Case Law Details
Arihant Roller Flour Mills Vs ITO (ITAT Chandigarh)
Summary: The ITAT Chandigarh allowed the assessee’s appeal and quashed the revisionary order passed under Section 263, holding that revision is impermissible where the Assessing Officer has conducted detailed enquiries, applied his mind and adopted a plausible view. The reassessment, initiated to examine alleged bogus purchases of Rs. 2.48 crore and bogus sales of Rs. 2.61 crore, followed directions of the Punjab & Haryana High Court for a fresh assessment. During the fresh proceedings, the Assessing Officer issued multiple notices, examined the assessee’s documentary evidence, confronted discrepancies, rejected the books under Section 145(3) and estimated gross profit at 8% on the disputed turnover, resulting in an addition of Rs. 10.06 lakh and initiation of penalty proceedings under Section 270A. The Principal Commissioner invoked Section 263, contending that additions should instead have been made under Sections 68 and 69C and that penalty proceedings under Sections 271AAC and 271AAD should have been initiated. The Tribunal held that this was a case of adequate enquiry rather than lack of enquiry and that the Assessing Officer’s estimation of profit was a legally sustainable and plausible view which could not be replaced merely because the Principal Commissioner preferred another approach.
Core Issue. Whether the Principal Commissioner was justified in invoking revisionary jurisdiction under section 263 on the ground that the Assessing Officer ought to have made substantive additions under sections 68 and 69C instead of estimating the profit element on alleged non-genuine purchase and sale transactions, despite the Assessing Officer having conducted detailed enquiries and adopted a plausible view.
Facts. The assessee filed its return declaring income of Rs.1.97 lakh. The assessment was reopened on the basis of Investigation Wing information alleging bogus purchases aggregating to Rs.2.48 crore from two entities and bogus sales of Rs.2.61 crore to another entity.
The original reassessment was set aside by the Punjab & Haryana High Court with directions to frame a fresh assessment after granting adequate opportunity. During the fresh proceedings, the Assessing Officer issued several notices under section 142(1), confronted the assessee with discrepancies noticed during enquiries, including non-response to notices under section 133(6), non-existent addresses of suppliers, cancelled GST registrations and discrepancies in vehicle details. The assessee furnished invoices, bank statements, GST returns, audit reports, confirmations and other supporting documents in support of the transactions.
After considering the material, the Assessing Officer rejected the books of account under section 145(3) and framed a best judgment assessment by estimating gross profit at 8% on the disputed turnover instead of the normal GP of 4.14%, resulting in an addition of Rs.10.06 lakh. Penalty proceedings under section 270A were also initiated.
The Principal Commissioner invoked section 263 holding that the Assessing Officer ought to have treated the purchases as unexplained expenditure under section 69C, the sales proceeds as unexplained cash credits under section 68 read with section 115BBE, and should also have initiated proceedings under sections 271AAC and 271AAD. The assessment was accordingly set aside for fresh adjudication.
Tribunal’s Analysis. The Tribunal held that the entire reassessment proceedings had been initiated exclusively for examining the alleged bogus purchase and sale transactions and that the Assessing Officer had thoroughly investigated the issue in the fresh assessment proceedings.
The Tribunal noted that repeated notices were issued, the assessee was specifically confronted with every adverse material gathered during enquiry, detailed explanations and documentary evidence were called for and examined, and only thereafter did the Assessing Officer reject the books and estimate higher gross profit on the disputed transactions. Therefore, the case was clearly one of adequate enquiry and not one of lack of enquiry.
The Tribunal further observed that where both purchases and corresponding sales are alleged to be non-genuine, estimation of the profit element represents a logical and commercially realistic approach because purchases and sales are interlinked and one cannot ordinarily exist without the other. The Assessing Officer consciously adopted one legally sustainable method after due application of mind and his decision constituted one of the possible views available in law.
The Tribunal emphasised that section 263 cannot be invoked merely because the Principal Commissioner believes that another method of assessment, such as additions under sections 68 or 69C, would have yielded higher revenue. The revisionary jurisdiction is attracted only where the assessment order is both erroneous and prejudicial to the interests of the Revenue. Once adequate enquiry has been conducted and a plausible view has been adopted, the Principal Commissioner cannot substitute his own opinion merely because he prefers another approach or considers that additional penalty provisions should have been invoked.
Cases Relied Upon
ITO v. DG Housing Projects Ltd. (2012) 343 ITR 329 (Delhi High Court) – Distinguished “lack of enquiry” from “inadequate enquiry” and held that revision under section 263 is not permissible where the Assessing Officer has conducted enquiries and adopted a conscious view.
CIT v. Jain Uday Fabrics Pvt. Ltd. (Punjab & Haryana High Court, ITA No.221 of 2011, decided on 16.07.2024) – Where two views are possible and the Assessing Officer adopts one sustainable view, revision under section 263 cannot be exercised merely because the Commissioner prefers another view.
Pr. CIT v. Ropar District Cooperative Milk Producers Union Ltd. (Punjab & Haryana High Court, ITA No.102 of 2024, decided on 18.09.2024) – Section 263 cannot be invoked on a mere change of opinion; the Commissioner must establish absence of enquiry or non-application of mind by the Assessing Officer.
Decision. The Tribunal allowed the appeal and quashed the revisionary order passed under section 263. It held that the Assessing Officer had conducted comprehensive enquiries, examined all relevant material, rejected the books after due application of mind and estimated higher gross profit on the disputed transactions, which constituted a legally plausible and reasonable view. Since the assessment was neither erroneous nor prejudicial to the interests of the Revenue, the assumption of jurisdiction under section 263 was invalid and the original assessment order was restored.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
By way of this appeal, the assessee assails invocation of revisionary jurisdiction u/s 263 by Ld. Pr. Commissioner of Income Tax, Rohtak (Pr. CIT) for the Assessment Year (AY) 2018-19 vide impugned order dated 28-03-2026 proposing revision of an assessment as framed by Ld. Assessing Officer [AO] u/s.144 r.w.s. 260 r.w.s. 144B of the Act on 16-02-2024 after making quantum addition of Rs.10.06 Lacs.
2. The Ld. AR advanced arguments supporting the assessment order and made out a case of one of the possible views as taken by Ld. AO during the course of regular assessment proceedings. The Ld. AR contended that sufficient explanations and documents were already furnished by the assessee during the course of regular assessment proceedings itself. It has further been contended that the assessment was framed on best judgment basis and therefore, the revision was unjustified. The Ld. CIT-DR, on the other hand, advanced arguments supporting the impugned revisionary order. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.
3. From the case records, it emerges that the assessee-firm filed return of income u/s 139(1) on 17.09.2018 at Rs.1.97 Lacs. However, the case was reopened pursuant to information from investigation wing alleging that the assessee made bogus purchases of Rs.46.65 Lacs & Rs.201.41 Lacs from M/s Madan Lal Madho Parshad & M/s Kalki Trading Co. and also made bogus sales of Rs.261.33 Lacs to M/s Mahavir Prasad Suresh Kumar. Accordingly, notice u/s 148 was issued by Ld. AO to the assessee on 31.03.2022 and assessment was finalized on 24.03.2023. However, Hon’ble High Court, in assessee’s CWP No.7239-2023 dated 26.04.2023, set aside the assessment order and directed Ld. AO to pass fresh assessment order after affording opportunity of hearing to the assessee.
4. Pursuant to the aforesaid directions of Hon’ble Court, fresh proceedings were initiated by Ld. AO and notices u/s 142(1) was issued by Ld. AO to the assessee from time-to-time. The same was duly responded to by the assessee. The assessee refuted the allegation of Ld. AO and stated that it was in this line of business for more than 15 years. The assessee made purchases from the two entities and made subsequent sales. These transactions were VAT / GST free and duly reflected in the GST return. In support, the assessee furnished various documents viz. copies of relevant invoices, bank statements, audit report, GST return copies & various other documents to bolster its claim about genuineness of these transactions. After considering the submission of the assessee, Ld. AO proposed rejection of books and estimation of Gross Profit (GP) Rate of 8% on impugned sales of Rs.261.33 Lacs as against regular GP rate of 4.14% as reflected by the assessee on these sales. The same was in the background of the fact that notices issues u/s 133(6) to the stated three parties were non-responsive and the three parties were not existing at the given address and these three entities were not having active GST number. Finally, Ld. AO rejected the claim of the assessee and proceeded to estimate the income of the assessee. The Ld. AO rejected the books and applied normal GP rate of 4.14% on normal sales of Rs.762.06 Lacs and 8% on alleged bogus sales for Rs.261.33 Lacs. The total Profit was estimated at Rs.52.45 Lacs. After adjusting the profit of Rs.42.39 Lacs as already offered by the assessee, Ld. AO added differential profit of Rs.10.06 Lacs to the income of the assessee and framed the assessment. The penalty proceedings were initiated by Ld. AO u/s 270A in the assessment order for this addition.
5. Subsequently, Ld. Pr. CIT, upon perusal of case records, held an opinion that the order was erroneous and prejudicial to the interest of the revenue in terms of Sec.263. As per records, the alleged bogus purchases were Rs.248.06 Lacs whereas alleged bogus sales were for Rs.261.33 Lacs. In such cases of accommodation entries, GP / NP rate estimation was not applicable rather the whole amount of non-genuine purchases as well as sales were required to be added to total income of the assessee. The Ld. AO committed a fundamental error by applying GP rate on these transactions instead of making substantive additions for the bogus transactions. The assessee received bogus sales in bank accounts which were required to be added u/s 68 r.w.s. 115BBE. Similarly, bogus purchases were to be added as unexplained expenditure u/s 69C. The Ld. AO was also required to initiate mandatory penalty u/s 271AAC and 271AAD of the act which was not done. The failure to do made the assessment order defective. Accordingly, the assessee was show-caused. The assessee stated that the assessment order was passed pursuant to the directions of Hon’ble High Court and therefore, jurisdiction u/s 263 could not be exercised. Once AO formed a view after due enquiry and adopted a rational GP estimation methodology, the order could not be subjected to revision u/s 263. All material necessary for assessment were already examined by Ld. AO and estimation of GP was factual domain of assessment. However, the said arguments stood rejected and Ld. Pr. CIT maintained his own view in the matter. Finally, the impugned order was set aside for fresh assessment by Ld. AO after conducting requisite enquiries in accordance with law and also examine the applicability of penalties u/s 271AAC and 271AAD. Aggrieved as aforesaid, the assessee is in further appeal before us.
6. From the facts, it clearly emerges that the assessee’s case was reopened solely to examine the non-genuine purchase and sale transactions. Initially an assessment was framed on 26.02.2023 which stood set aside by Hon’ble High Court on 26.04.2023. As per the directions of Hon’ble Court, Ld. AO was directed to reframe the assessment in accordance with law after affording opportunity of hearing to the assessee.
7. In terms of aforesaid directions of Hon’ble Court, notices u/s 142(1) were issued by Ld. AO to the assessee from time-to-time calling for requisite details. In notice dated 05.01.2024, the assessee was confronted with the facts that notices issued u/s 133(6) to all the three parties were non-responsive and the three parties were not found existing at the given address. The GST registration of these parties stood withdrawn subsequently. The vehicle number as mentioned in the bills was incorrect. The assessee was accordingly directed to furnish confirmation of these parties, Income Tax Returns, ledger extracts, proof of transportation of goods and explanation for defects in the bills. The reply to the same was furnished by the assessee on 10.01.2024 wherein the assessee maintained that the transactions were genuine and in support, the assessee filed requisite documents. The Ld. AO, however, did not accept the claim of the assessee and proposed variation in income in notice dated 17.01.2024 wherein Ld. AO proposed estimation of income to the best of his judgment by estimating higher GP on alleged bogus sales transactions. The assessee, vide reply dated 20.01.2024, refuted the allegation of Ld. AO which ultimately stood rejected by Ld. AO. Finally, the Ld. AO made best judgment assessment after rejecting the books u/s 145(3) and made estimation of higher GP on impugned transactions. In the light of all these facts, it could be well said that the impugned issue was extensively examined / verified by Ld. AO during the course of assessment proceedings itself. The view of Ld. AO was one of the possible views. When the purchase as well as sales transactions are alleged to be non-genuine, it would be a strong case for estimation of profit element on these transactions. The purchases and sales coincide with each other. No sale could take placed without actual purchase of goods. When the sales are non-genuine, the corresponding purchases would also be non-genuine. Under these circumstances, the action of Ld. AO in rejection of books and estimation of higher GP on impugned non-genuine transactions could not be faulted with. The said estimation was quite logical and reasonable and apt under the given circumstances. It is also not the case that Ld. AO has failed to initiate the requisite penalty against the assessee in the assessment order on the impugned addition. It could be concluded that Ld. AO made assessment with due application of mind after adequate enquiries. The view of Ld. AO could be said to be one of the possible views and the said view is not shown to be perverse. Therefore, the impugned revision of the order could not be held to be justified.
8. The Hon’ble Delhi High Court in the case of ITO vs. DG Housing Projects Ltd. (343 ITR 329) held that AO is both an investigator and an adjudicator. A distinction has to be drawn between a case where the AO has not conducted any enquiry or examined any evidence whatsoever (“lack of inquiry”) from one (i) where there is enquiry but the findings are erroneous; and (ii) where there is failure to make proper or full verification or enquiry (“inadequate inquiry”). The fact that the assessment order does not give any reasons for allowing the claim is not by itself indicative of the fact that the AO has not applied his mind on the issue. All the circumstances have to be seen. A case of lack of enquiry would by itself render the order being erroneous and prejudicial to the interest of the revenue. In a case where there is inquiry by the AO, even if inadequate, the CIT would not be entitled to revise u/s 263 on the ground that he has a different opinion in the matter. The ratio of this decision squarely applies to the facts of present case before us and duly supports the case of the assessee.
9. The Hon’ble High Court of Punjab & Haryana in the case of CIT vs. M/s Jain Uday Fabrics Pvt. Ltd. (ITA 221-2011 (O&M) dated 16.07.2024) concurred that every loss of revenue as a consequence of the order of AO could not be treated as prejudice to the interest of the revenue. If two views are possible to reach a conclusion and an assessment, merely because the revisionary authority does not agree with the view adopted by Ld. AO, could not a ground to hold that order as erroneous. The error has to be found from the provisions of law and order could be set aside only when the view taken by AO is unsustainable in law. In the facts of the present case, we are of the considered opinion that the view taken by Ld. AO was one of the possible views and the same is not shown to be perverse.
10. Similar is the decision of jurisdictional High Court in the case of Pr. CIT vs. The Ropar Distt. Coop. Milk Producers Union Ltd. (ITA 102-2024 (O&M) dated 18-09-2024). The Hon’ble Court, at para-5, held that merely on account of change of opinion, the order of AO could not be interfered u/s 263. To find that the order was erroneous, revisionary authority has to give a finding that no enquiry was conducted by AO and there was non-application of mind. In the present case, as noted in preceding paragraphs adequate enquiry has duly been conducted by AO during assessment proceedings and therefore, the impugned revisions could not be held to be justified,
11. Considering the above facts and settled legal position, the impugned revisionary order u/s 263 could not be sustained in law. We order so. The original assessment order as framed by Ld. AO on 16.02.2024 stand restored.
12. The appeal of the assessee stand allowed.
Order pronounced on 07th July, 2026
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