
“Therefore, we find merit in the submissions of Learned DR for the revenue, who has explained that proviso to section 68 was inserted with effect from 01.04.2013 and as per the said proviso, the assessee needs to prove “Source of the Source”. The Id DR pointed out that considering the contents of the assessment order, neither the assessing officer examined the “Source of the Source”, nor assessee has submitted documents/evidences to explain “Source of the Source”. Before making investment in shares of the assessee company, there is sufficient cash deposit in the bank account of share applicants and the same has escaped from examination by the assessing officer. As the assessment year involved in the assessee’s case is the assessment year 2018-19, where amended provisions of section are clearly applicable to the assessee. For loan transaction, the assessee has not furnished the documents pertaining to source. Hence, assessment order passed by the assessing officer, is erroneous and prejudicial to the interest of the revenue.”
7. We are of the opinion that the Tribunal could not have considered the assessment order dated 24.03.2025 which was passed pursuant to the order dated 31.3.2024 passed under Section 263 of the Act by the PCIT nor it could have referred to it while deciding the appeal challenging the invocation of jurisdiction under Section 263 of the Act by the PCIT while passing order dated 31.03.2024. Therefore, without entering into the merits of the matter and without opining on any of the issues raised in this appeal, we quash and set aside the impugned order passed by the Tribunal to consider the appeal being ITA No. 363/RJT/2024 for Assessment Year 2018-19 by the appellant-assessee denovo afresh after giving an opportunity of hearing to both the sides.
8. In view of our above findings, we decline to answer to question Nos. ‘A’, ‘B’ and ‘C’ raised in this appeal, however, question ‘D’ is answered in favour of the assessee and against the revenue, in affirmative.
The appeal is accordingly disposed of.
