Valour Autopack Vs PCIT-1 (ITAT Rajkot)
Unsecured Loans Verified in Scrutiny—PCIT Can’t Seek Deeper Probe: No ‘Lack of Enquiry’, Only ‘Different Opinion’: s.263 Set Aside by ITAT
The Rajkot Bench of the ITAT, vide order dated 31.12.2025 in Valour Autopack v. Pr. CIT-1, Rajkot (ITA No.271/RJT/2025, AY 2021-22), allowed the assessee’s appeal and quashed the revisionary order passed u/s 263, holding that the assessment framed u/s 143(3) r.w.s. 144B was neither erroneous nor prejudicial to the interests of the Revenue.
The assessee’s case was selected for complete scrutiny under CASS on the issue of unsecured loans from persons allegedly not filing returns. During assessment, the AO issued detailed notices u/s 142(1) calling for names, PAN, confirmations, bank statements, ITRs, opening/closing balances, utilisation of funds, interest details and ledger accounts of all lenders. The assessee furnished comprehensive replies, and the lenders also responded directly to the AO. After examining the material, the AO accepted the returned income.
The PCIT invoked s.263 mainly on the ground that lenders had low taxable income and that one partner was common in the assessee-firm and a lending concern, alleging inadequate verification. The Tribunal held that this was not a case of “lack of enquiry” but, at best, of “inadequate enquiry”, which does not justify revision u/s 263. The Tribunal reiterated that the extent of enquiry is within the AO’s domain and the PCIT cannot substitute his opinion merely because he desires a deeper probe.
The ITAT further noted that most of the unsecured loans were repaid in subsequent years, and relied on Gujarat HC ruling in CIT v. Ayachi Chandrashekhar to hold that once repayment is accepted, genuineness of loans cannot be lightly doubted. The Tribunal applied settled law laid down in Malabar Industrial Co. Ltd., Sunbeam Auto Ltd. and Max India Ltd., emphasising that when two views are possible and the AO has adopted one permissible view after enquiry, s.263 cannot be invoked.
Accordingly, the ITAT held that the PCIT’s action amounted to giving the AO a second innings, which is impermissible in law, and quashed the s.263 order in entirety, allowing the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
