AI Drafter 
TaxTMI 
TaxTMI 
2026 (1) TMI 300
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....me Tax, Rohtak ("Ld. PCIT) grossly erred in law & on the facts & circumstances of the case in passing the order dated 18.03.2025 ("Impugned Order") under section 263 of the Income Tax Act,1961 (*the Act") without jurisdiction. 4. That the Ld. PCIT grossly erred in law & on the facts & circumstances of the case in passing the impugned order without considering the provisions of section 263 of the Act. 5. That the Ld. PCIT grossly erred in law & on the facts & circumstances of the case in passing the impugned order without application of mind to the reply filed by the appellant submitting that the provisions of section 69C are not applicable on the facts of the case. 6. That the Ld. PCIT grossly erred in law & on the facts & circumstances of the case in passing the impugned order on the basis of incorrect reasons. 7. That the Ld. PCIT grossly erred in law & on the facts & circumstances of the case in passing the impugned order merely on the basis of suspicion. 8. That the Ld. PCIT grossly erred in law & on the facts & circumstances of the case in passing the impugned order without application of mind to the material on record. 9. ....
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....evant sections of the Indian Penal Code was lodged against Shri Mittal vide FIR No.0571 dated 04.06.2019 at Panipat. The details of impugned nineteen firms which included two parties namely Shri Balaji Wooltex and Shri Rameshwaram International (supra) have been clearly mentioned by the Revenue authorities in their order under section 148A(d) of the Act dated 26.03.2022. In the impugned order, the following was concluded ".... In view of these facts, it is clear that these above tabulated parties are not genuine entities but only paper concerns which were managed by Sh. Rajesh Mittal along wit some associates, for providing accommodation entries. In his statement, Sh. Rajes Mittal accepted that these firms were being used to provide accommodation entries Bank statements of these firms also substantiate the fact that these concerns were not doing any business but used for issuance of take bills. 5. Hence, it is proven that the assessee has under reported the income by taking accommodation entries amounting to Rs. 1,04,27,400/- in the form of purchases from non genuine entities and income has escaped assessment in this case. In light of discussion held above and on ....
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.... ld. AO further concluded that the impugned bogus purchases were liable for disallowance under section 37(1) of the Act as they were not incurred for business purposes. The ld. PCIT, Rohtak examined the impugned order dated 16.03.2023 of the ld. AO and concluded that since the same was passed without applying the provisions of section 69C of the Act r.w.s. 115 BBE of the Act, the same fell into the category of an order being erroneous in so far as it is prejudicial to the interest of the Revenue as stipulated in provisions of section 263 of the Act. While passing the impugned order under section 263 dated 18.03.2025, the ld. PCIT extensively dealt with provisions of section 69C, CBDT Circulars, viz 772 dated 23.12.1998 as well as judicial precedences governing the matter. In particular, the ld. PCIT relied upon the decision of Hon'ble Bombay High Court in the case of Kanak Impex (India) Ltd. (Income Tax Appeal No.791 of 2021), of Hon'ble Supreme Court in the case of N.K. Proteins [2017] 84 taxman.com 95 (SC), of this Tribunal in the case of AAA Teleshopping Pvt. Ltd. in ITA No.9633/Del/2019, of Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. vs CIT in 243 ITR 83(SC). ....
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.... to be read in conjunction with an erroneous order passed by the Assessing Officer. 7.1 Further, it has been held in the case of Venkatakrishna Rice Co. V. CIT (1987) 163 ITR 129 (Mad) it has been held by the Hon'ble Court that the expression prejudicial to the interest of the revenue must be regarded as involving a conception of facts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the ITO which might set a bad trend or pattern for similar assessment which on a broad reckoning the Commissioner might think to be prejudicial to the interest of revenue administration. The scope of the interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money into the treasury. Nor is the section meant to get at sheer escapement of revenue. The prejudice must be prejudice to the revenue administration. 7.2. Further, in Jubilant Organosys v. CIT [2004] 265 ITR 420/137 Taxman 515(All.), it was held that under section 263, the Commissioner can correct both the errors of fact and error of law. His jurisdiction is not limited to correcting errors of law alone as t....
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.... the simplicitor of non-business expenses under section 37(1) can be applied. The ld. DR placed reliance upon the decision of Hon'ble Bombay High Court in the case of Kanak Impex (India) Ltd.(supra). 6. The ld. Counsel for the assessee fiercely argued against the order under section 263 of the Act. The ld. Counsel for the assessee argued that the payments for purchases have been made through banking channel. This fact duly recorded in the books of accounts and hence section 69C cannot be invoked. The ld. Counsel for the assessee placed reliance upon the decision of Hon'ble jurisdictional High Court in the case of CIT vs Radhika Creations [2011] 10 taxmann.com 138 (Del.) holding that section 69C refers to "source of the expenditure" and not to the expenditure itself and therefore that if expenditure is recorded in the books of account it would not be exigible to action under section 69C of the Act. 7. We have heard rival submissions in the light of materials available on records. We have noted that controversy at hand involves statutory provisions of sections 69C, 263, 115BBE and 37 and hence we deem it appropriate to reproduce the same hereunder for total clarity:- S....
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....or Chief Commissioner of Principal] Commissioner or Commissioner;- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person...." Section 37 General. 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36[***] and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". [ [Explanation 1.]-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose whi....
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....postulates that the same can be invoked only qua expenses which are either capital in nature or personal in nature or particularly having an element of lacking commercial expediency. Thus, an assessing authority is empowered to conclude that certain expenses incurred by the assessee do not have any direct business purpose as they lack commercial expediency. The expenditure would be deemed to be lacking commercial expediency if there is no direct co-relation between the expenditure per se and the business purposes of the tax payer. Thus, a direct relationship between the expenses incurred with the business objectives of the tax payer deserves to be established so as to authorize their allowance as genuine business expenses. It is noted that no such controversy was existing in this case which prompted the ld. AO to have made addition under section 37(1) of the Act. 9. This brings us to the question of importance of the factual elements of this case. The case involves unearthing of fraudulent scam managed at the hand of one Shri Rajesh Mittal. The enquiries conducted by the GST authorities clearly indicated that Shri Rajesh Mittal was indulging in input tax credit fraud, wherein he....
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.... held that once an accommodation entries is established on records then the invocation of section 69C would be correct approach. 12. We have also considered as to whether the ld. PCIT, Rohtak, has rightly exercised his revisionary authority under section 263 of the Act. We have noted that Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. vs CIT in 243 ITR 83(SC) has held that if "due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue". We have noted that non-invocation of section 69C r.w.s. 115BBE of the Act by the AO in this case had led to short charge of tax, which was due to the Revenue. To the extent, the exercise of revisionary authority under section 263 has been found to be correct and supported by statute on records. 13. We have also noted that Hon'ble Madras High Court in the case of Venkatakrishna Rice Co. v CIT (1987) 163 ITR 129 (Mad.) have examined the issue of expression "prejudicial to the interest of the Revenue". The Hon'ble High Court held that availability of certain conception of facts which are subversive of the administration of the Revenu....