Lasa Supergenerics Limited Vs PCIT (ITAT Mumbai)
Mumbai ITAT: Revision under Section 263 Valid Where AO Invokes Wrong Charging Provision for Bogus Purchases
The Mumbai ITAT upheld the revisionary order passed under section 263, holding that the Assessing Officer’s application of section 68 to an addition on account of bogus purchases rendered the reassessment order erroneous and prejudicial to the interests of the Revenue. The Tribunal observed that section 68 applies to unexplained credits in the books, whereas alleged bogus purchases represent unexplained expenditure, which is prima facie governed by section 69C.
The Tribunal rejected the assessee’s contention that the PCIT had merely substituted one legal view for another. It distinguished the Ahmedabad ITAT decision in Alang Steel Recycling Pvt. Ltd., noting that in that case the Assessing Officer had invoked section 37(1), whereas the present case involved the application of section 68, an inapplicable charging provision. Since the Assessing Officer had invoked the wrong statutory provision, the error was capable of causing prejudice to the Revenue by permitting set-off of current year losses and avoiding the consequences of section 115BBE.
Accordingly, the Tribunal held that the twin conditions of section 263 stood satisfied and upheld the PCIT’s direction to the Assessing Officer to examine the addition under section 69C read with section 115BBE. The assessee’s appeal was dismissed.
Cases Discussed
- Alang Steel Recycling Pvt. Ltd. vs. PCIT (ITAT Ahmedabad), ITA No. 1605/Ahd/2025, dated 16.01.2026
- Harish Narang vs. PCIT (ITAT Delhi), ITA No. 3637/Del/2025, dated 31.12.2025
- Kwality Steel Suppliers v. CIT (SC), 395 ITR 1
- Malabar Industrial Co. Ltd. vs. CIT (SC), 243 ITR 83 (SC)
- Jubiliant Organosys vs. CIT (Allahabad HC), [2004] 265 ITR 420
- Jai Kumar Kankaria vs. CIT (Calcutta HC), 251 ITR 707
- Venkatakrishna Rice Co. v. CIT (Madras HC), (1987) 163 ITR 129 (Mad.)
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The instant appeal of the assessee filed against the order of the Ld. Principal Commissioner of Income Tax, Thane -1 [for brevity “Ld. PCIT”], order passed under Section 263 of the Income Tax Act, 1961 (for brevity ‘the Act’) for Assessment Year 2018-19, date of order 27.03.2025. The impugned order emanated from the order from the order of the Assessment Unit Income Tax Department (for brevity ‘Ld. AO’), order passed under Section 147 r.w.s. 148 of the Act, date of order 27.03.2023.
2. The registry informed that all the appeal is filed by the assessee with a delay for 255 days. The assessee filed the application for condonation of delay for 255 days and explained the delay for filing appeal. The Ld. DR had not made any strong objection against the submission of the assessee related to condoning the delay. Accordingly, we find that there is sufficient cause for filing the appeal in delay before ITAT for 255 days. So the delay for 255 days is duly condoned and the appeal is taken for adjudication.
3. The brief facts of the case are that the assessee filed its return of income under section 139(1) of the Act declaring a total loss of Rs.2,34,13,322/-. The case of the assessee was selected for scrutiny, and the assessment was completed under section 143(3) of the Act. Subsequently, the Ld. AO received information that the assessee had made purchases aggregating to Rs.20,47,80,150/- from three entities alleged to be bogus. Accordingly, notice under section 148 of the Act was issued, and reassessment proceedings were initiated. During the reassessment proceedings, the Ld. AO recorded the following observation in paragraph 10 of the reassessment order, which is reproduced below:
“10. After careful consideration of all the details available on record and response of the assessee, the scrutiny assessment proceedings in this case are concluded by disallowing t the purchase of Rs.204780150/- and added with the total income of the assessee for A.Y. 2018-19”
Finally, the Ld. AO made an addition of the entire alleged purchase amounting to Rs.20,47,80,150/- under section 68 of the Act. Thereafter, the Ld. PCIT, invoking the provisions of section 263 of the Act, held that the reassessment order was erroneous insofar as it was prejudicial to the interests of the revenue, on the ground that the addition in respect of the alleged bogus purchases amounting to Rs.20,47,80,150/- had been made under section 68 instead of the appropriate provision of the Act. Accordingly, the Ld. PCIT issued a notice under section 263 calling upon the assessee to explain why the reassessment order should not be revised, as the provision applied by the Ld. AO was erroneous. After considering the matter, the Ld. PCIT set aside the impugned reassessment order, holding that the Ld. AO had erred in invoking section 68 in respect of the alleged bogus purchases, and directed the Ld. AO to examine the issue by applying the provisions of section 69C r.w.s. 115BBE of the Act. Aggrieved by the revisionary order passed under section 263, the assessee is in appeal before us.
4. The issue before the Bench was argued by the Ld. AR, who contended that the Ld. PCIT had erroneously assumed jurisdiction under section 263 of the Act by setting aside the impugned reassessment order merely to substitute one charging provision for another. According to the Ld. AR, such an exercise amounts to nothing but a mere change of opinion, which does not justify the invocation of the revisionary jurisdiction under section 263 of the Act. The Ld. AR filed a paper book comprising pages 1 to 453, which has been taken on record. It was submitted that the Ld. AO had duly examined the purchases during the reassessment proceedings, treated the purchases as bogus, and made the addition under section 68 of the Act after due verification. Therefore, the view adopted by the Ld. AO was a plausible view based on the material available on record and, consequently, could not be substituted by the Ld. PCIT in exercise of powers under section 263 of the Act. It was further contended that the revisionary order is founded solely on a different opinion regarding the applicability of the relevant provision of the Act, which is impermissible under section 263.
The Ld. AR further submitted that the issue had been thoroughly examined by the Ld. AO during the reassessment proceedings and, therefore, it cannot be alleged that there was any lack of enquiry or inadequate verification on the part of the Ld. AO. In support of these contentions, the Ld. AR placed reliance on the order of the Coordinate Bench of the ITAT, Ahmedabad Bench ‘B’, in Alang Steel Recycling Pvt. Ltd. vs. PCIT, ITA No. 1605/Ahd/2025, dated 16.01.2026. The relevant observations contained in paragraphs 10.9 to 10.11 of the said order are reproduced below:
“10.9. It is well settled that where two views are possible and the Assessing Officer has adopted one of the plausible views, the order cannot be branded as erroneous merely because the Principal Commissioner prefers another view. This principle has been reiterated by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. (supra) and Kwality Steel Suppliers v. CIT (395 ITR 1).10.10. In view of the foregoing discussion, we hold that the Assessing Officer, after examining the issue of alleged bogus purchases during the reassessment proceedings, has taken a legally permissible and plausible view by disallowing the entire amount of 277,61.745/- under section 37 of the Act, the purchases been made through banking channels, thereby explaining the source of having been recorded in the regular books of account and the payments having expenditure, and that the mere fact that the learned Principal Commissioner was of the opinion that section 69C read with section 115BBE ought to have been invoked does not render the assessment order erroneous or prejudicial to the interest of the revenue within the meaning of section 263 of the Act; rather, the impugned revisionary action represents an impermissible substitution of the Principal Commissioner’s view for that of the Assessing Officer on a debatable issue of law, which is not sanctioned under section 263.
10.11. Accordingly, the impugned order passed by the learned Principal Commissioner under section 263 of the Act is set aside and the assessment order dated 21.03.2023 is restored.”
5. The Ld. DR, on the other hand, contended that section 68 of the Act applies to any sum found credited in the books of account of the assessee for which no satisfactory explanation regarding its nature and source is furnished. According to the Ld. DR, the Ld. AO had erroneously invoked the provisions of section 68 in respect of the alleged bogus purchases. It was submitted that the impugned transactions represented purchases from vendors, the corresponding amounts having been debited to the Profit and Loss Account as expenditure, and therefore the provisions of section 68 were not applicable to such transactions. The Ld. DR further submitted that the reassessment order was, therefore, erroneous insofar as it was prejudicial to the interests of the revenue on account of the incorrect application of section 68. Accordingly, the Ld. PCIT was fully justified in invoking the revisionary jurisdiction under section 263 of the Act, setting aside the reassessment order, and directing the Ld. AO to examine the issue under section 69C read with section 115BBE of the Act. In support of these submissions, the Ld. DR placed reliance on the order of the Coordinate Bench of the ITAT, Delhi Bench ‘E’, in Harish Narang vs. PCIT, ITA No. 3637/Del/2025, dated 31.12.2025. The relevant observations contained in paragraphs 12 to 15 of the said order are reproduced below:
“12. We have also considered as to whether the Id. PCIT, Rohtak, has rightly exercised his revisionary authority under section 263 of the Act. We have noted that Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. vs CIT in 243 ITR 83(SC) has held that if “due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue”. We have noted that non-invocation of section 69C r.w.s. 115BBE of the Act by the AO in this case had led to short charge of tax, which was due to the Revenue. To the extent, the exercise of revisionary authority under section 263 has been found to be correct and supported by statute on records.
13. We have also noted that Hon’ble Madras High Court in the case of Venkatakrishna Rice Co. v CIT (1987) 163 ITR 129 (Mad.) have examined the issue of expression “prejudicial to the interest of the Revenue”. The Hon’ble High Court held that availability of certain conception of facts which are subversive of the administration of the Revenue would constitute presence of element of “prejudicial to the interest of the Revenue. In the present case, the entire claim of Input TaxCredit initiated at the behest of Shri Rajesh Mittal to defraud revenue authorities both in Direct as well as Indirect administration clearly alludes that the ratio laid down by the Hon’ble Madras High Court would apply in this case as far as existence of elements “prejudicial to the interest of the Revenue”. Further we have noted that Hon’ble Allahabad High Court in the case of Jubiliant Organosys vs CIT [2004] 265 ITR 420 held that the Commissioner under section 263 can correct both the errors of fact as well as error of law. We have also noted that Hon’ble Kolkata High Court in the case of Jai Kumar Kankaria vs CIT 251 ITR 707 has also echoed the same line of thinking as of Hon’ble Madras High Court in Venkatakrishna Rice co. (supra) that if Revenue is losing tax because of an erroneous order of the assessing authority, the assessment order would be deemed to be prejudicial to the interest of the Revenue.
14. Section 69C extracted hereinabove clearly postulates that the same shall be invoked by as Assessing Officer in the event of two simultaneous events happening. Thus, there should be claim of an expenditure by the assessee and the assessee during the course of assessment proceedings does not offers any explanation regarding the source of such expenditure or the explanation offered by the assessee is unsatisfactory. In the present case, the assessee has claimed an expenditure of Rs.1.04.27,400/- towards purchases. The Id. AO considering the accompanying circumstances, inter-alia, including enquiries by the GST Authorities as also his own independent enquiries concluded that the impugned expenses were bogus expenses. This conclusion was supported by the fact that the source of these expenses being the goods in question were never received by the assessee. The assessee miserably failed to allude any evidences to indicate that the goods were received by him. The learned Assessing Officer having arrived at the above conclusion proceeded to make the addition treating the same as non-business expenses under section 37(1). It is a settled principle of law that when the prescription of a statute is unambiguously clear. no different interpretation can be made. Section 69C of the Act clearly presumes its invocation in cases where source of an expenditure is either not explained by the assessee or unsatisfactorily explained. The impugned condition was totally applicable in the present case. The invocation of section 37(1) of the Act by the Id. AO was therefore faulty and constituted passing of an order which was erroneous in so far as it was prejudicial to the interest of the Revenue under section 263.
15. Having regard to the discussion made in the preceding paragraph and after considering the peculiar facts of the case, observations made by the Id. Assessing officer in the assessment order, and by the Ld. PCIT in his revisionary order, statutory prescription and judicial precedence. governing the facts, we are of the considered view that directions issued by the Id. PCIT vide her order dated 18.03.2025 are based upon correct understanding and interpretation of facts of the case and do not require any intervention at this stage. We therefore confirm the order of the ld. PCIT, Rohtak and dismissed the grounds of appeal raised by the appellant assessee.”
6. The Ld. DR further contended that the Ld. PCIT had correctly invoking the provisions u/sec 263 and observations made in para no.4 to 5 is reproduced as below:
“4. On perusal of the records, it is seen that the assessee had filed return of income for the On perusal of the records, & is seen that the AY 2018-19 declaring total loss of Rs.2.34.13.322 on 30.10.2018 and the assessment was initially completed u/s. 143(3) on 19.04.2021 determining total loss of Rs.2.19,79,782/- and an addition of Rs.47,43,00,000 made u/s.68 of the Act.
4.1 Subsequently the case was re-opened by Issuing notice is 148 on 29.03.2022 Assessment order u/s 147 r.ws.1448 dated 27.03 2023 was passed by the AO wherein it was concluded that the purchases of Rs.20 47,80,150/- made by the assessee from three parties viz. (i) M/s.Kushal Limited, (ii) M/s. Basant Marketing Ltd, and (i) M/s. Artlink Wintrade Pvt Ltd were not genuine and were made only on the basis of paper entries i.e. without actual delivery of goods. However, while disallowing the purchases of Rs. 20,47,80,150/-, the AO failed to invoke the provisions of Section 69C r.w.s.115BBE and also allowed set-off of Rs.20,47,80,150/- from the current year loss declared by the assessee.
5. As per the facts discussed above, failure on the part of the AO has resulted in the assessment order u/s. 147 r.w.s 144B of the I.T. Act dated 27.03.2023 as being erroneous in so far as it is prejudicial to the interest of the revenue. Keeping in view the facts of the case, the assessment order u/s.147 r.w.s 144B of the L.T. Act dated 27.03.2023 is hereby partially set-aside with the following directions to the AO:
1. The AO is directed to make the addition of Rs.20,47,80,150/- on account of unverified purchases u/s.69C r.w.s.115BBE of the Income-Tax Act, 1961, and initiate penalty proceedings u/s.271AAC accordingly.
2. With regard to the issue discussed above, the AO is directed not to set-off the addition of Rs.20,47,80,150/- against the current year loss, as per the provisions of Section 69C r.w.s.115BBE.”
7. We have heard the rival submissions and considered the documents available on record. The short issue arising for our consideration is whether the Ld. PCIT was justified in invoking the revisionary jurisdiction under section 263 of the Act on the ground that the Ld. AO had applied an incorrect charging provision while making the addition in respect of the alleged bogus purchases. The facts are not in dispute. The assessee’s case was originally assessed under section 143(3) of the Act. Subsequently, the assessment was reopened under section 148 of the Act, wherein the Ld. AO treated the alleged bogus purchases as unexplained and made an addition of the entire amount under section 68 of the Act. Thereafter, the Ld. PCIT invoked the provisions of section 263, holding that the reassessment order was erroneous insofar as it was prejudicial to the interests of the revenue because the addition in respect of the alleged bogus purchases had been made under section 68 instead of the appropriate provision of the Act. We have carefully considered the decisions of the Coordinate Bench of the ITAT, Ahmedabad (supra) and the Coordinate Bench of the ITAT, Delhi (supra) relied upon by the respective parties. In both those cases, the Assessing Officer had dealt with the alleged bogus purchases by invoking section 37(1) of the Act, treating the purchases as business expenditure. The Ld. PCIT, in exercise of powers under section 263, held that the provisions of section 37(1) had been erroneously applied and directed the Assessing Officer to examine the issue under section 69C r.w.s. 115BBE of the Act. The factual matrix of those decisions is, therefore, materially different from that of the present case. In the present case, the Ld. AO has invoked section 68 of the Act, which applies to any sum found credited in the books of account of the assessee for which no satisfactory explanation regarding the nature and source is furnished. The impugned addition, however, pertains to alleged bogus purchases, where the amounts represent expenditure incurred by the assessee and not unexplained credits in the books of account. Prima facie, such a transaction is more appropriately governed by the provisions of section 69C of the Act dealing with unexplained expenditure. It is well settled that the exercise of revisionary jurisdiction under section 263 requires the coexistence of two conditions, namely, that the assessment order must be erroneous and prejudicial to the interests of the revenue. In the present case, the Ld. PCIT has recorded a finding that the Ld. AO invoked an inapplicable charging provision while making the impugned addition. Such an erroneous application of the charging provision is capable of causing prejudice to the interests of the revenue. Consequently, both the statutory conditions contemplated under section 263 stand satisfied. Accordingly, we are of the considered view that the Ld. PCIT was well within his jurisdiction in invoking the provisions of section 263 of the Act and directing the Ld. AO to examine the issue under the appropriate statutory provision. We, therefore, find no infirmity in the impugned revisionary order passed by the Ld. PCIT. Accordingly, the appeal filed by the assessee stands dismissed.
8. In the result, the appeal of the assesse bearing ITA No.1438/Mum/2026 is dismissed.
Order pronounced in the open court on 31th day of July 2026
