Revisionary jurisdiction blocked when core issue was decided on appeal; revision quashed and AO reassessment restored.

The dispute addressed whether the Principal Commissioner validly exercised revisionary jurisdiction under section 263 to quash an AO's reassessment for alleged bogus purchases while the same issue was under appeal. The tribunal found the AO had made inquiries, considered survey reports, bank statements and transaction details, and the Commissioner (Appeals) had subsequently considered and endorsed the core issue, engaging the doctrine of merger (Explanation 1(c)) to preclude section 263 intervention. Explanation 2 was held inapplicable because the reassessment showed application of mind and verification. Result: the PCIT's revision order was quashed and the AO's reassessment order restored in favour of the assessee.

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Issues: Whether the Principal Commissioner of Income-Tax validly invoked revisionary jurisdiction under section 263 of the Income-tax Act, 1961 to quash the assessing officer's reassessment order dated 29.03.2022 (under sections 147 read with 144B) in respect of alleged bogus purchases of Rs. 1,55,00,000/-, when the same issue was the subject-matter of an appeal before the Commissioner of Income-Tax (Appeals) and whether the reassessment was passed without necessary inquiry or verification as contemplated by Explanation 2 to section 263.

Analysis: The tribunal examined whether the issue of alleged bogus purchases had been substantively considered and decided in the first appeal before the Commissioner (Appeals). The assessment and reassessment orders record consideration of the survey report, bank statements and transaction details, and the Commissioner (Appeals) subsequently upheld the reassessment addition of Rs. 19,37,500/-, explicitly endorsing the AO's reliance on the survey report and materials. Explanation 1(c) to section 263 (doctrine of merger) limits revision under section 263 in respect of matters that have been considered and decided in appeal. Explanation 2 to section 263 treats an order as erroneous if passed without making inquiries or verification which should have been made; however, the AO's reassessment demonstrated application of mind and consideration of material. The tribunal treated the Commissioner (Appeals) decision as disposing of the core issue, observed that the PCIT proceeded while the same issue was under appellate consideration (and was thereafter disposed of by CIT(A)), and found that the PCIT had not demonstrated a valid basis for substituting its view where the AO had recorded enquiries and the issue had been addressed in appeal.

Conclusion: The revision-order passed by the Principal Commissioner of Income-Tax under section 263 is quashed and the original reassessment order passed by the Assessing Officer dated 29.03.2022 is restored; the appeal is allowed in favour of the assessee.

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