VALOUR AUTOPACK,GOR KHIJADIYA, MORBI GUJARAT V. THE PR. CIT 1 RAJKOT, RAJKOT

ITA 271/RJT/2025

AI Insights

The case involves Valour Autopack, which appealed against the order of the Learned Principal Commissioner of Income-tax (PCIT), Rajkot, under section 263 of the Income-tax Act, 1961, for the assessment year 2021-22. The PCIT had set aside the assessment order passed by the Assessing Officer, which accepted the returned income of Rs. 44,17,760, due to concerns over unsecured loans from entities that had not filed their returns. The PCIT directed a fresh assessment after finding the initial inquiries insufficient. Valour Autopack contested this, arguing that the Assessing Officer had conducted sufficient inquiries, and the loans were genuine and repaid in subsequent years. The Tribunal agreed with Valour Autopack, emphasizing that the PCIT's direction for a deeper inquiry exceeded the scope of section 263, which is meant for cases of lack of inquiry, not inadequate inquiry.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 824941 (ITAT-RAJKOT)
• Duration Of Justice: 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2021-2022
• Appeal Filed On: 28-04-2025
• Other Referred Cases: CIT Vs. Ayachi Chandrashekhar, Malabar Industrial Co. Ltd. vs. CIT, Ranka Jewellers vs. Addl. CIT, Smt. Juthika Kar vs. ITO, CIT v. Sunbeam Auto Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJA PUNGLIA; LD.
• Assessee Lawyers: HARDIK VORA; LD
• Keywords: Corroborative evidences; TDS; Revision of order
• Section: 143(3); 142(1); 263; 68

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.271/RJT/2025 Ǔनधा[रणवष[ / Assessment Year: 2021-22 Valour Autopack Survey No. 16P4, At Gorkhijadiya, Nexa Paper LLP Morbi (Gujarat) -363641 PAN No.: AAQFV4832K बनाम Vs. The PR. CIT-1, Rajkot (अपीलाथȸ/Appellant) : (Ĥ×यथȸ/Respondent) Ǔनधा[ǐरती कȧ ओर से/Assessee by : Shri Hardik Vora, ld.AR राजèव कȧ ओर से/Revenue by : Shri Sanja Punglia, Ld. CIT-DR सुनवाई कȧ तारȣख/Date of Hearing : 16/10/2025 घोषणा कȧ तारȣख/Date of Pronouncement : 31/12/2025 ORDER Per, Dr. Arjun Lal Saini, AM: By way of this appeal, the assessee has challenged the correctness of the order dated 21.03.2025 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.On the facts and circumstances of the case as well as law on the subject, learned Principal Commissioner of Income Tax, Rajkot-1 has erred in passing order u/s 263 of the Act for assessment year 2021-22. Printed from counselvise.com Valour Autopack ITA No.271 /RJT/2025 (AY : 2021-22) 2 2. On the facts and circumstances of the case as well as law on the subject, the Principal Commissioner of Income Tax, Rajkot-1 has erred in passing order u/s 263 of the Act when order passed by Assessing Officer is neither erroneous nor prejudicial to the interest of revenue. 3. It is prayed that order passed by Learned Principal Commissioner may please be quashed. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal. 2. The facts of the case which can be stated quite shortly are as follows: The assessee had filed its return of income for assessment year (A.Y.) 2021-22, on 07.01.2022, declaring total income of Rs.44,17,760/-. The assessee`s case was selected for complete scrutiny through \"CASS\" for the reason \"Unsecured loans from persons who have not filed their return of income\". The Assessment was finalised u/s 143(3) r.w.s. 144B of the Income-tax Act, 1961 on 29.11.2022 accepting returned income of Rs.44,17,760/-. 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 Form No. 3CD of Audit Report (at Sr. No. 31(a)), it was noticed by learned PCIT that during the previous year 2020-21, relevant to A.Y.2021-22, the particulars of each loan or deposit in an amount exceeding the limit specified in Section 269SS taken or accepted were as under: (i) Sunil PragjibhaiKanani - Rs.8,40,000/- (ii) RajeshbhaiGorhanbhaiGami-Rs. 12,00,000/- (iii) Virat Packaging - Rs.60,00,000/-. (iv). Kartik Industries - Rs. 1,00,00,000/- (v) Kalpeshbhai Mansukhbhai Charola - Rs.4,20,000/- (vi) Prapti Corporation-Rs. 35,00,000/- (vii). V-Box Autopack-Rs. 15,00,000/- Printed from counselvise.com Valour Autopack ITA No.271 /RJT/2025 (AY : 2021-22) 3 In respect of above loans or deposits, the learned PCIT observed that supporting evidences submitted by the assessee, before the assessing officer, that is, income tax return (I.T.R.), Statement of Income, Balance Sheets, bank statements, etc, show very less taxable income. It was also noticed by ld.PCIT that Shri Vishal Keshavjibhai Thoriya, is a common partner in both the lender- firm as well as assessee- firm, therefore, genuineness of these loans were not proved by the assessee, during the assessment proceedings. Considering the above facts, Ld. PCIT had issued notice u/s 263 of the Act, on 01-01-2025, on the assessee, which is reproduced by Ld. PCIT in its order vide Page No. 3 to 4. 4. In response to the notice of the Ld. PCIT, the assessee has submitted its reply before ld.PCIT stating that assessee is a partnership firm engaged in the business of manufacturing across various industries, including corrugated boxes used for packaging ceramics, pharmaceuticals, glassware, electronics, and other products. The assessee had filed its return of income for A.Y. 2021-22 on 17.01.2022, declaring a total income of Rs. 44,17,760/-. The return of income was duly processed u/s 143(1) of the Act. Thereafter, case of assessee was selected for \"complete scrutiny\" through CASS criteria with the reason \"Unsecured loans from persons who have not filed their Return of Income.\" Accordingly, various notices were issued from time to time in response to which assessee has furnished replies along with the necessary documents. In order to verify the creditworthiness and identity of the lenders and genuineness of the transaction with regard to unsecured loan taken by the assessee, notices were issued by the Assessing Officer to the assessee as well as the lenders. Assessing Officer after considering the replies filed in response thereof by the assessee as well as the lenders and after being satisfied with the identity, creditworthiness and genuineness of the transactions, Assessing Officer passed the order u/s 143(3) of the Act on 29.11.2022. Therefore, such assessment order Printed from counselvise.com Valour Autopack ITA No.271 /RJT/2025 (AY : 2021-22) 4 which has been framed by the assessing officer after conducting sufficient enquiry should not be erroneous and prejudicial to the interest of the revenue. 5. It was also submitted before ld.PCIT that these loans were repaid in the subsequent years, therefore genuineness of these loans should not be doubted. Besides, during the assessment proceedings, the assessing officer issued notice to the persons who have advanced loan to the assessee, and in response to these notices, these persons filed the relevant documents and evidences before the assessing officer, therefore, third-party confirmation was also obtained by the assessing officer, therefore assessment order passed by the assessing officer should not be erroneous and prejudicial to the interest of the revenue. 6. However, the Ld. PCIT rejected the above submissions of the assessee and held that the argument that the assessing officer collected details/information during assessment proceedings does not hold good any more. Once in the opinion of PCIT, the order passed without making inquiries or verification which should have been done, is not done, then such order need to be treated as \"erroneous\". Therefore, ld.PCIT directed the assessing officer to pass a fresh assessment order after making proper inquiries and verification in relation to such transactions. 7. Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us. 8. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. Printed from counselvise.com Valour Autopack ITA No.271 /RJT/2025 (AY : 2021-22) 5 9. Shri Hardik Vora, Learned Counsel for the assessee, vehemently argued that during the assessment proceedings, the assessing officer conducted enough enquiry in respect of the issue raised by the Ld. PCIT. The Ld. Counsel, took us through, the Paper Book Page No. 3, wherein notice u/s 142(1) of the Act, was issued by the assessing officer, dated 21-07-2022, wherein the relevant question raised by the assessing officer, is reproduced below: “…3. With respect to unsecured loans as reflected in Balance Sheet during the year, kindly provide the following details: (i)Name, address and PAN of all the lenders in order to prove identity of the person/entity. Also furnish their Confirmation of account. (ii) To ascertain creditworthiness of the lender please furnish copy of their bank account statement reflecting the relevant entries and copies of their ITRs for the last three years including the A.Y. 2021-22. (iii) Please provide their Opening balance, Addition/repayment during the year, closing balance. (iv) Please furnish the purpose for taking unsecured loans and how the same was utilised. (v) Please furnish party wise rate of interest for the unsecured loan, total interest paid during the year under consideration and TDS deducted on interest. (vi) Please submit copies of Ledger Account of such persons/entities. 10. In response to above notice of the assessing officer, the assessee submitted its reply before the assessing officer, vide assessee’s reply Page No. 10 of the assessee’s Paper Book, wherein the assessee has submitted it’s reply before the assessing officer, as follows: “3. (Sr No 3 of notice) Your Honour has asked that with respect to unsecured loans as reflected in Balance Sheet during the year, kindly provide the following details: (i) Name, address and PAN of all the lenders in order to prove identity of the person/entity. (ii)Please provide their Opening balance, Addition/repayment during the year, closing balance. The said details are attached as per Annexure-2. Printed from counselvise.com Valour Autopack ITA No.271 /RJT/2025 (AY : 2021-22) 6 (iii) Please furnish the purpose for taking unsecured loans and how the same was utilised. In this regard it is to mention that the assessee- firm was formed on 10.05.2018 and in order to meet the funding requirements the asseessee- firm has borrowed capital and the said fund was utilized for business purpose only. (iv) Please furnish party wise Rate of interest for the unsecured loan, total interest paid during the year under consideration and TDS deducted on interest. The said details are attached herewith: (v) Please submit copies of Ledger Account of such persons/entities. In this regard Ledger Copies are attached herewith as per Annexure-3.” 11. The Ld. Counsel for the assessee also took us through Paper Book Page No. 13, and stated that assessee took the loan but after taking the loan, assessee has repaid the loan to the concerned creditor. The charts of repayment of loan is reproduced below: 12. Therefore, Ld. Counsel for the assessee submitted that as per the judgment of the Hon’ble Jurisdictional High Court of Gujarat, in the case of CIT Vs. Ayachi Chandrashekhar 42 taxmann.com 251 Guj, wherein it was held that Printed from counselvise.com Valour Autopack ITA No.271 /RJT/2025 (AY : 2021-22) 7 once, the repayment is made and accepted by the department no addition for such loan is to be made. That is, if the loan has been repaid in subsequent years then no addition should be made in the hands of the assessee. 13. The Ld. Counsel for the assessee also took us through Paper Book and stated that the persons who had provided loan to the assessee had sufficient means and sources and for that Ld. Counsel, explained the Bench, in case of Prateek Industries, with help of the bank statement, which is reproduced below: With help of the above chart, the Ld. Counsel explained that assessee got Income Tax refund to the tune of Rs. 1,66,42,720/- and out of that assessee has given the loan of Rs.1,00,00,000/-, therefore assessee has sufficient sources to give the loan. Hence, the stand of the Ld. PCIT, in the revision order that assessee does not have enough sources, is not tenable in the eyes of law. 14. Apart from this, the Ld. Counsel for the assessee argued that assessee has submitted the entire documents and evidences during the proceedings before the assessing officer, vide Paper Book Page No. 38 to 188 of the Paper Book. Therefore, all the issues raised by the Ld. PCIT has been replied by the assessee during the assessment proceedings, hence assessing officer has examined Printed from counselvise.com Valour Autopack ITA No.271 /RJT/2025 (AY : 2021-22) 8 documents and evidences and framed the assessment order, which is neither erroneous nor prejudicial to the interest of revenue. Therefore, order of the learned PCIT may be quashed. 15. .On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 16. We have considered submissions of both the parties. From the above assessee`s facts, it is abundantly clear that during the assessment stage, the Assessing Officer asked the assessee to furnish the details and documents which are placed in paper book. In response, the assessee submitted reply which is placed at paper book. The assessee, during the assessment stage, has submitted books of accounts, bank statements, details of loan providers, copy of balance sheet and income tax return of loan providers. Even, loan providers also furnished confirmation and necessary necessary documents before the assessing officer in response to notice of the assessing officer. Thus, all the documents, details and the explanations required by the Assessing Officer were submitted by the assessee. Just because the Assessing Officer does not bring these documents and details in his assessment order does not mean that assessing officer has not conducted proper enquiry during the assessment stage. In fact, assessing officer has applied his mind. The Learned Counsel for the assessee is right in his submission that one has to keep in mind the distinction between \"lack of inquiry\" and \"inadequate inquiry\". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Printed from counselvise.com Valour Autopack ITA No.271 /RJT/2025 (AY : 2021-22) 9 Commissioner simply because, according to him, the order should have been written more elaborately. Therefore, in the assessee`s case, it cannot be said that it is a case of 'lack of inquiry'. 17. We also find that assessee has repaid most of the loan in subsequent years. As per the judgment of the Hon’ble Jurisdictional High Court of Gujarat, in the case of CIT Vs. Ayachi Chandrashekhar 42 taxmann.com 251 Guj, wherein it was held that once, the repayment is made and accepted by the department no addition for such loan is to be made. That is, if the loan has been repaid in subsequent years then no addition should be made in the hands of the assessee. 18. We note that as per learned PCIT, in fact, enquiry was conducted by the assessing officer in respect of the each loan. However, as per ld.PCIT proper enquiries were not conducted, therefore, learned PCIT directed the assessing officer to conduct proper enquiry and verification of the loan, which is evident from the findings of the learned PCIT, which is reproduced below: “12. In the light to above discussion I am, therefore, of the opinion that the assessment order passed by the A.O. u/s. 143(3) r.w.s.144B of the Act dated 29.11.2022 is erroneous and prejudicial to the interest of the Revenue. By virtue of the powers vested in me u/s, 263 of the IT Act, I hereby set-aside the order u/ s. 143(3)r.w.s.144B of the Income-tax Act, 1961 dated 29.11.2022 on the issue(s)discussed above which relates to unsecured loans totaling to Rs.2,34,60,000/- received which attract the provisions of Section 68 of the Act. The assessing officer is directed pass a fresh assessment order after proper inquiries and verification in relation to such transaction of Rs.2,34,60,000/-and if not found satisfactorily, appropriate addition under appropriate section should be made and relevant penalty proceedings should be initiated.” 19. From the above direction of the PCIT, we note that PCIT wants that assessing officer should conduct deeper enquiry, as compared to enquiry already conducted by the assessing officer. However, it is settled position of law that how much enquiry is to be conducted, is the exclusive domain of the Printed from counselvise.com Valour Autopack ITA No.271 /RJT/2025 (AY : 2021-22) 10 assessing officer to decide that up to what extent enquiry is to be conducted or whether further enquiry is needed, all these decisions are within the domain of the assessing officer.As we have noted above that there is difference between ‘Lack of enquiry’ and ‘inadequate enquiry’. It is for the AO to decide the extent of enquiry to be made as it is his satisfaction as what is required under law. Reliance is placed on the decision of CIT v. Sunbeam Auto Ltd. [(2010) 332 ITR 167], wherein Hon’ble Delhi High Court has held that if there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass order u/s 263 of the Act, merely because the Commissioner has a different opinion in the matter and that only in cases where there is no enquiry, the power u/s 263 of the Act can be exercised. The ld. PCIT cannot pass the order u/s 263 of the Act on the ground that further/thorough enquiry should have been made by AO. Further, it was settled by Hon`ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT [(2000) 243 ITR 83 (SC)] wherein it was held that if the A.O. adopts one of the possible courses available in the scheme of the I.T. Act which results in any loss of revenue or when two views are possible and the A.O. adopts one of them with which the C.I.T. does not agree, then it would not be an order prejudicial to the interest of revenue for invoking the jurisdiction u/s. 263 of the Act. For better appreciation, the relevant portion of the judgment in the case of Malabar Industrial Co. Ltd. vs. CIT (supra) is quoted below : “The phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law”. Printed from counselvise.com Valour Autopack ITA No.271 /RJT/2025 (AY : 2021-22) 11 20. We note that the Ld. Pr. C.I.T. by invoking his jurisdiction u/s. 263 of the Act is giving another opportunity to the Ld. A.O., which is not permissible. Hon’ble Bombay High Court in the case of Ranka Jewellers vs. Addl. CIT (328 ITR 148) relying on the decisions of Hon’ble Supreme Court in the cases of Malabar Industrial Co. Ltd. vs. CIT (supra) and CIT vs. Max India Ltd. [(2007) 295 ITR 282 (SC)], has held that once the issue was considered by the A.O., the remedy of the revenue could not lie in invoking of the jurisdiction u/s. 263 of the Act. Therefore, the order of the Ld. C.I.T. was definitely outside the purview of section 263 of the Act. As noted above, the exercise aimed at ascertaining the correct income of the assessee has been fulfilled by the Ld. A.O. by exercising his quasi-judicial functions vis-a-vis passing the assessment order u/s.143(3) of the Act. Therefore, certainly it is not a case wherein adequate enquiries at the assessment stage were not carried out or assessment was made in haste. However, what is an opinion formed as a result of these enquiries and verification of the materials is something which is in exclusive domain of the Assessing Officer, and even if Ld. Pr. Commissioner does not agree with the results of such enquiries, the resultant order cannot be subjected to revision proceedings. For that we rely on the decision of the Coordinate Bench of I.T.A.T., Kolkata in the case of Smt. Juthika Kar vs. ITO [I.T.A. No.1128/Kol/ 2009, dated 16.5.2012 ], wherein it has been held as under (relevant portion) :- “8……However, what is opinion formed as a result of these enquiries is something which is in exclusive domain of the Assessing Officer, and even if Commissioner has such results of enquiries, the resultant order cannot be subjected to revision proceedings. The conclusions arrived at as a result of enquiries cannot be tinkered with in the revision proceedings. The conclusions being drawn up as a result of enquiry is a highly subjective exercise and as to what is appropriate conclusion is something on which perceptions vary from person to persons. These variations in the perceptions of the Assessing Officer vis-a-vis that of the Commissioner, cannot render an order erroneous and prejudicial to the interest of the revenue.” Printed from counselvise.com Valour Autopack ITA No.271 /RJT/2025 (AY : 2021-22) 12 21. So, the Ld. PCIT’s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail. Based on these facts and circumstances, we quash the order dated 21.03.2025 passed by the ld PCIT under section 263 of the Act. 22. In the result, appeal filed by the assessee is allowed. Order is pronounced in the open court on 31/12/2025 Sd/- Sd/- (Dinesh Mohan Sinha) Judicial Member (Dr. Arjun Lal Saini) Accountant Member राजकोट /Rajkot //True Copy// िदनांक/ Date: 31/12/2025 आदेश कì ÿितिलिप अúेिषत/ Copy of the order forwarded to :  अपीलाथê/ The Appellant  ÿÂयथê/ The Respondent  आयकर आयुĉ/ CIT  आयकर आयुĉ(अपील)/ The CIT(A)/(NFAC), Delhi.  िवभागीय ÿितिनिध, आयकर अपीलीय आिधकरण, राजकोट/ DR, ITAT, RAJKOT  गाडªफाईल/ Guard File By order/आदेशसे, /T Assistant Registrar/Sr. PS/PS ITAT, Rajkot Printed from counselvise.com "