BHAGWATI STEEL PROCESSORS,CHANDIGARH V. PCIT, CHANDIGARH

ITA 435/CHANDI/2025

AI Insights

The case involves Bhagwati Steel Processors, a partnership firm engaged in steel processing and trading, which appealed against the order of the PCIT, Chandigarh-1, under Section 263 of the Income Tax Act, 1961. The PCIT had invoked Section 263, claiming the original assessment order was erroneous and prejudicial to the interest of the Revenue due to discrepancies in turnover, unverified depreciation, and unverified sundry debtor balances. The Tribunal examined the detailed submissions and evidence provided during the original assessment and found that the Assessing Officer had adequately addressed all concerns raised by the PCIT in the original assessment proceedings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 708522 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2021-2022
• Other Referred Cases: DG Housing Projects Ltd. [(2012) 343 ITR 329 (Del)], Reliance Communications Ltd. [240 Taxman 655 (Bom)], Nirav Modi [390 ITR 292 (Bom)], Shashi Bhushan Gupta [202 TTJ UO 30], Delhi Airport Metro Express [398 ITR 8], Fine Jewellery (India) Ltd. [372 ITR 303], Jyoti Foundation [357 ITR 388], Brahma Centre Development (P) Ltd. [437 ITR 285], PCIT v. V-Con Integrated Solutions Pvt. Ltd. [2025] 173 taxmann.com 774 (SC), Malabar Industrial Co. Ltd. (supra)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANAV BANSAL
• Assessee Lawyers: T.N. SINGLA; C.A
• Keywords: Set aside; Opportunity of being heard; Depreciation; Assessment record; Unabsorbed depreciation; Revision of order; FORM 26AS
• Section: 143(3); 142(1); 263

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “ए” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी क ृणवȶ सहाय, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM & SHRI. KRINWANT SAHAY, AM आयकर अपील सं./ ITA No.435/Chd/ 2025 िनधाŊरण वषŊ / Assessment Year : 2021-22 Bhagwati Steel Processors Plot No. 379, Industrial Area, Phase-II, Chandigarh-160002 बनाम The PCIT Chandigarh ˕ायी लेखा सं./PAN NO: AANFB0782F अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri T.N. Singla, C.A राजˢ की ओर से/ Revenue by : Shri Manav Bansal, CIT, DR सुनवाई की तारीख/Date of Hearing : 08/07/2025 उदघोषणा की तारीख/Date of Pronouncement : 15/07/2025 आदेश/Order PER LALIET KUMAR, J.M: This appeal is filed by the assessee against the order dated 11.03.2025 passed by the Ld. Pr. CIT, Chandigarh-1. under Section 263 of the Income Tax Act, 1961 for the assessment year 2021–22. 2. In the present appeal Assessee has raised the following grounds: 1. That the order of the Learned PCIT is bad, against the facts and law. 2. That the details and explanation of Turnover, Unabsorbed Depreciation and Debtor JCBL Plant II were provided/submitted to the Assessing Officer during the assessment proceedings u/s 143(3) r.w.s 144B and hence, powers u/s 263 are wrongly used by PCIT against the appellant. 3. That the PCIT has not raised query in the notice regarding part of the explanation to the section 263 of the Act to be invoked by her. Thus, no opportunity of being heard was given to the appellant without confronting the appellant on the relevant part of explanation. 4. That the Learned PCIT was required to make enquiry before passing an order u/s 263 and in this case no enquiry was made by the PCIT. 5. That the Learned PCIT has not pointed out any defects in the details submitted during proceeding u/s 263 and passed order u/s 263 without application of mind. 6. That the appellant craves leave to add, alter, amend or withdraw any grounds of appeal before the final hearing. 2 3. Briefly the facts of the case are that the assessee, a partnership firm engaged in the business of steel processing and trading, filed its return of income for A.Y. 2021– 22 on 02.03.2022 declaring an income of Rs.6,75,660. The return was processed under Section 143(1), and the case was selected for scrutiny under CASS for the reason “Large Refund Claim out of Self-Assessment Tax.” 3.1 The assessment was completed by the NFAC, under Section 143(3) r.w.s. 144B of the Act on 20.12.2022, accepting the returned income. 4. The PCIT, upon examination of records, invoked jurisdiction under Section 263 on the ground that the assessment order was erroneous and prejudicial to the interest of the Revenue on the following issues: An apparent discrepancy of Rs.3.53 crore between turnover reported in GSTR-9/Form 26AS and the profit & loss account; Allowance of unverified brought forward depreciation of Rs.1.53 crore; Failure to verify sundry debtor balances, particularly Rs.3.12 crore in the name of JCBL Plant II. 4.1 A show cause notice under Section 263 was issued on 22.01.2025, and the assessee submitted its detailed reply on 10.02.2025 along with all supporting documents and reconciliations. 4.2 The Ld. Pr. CIT had called for the comments of the assessee / reply of the assesse on the above noted points and thereafter had passed the impugned order directing the Assessing Officer to pass denovo assessment order after considering the direction issued by the Pr. CIT. 4.3 Feeling aggrieved by the order, the assessee is in appeal before us, on the ground mentioned hereinabove. 5. The ld. AR for the assessee submitted that all issues raised in the notice were duly examined during the assessment proceedings. It was stated that: a. Issue of Unabsorbed Depreciation: The Ld. PCIT has erred in holding that the Assessing Officer failed to examine the allowability of unabsorbed depreciation amounting to Rs.1,53,38,704. The assessee had filed complete details of the carried-forward depreciation as 3 part of its computation of income, which was supported by past assessment records for AYs 2016-17, 2017-18, and 2018-19. These documents are part of the Paper Book (PB Page Nos. 159, 163, 167, 172–175). The Assessing Officer raised specific queries during the assessment (PB Page No. 99) and the assessee duly responded to the same (PB Page No. 101). The issue also formed part of the AO’s show-cause notice dated 07.12.2022 (PB Page No. 138) and has been discussed in the assessment order (PB Page No. 147). Hence, the allegation that no inquiry was made is factually incorrect. b. Issue of Sundry Debtors (JCBL Plant-II): The Ld. PCIT also sought to revise the assessment on the ground that the sundry debtor JCBL Plant-II had an outstanding balance of Rs.312.72 lakhs as on 31.03.2021. The assessee had furnished complete details during the assessment proceedings, including Schedule 9 of the audited balance sheet (PB Page No. 11), prior year debtor details (PB Page No. 87), PAN and account copies of all major debtors exceeding Rs.10 lakhs (PB Page Nos. 24, 28, and 87), sale invoices (PB Page Nos. 33 to 85), and JCBL's ledger (PB Pages 177 to 181). The debtor had a running account, and the balance arose due to sales made in February and March 2021. These facts were examined and accepted by the AO and also find mention in the assessment order (PB Page Nos. 146–147). No discrepancy was pointed out by the PCIT in the debtor balance. c. Alleged Difference in Turnover (GST vs P&L): It is further submitted that the Ld. PCIT has wrongly concluded that there was a discrepancy between the turnover shown in GSTR-9/Form 26AS (Rs.2279.11 lakhs) and the Profit & Loss account (Rs.1927.60 lakhs). The assessee submitted a detailed reconciliation (PB Page No. 183), demonstrating that the turnover reported in the GST return included indirect income of Rs.2.40 lakhs shown separately under Schedule 17 (PB Page No. 13). The main sales figure in Schedule 15 (PB Page No. 12) along with the lease/rent income reconciles fully with Form 26AS. These reconciliations and supporting documents (PB Pages 6, 7, 12, 13, 21, 22, 27, 28, 33 to 86, 93, 95, 99, 102–136) were duly 4 verified and accepted by the AO, as acknowledged in the assessment order (PB Page No. 147) and show-cause notice (PB Page Nos. 138–139). d. Legal Position and Case Law Support: The Ld. AR had submitted that the law is fairly settled that if the AO has made inquiries and taken a plausible view, the PCIT cannot substitute his own opinion without conducting an independent inquiry. The following judgments are relied upon: o DG Housing Projects Ltd. [(2012) 343 ITR 329 (Del)] – where the Hon'ble Delhi High Court held that the CIT must record specific findings based on independent examination to invoke Section 263. o Reliance Communications Ltd. [240 Taxman 655 (Bom)] – held that absence of discussion in the order does not mean lack of inquiry. o Nirav Modi [390 ITR 292 (Bom)], Shashi Bhushan Gupta [202 TTJ UO 30], Delhi Airport Metro Express [398 ITR 8], Fine Jewellery (India) Ltd. [372 ITR 303], Jyoti Foundation [357 ITR 388], Brahma Centre Development (P) Ltd. [437 ITR 285], among others, reiterate that once inquiry is made and a possible view taken by the AO, the same cannot be revised under Section 263 unless the PCIT undertakes fresh verification and demonstrates how the AO's conclusion is erroneous and prejudicial. 6. The Ld. CIT-DR supported the revision order, contending that the AO had failed to verify key issues and accepted the assessee’s claims without adequate inquiry. 6.1 The DR emphasized that: There was no independent reconciliation of turnover by the AO; The depreciation allowance was not verified against past records; The sundry debtor balances were not substantiated through independent confirmation or inquiry. 6.2 The Revenue relied on Explanation 2(a) to Section 263 and judicial precedents including DG Housing Projects Ltd. [(2012) 343 ITR 329 (Del.)], Gee Vee Enterprises [(1975) 99 ITR 375 (Del.)], and Gabriel India Ltd. [(1993) 203 ITR 108 (Bom.)]. 7. We have heard the rival contention and perused the material available on the record and also the legal position governing the scope of Section 263. On perusal of the assessment records, we find that the Assessing Officer had issued multiple notices under Section 142(1) of the Income Tax Act, specifically calling for comprehensive details including, inter alia, turnover reconciliation, GST returns, job work income, depreciation schedules, and balances of sundry debtors. In response, 5 the assessee had filed detailed submissions along with supporting documentary evidence, which were duly considered during the course of assessment proceedings. 7.1 The order passed by the Assessing Officer clearly demonstrates that the material placed on record was duly examined and the explanations furnished by the assessee were accepted after due deliberation. There is nothing on record to suggest that the Assessing Officer had acted arbitrarily or failed to conduct necessary and appropriate inquiries. On the contrary, the Ld. Authorised Representative has drawn our attention to the relevant portions of the Paper Book, which show that the requisite information pertaining to the three issues viz., (i) unclaimed depreciation of Rs.1,53,38,704/-, (ii) sundry debtors relating to JCBL Plant- II, and (iii) the alleged mismatch between turnover as per GST returns and the financial statements—was duly placed before the Assessing Officer and formed part of the audited financial statements and other documents on record. We further observe that the Assessing Officer had specifically raised queries on all these aspects and, after examining the evidence and explanations submitted, had taken a considered and reasoned view in accepting the assessee’s contentions. The inquiries made by the Assessing Officer were neither cursory nor mechanical. Rather, they exhibit due application of mind and a conscious evaluation of the material before him. 7.2 In view of the above factual and legal matrix, we are of the considered view that the assessment order cannot be held to be either erroneous or prejudicial to the interest of the Revenue within the meaning of Section 263 of the Act. The twin conditions required for the assumption of revisional jurisdiction by the Ld. PCIT under Section 263 are clearly not satisfied in the present case. Accordingly, the impugned order passed under Section 263 is liable to be set aside. 7.3 We may fruitfully rely upon the recent decision of Hon'ble Supreme Court in PCIT v. V-Con Integrated Solutions Pvt. Ltd. 2025] 173 taxmann.com 774 (SC) wherein it was held that where the Assessing Officer has taken a plausible view after conducting inquiries, the revisionary jurisdiction under Section 263 cannot be invoked merely to substitute the Commissioner’s opinion. The power under Section 263 is not available for “fishing” inquiries or for directing reconsideration when a view has already been formed. It was particularly mentioned as under: 6 3. The assessee does not have control over the pen of the Assessing Officer. Once the Assessing Officer carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee. 4. In such cases, it would be wrong to say that the Revenue is remediless. The power under Section 263 of the Income Tax Act, 1961, can be exercised by the Commissioner of Income Tax, but by going into the merits and making an addition, and not by way of a remand, recording that there was failure to investigate. There is a distinction between the failure or absence of investigation and a wrong decision/conclusion. A wrong decision/conclusion can be corrected by the Commissioner of Income Tax with a decision on merits and by making an addition or disallowance. 5. There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue. 7.4 Similarly, the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. (supra) held that both conditions—error and prejudice—must co-exist. If the AO has made inquiries and taken a reasoned view, the order cannot be termed as erroneous merely because a different opinion is possible. 7.5 Before parting, we find it necessary to observe how the Ld. PCIT has exercised jurisdiction under Section 263 of the Act. It is indeed disconcerting that the impugned order is predominantly based on legal principles and textbook exposition of the scope of Section 263, without addressing the specific facts and context of the assessee’s case. The order lacks any concrete or issue-wise findings demonstrating how the original assessment order was either erroneous or prejudicial to the interest of the Revenue. While the order extensively quotes general judicial pronouncements and outlines the theoretical framework of Section 263, it conspicuously fails to establish, with reference to the record, how the Assessing Officer's inquiries were inadequate or how his conclusions were untenable. In our considered view, such mechanical invocation of revisional powers under Section 263—without a clear and reasoned linkage to the factual matrix—runs contrary to the object and spirit of the provision and undermines the safeguards enshrined therein. 7.6 Therefore, for this reason, in addition to the detailed discussion and findings rendered above, we are of the view that the impugned order passed by the Ld. PCIT under Section 263 of the Act is legally unsustainable and deserves to be quashed. 8. In light of the above discussion and in view of binding judicial precedents, we are of the considered opinion that the assessment order passed under Section 143(3) r.w.s. 144B dated 20.12.2022 is neither erroneous nor prejudicial to the interest 7 of the Revenue. Accordingly, the order passed by the Ld. PCIT under Section 263 dated 11.03.2025 is quashed. 9. In the result, the appeal of the Assessee is allowed. Order pronounced in the open Court on 15/07/2025. Sd/- Sd/- क ृणवȶ सहाय लिलत क ुमार (KRINWANT SAHAY) (LALIET KUMAR) लेखा सद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟ /JUDICIAL MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "