In a significant ruling, the Income Tax Appellate Tribunal ( ITAT ) quashed the revision proceedings under Section 263 of the Income Tax Act initiated against the assessee at Vadodara, for Assessment Years 2010-11 and 2011-12, by placing reliance on a Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) decision.
However, the ITAT quashed these proceedings by relying on the ruling from the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ).
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The controversy arose when the Central Excise Directorate issued a show-cause notice to the assessee, questioning the genuineness of certain purchases and disallowing CENVAT credit of ₹4.37 crores. This triggered the reopening of assessments under Section 147, which resulted in additions of ₹27.53 crores, including ₹25.04 crores for the alleged bogus purchases and VAT discrepancies amounting to ₹45 lakhs. Subsequently, the PCIT invoked Section 263, citing erroneous and prejudicial assessment to the revenue.
The backbone of the ITAT’s decision stemmed from a subsequent order by the CESTAT, which ruled in favour of the assessee, confirming that the purchases in question were genuine. The CESTAT dismissed the Department’s allegations of bogus purchases, stating that there was no evidence to support such claims. This finding directly undercut the very foundation on which the PCIT had based the Section 263 Income Tax Act revision proceedings.
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In its order, the ITAT Bench of Accountant Member Annapurna Gupta and Judicial Member Siddhartha Nautiyal cited CIT vs. A. Yonus Kunju to establish that proceedings under Section 263 should not be sustained when the core basis for reopening assessments, such as an adverse ruling from another tribunal, has been nullified.
This decision underscores the principle that if the very foundation of a revision is set aside by a higher authority, any connected proceedings, such as under Section 263 of the Income Tax Act, lose their validity.
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