Case Law Details
Vikash Kumar Bohra Vs PCIT (ITAT Kolkata)
No Erroneous or Prejudicial Assessment Where Facts Misread by PCIT- ITAT Kolkata Quashes Section 263 Revision:
The Kolkata Bench of the Income Tax Appellate Tribunal allowed the appeal of Vikash Kumar Bohra for AY 2018–19, quashing the revisionary order passed by the PCIT under Section 263, holding that the mandatory twin conditions—“erroneous” and “prejudicial to the interests of the Revenue”—were not satisfied.
The PCIT had invoked Section 263 on two grounds:
(i) alleged wrongful allowance of car-related expenses of ₹1.12 lakh on the premise that the assessee had declared income under Section 44AD from car hiring; and
(ii) allowance of ₹2.34 lakh forfeiture of Earnest Money Deposit (EMD), which the PCIT treated as capital in nature.
On facts, the Tribunal found that the first ground was factually incorrect, as the assessee had never declared income under Section 44AD, nor had he claimed the alleged car-related deductions in either the original return under Section 139 or the return filed pursuant to Section 148. Consequently, there was no error at all in the assessment order on this issue.
With respect to EMD forfeiture, the Tribunal held that the amount was paid to Eastern Coalfields Limited in the ordinary course of the assessee’s coal trading business for participation in e-auctions. The forfeiture arose strictly in accordance with the E-Auction Scheme, and the invoices themselves described the transaction as “supply of services”. The Tribunal concluded that such forfeiture was revenue in nature, directly connected with business operations, and not a capital loss, rendering the PCIT’s contrary view unsustainable.
Relying on the Supreme Court decision in Malabar Industrial Co. Ltd. v. CIT (243 ITR 83), the Tribunal reiterated that Section 263 cannot be invoked merely because the PCIT holds a different opinion, especially when the Assessing Officer’s view is legally plausible and factually correct. Since the assessment was neither erroneous nor prejudicial, the assumption of revisionary jurisdiction was held to be invalid and the Section 263 order was quashed in full.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the Pr. Commissioner of Income Tax(hereinafter referred to as the “Ld. CIT(A)”] dated 04.03.2025 for the AY 2018-19.
2. The only issue raised by the assessee in the various grounds of appeal is against the invalid exercise of jurisdiction u/s 263 of the Act thereby, passing the order u/s 263 of the Act dated 04.03.2025, which is invalid ,nullity and may kindly be quashed.
2.1. The facts in brief are that the ld. PCIT upon perusal of the assessment records observed that assessee has claimed depreciation on car, car insurance and car loan interest aggregating to ₹1,12,423/- and whereas the assessee has shown income of ₹1,44,000/- from car hiring charges u/s 44AD of the Act and therefore not entitled to any deduction. According to ld PCIT , the ld. AO has failed to add the said amount of ₹1,12,423/- to the total income of the assessee. Similarly , the assessee has claimed ₹2,34,442/- as expense in the audited profit and loss account in respect of forfeiture of earnest money deposit which is capital receipt and is not allowable u/s 37 of the Act. The failure of the ld. AO to disallow these expenses has rendered the assessment framed to be erroneous and prejudicial to the interest of the Revenue and accordingly, a show cause notice was issued u/s 263 of the Act on 17.01.2025, which was replied by the assessee by submitting that the assessee has never claimed any expenses from the income from car hire charges u/s 44AD of the Act which according to PCIT are not allowable from the income returned u/s 44AD of the Act of ₹1,44,000/-. The assessee submitted that the assessee has never shown any income u/s 44AD in the original return filed u/s 139 of the Act as well as in the return filed u/s 148 of the Act. Therefore, the finding given by the ld. PCIT were factually and totally wrong and cannot be sustained. The assessee submitted that the assessee has not claimed the said deduction and therefore, there is no question of disallowance of the same.
2.2. As regards to the second issue, the assessee submitted that the assessee is in the business of purchase of coal from Coal India Limited and its various subsidiaries through e-option schemes. The assessee submitted that through e-auction scheme of Coal India Limited, the assessee has to submit earnest money deposit as security from time to time for participating in the upcoming Spot E-Auction and during the assessment year 2018-19, EMD rate was ₹500/- per MT. prescribed by the Eartern Coalfield Limited. The assessee also referred to E-Auction Scheme 2022 and terms of forfeiture of Bid Security or EMD. Therefore, the assessee submitted that this is a security given in the ordinary course of business and cannot be treated as capital expenditure when forfeited by the coal companies. The assessee even submitted that the copy of EMD forfeiture invoices issued by Eastern Coalfields Limited worth of ₹2,34,442/- on which they mention it as “supply of services’. Therefore, finding of ld. CIT (A) is wrong that there was no mistake in the assessment order. Finally, the ld. PCIT revised the assessment by directing the ld. AO to frame the assessment afresh after affording reasonable opportunity of hearing to the assessee by recomputing the income after adding the said amount as referred to above.
2.3. After hearing the rival contentions and perusing the materials available on record, we find that the two issues were raised by the ld. PCIT in the show cause notice u/s 263 of the Act;
i. In respect of wrong claim of deduction of ₹1,12,423/-, which is in respect of depreciation on car, car insurance and car loan interest. The ld. PCIT also noted that the assessee returned the income from car hire charges u/s 44AD of the Act and thus, the assessee is not entitled to the said expenses. However, as a matter of fact, the assessee has never claimed these expenses in the return filed u/s 139(1) of the Act as well as in the return filed in response to Section 148 of the Act nor returned any income u/s 44AD of the Act. Therefore, the finding of ld. CIT (A) is factually incorrect and against the facts on record and the assessment framed by the ld. AO is neither erroneous nor prejudicial to the interest of the Revenue on this count.
ii. So far as the second issue is concerned which is qua the forfeiture of EMD paid by the assessee to Eastern Coal Field Limited for participating in E-Auction / bids of coal the rate of which was ₹500 per metric tons during the year. We note that the said claim was as per the EMD forfeiture invoices issued by Eastern Coalfield Limited on which it is mentioned it is for supply of services. In our opinion, the said services are connected with the running and operation of the business of the assessee as the assessee is regularly doing the bidding in Auction conducted by Eastern Coalfields Limited for procurement of coals. We also note that the right of the EMD is as per the E-Auction Scheme 2022, which lays down the term for forfeiture of security deposited as EMD. Therefore, the said forfeiture is not capital in nature but very much of Revenue in nature. Consequently, the observation of PCIT that same are capital in nature are wrong.
2.4. In our opinion, the assessment framed by the ld. AO is neither erroneous nor prejudicial to the interest of the Revenue. On both these issues, the ld. PCIT has wrongly invoked the jurisdiction u/s 263 of the Act without satisfying the twin conditions that the assessment has to be erroneous and prejudicial to the interest of the Revenue. The case of the assessee is squarely covered by the decision of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC). Consequently, we quash the order passed by the ld. PCIT u/s 263 of the Act.
3. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 07.01.2026.
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