ITAT Ahmedabad Quashes Section 263 Revision: Mere Descriptive Inconsistency in Transaction Cannot Justify Section 69A Addition

Case Overview

Case Name: Siddhartha Bronze Products Pvt. Ltd. Vs DCIT (ITAT Ahmedabad)
Assessment Year: 2017-18
Relevant Provisions: Section 263, Section 69A, Section 147, Section 133(6) of the Income Tax Act, 1961

Background and Facts of the Case

The dispute in this matter originated when the Assessing Officer (AO) received intelligence suggesting that Siddhartha Bronze Products Pvt. Ltd. had allegedly benefited from accommodation entries worth ₹59.70 lakh routed through M/s. Kasturi Commodities Pvt. Ltd., an entity suspected of facilitating such entries for multiple beneficiaries. On the basis of this information, the AO proceeded to reopen the assessment under Section 147 of the Income Tax Act, 1961 for Assessment Year 2017-18.

During the course of reassessment proceedings, a rather interesting factual picture emerged. Contrary to the initial information suggesting that the assessee had received accommodation entries, the records actually revealed that it was the assessee who had paid ₹59.70 lakh to M/s. Kasturi Commodities Pvt. Ltd. The assessee's position was clear and unambiguous — the amount had been remitted as an advance payment for procurement of goods (specifically propellers). However, since the goods supplied did not conform to the required quality standards, the purchase was not completed, and M/s. Kasturi Commodities Pvt. Ltd. duly refunded the entire amount.

When the AO issued a notice under Section 133(6) to M/s. Kasturi Commodities Pvt. Ltd. seeking confirmation of the transaction, the response offered by that party differed in characterisation. M/s. Kasturi Commodities Pvt. Ltd. described the receipt of funds as a short-term loan availed from the assessee, which it had subsequently repaid. This divergence in how each party described the same transaction — one calling it a purchase advance and the other calling it a short-term loan — became the central point of controversy in subsequent proceedings.

Despite this inconsistency in labelling, the AO did not find sufficient grounds to make any addition in respect of the principal amount of ₹59.70 lakh. However, the AO made a 2% addition on the said amount, treating the same as alleged commission income purportedly earned by the assessee from this transaction.

PCIT's Revisionary Action Under Section 263

The matter did not end with the AO's assessment. The Principal Commissioner of Income Tax (PCIT) took note of the assessment proceedings and invoked his revisionary powers under Section 263 of the Income Tax Act, 1961.