In a significant ruling reinforcing the limits of the Principal Commissioner of Income Tax’s (PCIT) revisional jurisdiction under Section 263 of the Income Tax Act, 1961, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the PCIT cannot revise an assessment order where the core issue is already pending before the Commissioner of Income Tax (Appeals) [CIT(A)].
The Tribunal, while deciding the case of M.P. Trading Company v. PCIT, Mumbai-20 (ITA No. 1107/MUM/2026), quashed the revision order passed under Section 263 and reiterated that revisional powers cannot be exercised merely because the PCIT prefers a different interpretation of the same set of facts that are already under appellate consideration.
Background of the Case
The dispute arose during the assessment proceedings for Assessment Year 2021-22. During scrutiny, the Assessing Officer (AO) examined purchases made by M.P. Trading Company from five different suppliers.
After reviewing the available records, the AO concluded that purchases made from Mahadev Enterprises and Tirupati Traders were not fully genuine. However, instead of disallowing the entire purchase amount, the AO followed a well-recognized principle adopted in several judicial precedents and taxed only the profit element embedded in those purchases.
Accordingly, an addition equivalent to 25% of the disputed purchases was made to the company’s taxable income.
Aggrieved by this addition, the assessee filed an appeal before the CIT(A), where the matter remained pending for adjudication.
PCIT Initiates Revision Under Section 263
While the assessee’s appeal was still pending, the PCIT invoked powers under Section 263 of the Income Tax Act.
According to the PCIT:
- The AO should have treated the entire purchase value as unexplained expenditure under Section 69C instead of estimating only the profit element.
- The outstanding liability of approximately ₹3.53 crore shown in the name of Tirupati Traders should also have been treated as taxable income under Section 41(1).
On this basis, the PCIT held that the assessment order was both erroneous and prejudicial to the interests of the Revenue, warranting revision.
ITAT’s Analysis
The Tribunal carefully examined the facts and found that the central controversy before both the AO and the PCIT was identical—whether the purchases from Mahadev Enterprises and Tirupati Traders were genuine and, if not, what should be the appropriate tax treatment.
The Bench observed that this very issue was already pending before the CIT(A). Therefore, the PCIT could not invoke revisional jurisdiction over the same subject matter.
The Tribunal relied upon Explanation 1(c) to Section 263, which restricts the exercise of revisional powers where the issue has become the subject matter of an appeal.
Accordingly, the Tribunal held that the PCIT lacked jurisdiction to revise the assessment on matters already under appellate consideration.
Adequate Inquiry Conducted by the Assessing Officer
The ITAT further noted that the Assessing Officer had not passed the assessment order mechanically.
During scrutiny, the AO had examined several documents, including:
- Purchase invoices
- Ledger accounts
- Transport documents
- E-way bills
- Payment records
- Balance confirmations
After evaluating these materials, the AO consciously adopted one of the legally permissible views by estimating only the profit element embedded in the disputed purchases.
The Tribunal emphasized that where the Assessing Officer has conducted proper enquiries and adopted a legally sustainable view, the assessment order cannot be termed erroneous merely because another authority believes a different approach would have been preferable.
Difference of Opinion Is Not a Ground for Section 263
The Tribunal reiterated an important legal principle governing Section 263 proceedings.
The revisional jurisdiction under Section 263 is intended to correct genuinely erroneous assessment orders that are prejudicial to the interests of the Revenue. It is not meant to substitute the opinion of the PCIT for that of the Assessing Officer simply because the Commissioner prefers an alternative interpretation.
Where two legally sustainable views are possible and the Assessing Officer has adopted one after due inquiry, the PCIT cannot invoke Section 263 merely on account of a difference of opinion.
Supreme Court Decisions Distinguished
The Revenue relied upon the Supreme Court decisions in CIT v. Shri Arbuda Mills Ltd. and EIMCO K.C.P. Ltd. to justify the revision proceedings.
However, the ITAT held that both judgments were rendered in different factual and legal circumstances and were not applicable to the present case.
Instead, the Tribunal relied upon decisions of the Madras High Court, the Allahabad High Court, and earlier coordinate bench rulings, which consistently held that revisional jurisdiction cannot be exercised over issues already pending before the appellate authority.
Final Verdict
The Mumbai ITAT allowed the appeal filed by M.P. Trading Company and quashed the PCIT’s order passed under Section 263.
The Tribunal concluded that:
- The principal issue was already pending before the CIT(A).
- The Assessing Officer had conducted adequate enquiries.
- The AO had adopted a legally permissible view.
- The PCIT could not invoke Section 263 merely because he preferred a different method of taxation.
Key Takeaways
This ruling provides important guidance on the scope of Section 263 proceedings. Tax authorities cannot reopen completed assessments simply because they disagree with the Assessing Officer’s conclusion when that conclusion is supported by proper enquiry and legal reasoning.
For taxpayers, the judgment reinforces that once the substantive issue is under appeal before the CIT(A), the Revenue cannot simultaneously invoke revisional jurisdiction on the same matter. The decision also reiterates that estimation of the profit element in alleged bogus purchase cases continues to be a legally acceptable approach where supported by the facts and applicable judicial precedents.
Case Details
- Case: M.P. Trading Company v. PCIT, Mumbai-20
- Forum: Income Tax Appellate Tribunal, Mumbai Bench
- Case No.: ITA No. 1107/MUM/2026
- Assessment Year: 2021-22
- For the Assessee: Vimal Punmiya
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For the Revenue: Nishant Samaiya, CIT-DR