ITAT Raipur Sustains Section 263 Revision: AO's Failure to Examine Diesel Shortage Renders Assessment Erroneous and Prejudicial to Revenue

Case Overview

Case: Smt. Anita Banodha alias Anita Kathgar Vs PCIT (ITAT Raipur)
Assessment Year: 2018–19
Relevant Provisions: Section 263, Section 147, Section 148, Section 148A, Section 144B, Section 37(1), Section 151 of the Income Tax Act, 1961

The Income Tax Appellate Tribunal, Raipur Bench, recently pronounced its decision in an appeal arising out of a revision order passed by the Principal Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961. The matter revolved around two distinct issues — a legal challenge concerning the validity of the reassessment notice issued under Section 148, and a challenge on merits pertaining to whether the Assessing Officer's failure to examine excess diesel shortage claimed by the assessee warranted revisionary intervention by the PCIT.

The Tribunal dismissed the appeal in its entirety, upholding the PCIT's revision order and directing the Assessing Officer to conduct a fresh and complete inquiry into the diesel shortage issue.

Background of the Case

The assessee, Smt. Anita Banodha alias Anita Kathgar, was engaged in the business of operating a petrol pump and dealing in fuel, including petrol and high-speed diesel (HSD). For Assessment Year 2018–19, the assessment was originally completed under Section 147 read with Section 144B of the Income Tax Act, 1961, vide order dated 27.03.2023.

The final assessed total income was determined at Rs. 5,83,100/-, with additions made on the following counts:

  • Rs. 3,19,908/- on account of variation in salary expenses
  • Rs. 1,13,412/- on account of excess shortage of petrol

Notably, no addition was made concerning any excess shortage of diesel, which later became the focal point of the PCIT's revision proceedings.

Following completion of the assessment, the PCIT reviewed the case records and observed that the Assessing Officer had entirely overlooked the diesel shortage claimed by the assessee, which, upon analysis, appeared to be well in excess of the permissible limits.

The Assessee's Contention

Before addressing the merits of the revision, the assessee raised a preliminary legal challenge, asserting that the notice issued under Section 148 was itself invalid and, consequently, no valid assessment order was in existence that could have been revised under Section 263.

The assessee's argument was premised on the interpretation of the amended reassessment framework introduced by the Finance Act, 2021, with effect from 01.04.2021. According to the assessee:

  • Section 148A(d) mandates that the Assessing Officer must pass an order with prior approval of the specified authority before issuing a notice under Section 148
  • The first proviso to Section 148 separately requires the Assessing Officer to obtain prior approval from the specified authority before issuing such a notice
  • Since the same approval was relied upon for compliance with both provisions, the notice was vitiated — two distinct and separate approvals were required, one for each provision

On this basis, the assessee contended that the reassessment proceedings were illegal, the assessment order was void, and therefore no occasion arose for invoking the revision jurisdiction under Section 263.

The Department's Response