Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2025 Supreme(Online)(ITAT) 22368

INCOME TAX APPELLATE TRIBUNAL (RAIPUR BENCH)
Partha Sarathi Chaudhury, JM, Arun Khodpia, AM
Ardent Steels Private Limited – Appellant
Versus
Pr. Commissioner of Income Tax – Respondent
ITA No: 337/RPR/2025

Advocates:
For the Appellants/Petitioners: R. B. Doshi
For the Respondents: S. L. Anuragi

The exercise of revisionary powers under the income tax statute is subject to the principles of natural justice. Withholding material used against an assessee while denying an effective opportunity to rebut such evidence renders the revisionary order invalid.

Headnote:(A) Income Tax Act, 1961 - Section 263 - Revision of orders prejudicial to revenue - Principle of Natural Justice - Audi alteram partem - Requirement of providing effective opportunity of hearing - Consequence of withholding information and documents used against the assessee. (Paras 17, 18, 20)

(B) Revisional jurisdiction - Exercise of power - Requirement of twin conditions - Satisfaction that an order is both erroneous and prejudicial to the interest of revenue is a basic pre-condition - Power of revision is not contingent on mere show cause notice but requires a meaningful and effective opportunity of hearing where the assessee is confronted with the material to be used against them. (Paras 17, 18)

Facts of the case:
The assessee challenged a revisionary order passed by the authority on the ground that the assessment order was erroneous and prejudicial to the revenue. The authority relied upon documents and external information obtained from databases to allege that the assessee’s business transactions with a supplier were bogus/sham and that the entity was a shell company. Despite requests, the authority did not provide the specific material or databases used, thereby denying the assessee an opportunity to rebut the allegations. The assessee had provided ledger accounts, bank statements, and transit permits to substantiate genuineness.

Findings of Court:
The court observed that the authority failed to consider the corroborative evidence submitted by the assessee and reached conclusions based on external information without confronting the assessee with the same. This failure constitutes a violation of the principles of natural justice and renders the revisionary order unsustainable. The authority’s reliance on the classification of the supplier as a shell company without allowing the assessee to test that material defeated the doctrine of audi alteram partem.

Issues: Whether the revisionary authority, in exercising powers, failed to provide an effective opportunity of hearing and breached the principles of natural justice by relying on information that was not shared with the assessee to refute alleged findings of non-genuineness of transactions.

Ratio Decidendi: Failure to share material relied upon by the revisional authority for reaching an adverse finding against an assessee, despite requests, constitutes a significant violation of the rules of natural justice and the doctrine of audi alteram partem, rendering the exercise of revisionary jurisdiction legally fragile and invalid.

Result: Appeal of the assessee allowed; impugned order quashed.

Table of Content
1. basis for invoking revisionary powers under section 263. (Para 1 , 2 , 3 , 4)
2. assessee's challenge to section 263 based on evidence and natural justice. (Para 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14)
3. revenue's justification for section 263 regarding inadequate inquiry. (Para 15)
4. violation of natural justice renders section 263 order invalid. (Para 16 , 17 , 18 , 19 , 20 , 21)

आदेश / O R D E R

Per Arun Khodpia, AM:

1. The captioned appeal is filed by the assessee against the revisionary order passed u/s 263 of the Act, 1961 (in short “the Act”) dated 28.03.2025 by the Principal Commissioner of Income Tax, Raipur -1, (in short “Ld. PCIT”), for the Assessment Year 2020-21, which in turn arises from the assessment order u/s 143(3) r.w.s. 144B of the Act, dated 26.09.2022 passed by Assessment Unit, Income Tax Department (in short “Ld. AO”).

2. In present case, the assessment u/s 143(3) r.w.s. 144B was completed on 26.09.2022, wherein the return income declared by the assessee for Rs. 72,42,52,170/- was enhanced to Rs. 72,90,68,114/- by making a disallowance on account of Health & Education Cess paid for Rs. 47,34,164/- and claimed as expenditure under any other item allowable as Deduction in Schedule BP in ITR. Subsequently, the case record of the assessee are examined by the Ld. PCIT and have observed that during the relevant period the assessee company made purchases of Iron Ore fines to the tune of Rs.3,94,56,149/- from M/s B B Medicare Pvt. Ltd., which is a shall company as per list (Sl. No. 70829) circulated by SEBI. It is alleged that the transaction of the said company are only in paper, as no documentary evidence pertaining to receipt of goods or payment details are found in the assessment records to substantiate that the transaction was rarely executed, thus, he doubted the genuineness of the transaction. It is observed by the Ld. PCIT that the aforesaid amount should have been added back to the income of the assessee, which on account of omission had resulted into the loss of revenue from tax amounting to Rs. 4.12 Crores. Considering the aforesaid facts after recording the satisfaction, Ld. PCIT held that the order dated 26.09.2022 passed u/s 143(3) r.w.s. 144B of the Act was erroneous in so far as prejudicial to the interest of revenue, therefore, the same needs to be revised under the provisions of section 263 of the Act.

3. With the aforesaid observations, Ld. PCIT issued a show-cause notice dated 27.09.2024 asking the assessee to furnish reply with supporting evidence. In compliance, the assessee filed submission on 18.11.2024 raising the contention that the powers u/s 263 of the Act were wrongly exercised by the Ld. PCIT, as the assessment order passed by Ld. AO was not an erroneous assessment, therefore, the proceedings initiated u/s 263 are liable to be dropped under intimation to the assessee.

4. Ld. PCIT considered the submissions of the assessee but had not found it tenable. Ld. PCIT further described certain more information about the alleged shall company M/s B B Medicare Pvt. Ltd. and have mentioned that as per MCA Website, business of the said company shall “Involved in manufacturing of Radio, Television and communication equipment and apparatus.” Accordingly, it is noted by him that the work profile of the company does not match with the impugned trading of Iron ore fines with the assessee. Ld. PCIT further observed that M/s B B Medicare had complied for grant of trading license of iron ore, vide its application no. 21330 dated. 06.04.2017 with Ministry of Mines. As per letter dtd 30.05.2017 issued by Indian Bureau Of Mines, Indira Bhawan, Nagpur, the application for registration was accepted and registration no. IBM/21330/2017 has been allotted. However, the application for trading of iron ore minerals and granting of license vide Application No. NLA11796/2017, dated 04.09.2017 was suspended by IBM vide License Code 091813471011, said information was extracted from the Web

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2025 Supreme(Online)(ITAT) 22368

INCOME TAX APPELLATE TRIBUNAL (RAIPUR BENCH)Partha Sarathi Chaudhury, JM, Arun Khodpia, AMArdent Steels Private Limited – AppellantVersusPr. Commissioner of Income Tax – RespondentITA No: 337/RPR/2025

The exercise of revisionary powers under the income tax statute is subject to the principles of natural justice. Withholding material used against an assessee while denying an effective opportunity to rebut such evidence renders the revisionary order invalid.

INCOME TAX APPELLATE TRIBUNAL (RAIPUR BENCH)
Partha Sarathi Chaudhury, JM, Arun Khodpia, AM
Ardent Steels Private Limited – Appellant
Versus
Pr. Commissioner of Income Tax – Respondent
ITA No: 337/RPR/2025