ITAT Surat: No Section 263 Revision on Bogus Purchase Addition Already in Appeal Before CIT(A)

Background of the Dispute

In Tarachand Mohanlal Agarwal Vs PCIT (ITAT Surat), the Surat Bench of the Income Tax Appellate Tribunal examined whether the PCIT could lawfully exercise revisional jurisdiction under Section 263 in respect of an issue that was already the subject matter of an appeal pending before the CIT(A).

The appeal concerned Assessment Year 2018-19, where the assessee challenged an order dated 17.02.2025 passed by the Principal Commissioner of Income-Tax-1, Surat under Section 263 of the **Income Tax Act 1961. The dispute centered on additions made on account of alleged bogus purchases and the attempt of the PCIT to recharacterize and tax those very additions under Section 115BBE`.

Origin of the Bogus Purchase Allegation

During inquiries conducted by CGST authorities in the case of M/s Advance Computers and Mobiles India Pvt. Ltd., it was found that the said company was allegedly engaged in issuing fake or accommodation invoices to facilitate fraudulent input tax credit without any corresponding movement of goods.

The investigation referred to dealings involving the following entities:

  1. Advance Computers and Mobiles India Pvt. Ltd
  2. Madurai Multi Facilities Service Pvt. Ltd.
  3. Germanium Trading Pvt. Ltd.
  4. One Point One Solutions Ltd.
  5. Flash Forge Pvt. Ltd.
  6. Himadri Foods Ltd.

Relying on this information, the Assessing Officer treated certain purchases recorded by the assessee as non-genuine and made additions towards bogus purchases.

Appeal Before CIT(A) on the Bogus Purchase Addition

Disagreeing with the action of the AO, the assessee carried the matter in appeal before the CIT(A). The challenge specifically covered the addition arising from the allegation of bogus purchases based on the material obtained from the GST investigation.

The pendency of this appeal before the Ld. CIT(A) in relation to the same purchases was not in dispute. The grounds raised by the assessee before the first appellate authority clearly indicated that the issue of bogus purchases formed the core subject matter of that appeal.

PCIT’s Action Under Section 263

While the assessee’s appeal on bogus purchase addition was still awaiting adjudication before the CIT(A), the PCIT invoked revisional powers under Section 263.

The PCIT’s position was that:

  • The assessment order passed by the AO was erroneous and prejudicial to the interests of the revenue, and
  • The AO ought to have taxed the disputed amount in accordance with the special provisions of Section 115BBE, which deal with taxation of certain unexplained income at a higher tax rate.

Accordingly, the PCIT issued and passed a revisionary order under Section 263, seeking to modify the tax treatment of the same additions that were already under challenge before the CIT(A).