Axis Infoline P. Ltd. Vs PCIT (ITAT Delhi)
Summary: ITAT Delhi allowed the assessee’s appeal and held that the PCIT could not invoke Section 263 merely because he preferred 100% disallowance of bogus purchases over the 25% disallowance consciously adopted by the Assessing Officer. The AO had examined purchases of Rs.1,49,86,000/- from M/s Diwakar Enterprises, concluded that they were bogus, rejected the assessee’s offer to surrender 12.50% and, after considering judicial precedents, disallowed 25%, amounting to Rs.37,46,500/-, under Section 69C. The PCIT, relying principally on N.K. Proteins and Kanak Impex, considered the entire bogus purchases liable to disallowance and consequently treated the assessment order as erroneous and prejudicial to Revenue.
The Tribunal held that the relevant question was not whether the AO’s 25% estimate or the PCIT’s 100% view was ultimately preferable, but whether Section 263 could be exercised where two possible views existed and each had support from judicial decisions. It noted that even the Delhi High Court decision in La Medica supported a treatment broadly comparable to the view relied upon by the PCIT. Nevertheless, relying on Malabar Industrial Company Ltd., the Tribunal held that where two views are possible and the AO adopts one legally sustainable view, the Commissioner cannot revise the assessment merely because he disagrees with it.
The Tribunal also referred to DLF Limited and Ansal Housing Construction Ltd. for the proposition that a debatable issue does not justify revision under Section 263. Since the AO’s approach was not unsustainable in law and the controversy at best involved competing possible views, the PCIT’s exercise of revisionary jurisdiction was held to be fatally affected. The assessee’s appeal was accordingly allowed. :chatgpt-content-reference{index=”0″} :chatgpt-content-reference{index=”1″}
Cases Discussed
- N.K. Proteins — 84 taxmann.com 195 (SC) — Relied upon by the PCIT for the proposition that the entire amount of bogus purchases deserved to be disallowed; the SLP against the Gujarat High Court decision was stated to have been dismissed by the Supreme Court.
- Kanak Impex — 474 ITR 175 (Bom.) — Relied upon by the PCIT and Department to contend that once purchases were found bogus, the entire amount should be disallowed. The assessee sought to distinguish the decision on facts.
- Malabar Industrial Company Ltd. — 243 ITR 83 (SC) — Relied upon by the assessee and applied by the Tribunal for the principle that where two views are possible and the AO adopts a legally sustainable view, disagreement by the Commissioner does not justify revision under Section 263.
- La Medica — 250 ITR 575 (Del.) — Referred to by the Tribunal as arriving at a conclusion somewhat similar to Kanak Impex regarding the treatment of bogus purchases.
- DLF Limited — 350 ITR 555 (Del.) — Relied upon for the proposition that a debatable issue does not justify proceedings under Section 263.
- Ansal Housing Construction Ltd. — 45 taxmann.com 223 (Del.) — Relied upon for holding that a debatable issue would be an unjustified ground for invoking Section 263; the Tribunal noted that an SLP had been granted as reported in 51 taxmann.com 376 (SC).
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal arises from order dated 26.03.2025, passed u/s 263 of the Income Tax Act, 1961 (hereafter as “the Act”). This order has been passed by Ld. PCIT-1, Delhi. The issue in brief is that the Ld. AO found certain purchases made by the assessee, notably from one M/s Diwakar Enterprises, of Rs.1,49,86,000/-. After relevant enquiries the Ld. AO concluded that purchases made from this entity were bogus. Thereafter, the Ld. AO rejected the offer of the assessee for the Ld. AO to add 12.50% of such purchases and proceeded ahead to disallow 25% of the said bogus purchases as shown by the assessee.
1.1 This matter was examined by the Ld. PCIT and based on the presumption that once purchases are held to be bogus then the entire quantum of purchases deserved to be disallowed, he initiated proceedings u/s 263 of the Act. The Ld. PCIT based himself on the judgments in the case of N.K. Proteins of the Hon’ble Gujarat High Court, the SLP againstwhich was dismissed by the Hon’ble Supreme Court [84 taxmann.com 195 (SC)]. Ld. PCIT has also relied on the case of Kanak Impex reported in 474 ITR 175 (Bom.) In the Kanak Impex case (supra) the Hon’ble Supreme Court has dismissed the SLP also. The Ld. PCIT came to the conclusion that 100% of the bogus purchases deserved to be disallowed and thereafter, he held the Ld. AO’s order to be erroneous and prejudicial to the interest of Revenue.
1.2 Aggrieved with this the assessee has approached the ITAT with the following grounds of appeal: –
“1. On the basis of facts and circumstances of the case, the order passed under section 263 of the Income Tax Act, 1961 (“the Act”) by the learned Principal Commissioner of Income Tax, Delhi- 1 (“PCIT”) is bad both in the eye of law and facts.
2. On the facts and circumstances of the case, the learned PCIT has erred in passing the assessment order without providing the assessee reasonable opportunity of being heard, violating the principles of natural justice.
3. On the facts and circumstances of the case, the revision order passed under section 263 by the learned PCIT enhancing the addition made in the assessment order passed under section 143(3) r.w.s. 144B of the Act by the learned Assessing Officer (“AO”) holding that the same as erroneous and prejudicial to the interest of the revenue, is illegal, without jurisdiction and void ab-initio and liable to be quashed.
4. On the facts and circumstances of the case, the revision order passed under section 263 of the Act by the learned PCIT is illegal and invalid as the assessment order passed under section 143(3) r.w.s. 144B of the Act is neither ‘erroneous’ nor ‘prejudicial to the interest of the revenue’.
5. On the facts and circumstances of the case, the revision order passed under Section 263 of the Act by the learned PCIT is illegal and without jurisdiction, as the issue raised in the said order is already the subject matter of appeal before the Hon’ble CIT(A), in the appeal filed against the assessment order passed under Section 143(3)/144B of the Act sought to be revised by the PCIT.
6. On the facts and circumstances of the case, the learned PCIT has erred both on facts and in law in passing the order despite the assessment order passed under section 143(3) r.w.s. 144B of the Act by the AO does not fall within the requirements of Explanation 2 to Section 263 of the Act and hence said order cannot be deemed to be erroneous so far as it is prejudicial to the interest of the revenue.
7. On the facts and circumstances of the case, the learned PCIT has erred both on facts and in law’ in passing an order under section 263 of the Act solely for the purpose of substituting his own opinion on the concerned issues in place of the view adopted by the learned AO after independent application of mind.
8. On the facts and circumstances of the case, the learned PCIT has erred both on facts and in law in ignoring the settled law that where the issues concerned are debatable issue or where two views are possible and the AO has taken one view which the PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue.
9. On the facts and circumstances of the case, the learned PCIT has erred both on facts and in law in relying upon various judicial precedents which are not applicable to the assessee.
10. (i) On the facts and circumstances of the case, the learned PCIT has erred both on facts and in law in directing the AO to make the disallowance of entire purchases of Rs.1,49,86,000/- made from M/s Diwakar Enterprises as against the disallowance of Rs.37,46,500/- (i.e. 25% of Rs.1,49,86,000/-) made by the learned AO under section 69C of the Act.
(ii) That the learned PCIT has erred in exercising jurisdiction under section 263 of the Act despite the fact that this issue has already considered by the AO while passing the assessment order under section 143(3) r.w.s. 144B of the Act.
11. The appellant craves leaves to add, amend or alter any of the grounds.”
2. Before us, the Ld. AR vehemently argued that the Ld. AO’s order was neither erroneous nor was it prejudicial to the interest of Revenue. The Ld. AR presented a paper book of 179 pages and a compilation of case laws in support of his claim that the impugned order could not be legally sustainable. It was argued that apart from any other issue on merit that the assessee seeks remedy for, it was clear that the Ld. AO had made due enquiries and had arrived at a conclusion that the entire quantum of bogus purchases could not be added and thereafter had taken a considered view to not accept the assessee’s offer of surrender of 12.5% of the bogus purchases, but had consciously chosen to disallow 25% of such purchases u/s 69C of the Act. It was pointed out by the Ld. AR that the Ld. AO had also referred to certain case laws on page 13 of his order in support of his action that only 25% of the bogus purchases needed to be added. It was the submission that once the Ld. AO had taken a considered view on an issue then the Pr. CIT could not base himself on another set of judgments, notably the case of Kanak Impex (supra) and thereby hold that 100% of the bogus purchases deserve to be disallowed. The Ld. AR relied on as many as 37 cases of various ITAT Benches and Hon’ble High Courts, including the case of Malabar Industrial Company Ltd. reported in 243 ITR 83 (SC),to canvass the point that issues rendered debatable on facts could not be the subject matter of proceedings u/s 263 of the Act. The Ld. AR also attempted to distinguish
the facts of the present case with those in the case of Kanak Impex (supra). 2.1 The Ld. DR, on the other hand, relied on the case of Kanak Impex (supra) and stated that once purchases have been determined to be bogus then there was no question of not disallowing any part of the same, since the entire quantum was to be disallowed. Thereafter, the Ld. DR supported and relied on the impugned order.
3. We have considered the rival submissions and have gone through the case records, along with the paper book and case laws filed by the assessee. The primary issue that needs to be decided in this case is whether when the AO has taken a considered view about a certain disallowance then is it open to the Pr. CIT to arrive at a different quantum of the disallowance from the same transaction. It is seen that while the Ld. AO has relied on certain case laws to arrive at a figure of 25% of the bogus purchases to be disallowed, the Ld. PCIT has also relied on certain case laws to arrive at the conclusion that 100% of bogus purchases deserve to be disallowed. Thus, what is not in doubt is that the purchases have been certainly held to be bogus and the assessee’s offer of surrender merely strengthens this fact finding by the Ld. AO. However, the moot point here is not whether the AO is correct or the Ld. Pr. CIT is correct in his assumption, rather the issue is whether when two views are certainly possible, at least on the peculiar facts of this case, and both views more or less supported by different case laws, then can therebe a sustainable action u/s 263 of the Act or not. Again, by way of an academic discussion, even the Hon’ble Delhi High Court in the case of La Medica reported in 250 ITR 575 (Del) has arrived at a conclusion somewhat similar to the Kanak Impex case (supra) regarding the treatment to be given to bogus purchases. Be that as it may, we find that even in the case of Malabar Industrial (supra), in para 9 of this decision, the Hon’ble Apex Court has not approved of a situation where two views are possible and the AO has adopted one such view with which the Commissioner does not agree. The caveat here is that the action of the AO should not be unsustainable in law. We find that the action of the AO is certainly not unsustainable in law but is merely suffering from a possibility of there being two views on the matter. Also, in the case of DLF Limited reported in 350 ITR 555 (Del.), on facts, a debatable issue has not been approved for any proceedings u/s 263 of the Act. We also find that the Hon’ble Delhi High Court in the case of Ansal Housing Construction Ltd. reported in 45 taxmann.com 223 (Del.), has held that a debatable issue would be an unjustified ground for invoking the provisions of section 263 of the Act. It may be mentioned that probably the last word on this issue is yet to come since the Ansal Housing & Construction Ltd. case travelled upto the Hon’ble Supreme Court where an SLP has been granted [51 taxmann.com 376 (SC)], even though a diligent search of judicial literature does not reveal any order from the
Hon’ble Apex Court as yet in this particular case. Considering this discussion, it deserves to be held that the action of Ld. PCIT is fatally hit by the issue being debatable at best on facts. Accordingly, we are unable to persuade ourselves to agree with it.
4. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 02.01.2026
