ITAT Delhi Quashes Section 263 Revision: PCIT's Order Traced to Audit Objections and Subordinate Proposals
Background and Overview
The Income Tax Appellate Tribunal, Delhi Bench, delivered a significant ruling in the matter of Ahlcon Parenterals (India) Ltd. Vs PCIT (ITAT Delhi), setting aside a revisionary order passed under Section 263 of the Income Tax Act, 1961. The core question before the Tribunal was whether the Principal Commissioner of Income Tax (PCIT) had exercised jurisdiction under Section 263 independently, or whether such exercise was driven entirely by proposals received from subordinate tax authorities and audit objections — without any genuine, independent application of mind.
The ruling, pronounced in open court on 21.05.2024, carries substantial implications for how revisionary jurisdiction under Section 263 must be lawfully exercised, and what constitutes an irregular invocation of such powers.
The Assessment Background: AY 2015-16
The assessee, M/s Ahlcon Parenterals (India) Ltd., had filed its return of income for Assessment Year 2015-16 declaring a loss of Rs. 30,94,55,123. The assessment was completed on 14.12.2017 under Section 143(3) of the Income Tax Act, 1961 by the DCIT, Central Circle-31, New Delhi, wherein the assessed loss was determined at Rs. 30,83,89,802 — a marginal reduction from the returned loss figure.
The Assessing Officer (AO) had made two additions in the course of assessment proceedings. However, the matter did not conclude there, as the PCIT (Central), Delhi-3 proceeded to invoke his revisionary jurisdiction under Section 263 of the Act.
Grounds on Which PCIT Invoked Section 263
Upon calling for and examining the assessment records, the PCIT identified several issues which, in his view, pointed to errors in the assessment order that were prejudicial to the interests of the Revenue. These issues were broadly as follows:
Issue 1: Alleged Undisclosed TDS
- The PCIT observed that there was an undisclosed TDS amount of Rs. 4,929.43, which had ostensibly resulted in an under-assessment of Rs. 4,29,493.
- Although this issue had been flagged at the time of scrutiny selection, it was allegedly not reconciled during the assessment proceedings.
Issue 2: Discrepancy in Purchase Figures
- Purchases reflected in the Income Tax Return were found to be lower than the invoice value of imports by Rs. 17,08,352.
- This discrepancy was reportedly one of the identified reasons at the selection stage but had not been addressed during assessment.
Issue 3: Allegedly Erroneous Deductions under Sections 32 and 32AC
- The PCIT alleged that the assessee had made incorrect claims under
Section 32andSection 32ACof the Income Tax Act, 1961 relating to plant and machinery, additions to buildings, furniture and fittings, exchange rate adjustments, cost treatment in INR, and Modvat claims. - According to the PCIT, these issues were left entirely unexamined during assessment proceedings, leading to a purported under-assessment of Rs. 56,56,46,563.
On the basis of the above observations, a show-cause notice under Section 263(1) of the Income Tax Act, 1961 was issued on 13.03.2020, calling upon the assessee to explain why the assessment order should not be revised as being erroneous and prejudicial to the interests of the Revenue.
Assessee's Response to the Show-Cause Notice
The assessee filed its reply via webmail on 16.03.2021, addressing each ground raised in the notice:
On Undisclosed TDS
The assessee stated that it had no clarity on which specific TDS amount was being referred to in the notice. It formally requested the PCIT to furnish precise details and particulars of the alleged undisclosed TDS before any adverse inference could be drawn.