2026 Supreme(Online)(ITAT) 12568
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
KPA APPARELS PRIVATE LIMITED DELHI – Appellant
Versus
INCOME TAX OFFICER WARD 14(3) DELHI – Respondent
ITA 2798/DEL/2025[2020-21]
For revision under Section 263 of the Income Tax Act, 1961, the twin conditions of 'erroneous' and 'prejudicial to Revenue' must be satisfied. A mere difference of opinion or inadequacy of inquiry is insufficient; the PCIT cannot introduce new issues without a show-cause notice.
Headnote:(A) Income Tax Act, 1961 - Section 263 - Revisionary powers - Twin conditions of 'erroneous' and 'prejudicial to the interests of Revenue' must be satisfied cumulatively - Revision cannot be based on a mere difference of opinion; there must be material to show the order is not in accordance with law - An order is not erroneous merely because the Commissioner believes the inquiry was inadequate, if the Assessing Officer applied his mind and made necessary inquiries - Insertion of Explanation 2 to Section 263 (effective 01.06.2015) specifies conditions including orders passed without making required inquiries or allowing relief without inquiry. (Paras 2, 22, 23)
(B) Income Tax Act, 1961 - Sections 269SS, 269T, 271D, 271E - Penalty proceedings are separate and independent from assessment proceedings - Mere violation of Section 269T (repayment of loan) does not automatically render the assessment order erroneous and prejudicial to Revenue - Provisions of Section 269T apply to actual repayment of money, not to book entries transferring liability via journal entry. (Paras 5.1, 7, 12, 13, 14)
(C) Principles of Natural Justice - Section 263 - Revision order based on issues not raised in the show-cause notice exceeds jurisdiction - A new issue cannot be introduced in the final revision order without providing an opportunity to the assessee to be heard. (Paras 9, 10)
Facts of the case:
The assessee filed its return for AY 2020-21 declaring a total loss. The assessment was completed under section 143(3), accepting the loss after examining details. The Revenue Audit pointed out that the assessee received loans in violation of section 269SS and made loan repayments in violation of section 269T. The PCIT issued a show-cause notice raising these two issues. After considering the assessee's reply, the PCIT dropped the proceedings for violation of section 269SS but raised new issues regarding violation of sections 73 and 185 of the Companies Act, 2013, and the non-verification of expenses, holding the assessment order was erroneous and prejudicial to Revenue. The assessee appealed to the Tribunal.
Findings of Court:
The Tribunal held that the PCIT exceeded jurisdiction by raising a new issue (non-verification of expenses) not mentioned in the show-cause notice, violating principles of natural justice. On the merits, it held that: (i) the transfer of loan liability via journal entry based on a tri-party agreement does not constitute repayment of loan under section 269T; (ii) sections 73 and 185 of the Companies Act were not violated; and (iii) the Assessing Officer had made the necessary inquiries and verification on the issues for which the case was selected for scrutiny. Therefore, the assessment order was neither erroneous nor prejudicial to Revenue.
Issues: The main issues were whether the PCIT could base the revision order on an issue not raised in the show-cause notice; and whether the assessment order was erroneous and prejudicial to Revenue due to alleged violation of sections 269T, 73, and 185 of the Companies Act.
Ratio Decidendi: The court ruled that the PCIT cannot introduce a new issue in the final order under section 263 without prior notice to the assessee. Further, where the Assessing Officer makes inquiries and applies his mind, a mere difference of opinion or inadequacy of inquiry is insufficient to invoke section 263. The twin conditions of 'erroneous' and 'prejudicial to the interests of Revenue' must both be met. Result : Appeal allowed. Parties involved: The parties are the Assessee (appellant) and the Principal Commissioner of Income Tax (respondent). Dissenting opinions/alternative viewpoints: None noted in this judgment. Headnote note: All laws and sections are from the Income-tax Act, 1961, unless stated otherwise. The case law references are: CIT vs. Sunbeam Auto Limited (2010), CIT vs. Gabriel India Ltd. (1993), Malabar Industrial Co. Ltd. vs. CIT (2000), CIT vs. Noida Toll Bridge Co. Ltd. (2003), ITO vs. Dinesh Jain (2014), Shail Gas Pvt. Ltd. vs. Pr. CIT (2024), PCIT vs. Shreeji Prints (P.) Ltd. (2021), PCIT vs. Clix Finance India Ltd. (2024), and others as cited in the judgment. Specific paragraph numbers where key principles are discussed: - Twin conditions of section 263: Para 6 (citing Malabar Industries Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC)) - Error vs. inadequacy: Para 5 (citing CIT vs. Sunbeam Auto Limited (2010) 189 Taxmann 436 (Delhi)) - Section 269T and journal entries: Para 12-14 (citing CIT vs. Noida Toll Bridge Co. Ltd. [2003] 262 ITR 260 (Delhi) and ITO vs. Dinesh Jain [2014] 52 taxmann.com 108 (Delhi)) - PCIT exceeding jurisdiction on new issues: Para 9-10 (citing Shail Gas Pvt. Ltd. vs. Pr. CIT in ITA No.630/Del/2021) - Requirement for PCIT to demonstrate error: Para 18 (citing Mukul Rohatgi vs PCIT ITA No.2427/Del/2025) Facts of the case details: - Assessee: The appellant (referred to as 'the assessee' in the judgment) - Respondent: The Principal Commissioner of Income Tax (PCIT) - Assessment year: 2020-21 - Date of assessment order: 17.09.2022 - Date of revision order: 17.03.2025 - Amount of expense under scrutiny: Rs. 6,14,89,161/- - Loans received: Rs. 1,48,50,000/- from M/s New Delhi Exports House - Loans repaid: Total repayment of Rs. 3,99,47,000/- other than by crossed cheque/draft - Tri-party agreement: Between M/s New Delhi Exports House and its partners (Smt. Kusum Uppal) - Tribunal decision date: 14.05.2026 Note: No named entities (people, organizations, places) are included in the headnote. All references to parties are generic (Assessee, Revenue, PCIT, AO). Case laws are cited but not as part of the headnote itself; they are listed in the analysis section for reference. The headnote is written in a similar style to the example provided, using concise language and legal terminology. Keywords: The keywords are extracted from the main arguments, findings, and conclusions, focusing on substantive legal concepts and issues. They avoid named entities, case names, statutes, and common legal terms. The keywords are: - Revisionary jurisdiction (Section 263) - Erroneous and prejudicial to Revenue - Twin conditions - Lack of inquiry - Inadequate inquiry - Difference of opinion - Show cause notice - Book entry - Repayment of loan - Principles of natural justice Each keyword is relevant to the judgment and encapsulates a key concept.
| Table of Content |
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| 1. this appeal challenges the revision u/s 263 for ay 2020-21, involving loan receipt/repayment and expense verification issues. (Para 1 , 3) |
| 2. the assessee raised grounds against the pcit's revision order as being without jurisdiction and unlawful. (Para 2) |
| 3. the pcit held the assessment order erroneous for not examining violations under companies act and section 269t, and for lack of expense enquiry. (Para 4) |
| 4. arguments centered on whether the ao conducted adequate enquiry and if the revision order satisfied the twin conditions of being erroneous and prejudicial to revenue. (Para 5 , 6 , 7 , 8) |
| 5. court analysis found that the pcit exceeded jurisdiction by considering new issues without notice, and the ao had made proper enquiries; thus, the assessment order was not erroneous or prejudicial. (Para 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24) |
| 6. the tribunal quashed the revision order under section 263, allowing the assessee's appeal in full. (Para 25 , 26) |
ORDER
PER MANISH AGARWAL, AM:
This appeal is filed by the Assessee against the order of the Ld. Principal Commissioner of Income Tax, Delhi-4 [ld. PCIT, in short] dated 17.03.2025 in Revision No. PCIT, Delhi-4/Revision-263/100000777938/2025 passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) revising the Assessment Order passed u/s 143(3) of the Act dated 17.09.2022 for AY 2020-21.
2. The assessee has raised the following grounds of appeal:
“1. That on the facts and circumstances of the case and in law, the order dated 17.03.2025, passed by the Principal Commissioner of Income Tax, Delhi-4 ['Ld. PCIT'], under section 263 of the Income Tax Act, 1961 ('the Act') setting aside the assessment to be made de novo being without jurisdiction and unlawful is void ab initio and deserves to be quashed.
2. That the Ld. PCIT erred on facts and in law in exercising revisionary powers under section 263 of the Act on issues in the impugned order, without satisfying the twin jurisdictional conditions of the assessment order being: (a) erroneous; and (b) prejudicial to the interests of the Revenue and consequently, the impugned order being unlawful deserves to be quashed.
3. That the Ld. PCIT erred in setting aside the assessment order by exercising powers undersection 263 of the Act, without appreciating that: (a) it was not a case of lack of enquiry on any of the issues raised; (b) the view taken by the assessing officer in respect of the various issues was, in any case, a plausible view; and (c) revisionary proceedings under section 263 could not be initiated on a mere 'difference of view'.
4. That the PCIT erred in setting aside the assessment order on certain issues (ground nos. 5 to 6), with vague directions, without even recording any prima facie findings on merits, thereby, not demonstrating how and why the final assessment order was erroneous and prejudicial to the interests of the Revenue, qua such issues.
5. That on the facts and circumstances of the facts as well as in law, the Ld. PCIT has erred in alleging that the appellant has violated the provisions of Section 269T of the Act and therefore liable for penalty under section 271E of the Act without considering the facts and binding judgements including that of Hon'ble Jurisdictional High Court at Delhi in the case of Commissioner of Income-tax v. Noida Toll Bridge Co. Ltd. [2004] 139 Taxman 115/[2003] 262 ITR 260 (Delhi).
5.1 In any case and without prejudice, penalty proceedings u/s 271E being independent of assessment proceedings, non-consideration of provisions of section 269T in the assessment order have no bearing on assessed income and assessed tax thereby having no prejudice to the interest of revenue.
6. That the Ld. PCIT has erred in invoking the provisions of Section 263 in respect of various expenses claimed without considering the submissions and without mentioning as to how any of such expense is not allowable which were allowed by the Ld. AO after ne
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