Garg Ship Breaking Pvt. Ltd. Vs PCIT (ITAT Ahmedabad)
Summary: ITAT Ahmedabad upheld the PCIT’s revision under Section 263 of the Income Tax Act in the case of Garg Ship Breaking Pvt. Ltd. for AY 2021-22, holding that Explanation 2(a) squarely applied because the Assessing Officer completed the assessment while material verification remained unfinished. The assessee, engaged in wholesale and retail business of scrap materials, had been selected for scrutiny because suppliers from whom substantial purchases were made were non-filers or reflected very low turnover. During a CGST search, documentary evidence had been seized, and the AO also issued notices under Section 133(6) based on red-flagged information appearing on the Department’s Insight portal.
However, only one party responded, efforts to obtain records from the CGST Department did not fructify, and the AO ultimately accepted the returned income while recording that suitable action could be taken if adverse information was received later. The Tribunal observed that the assessee’s inability to produce original records was not deliberate because those records were in the custody of another government authority, but the AO could have obtained them directly from CGST.
More importantly, the AO did not pursue enquiries concerning the CGST complaint alleging fake invoices/bogus purchases, did not adequately verify purchases from parties that failed to respond to Section 133(6) notices, and did not deliberate upon even the response received from one red-flagged party. The Tribunal held that the AO’s own qualification regarding possible future adverse information demonstrated that the assessment had been concluded while investigation remained incomplete. Accordingly, the PCIT’s direction requiring the AO to obtain information/details from documents seized by the CGST Department and pass a fresh assessment order was sustained, and the assessee’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The assessee has filed the appeal against the order dated 29-03-2025 passed by Principal Commissioner of Income Tax, Ahmedabad-1 (in short, referred to as the PCIT) u/s. 263 of the Income Tax Act, 1961 (herein referred to as “the Act”) relating to Assessment Year 2021-22.
2. The assessee raised the following grounds of appeal:-
“1. The learned PCIT has erred in law and on the facts of the case in exercising the powers u/s 263 of the Act. Under the facts the original order was neither erroneous or prejudicial to the interest of revenue and thus none of the conditions as envisaged under Section 263 are fulfilled.
2. The Learned PCIT(A) erred in holding that the learned AO has not conducted inquiries properly and hence it is fit case under Section 263 of the Income Tax Act, 1961.
3. Your appellant craves liberty to add, to alter, to modify, to amend or to withdraw/delete any of the grounds of appeal at any time, on or before the hearing of appeal.”
3. Brief facts of the case are that assessee company engaged in business of wholesale and retail business of scrap materials, filed its return of income for A.Y. 2021-22 on 13-03-2022 admitting total income of Rs. 35,76,760/-. Case was taken up for scrutiny for the reason that suppliers from whom substantial purchases were made by assessee were either non-filers/reflected very low turnover. There was a search action in the case of assessee by CGST Department on 27-03-2022 and all documentary evidences were seized by them. AO issued notice u/s. 133(6) of the Act in respect Red Flagged information available in the insight portal of the Department. Only one person responded. AO’s attempt to obtain details/records from CGST Department did not fructify. Due to unavailability of concrete materials, AO did not take adverse view and accepted the returned income. However, he made a qualification “if any adverse information is received to the Department in future, suitable action would be taken as per provisions of law”.
4. PCIT vide his order dated 29-03-2025 held that AO had erred in accepting income admitted by assessee. He further held that AO had failed to take note of the complaint before the Hon’ble Chief Judicial Magistrate, Bhavnagar. According to PCIT, AO should have relied on the findings of the CGST Department. Drawing support from explanation 2 to section 263, he set aside the assessment order with a direction to AO to pass a fresh assessment order.
5. Aggrieved by the order of the PCIT, the assessee is in appeal.
6. We have heard both the parties and perused the relevant details.
6.1 Assessee’s inability to produce original records was not deliberate or because the records did not exist. They were admittedly in the custody of another government authority. If AO considered further verification necessary, the copies of records were capable of being obtained directly from CGST. Even in respect of Red Flagged information available in the Insight portal, AO concluded the assessment with a remark that response from third parties had not been received. No further attempt was made. Even in respect of one party who replied, AO did not elaborate on the content of the reply and his conclusion on that.
6.2 AO admitted that assessee furnished copy of complaint of CGST Department with Chief Judicial Magistrate, Bhavnagar during assessment proceedings. AO did not make any enquiry on the basis of such complaint in respect of fake invoices/bogus purchases of this very assessee. Explanation 2(a) to section 263 deems an order erroneous and prejudicial to interests of the Revenue where it is passed “without making inquiries or verification which should have been made”. The inquiry has to be judged in its factual context. The statement by AO in the assessment order that “if any adverse information is received to the Department in future, suitable action would be taken as per provisions of law” establishes that AO completed the assessment while the material investigation/enquiry remained unfinished. If the Central Excise proceedings concerned fake invoices/bogus purchases of this very assessee, then AO ought not to have accepted the returned income. The assessee had shown purchases from the entities which had not replied to notices issued u/s. 133(6) of the Act. The assessee had not submitted the supporting evidences like payment through bank account etc. to show the genuineness of purchases even in respect of Red Flagged information. Further, in respect of reply received from one Red Flagged party, AO without deliberating on the details in the assessment order accepted the returned income. We are of the considered view that AO did not cause the verification which should have been made. Hence, Explanation 2(a) to Section 263 of the Act squarely applies to the facts of this case. Under the circumstances, in the interest of justice, it is appropriate that AO should collect information/details from seized documents from CGST Department and pass fresh order. Revision order u/s. 263 of the Act is upheld.
7. In the result, the assesse is dismissed.
Order pronounced in the open court on 25-09-2026
