ITAT Jaipur Clarifies Scope of Section 263 in Reopened Assessments Involving Alleged Accommodation Entries

1. Background of the Dispute

The Jaipur Bench of the Income Tax Appellate Tribunal in Agrasen Polytex Private Limited Vs PCIT (ITAT Jaipur) examined whether a reassessment order passed under Section 147 could be revised under Section 263 where the Assessing Officer (AO) had accepted an unsecured loan as genuine despite having adverse investigation material questioning its authenticity.

The controversy centred around an unsecured loan of ₹1,19,50,000 received by the assessee from Innovative Commercial Private Limited (ICPL). The reassessment itself had been initiated on the basis of information that the transaction represented an accommodation entry. However, in the reassessment order, the AO did not make any addition on this account.

The Principal Commissioner of Income Tax (PCIT) exercised revisional jurisdiction under Section 263 and set aside the reassessment, holding that the AO had failed to properly examine the loan in light of specific investigation inputs already available with him. The assessee carried this order in appeal to the Tribunal.

2. Essential Facts and Procedural History

2.1 Reopening under Section 147

  • The assessment for the relevant year was reopened under Section 147 based on information that the assessee had allegedly obtained accommodation entries in the guise of unsecured loans from M/s Innovative Commercial Pvt. Ltd.
  • The total loan in question was ₹1,19,50,000.
  • The allegation was that this was not a genuine loan, but a routed entry against unaccounted money.

During the reassessment proceedings:

  • The assessee filed several documents purporting to establish:
    • Identity of ICPL
    • Creditworthiness of ICPL
    • Genuineness of the transaction
  • Relying on these documents, the AO passed an order under Section 147 without making any addition in respect of the unsecured loan.

2.2 PCIT’s Action under Section 263

On scrutiny of the reassessment records, the PCIT concluded that:

  • The reassessment had been triggered specifically because of information that the loan from ICPL was an accommodation entry.
  • Despite this, the AO merely accepted the loan as genuine based on documents submitted by the assessee.
  • No meaningful verification was carried out vis-à-vis the adverse investigation inputs in the AO’s possession.

Accordingly, by order dated 05.03.2026, the PCIT invoked Section 263 and:

  • Held the reassessment order to be “erroneous in so far as it is prejudicial to the interest of the revenue”;
  • Set aside the reassessment; and
  • Directed a de novo assessment on:
    • The genuineness of the unsecured loan of ₹1,19,50,000 from ICPL, and
    • The allowability of the related interest expenditure.

The assessee appealed this revisional order before the ITAT Jaipur.

3. Assessee’s Stand Before the Tribunal

3.1 Core Contention – AO Conducted Enquiry and Formed a Plausible View

The assessee argued that:

  • The AO had, in fact, made queries during reassessment and obtained detailed documents.
  • On the basis of those documents, the AO had formed a plausible and lawful view that the loan was genuine.
  • Therefore, the order could not be branded as “erroneous” merely because the PCIT would have preferred a more exhaustive enquiry.

The assessee emphasised that this was not a case of “no enquiry”, at most it was a case of “inadequate enquiry”, which, on settled law, does not empower the PCIT to invoke Section 263.

3.2 Documentary Support Produced During Reassessment

To demonstrate that the AO had examined the issue, the assessee highlighted the submissions already made before the PCIT (and reproduced in the PCIT’s order). In summary, the assessee had provided:

  • Loan confirmation from ICPL, recording that:
    • The loan was extended via banking channels;
    • Interest was payable and had been paid; and
    • TDS had been deducted and deposited on such interest.
  • Bank statements of:
    • The assessee; and
    • ICPL, allegedly showing the flow of funds through regular bank transactions.
  • Identity proof and profile of ICPL, including:
    • CIN;
    • PAN;
    • Date of incorporation;
    • Status as “ACTIVE” on the MCA portal.
  • Income Tax Return acknowledgement of ICPL for AY 2019-20.
  • Financial strength of ICPL, contending that:
    • ICPL’s share capital and reserves were around ₹180 crore;
    • This comfortably supported its capacity to extend a loan of ₹1.19 crore.
  • Bank statement analysis of ICPL indicating that there was no cash deposit immediately prior to the loan being advanced to the assessee.