Commission income transactions earlier accepted at 0.5% rebranded as s.68 cash credits; s.263 revision barred during appeal

The dominant issue was whether the PCIT could assume revisionary jurisdiction under s.263 to recharacterize transactions, earlier accepted by the AO for estimating commission at 0.5%, as unexplained cash credits under s.68, when the same matter was already before the CIT(A). Applying Expln.1(c) to s.263(1), the ITAT held that once an issue is the subject matter of appeal, the statutory bar precludes s.263 revision on that issue; this view was consistent with HC precedents on the "larger issue" being pending in appeal. Consequently, the PCIT lacked jurisdiction and the impugned s.263 order was quashed, granting relief to the assessee.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the Principal Commissioner could validly assume revisionary jurisdiction under section 263 when the very issue forming the basis of the show-cause notice was already the subject matter of pending appeals before the Commissioner (Appeals), attracting the statutory restriction in Explanation 1( c ) to section 263(1).

(ii) If jurisdiction was barred due to pendency of appeal on the same matter, whether the revisionary orders under section 263 for the relevant assessment years were liable to be quashed.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i)-Bar on section 263 jurisdiction where the matter is subject matter of appeal

Legal framework (as discussed by the Court): The Court applied Explanation 1( c ) to section 263(1), which restricts the revisionary power where the assessment order "had been the subject matter of any appeal", limiting section 263 to matters "not been considered and decided" in such appeal. The Court treated this as a statutory bar against revision on issues already taken up in appeal.

Interpretation and reasoning: The Court examined the assessee's material demonstrating that, for the relevant assessment year(s), the assessee had filed appeals raising a ground against the addition made by the Assessing Officer on account of commission computed at 0.5% relating to the alleged bogus sale/purchase transactions. The show-cause notice under section 263 proposed revisiting the same transaction stream by treating the underlying amounts differently (as unexplained cash credit) and, overall, faulted the Assessing Officer for making only a commission addition instead of adding the whole sale/purchase amounts. The Court held that, since the show-cause issue was already a matter pending before the Commissioner (Appeals), the statutory restriction under Explanation 1( c ) squarely applied. The Court relied on the principle that when a "larger issue" is pending in appeal, the Principal Commissioner cannot invoke section 263 on that very issue due to the statutory bar.

Conclusion: The Court conclusively held that the Principal Commissioner lacked jurisdiction to invoke section 263 because the issue in the show-cause notice was already the subject matter of appeal before the Commissioner (Appeals) for all the relevant years.

Issue (ii)-Consequence of lack of jurisdiction: validity of revisionary orders

Interpretation and reasoning: Having found the jurisdictional condition unsatisfied due to Explanation 1( c ), the Court treated the defect as fatal to the revision. Since the section 263 assumption itself was impermissible, the Court did not uphold the revisionary directions on the merits (including the proposed treatment of bogus sales/purchases and interest recomputation), and instead disposed of the appeals on the jurisdictional bar.

Conclusion: The Court quashed the revisionary orders passed under section 263 for assessment years 2017-18 to 2019-20 and allowed the appeals.

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