PCIT Vs Allahabad High Court (Allahabad High Court)
Summary : The Allahabad High Court dismissed the Revenue’s appeal challenging deletion of an addition of ₹2,73,65,027 under Section 68 for Assessment Year 2017-18, holding that the Revenue had produced no material establishing escapement of income. The appeal arose from the ITAT Agra Bench’s order dated 20 February 2026 in ITA No. 537/Agr/2025, which upheld the National Faceless Appeal Centre’s order dated 10 September 2025 deleting the addition made in reassessment on 6 March 2025. The assessee, a sole proprietor engaged in jewellery trading, claimed to have inherited the ancestral business carried on as M/s Devi Abhushan Bhandar and merged its accounts with his existing business. Paragraph 3 of the order records a resulting increase of ₹2,78,82,287 in proprietor’s capital. The issue had been examined during the original assessment under Section 143(3), and the returned income of ₹18,30,550 had been accepted without an addition on this account.
Following an audit objection, reassessment proceedings were initiated and the disputed capital was treated as undisclosed income. The Assessing Authority relied on the absence of a revised return and documentary evidence substantiating the capital increase arising from the merger. Before the High Court, the Revenue questioned whether the Tribunal had perversely accepted the increase as a mere book entry without requiring authentic corroborative evidence of its genuineness, source and actual introduction. The Court, however, noted that the Revenue had neither examined the books nor considered the returns of M/s Devi Abhushan Bhandar to establish that the disputed amount was unavailable as proprietor’s capital in that business. Further, the merger of the two pre-existing businesses itself had not been doubted.
The Court held that, in these reassessment proceedings, the Revenue had to establish on the strength of available material that income had escaped assessment through non-disclosure or wrong disclosure. Without prima facie material contradicting the availability of the ancestral business capital or discrediting the merger claim, the disputed amount could not be reassessed merely because the assessee allegedly furnished insufficient evidence during the original assessment. The Court distinguished this reasoning from a possible exercise of revisionary jurisdiction under Section 263. As neither non-disclosure nor wrong disclosure had been established, the Tribunal’s findings were factual findings warranting no interference. The Revenue’s appeal was dismissed without costs.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Amit Mahajan, learned Standing Counsel for the revenue and Sri Suyash Agarwal, learned counsel for the assessee.
2. Present income tax appeal has been filed against the order dated 20.02.2026 passed by the Income Tax Appellate Tribunal Agra Bench, Agra in ITA No. 537/Agr/2025 for the Assessment Year 2017-18, whereby the Tribunal has dismissed the departmental appeal filed against the order of the National Faceless Appeal Centre (‘NFAC’, in short), dated 10.09.2025. Thereby, the assessee’s appeal filed against the reassessment order dated 06.03.2025, for the assessment year in question, has been allowed and the addition Rs. 2,73,65,027/- has been deleted.
3. The undisputed facts are that the assessee was running a sole propriety concern engaged in jewellery trade. In the previous year, relevant to the assessment year in question, according to the assessee, he also inherited his ancestral business run in the name and style M/s Devi Abhushan Bhandar. Resultantly, the proprietor’s capital in that business also came to be added to the total proprietor’s capital. Correspondently, increase of Rs. 2,78,82,287/- was witnessed in the proprietor’s capital. Undeniably, upon return filed by the petitioner, he was subjected to regular assessment proceeding under Section 143(3) of the Income Tax Act, 1961. Though, questioned on the issue of increase of proprietor’s capital, no addition was made on that count, in the original order. Accordingly, the assessee was assessed at the returned income Rs. 18,30,550/-
4. Later, on audit objection, reassessment proceedings were opened. The addition to the proprietor’s capital was disallowed and assessed as undisclosed income. In doing that, the Assessing Authority considered the facts that the petitioner had not filed revised return and had not adduced any documentary evidence to establish increase of proprietor’s capital, occasioned by merger of the two businesses.
5. In such facts, the present appeal has been pressed on following question of law:
“Whether the order of ITAT is perverse in as much as in deleting the addition of Rs. 2,73,65,027/- made u/s 68 of the Act, by accepting the massive increase in the proprietor’s capital as a mere ‘book entry’ arising from an alleged merger of personal and inherited business accounts despite the assessee had not disclosed the same anywhere prior to this merger, without requiring the assessee to discharge his primary onus of substantiating the genuineness, source, and actual introduction of such capital into the proprietorship with authentic corroborative evidence?”
6. Having heard learned counsel for the parties and having perused the record, we find no good ground to entertain this appeal. Though technical deficiency has been claimed by the revenue, it cannot lost sight that in the reassessment proceedings, the primary burden was on the revenue – to establish that any income had escaped at the hands of the assessee. Here occasioned by the increase in proprietor’s capital by Rs. 2,73,65,027/-, allegation was made that the said amount had escaped assessment. No positive evidence or material was brought on record by the revenue and in fact no positive material may exist as may indicate that the amount of Rs. 2,73,65,027/- was not the proprietor’s capital. Neither the books of accounts of M/s Devi Abhushan Bhandar were examined nor its returns have been considered as may have led to an interference that the amount Rs. 2,73,65,027/- was not available by way of proprietor’s capital, in that business. Further, the revenue has not doubted the fact of merger of the two pre-existing business.
7. Unless, prima facie, material may have existed with the Assessing Authority to indicate that amount of Rs. 2,73,65,027/- was not available by way of proprietor’s capital in the business of M/s Devi Abhushan Bhandar or unless the Assessing Authority had material to disbelieve the primary claim made by the assessee that his pre-existing sole proprietary business was merged with his ancestral business with M/s Devi Abhushan Bhandar, it did not become open to the Assessing Authority to reassess the petitioner, for that amount.
8. The Assessing Authority could not adopt a line of reasoning that the assessee may not have adduced enough evidence in the course of original assessment proceedings, in support of his claim. That line of reasoning may be available in proceedings initiated under Section 263 of the Income Tax Act, 1961 but not in a reassessment proceeding. Qualitatively, in a reassessment proceedings, for any addition to be sustained, the revenue is burdened to establish – on the strength of material available with it, that any income has escaped assessment, either by non-disclosure or wrong disclosure. Here, neither there is any material available the Assessing Authority to establish that there is non-disclosure nor there is a wrong disclosure, proven by the revenue.
9. In view of the above discussion, the finding recorded by the Tribunal are finding of facts, as may not interfered with in the present appeal.
10. Accordingly, the instant appeal lacks merit and is dismissed. No order as to costs.
