Order u/s 263 enhancing disallowance quashed as CIT (A) has power of enhancements – ITAT

ITAT quashed order u/s 263 enhancing disallowance observing in appellate proceedings, CIT(A) has power of enhancements of income assessed, if desired.

In a recent judgment, ITAT Delhi has quashed order u/s 263 observing that PCIT had ignored the fact that assessee had filed an appeal against the addition made by the AO and in appellate proceedings, CIT (A) has power of enhancements of income assessed, if desired.

ABCAUS Case Law Citation:
5105 (2026) (04) abacus.in ITAT

Important Case Laws relied upon by Parties:
PCIT vs Kanak Impex (India) Ltd.
Malabar Industrial Co. Ltd v. CIT [2000] 243 ITR 83 (SC)
CIT vs Simit P Sheth 

The case of the appellant assessee was selected under CASS for complete scrutiny for the reason that assessee had made substantial purchase from buyers where either non-suppliers or non-filer(s) of ITR.

Since the assessee did not comply with any notices, the AO issued summons u/s 133(6) of the Act to the supplier parties. The AO also obtained information from GST portal and it was observed that out of 08 parties who had not filed their ITRs for the year under appeal, in reply to notice issued u/s 133(6) of the Act, three parties  had filed the details however, the notice in case of remaining five parties remained un-complied.

As a result, the AO held the total purchase made from these five parties as not genuine and bogus and by following the judgment of Hon’ble Gujarat High Court and made the addition u/s 69C @ 12.5% of total purchases held as bogus.

The PCIT initiated the revision proceedings u/s 263 of the Act by issue of show cause notice wherein Ld. PCIT observed that once the assessee had failed to substantiate the purchases made from five parties, the AO should have made the disallowance of the entire purchase.

Rejecting the submissions of the assessee, the PCIT held that the assessment order was erroneous and pre-judicial to the interest of the Revenue and enhanced the income of the assessee.

The Tribunal observed that the assessee had filed all the details before the lower authorities which included copies of invoices, bank statements, GR & e-way bills etc. It was observed that these details were also filed before the PCIT who had failed to point out any error in the details filed by the assessee and ignored/rejected for the reason that assessee had not filed stock register and confirmations of the respective parties. The sales made by the assessee had not been doubted nor the profits declared were disturbed and the trading results declared were accepted by the AO as well as by PCIT in the order passed u/s 263 of the Act. It was a matter of fact that the alleged parties from whom purchases made were held as bogus are having valid PAN and there may be other reasons for non-filing of the returns solely for these reasons, entire purchases cannot be doubted.

The Tribunal further noted that GST authorities have passed the order in the case of the assessee placed at pages 45 to 63 wherein the purchases made from these parties have been accepted and proceedings were initiated u/s 73/74 of the GST Act were dropped.  Once the purchase made from these parties, have been accepted by GST authorities, it cannot be said that the entire purchases made from these parties are bogus.

The Tribunal opined that  PCIT had ignored the fact that assessee had filed an appeal against the addition made by the AO and in appellate proceedings, CIT (A) has power of enhancements of income assessed, if desired so, therefore, once the AO has framed an opinion based on judicial pronouncements and accepted the trading results declared by the assessee, the action of PCIT in holding the said order as erroneous and pre-judicial to the interest of Revenue without specifically pointed out the errors and omissions in the details filed by the assessee with respect to the purchases made from these parties was not acceptable.

The Tribunal opined that element of profit, if any, is still suppressed, CIT(A) has all the powers to enhance the income of the assessee. 

Therefore, the Tribunal held that the order of PCIT holding the assessment order as erroneous and prejudicial to the interest of revenue was not correct and accordingly the order passed u/s 263 of the Act was quashed.

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