PRAVINBHAI MOHANBHAI VADI,JAMNAGAR V. PR. COMMISSIONER OF INCOME TAX, JAMNAGAR, JAMNAGAR

ITA 102/RJT/2025

AI Insights

The case involves an appeal by Pravinbhai Mohanbhai Vadi against the order of the Principal Commissioner of Income Tax, Jamnagar, which revised the assessment order for the Assessment Year 2021-22. The assessee had declared a total income of Rs. 9,69,620, which was significantly lower than the income assessed by the Assessing Officer (Rs. 5,14,18,190). The revision was based on the grounds that the assessee had made substantial purchases from suppliers who were either non-filers or had filed non-business ITRs, raising concerns about the genuineness of these transactions. The Tribunal examined the detailed inquiries conducted by the Assessing Officer and found that the Assessing Officer had taken a plausible view by disallowing a percentage of the bogus purchases instead of the entire amount, citing various judicial decisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717108 (ITAT-RAJKOT)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2021-2022
• Appeal Filed On: 08-02-2025
• Other Referred Cases: Vijay Proteins Ltd. vs. CIT, Sanjay Oil Cake Industries vs. CIT, Malabar Industries Ltd. vs. CIT, Vadayattu Jewellery Vs. State of Kerala, St. Terrsa Oil Mills vs. State of Kerala
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY PUNGLIA; LD.
• Assessee Lawyers: CHETAN AGARWAL; LD
• Keywords: Unexplained expenditure; Rejection of books of accounts; Bogus purchase; Principle of natural justice; Third party statement; Assessment record; Revision of order; Bogus
• Section: 143(3); 142(1); 263; 69C

Judgement Text

"आयकर अपीलȣय अͬधकरण, राजकोट Ûयायपीठ, राजकोट। IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER AND SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER आयकर अपील सं/.ITA No.102/RJT/2025 Ǔनधा[रणवष[ / Assessment Year: 2021-22 Pravinbhai Mohanbhai Vadi Flat No.1, Prabhudeep Apartment Air Force-2 Road Jamnagar. PAN : AGZPV6946P बनाम Vs. The Pr. Commissioner of Income Tax, Jamanagar. (अपीलाथȸ/assessee) : (Ĥ×यथȸ/Respondent) Ǔनधा[ǐरती कȧ ओर से/Assessee by : Shri Chetan Agarwal, ld.AR राजèव कȧ ओर से/Revenue by : Shri Sanjay Punglia, ld.CIT-DR सुनवाई कȧ तारȣख /Date of Hearing : 10/06/2025 घोषणा कȧ तारȣख /Date of Pronouncement : 21/08/2025 ORDER Per Dr. Arjun Lal Saini, Accountant Member: By way of this appeal, the assessee has challenged the correctness of the order dated 06.02.2025, passed by the Learned Principal Commissioner of Income-tax (in short “Ld PCIT”) under section 263 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 2021-22.Grievances raised by the assessee, which, being interconnected, will be taken up together, are as follows: “1.The Pr. Commissioner of Income-tax erred in law as well as on fact in assuming jurisdiction under section 263of the Act. Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 2 2.The Id. PCIT erred in law as well as on fact in holding that assessment order passed by ld.AO u/s.143(3) rws 144B is erroneous and prejudicial to the interest of the revenue. 2.The facts of the case which can be stated quite shortly are as follows: The return of income for the Assessment Year (AY) 2021-22, was filed by the assessee, on 02/03/2022, declaring a total income of Rs. 9,69,620/-. The assessee`s case was selected for scrutiny under the Computer-Assisted Scrutiny Selection (CASS) for the reason “Assessee has made substantial purchases from such suppliers who are either Non-Filer(s) or have filed non-business ITR or reflected a substantially lower turnover in ITR, as compared to turnover shown in GSTR-1 return”. Subsequently, the assessment was completed under section 143(3) r.w.s. 144B of the Income-tax Act, 1961 (for short ‘the Act’) vide order dated 26/12/2022 determining the total accessed income at Rs. 5,14,18,190/-. 3. Later on, Learned Principal Commissioner of Income-tax (in short “Ld PCIT”), has exercised his jurisdiction under section 263 of the Income-tax Act, 1961. On perusal of the assessment records, it was observed by ld. PCIT that while finalizing the assessment proceedings, the Assessing Officer (AO) failed to verify or examine various aspects of the taxability of income, which renders the order erroneous and prejudicial to the interests of the revenue. The ld. PCIT, on verification of Business Purchases, noticed the followings: (i) The case was selected for scrutiny under CASS primarily for verifying substantial purchases from suppliers who were either Non-Filers, or had filed non- business ITRs, or had shown substantially low turnover. (ii) Examination of GST data on the GST portal revealed that purchases were made from the entities who either: (a).Had not filed their return of income for the year under consideration. (a).Had their GST numbers cancelled on the same day or within a short span of their issuance. Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 3 (iii) These entities appeared to be bogus and were likely used to accommodate unaccounted money. Thus, purchases from these entities should have been disallowed and treated as unexplained expenditure under section 69C read with section 115BBE of the Act. (iv) The AO failed to conduct any verification or inquiry to ascertain the genuineness of these transactions, despite it being the primary reason for scrutiny selection. 4. Based on the above facts, the ld. Pr. CIT issued a show cause notice dated 15.01.2025, to the assessee, under section 263 of the Act, which is reproduced by ld. Pr. CIT, in his revision order from page no.2 to 5. 5. In response to the notice of the ld. Pr. CIT, the assessee submitted its written submissions before the ld. Pr. CIT, along with documentary evidences. The assessee submitted that various notices issued by the AO in the course of assessment proceedings, to enquiry the issue, which are as follows: (a). Notice u/s.142(1) dated 12.07.2022, (b). Notice u/s.142(1) dated 04.10.2022, (c). Notice u/s.142(1) dated 04.11.2022 ,(d). Show cause notice dated 08.12.2022 and (e ). Show cause notice dated 22.12.2022. In response to above notices, the assessee has filed detailed reply before the assessing officer from time to time as follows: (a). Submission dated 07.10.2022, (b). Submission dated 13.12.2022 ,(c ). Submission dated 23.12.2022. From above various notices and submissions filed by the assessee, it is proved that the detailed inquiry, investigation and deliberation, on issue of purchases from alleged 17 parties was made by the AO and the AO had concluded enough enquiry. However, the AO was also of opinion that 100% purchases cannot be disallowed and percentage of profit should be disallowed therefore, considering the decision of various courts the assessing officer, disallowed the percentage of profit, hence assessing officer took a plausible view Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 4 therefore, order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue. 6.However, the ld. Pr. CIT rejected the above contentions of the assessee, and held that the suppliers’ GST registrations were cancelled shortly after issuance of bills. This leads to conclusion that the genuineness of transactions with supplier is not proved. The ld. PCIT noticed that it indicates involvement of fraudulent activities. Generally, for frauds, a business concern makes purchases from such entities which are fake and non-existent. Sometimes forged documents are uploaded on GST website. These firms work only for a few months. Within few months, they undertake transactions worth crores of rupees. After their purpose is achieved, these firms are then shut down and their GST number is surrendered or cancelled suo-moto. Therefore, learned PCIT held that order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue and therefore directed the assessing officer to re-examine the above issue and frame a fresh assessment order. 7.Aggrieved by the order of the ld. Pr. CIT, the assessee is in appeal before us. 8. Shri Chetan Agarwal, Learned Counsel for the assessee, submitted that during the assessment proceeding, the assessing officer has examined the issue raised by the ld. Pr. CIT, by issuing four notices of hearings, and after going through the reply of the assessee, against these notices, the assessing officer, took a plausible view and made the estimated addition at the rate of 25% of total purchases, in the hands of the assessee. The ld. Pr. CIT has invoked the jurisdiction under section 263 of the Act and solely on the ground that the purchases made by the assessee were bogus, and therefore, entire addition should be made in the hands of the assessee in respect of bogus purchases instead of 25% addition made by the AO on account of bogus purchases, which is not acceptable, because only profit element embedded in the purchases were disallowed by the assessing officer, which is Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 5 acceptable. The AO has examined all the documentary evidences submitted by the assessee and took a plausible view and added 25% of the bogus purchases. Therefore, such assessment order is neither erroneous nor prejudicial to the interest of the revenue, therefore, the jurisdiction exercised by the ld. Pr. CIT is bad in law and hence order passed by the ld. PCIT may be quashed. 9.On the other hand, the ld. CIT-DR submitted that the main issue before the ld. Pr. CIT was that parties from whom the purchases were made, were not in existence. Most of the sellers of the goods, were non-filer, therefore, AO has not conducted inquiry in respect of the sellers and physical delivery of goods. Hence, it is an insufficient inquiry on the part of the assessing officer, and hence, the assessment order passed by the AO is erroneous and prejudicial to the interest of the Revenue. The selection of the case for scrutiny under CASS specifically mandated verification of purchases from suppliers who were flagged as high-risk due to their non-filing of income tax returns or low turnover declarations. The AO failed to carry out any such detailed verification, therefore, order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue, hence learned PCIT has correctly exercised his jurisdiction under section 263 of the Act. 10. We have heard both sides in detail and also perused the records of the case including the paper book filed by the assessee. We note that main grievance of the learned PCIT was that assessing officer has not conducted proper enquiry and detailed verification. Therefore, we should examine, first of all, that what type of enquiry was conducted by the assessing officer, and whether these enquiries were sufficient or not, considering the facts and circumstances of the case. We note that the AO has issued first notice to the assessee, under section 142(1) of the Act, which is placed at page no.5 of the assessee`s paper book, wherein the AO has asked pertinent question, which is reproduced below: Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 6 1. Brief note on business during the year under consideration. 2. Computation of Income for the Financial Year 2021-22. 3. Furnish copy of balance sheet, Profit & Loss account, audit report with all notes/schedules and annexures for assessment year 2021-22. 4. Furnish complete details of all bank accounts maintained by the assessee during the year under consideration alongwith copy of bank statements with narration thereof. Please provide copy of purchase Ledger. 6. Please submit party-wise details of purchases of Rs, 19,59,65,338A in following format: 9. Please provide copy of GST return filed during the year 10. Please reconcile the figure of turnover in Part-A-Trading Account of ITR and turnover as per GST return and explain the reasons for difference. 11.The second notice issued by the AO, under section 142(1) of the Act, dated 04.10.2022, which is placed at page no.10 of the Paper Book. The relevant question asked by way of this notice are reproduced below: i) Please provide copy of purchase ledger; ii) Furnish complete details of sundry creditors of Rs.1,53,45,973/- and debtors of Rs.3,10,88,662/- as given below: iii) Please provide copy of GST Return filed during the year iv) Please reconcile the figures of turnover in Part-A- Trading Account of ITR and turnover as per GST return and explain the reasons for difference 12.The AO has issued third show cause notice, under section 142(1) of the Act dated 04.11.2022, wherein pertinent question asked by the AO is reproduced below: In this regard, you are required to provide the following information erf above parties alongwith documentary evidence: 1. Delivery challans. 2. Mode of transportation. 3. Lorry receipts. 4. E Way Bills. 5. Log books of warehouses to verify the entry and exit of vehicles carrying purchased goods. Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 7 6. Complete set of Income Tax Return for A,Y, 2021-22 of the You are required to provide stock register summary during the year under consideration. As per the information available with the Department, you have also made purchases from the following party, however, the following party is not available in your purchase ledger;- Sr. No. Name of the Party PAN Amount 1. ArjunbhaiVit halbhai Bhil BNWPB2659G 6,95,980/- Please justify the same with brief note and also provide the following information alongwith documentary evidence: ; 1. Delivery challans, 2. Mode of transportation, 3. Lorry receipts. 4. E Way Bills. 5. Log books of warehouses to verify the entry and exit of vehicles carrying purchased goods 6. Complete set of Income Tax Return for A.Y. 2021-22 of the above mentioned parties. 7. All relevant bank statement from 0104.2020 to 31,03.2021 of the above mentioned parties, 8. Latest updated e-mail address of the above mentioned parties. 13.In response to the above notices, the assessee submitted reply with documentary evidences from time to time before the AO. The assessee submitted in its first reply before the AO along with documentary evidences, which are given in Paper Book page no.32, the relevant reply is reproduced below: i) Please find enclosed herewith party wise details of purchase of Rs.19,59,65,338/- as per required format as required by your honour. ii) Please find enclosed herewith detailed chart of Sundry creditors of Rs.1,53,45,973/- and sundry debtors of Rs.3,10,88,662/- as required format. Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 8 iii) Please find enclosed herewith copy of GST return filed having GSTR-1 and GSTGR 3B on monthly basis for FY 2020-21 as required by your Honour. iv) Your honour may appreciate that turnover in ITR is Rs.20,49,99,185/- and turnover as per GST return of Rs.20,49,99,180/- which is completely tallied with each other having minor difference of Rs.5/- Please find enclosed herewith screen shot of turnover in ITR and turnover as per GST for honours kind verification. 14. The assessee also submitted reply dated 23.12.2022 before the AO ( vide PB No.4 at page no.1380), which is reproduced below: “With reference to your honours show cause notice dated 08.12.2022 proposing an addition 25% on sale Rs. 20,49,99,184/- by following decision of Vijay Proteins Ltd. the Hon'ble Supreme Court vide order dated 06/04/2015 disallowance bogus Purchases against the same we would like to submit as under:- We would like to mentioned that in your earlier show cause notice you have pointed out to submit documents for purchase where we have submitted the complete details of purchase then your honours has shifted from the subject matter of show cause to estimation of profit on sale @ 25% which is very higher side without pointing out of any defect in our submitted documents for purchase. 1. Firstly, we would like to draw your kind attention to the fact that your honour has mentioned our purchase from parties mentioned are completely genuine for which we have submitted the completed documents available with us as mentioned below: a. Bills b. Delivery challans. c. Mode of transportation d. Lorry receipts e. E Way Bills f. Photos of material purchase 2. We have also submitted contra Confirmation from said parties which can establish the credit worthiness and geniuses of transaction incurred for the year under consideration. Further appreciate that certain parties has not answered and for which we have inquired upon that and got answer that they don't know about this type of compliance and hence they have given confirmation to us for submission. 3. Your honour has not pointed out any specific defects and hence where the defects pointed out in documents submitted by us and just completing the assessment on the basis of estimation / assumption. 4. We draw your kind attention judicial pronouncement as Ld. AO has not pointed out any specific defects and hence where the defects pointed out in the books of accounts were of general or technical nature and no suppression of sale or purchase was pointed out book results or books of accounts Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 9 cannot be rejected\". Vadayattu Jewellery Vs. State of Kerala (1997) 104 SIC 121, (Ker.). The department has to prove satisfactorily that the accounts books are unreliable, incorrect or incomplete before it can reject the accounts. Rejection should not be done lightly\". St. Terrsa Oil Mills vs. State of Kerala (1970) 76 ITR 365 (KER.). Without prejudice to our factual submission, evidence submitted before your honour has prepared mindset for estimation we would like to submit as under :- 1. Your honour has prepared the mind set to make addition and observed little inconsistency, discrepancy which specifically was not pointed out and asked to estimate the profit @25% on turnover for the year by just following decision which has also change in nature of business. 2. We hereby submitting we do not having objection as against rejection of books of accounts, however the same should be on some reasonable basis, as books of accounts of the appellant firm are auditable since many years and hence detailed chart of net profit on basis of previous history in case of an appellant was also submitted. Which is as under: 3. We request your honour to estimate the income @0.89%, i.e. the average rate of net profit earned by appellant firm. 4. Your honour may kindly appreciate that average net profit earned by assessee was 0.89% in last four years, out which none of the assessment year was assessed u/s. 143(3) of the Act. In current year as per audited books of accounts, net profit rate comes to 0.65% of turnover. Your honour may also appreciate that there is no change in facts, nature and circumstances of business in all above years and in current assessment year. 5. We hereby narrating detailed case law in which addition was made on estimation basis where there is issue of non-genuine purchase involved: - Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 10 v Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 11 From the above various judicial pronouncements, it can be seen that by considering the nature of business, documents submitted profit was estimated from 0% (deletion of entire addition ) to 12.5% of sale. Hence, we request your honour to consider our nature of business and documents submitted make the reasonable estimation if your honour want to make estimation i.e average profit of 0.89% as computed above. 6. We also draw specific attention towards the decisions of hon. Supreme Court with regards to best judgment and guiding principal for estimation of income.\"The limits of the power are implicit in the expression ' best of his judgment Judgment is a faculty to decide matters with wisdom, truly and legally. 15.The assessee has also submitted its reply dated 13.12.2022, before the assessing officer, which is placed at page no.380 of the paper book, wherein the assessee has explained in para-4 as under: “With reference to your honours show cause notice dated 08.12.2022 proposing an addition of Rs. 14,82,61,807/- being an addition on account of disallowance bogus purchases. we would like to submit as under : 1. Firstly, we would like to draw your kind attention to the fact that your honour has mentioned our purchase from parties mentioned as bogus purchase and we specifically oppose your this allegation, Our complete Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 12 purchase made by us is duly accepted by GST department for which we have attached herewith chart in which it was specifically highlighted that our transaction was in between period where GST number was regular. 2. Further your honour may kindly appreciate that assessee had engaged in details compilation for submission and in-between, show cause notice was issued. 3. Your honour may further appreciate that whatever details demanded in earlier notice 35 submitted in full on 04.10.2022, However your honour has mentioned that reply to that notice was in part. 4. During the course of assessment, assessee has already submitted party wise purchase chart having Address, PAN, Opening Balance, Purchase, GST, TCS, Payment made, Closing Balance etc. and Assessee has also submitted party wise sundry creditors chart having Address, PAN, Opening Balance, net of transaction, Closing Balance etc. which duly reflects that assessee has discharged his complete responsibility. We hereby submit following documents of said parties as required by your honour : a. Bills b. Delivery challans. c. Mode of transportation d. Lorry receipts e. E Way Bills f. Photos of material purchase Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 13 Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 14 6. We enclosed herewith contra Confirmation from said parties which can establish the credit worthiness and geniuses of transaction incurred for the year under consideration. Further appreciate that certain parties has not answered and we have inquired upon that and got answer that they don't know about this type of compliance and hence they have given confirmation to us for submission. 7. We hereby submit stock register having Party Name, Inward Quantity, Inward Value, Outward Quantity, Outward Value and closing quantity and value for honours kind verification, 8. It was submitted that all of purchases are genuine and paid through banking channel from the said purchases we have sold goods and declared the same as sales. If the purchases are not genuine as alleged by your Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 15 honour, then how sales can be effected. Your honour has only proposed to disallow purchases and accepted our sales, leading to addition of entire sales to net profit, which is impossible to imagine. 9. It was also submitted that without prejudice to our submission that our entire purchases are genuine, but even if it is assumed there is deficiencies, in that case also entire purchases cannot be disallowed, since sales is accepted and not disturbed. In such as case at most profit embedded in purchase can be added to income. 10.Your honour may appreciate that assessee has already filed return considering actual sales and purchases then It will be injustice to assessee whether entire purchases are taken as an addition, it is double income consideration and paid tax.” 16. Therefore, we find that AO has issued three notices under section 142(1) of the Act and against these notices, the assessee has submitted reply with documentary evidences. The AO has also issued two show cause notices during the assessment proceedings, and against these notices, the assessee submitted its reply before the AO along with documentary evidences. Therefore, allegation of the learned PCIT that during the assessment proceedings, the assessing officer did not conduct proper enquiry, is baseless. 17. From above various notices and submissions filed by the assessee, we note that the detailed inquiry, investigation and deliberation on issue of purchases from alleged 17 parties was made and AO had concluded that the purchases from said parties was not genuine. However, AO was also of opinion that 100% purchases cannot be disallowed and percentage of profit should be disallowed therefore, considering the decision of various courts, the assessing officer observed as under on page no.22 and 23 of the assessment order. \"The assesses has made substantial purchases from the suppliers who are either non filer or have filed non business ITR or reflected case a substantially lower turnover in ITR as compared to shown in GSTR-1 return. It is seen from the data available on portal out total - parties -parties have not filed their return of income for year under consideration. One person is a salaried person from whom purchases made by the assessee. Therefore, after considering the fact and Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 16 information available on record, the assessee has failed to established the correctness/genuineness of purchases due non verification of genuineness of purchase. In view of the facts as discussed above, it is a crystal clear case of unaccounted/ unexplained expenditure in the form of bogus purchases made to give it a shape of legal one. This fact also got support from the fact that the said parties also remained nonresponsive/ non traceable after multiple efforts. This means that the said parties are bogus or has not declared any such sales in the Asst. Year 2021-22 as they are either non-filer or have filed non business ITR or reflected a substantially lower turnover in ITR as compared to turnover shown in GSTR 1 return and there is a possibility that assessee has booked bogus expenses in order to reduce its profit/taxable income for the asst. year 2021-22. Thus, it is established that the purchases are nothing but bogus entries only and a colorable device adopted by the assessee to reduce its profit by showing paper purchases only, which needs to be disallowed, However, there are certain case laws wherein instead of entire disallowance of bogus purchases, certain percentage of disallowance deeming hidden profit was held appropriate by Hon'ble Tribunals and Courts. Disallowance @ 25% out of bogus purchases, held as reasonable in the case of Vijay Proteins Ltd. The Hon'ble Supreme Court vide order dated 06/04/2015 dismissed the SLP filed by the assessee and confirmed the finding of the Hon'ble Gujarat High Court in the case of Vijay Proteins and other decisions of the Gujarat High Court in the case of Sanjay Oil Cake Industries vs. CI T (2009), 316 ITR 274.\" 18. We note that above conclusion of the assessing officer is plausible view taken by the assessing officer during the course of assessment proceedings, which should not be erroneous and prejudicial to the interest of the revenue. Therefore, in the course of assessment proceedings, after considering the issue of purchases from alleged 17 parties, the AO has taken plausible view following decisions of various high courts, as noted above in the conclusion of the assessing officer. Hence, the order passed by AO is not erroneous and prejudicial to the interest of revenue and therefore, the proceedings initiated u/s.263 of the Act, needs to be quashed. Instead of entire disallowance of bogus purchases, certain percentage of disallowance deeming hidden profit was held appropriate by assessing officer and disallowance @ 25% out of bogus purchases, held as reasonable. Hence, the order passed by AO is neither erroneous nor prejudicial to the interest of revenue. 19. According to us, the present order of AO passed u/s 143(3) dated 26.12.2022 of the Act cannot be termed as erroneous since enquiry was, in fact, carried out by him on the issue on which the ld PCIT has found fault with and has taken a Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 17 plausible view. Thus we note that the AO enquired during assessment proceedings and the assessee had filed details before him. So we find that the AO’s action cannot be termed “erroneous”. Since not only enquiry was carried out by the AO on the issue under consideration and based on the evidence gathered, he has taken a plausible view, which at any rate cannot be called as an un-sustainable view. Let us take the guidance of judicial precedents laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an Printed from counselvise.com Pravinbhai Mohanbhai Vadi ITA No.102 /RJT/2025 18 erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”. Therefore, we are of the considered opinion that AO’s order cannot be termed as erroneous as well as prejudicial to the interest of the revenue and therefore, jurisdictional condition precedent as prescribed by statute for invoking revisional jurisdiction is absent and therefore, we are inclined to quash the impugned order dated 06-02-2025 of the ld. PCIT. 20. In the result, appeal filed by the assessee is allowed. Order is pronounced in the open court on 21/08/2025 Sd/- Sd/- (DINESH MOHAN SINHA) JUDICIAL MEMBER (DR. ARJUNLAL SAINI) ACCOUNTANT MEMBER राजकोट /Rajkot िदनांक/ Date: 21/08/2025 *vk आदेश कì ÿितिलिप अúेिषत/ Copy of the order forwarded to :  अपीलाथê/ The assessee  ÿÂयथê/ The Respondent  आयकर आयुĉ/ CIT  आयकर आयुĉ(अपील)/ The CIT(A)  िवभागीय ÿितिनिध, आयकर अपीलीय आिधकरण, राजकोट/ DR, ITAT, RAJKOT  गाडªफाईल/ Guard File /True copy/ By order Assistant Registrar/Sr. PS/PS ITAT, Rajkot Printed from counselvise.com "