PCIT Vs NYA International (Gujarat High Court)
Summary: The Revenue filed an appeal under Section 260A of the Income Tax Act, 1961 challenging the order dated 22.02.2023 passed by the Income Tax Appellate Tribunal, Surat in ITA No. 57/SRT/2022 for Assessment Year 2012-13. The Tribunal had quashed the order passed by the Principal Commissioner of Income Tax under Section 263 of the Act.
The assessee, M/s. Nya International, had filed its return of income for AY 2012-13 on 16.08.2012 declaring total income of NIL. The case was selected for scrutiny and an assessment order was passed under Section 143(3) on 25.03.2015. Information was subsequently received from DDIT (Inv) Unit-7(2), Mumbai that the assessee maintained bank account no. 550011032480 with ING Vysya Bank containing credit entries of Rs.70,13,43,319/-, which had not been disclosed in the return for the relevant year. The assessee had also claimed exemption under Section 10AA of Rs.87,21,44,414/-, which was disallowed by the Assessing Officer while passing assessment orders for AYs 2013-14 and 2014-15. The case was thereafter reopened under Section 147 by issuing notice under Section 148 and an order was passed on 31.12.2019 making a disallowance of Rs.87,21,44,414/-.
Read SC Judgment in this case: SC Dismisses Section 263 Challenge Where AO Had Conducted Inquiry and Verification
The Principal CIT subsequently exercised revisionary jurisdiction under Section 263, observing that the assessee maintained three bank accounts—two with Allahabad Bank and one with ING Vysya Bank—which had not been disclosed in the ITR for AY 2012-13. According to the Principal CIT, the Assessing Officer had not made the necessary inquiry and therefore the assessment order was erroneous insofar as it was prejudicial to the interests of the Revenue. After issuing a show cause notice, the Principal CIT set aside the order dated 31.12.2019 and directed the Assessing Officer to reframe the assessment.
The assessee challenged the revisional order before the Tribunal. The Tribunal found that the Assessing Officer had examined the two issues forming the basis of the reassessment, namely the credit entry of Rs.70,13,43,319/- in the ING Vysya Bank account and the disallowance of deduction under Section 10AA of Rs.87,21,44,414/-. It noted that the Assessing Officer had the bank statement while reopening the assessment, had examined the entries during the reassessment proceedings, received the assessee’s reply and applied his mind while framing the assessment. The Tribunal therefore held that the assessment order could not be termed erroneous and prejudicial to the interests of the Revenue merely because the Principal CIT took a different view.
Before the Gujarat High Court, the Revenue raised substantial questions of law concerning whether the Tribunal was justified in quashing the Section 263 order, particularly in light of Explanation 2 to Section 263(1), and whether the Assessing Officer had failed to make adequate inquiry and verification concerning the undisclosed bank account and credit transactions of Rs.70,13,43,319/-.
The High Court, having considered the Tribunal’s order in light of the findings of the Principal CIT, held that the Assessing Officer had conducted sufficient inquiry and had examined the eligibility to claim deduction under Section 10AA. The Court specifically observed that this was not a case of “no inquiry” or “lack of inquiry”. Where an opinion had been formed as a result of inquiries falling within the domain of the Assessing Officer, the revisional authority could not arrive at conclusions merely on the basis of a subjective exercise.
The High Court accordingly found that no substantial question of law arose, much less any question of law, and dismissed the Revenue’s appeal.
The supplied material also records the Supreme Court’s subsequent consideration of the matter, stating that by order dated 17.02.2025 in SLP Diary No.1845/2025, the Supreme Court held that the Revenue’s assertion that inquiry and verification concerning the bank account had not been made was ex-facie incorrect. The Supreme Court distinguished a case of “no inquiry and verification” from a case of a “wrong conclusion” and held that, for exercising jurisdiction under Section 263, the Commissioner should have examined the merits and reached a finding that the reassessment order was erroneous and prejudicial to the interests of the Revenue before making an addition.
Cases Discussed:
- Smt. Juthika Kar vs. ITO, I.T.A. No.1128/Kol/2009, dated 16.05.2012
- DIT vs. Jyoti Foundation (Delhi High Court), ITA No.267/2013, order dated 09.07.2013
- ITO Vs. D.G. Housing Projects Ltd. (Delhi High Court), 343 ITR 329 (Del.)
- PCIT vs. Clix Finance India Pvt. Ltd. (Delhi High Court), ITA No.1428/2018, order dated 01.03.2024
- Sunbeam Auto Ltd. (Delhi High Court), [2011] 332 ITR 167 (Del.)
- CIT vs. Gabriel India Ltd. (Bombay High Court), [1993] 203 ITR 108 (Bom.)
- Mukul Rohatgi vs. PCIT (ITAT Delhi), ITA No.2427/Del/2025, order dated 16.02.2026
- Pr. CIT vs. Shreeji Prints (P.) Ltd. (Supreme Court), [2021] 130 taxmann.com 294 (SC)
- CIT Vs. Vikas Polymers (Delhi High Court), [2012] 341 ITR 537 (Delhi)
- PCIT vs. Nya International (Supreme Court), SLP Diary No.1845/2025
- PCIT v. Anjaniputra Nirmal (P.) Ltd. (Calcutta High Court), ITAT/262/2024
- Liberty Shoes Ltd. v. Pr. CIT (ITAT New Delhi), ITA No.2206/Del/2025
- CITY Union Bank v. PCIT, Madurai-1 (ITAT Chennai), ITA No.1126/CHny/2024
- Surya Roshni Limited v. PCIT-7, Delhi (ITAT New Delhi), ITA No.1445 & 1444/Del/2024
- Skn Propmart Pvt Ltd v. PCIT, Gurugram (ITAT New Delhi), ITA No.4214/Del/2019
- Anil Kumar Batar v. Pr. CIT (ITAT Jaipur), IT Appeal No.418 (JPR) of 2025, dated 09.09.2025
- Bharti Airtel Limited v. Pr. CIT, Delhi (ITAT New Delhi), ITA No.1160/Del/2024
- Nirav Chandrakantbhai v. Pr. CIT (ITAT Ahmedabad), ITA No.1041/Ahd/2024, dated 06.08.2024
- Shail Gas Pvt. Ltd. v. Pr. CIT 7, New Delhi (ITAT New Delhi), ITA No.630/Del/2021
- SAIF Partners India Ltd. v. CIT, International Taxation, Central Circle–3(1)(2), New Delhi (ITAT New Delhi), ITA No.1138/Del/2022
- Pramukh Realty v. Pr. CIT, Rajkot (ITAT Rajkot), ITA No.1445 & 1444/Del/2024
- Paramount Propbuild Pvt. Ltd. v. Pr. CIT 7, Delhi (ITAT New Delhi), ITA No.388/Del/2021
- Shri Subbaraya Annamalai Siva Kumar v. ITO (ITAT Hyderabad), IT Appeals Nos.439 & 440 (Hyd) of 2019, dated 09.04.2021
- Klaxon Trading Pvt Ltd v. Pr. CIT Central–3, New Delhi (ITAT New Delhi), ITA No.7265/Del/2017
- Arun Kumar Garg HUF v. Pr. CIT13, New Delhi (ITAT New Delhi), ITA No.3391/Del/2018
- Small Wonder Industries v. CIT (ITAT Mumbai), IT Appeal No.2464 (Mum) of 2013, dated 24.02.2017
- Beena Jain v. CIT, Meerut (ITAT New Delhi), ITA No.2080/Del/2013
- Pr. CIT v. Delhi Airport Metro Express (P.) Ltd. (Delhi High Court), ITA 705/2017
- STUDDS Accessories Ltd. v. PCIT, Faridabad (ITAT New Delhi), ITA No.3570/Del/2025
- Malabar Industrial Co. Ltd. Vs. CIT (Supreme Court), (2000) 243 ITR 83 (SC)
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. This tax appeal is filed under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) challenging the order dated 22.02.2023 passed by the Income Tax Appellate Tribunal, Surat (for short ‘the Tribunal’) in ITA No. 57/SRT/2022 for the assessment year 2012-13.
2. The following substantial questions of law are raised in this appeal:
“(I) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is justified in quashing the order of the Pr. CIT passed u/s. 263 and holding that decision of the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of revenue even though the AO has not made enquiry which should have been made and the assessment order was deemed to be erroneous in so far as it is prejudicial to the interest of revenue in terms of Explanation 2(a) section 263(1) of the Act?
(ii) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT erred in observing that the conditions precedent for invoking revisional power u/s 263 of the Act on the facts and in the circumstances of the case are not fulfilled in the case of the Assessee, thereto by ignoring the fact that the Assessing Officer has passed the assessment order without making inquiry and verification of the transactions in bank account which was undisclosed and so were the credit transactions totaling Rs. 70,13,43,319/- in the Account No. 550011032480 with ING Vysya Bank?
iii. Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT has erred in relying upon the decision of the ITAT Kolkata in the case of (1) Smt. Juthika Kar vs. ITO [Ι.Τ.Α. No.1128/Ι.Τ.Α. No.1128/ Kol/ 2009, dated 16.5.2012] and (2) CIT vs. J.L. Morrison (India) Ltd. (2014) 366 ITR 593 (Cal) quashing the impugned order u/s. 263 of the I.T. Act and allowing all the grounds of the Assessee without considering that the said decisions are prior to 01.06.2015, when Explanation 2 to section 263 was brought in the statute and the same was not considered in those decisions?
iv. Whether on the facts and Circumstances of the case and in law, the order of the Hon’ble ITAT is perverse in holding that the exercise of jurisdiction u/s 263 by the PCIT was wholly erroneous since the AO has examined the issues raised by the PCIT and there was no allegation of no enquiry or lack of enquiry or verification raised by the PCIT and there was no allegation of no enquiry or lack of enquiry or verification?”
3. Facts in brief indicate that the respondent assessee firm M/s. Nya International had filed its return of income for the assessment year 2012-13 on 16.08.2012 declaring total income as NIL. The case thereafter was selected for scrutiny and assessment and an order was passed under Section 143(3) of the Act on 25.03.2015. Information was received from DDIT (Ivn) Unit-7(2) Mumbai that the assessee was maintaining a bank account no. 5500111032480 with ING Vysya Bank having credit entry of Rs.70,13,43,319/- and the bank account was not disclosed by the assessee in its return of income for the year under consideration. During the year, the assessee firm had claimed exemption under Section 10AA of the Act of Rs.87,21,44,414/- but the exemption under Section 10AA was disallowed by the Assessing Officer while passing an assessment order for the assessment year 2013-14 and 2014-15. Accordingly the case was reopened under section 147 of the Act by issuing a notice under Section 148 and an order was passed on 31.12.2019 making a disallowance of Rs.87,21,44,414/-.
3.1 By exercising powers under Section 263 of the Act, the Principal CIT (Surat) took up the order in revision noticing that the assessee firm was maintaining total three bank accounts – two with the Allahabad Bank and one with ING Vysya Bank. This was not disclosed in the ITR filed for the assessment year 2012-13. In the assessment proceedings, the Assessing Officer had not made any inquiry and therefore the order was erroneous insofar as it was prejudicial to the interest of revenue.
3.2 A show cause notice was issued and thereafter the order dated 31.12.2019 was set aside with a direction to the Assessing Officer to reframe the assessment. The assessee challenged the correctness of the order of the revisional authority dated 18.02.2022. The Tribunal by the order impugned held that there was no reason for the Principal CIT to exercise powers under section 263 of the Act as it was a case where it could not be said that the Assessing Officer had passed an order which could be termed as erroneous and prejudicial to the interest of revenue. The Tribunal held that it was not the case of the learned Principal CIT that the Assessing Officer failed to make any additions/disallowance; the Assessing Officer conducted enough inquiries to examine the debit and credit in the bank statement and he also examined the eligibility to claim deductions under Section 10AA of the Act and that is why he disallowed the deduction under section 10AA of the Act. It was not shown by the Principal CIT that the Assessing Officer had failed to examine the issue during the assessment proceedings based on the submissions and verification of the assessment records.
4. The Tribunal held as under:
“25. However, we note that assessing officer has examined these two issues raised in reopening of assessment u/s 147 of the Act viz: (i) The credit entry in ING Vysya Bank Account No.5500111032480 to the tune of Rs.70,13,43,319/- and;(ii) Disallowance of deduction under section 10AA of the Act to the tune of Rs.87,21,44,414/-. The ld PCIT has exercised his jurisdiction under section 263 of the Act in respect of first issue, that is, credit entry in ING Vysya Bank Account No.5500111032480 to the tune of Rs.70,13,43,319/-. So far this issue is concerned, we note that assessee has also submitted its reply before the assessing officer. The assessing officer after getting the reply of the assessee, has applied his mind and framed the assessment order. Therefore, such order passed by the assessing officer cannot be termed as erroneous and prejudicial to the interest of revenue. We also note that assessing officer had with him copy of said bank account at the time of reopening of assessment under section 147 of the Act, as the reasons were recorded by AO based on the copy of the said bank statement. Therefore, entries in the said bank statement were examined by the AO in the reassessment proceedings and AO has applied his mind also.
26. We are aware of the fact that the Assessing Officer’s role while framing an assessment is not only an adjudicator. The AO has a dual role to dispense with i.e. he is an investigator as well as an adjudicator; therefore, if he fails in any one of the role as afore-stated, his order will be termed as erroneous. We take note that it is not the case of ld. Principal CIT that AO failed to made any additions/disallowances, the AO conducted sufficient enquiry to examine the debit and credit in the bank statement and he also examined the eligibility to claim deduction under section 10AA of the Act and that is why he disallowed deduction under section 10AA of the Act. It is pertinent to mention here that there was as such no allegation of ‘no enquiry’ or ‘lack of enquiry’ or verification, because the Ld. Pr. C.I.T. himself found all the details/evidences in the assessment record, i.e. well within the A.O.’s possession and what he alleged was about the plausible view taken by the A.O. as against his perception and understanding on the same set of facts and documents. Therefore, the notices issued for examination of the issues during the assessment proceedings and submission and verification of the same has not been shown to be fallacious. In this connection it is pertinent to mention here that the way in which assessment should be finalized falls in the exclusive domain of the Assessing Officer. Section 142(1) speaks of inquiry before assessment and gives immense power to the A.O. for conducting enquiry. Therefore, the A.O. u/s 142(1)(ii) & (iii) can ask the assessee almost any information which he thinks necessary for passing assessment and even if Ld. Commissioner has such results of enquiries, the resultant order cannot be subjected to revision proceedings. Therefore, the very initiation of proceeding u/s. 263 of the Act by the Ld. Pr. C.I.T. is in violation of the settled position in law. When the conditions precedent for invoking revisional power u/s 263 of the Act on the facts and in the circumstances of the case are not fulfilled in the case of the assessee, the subsequent action in passing the order u/s. 263 on such invalid proceeding becomes null and void. …
27. It would further be evident from the above given facts that the assumption of jurisdiction u/s. 263 by the Ld. Pr. C.I.T. and consequential direction to the A.O. to impose his own understanding on the issue in question resulted in almost no change in follow-up action by the A.O. Therefore, it goes to establish that the proceeding u/s 263 and order passed thereupon was totally uncalled for in the case of the assessee and that being so, the impugned order u/s 263 of the Act of the Ld. Pr. C.I.T. should be quashed as per law, and it is hereby quashed.”
5. Having considered the order of the Tribunal in light of the findings of the Principal CIT, we find that the Assessing Officer had conducted sufficient inquiry and examined the eligibility to claim deduction under section 10AA of the Act. It was not a case of ‘no inquiry’ or ‘lack of inquiry’. When an opinion is formed as a result of the inquiries, which was in the exclusive domain of the Assessing Officer, it is not open for the revisional authority to arrive at conclusions merely on the basis of a subjective exercise.
6. Having therefore perused the order of the Tribunal, no substantial questions of law arise, much less, any question of law and therefore the appeal is dismissed.
