Section 263 Revision Invalid Where Return Filed Under Section 44AD: ITAT Delhi Rules in Favour of Assessee
Case Background: Neeraj Vs PCIT (ITAT Delhi)
The Income Tax Appellate Tribunal, Delhi Bench, recently pronounced a significant ruling in Neeraj Vs PCIT, addressing two consolidated appeals pertaining to Assessment Year 2012-13. Both appeals arose from orders dated 26.12.2024 passed by the National Faceless Appeal Centre / learned Commissioner of Income Tax (Appeals), New Delhi, which in turn stemmed from an assessment order dated 21.03.2023 passed under Section 144 read with Section 263 of the Income Tax Act, 1961.
The core controversy revolved around whether the Principal Commissioner of Income Tax, Faridabad, had lawfully exercised revisionary jurisdiction under Section 263 of the Income Tax Act, 1961 in a case where the assessee had declared income on a presumptive basis under Section 44AD.
Preliminary Issue: Condonation of Delay
Before proceeding to the merits, the Tribunal took note of a registry-identified delay of 625 days in the filing of the appeal bearing ITA No.939/Del/2025. The assessee's counsel attributed this delay to erroneous legal advice rendered by the assessee's advocate, which led to the order not being acted upon within the prescribed timeframe.
The Departmental Representative opposed condonation and pressed for imposition of costs. Balancing the competing considerations, the Tribunal condoned the delay while simultaneously directing the assessee to deposit Rs. 5,000/- to the Prime Minister Relief Fund within one month of receipt of the order. Proof of such payment was required to be submitted to the Assessing Officer within one week thereafter.
Factual Matrix of the Case
The assessee, an individual, was engaged in the purchase and sale of garments, i.e., trading in clothes. The case was reopened under Section 147 of the Income Tax Act, 1961, and upon receipt of notice under Section 148, the assessee filed a Return of Income on 17/09/2019 under Section 44AD, declaring total income of Rs. 3,08,880/- computed on a presumptive basis on gross turnover of Rs. 40,82,300/-.
This returned income was duly accepted vide order dated 23/09/2019.
Subsequently, the PCIT, Faridabad, exercised his powers of revision under Section 263 and, through order dated 23/03/2022, declared the original assessment order to be erroneous and prejudicial to the interest of revenue. The PCIT directed the Assessing Officer to conduct a fresh de novo assessment after making further inquiries.
Basis of PCIT's Revisionary Action
The PCIT's primary grievance was that the Assessing Officer had not conducted adequate inquiry or gathered sufficient third-party evidence to verify whether the assessee was genuinely engaged in trading activities. Specifically, the PCIT noted the absence of:
- Vouchers and payment records
- Purchase bills and sale registers
- Transport charges and delivery memos
- Cash books and parcel records
- Independent third-party documentation
The PCIT further directed, at paragraph 18 of his order:
"…it is clear that during the course of proceedings u/s 263, the assessee has failed to explain the deposits of Rs.29,67,900/-. Therefore, the Assessing Officer is directed to charge the tax on the same considering as unexplained cash credit within the meaning of u/s 68 of the Income Tax Act, 1961…"
Grounds of Appeal Raised by the Assessee
ITA No. 938/Del/2025
The assessee challenged the NFAC's confirmation of the Assessing Officer's order under Section 144 read with Section 263 and Section 144B, which had assessed income under Section 69A at Rs. 32,76,780/- as against returned income of Rs. 3,08,880/-. The grounds specifically highlighted: