Tribunal cannot rely on subsequent assessment order passed

Tribunal cannot rely on subsequent assessment order passed under Section 263 to justify PCIT’s revisionary jurisdiction.

Issue

Whether the Tribunal, while deciding a challenge to the PCIT’s invocation of revisionary jurisdiction under Section 263, erred in relying upon a subsequent assessment order passed pursuant to that very Section 263 direction.

Facts

Section 263 Revision: For Assessment Year 2018-19, the Principal Commissioner of Income Tax (PCIT) exercised revisionary jurisdiction under Section 263, setting aside or directing fresh assessment.
Appeal to Tribunal: The assessee challenged the PCIT’s order before the ITAT, arguing that the assumption of jurisdiction under Section 263 was illegal and unwarranted.
Consequential Assessment: Pending the appeal, a fresh assessment order was passed under Section 143(3) read with Section 263 pursuant to the PCIT’s directions.
Tribunal’s Approach: While dismissing the assessee’s appeal, the Tribunal relied upon the newly passed consequential assessment order to justify the PCIT’s original assumption of jurisdiction under Section 263.

Decision

Improper Reliance: The Tribunal could not have considered or referred to the subsequent assessment order (passed pursuant to the Section 263 directions) to justify the PCIT’s initial invocation of jurisdiction.
Impugned Order Quashed: The order passed by the Tribunal was set aside and quashed due to this flawed reliance.
Remand for De Novo Hearing: The matter was remanded back to the Tribunal with directions to hear and decide the assessee’s appeal afresh (de novo) on its own merits, based strictly on the record available when the PCIT exercised jurisdiction [Paras 7 and 8].

Key Takeaways

Validity Tested Ex-Ante: The legality of a Section 263 revision must be judged strictly on the facts and material existing on the record before the PCIT at the time the revision order was passed.
Subsequent Events Irrelevant to Jurisdiction: Consequential assessment proceedings or findings made after the Section 263 order cannot be used retroactively to validate an otherwise impermissible or flawed assumption of revisionary jurisdiction.
De Novo Hearing Requirement: When an appellate forum relies on extraneous post-revisionary evidence, the proper remedy is to send the matter back for a fresh hearing on the original record.

HIGH COURT OF GUJARAT

Hollis Vitrified (P.) Ltd.

Principal Commissioner of Income-tax

BHARGAV D. KARIA and Pranav Trivedi, JJ.

R/TAX APPEAL NO. 428 of 2026^†

JUNE 29, 2026

Saurabh Soparkar, Sr. Adv., Manya Anjaria and B.S. Soparkar for the Appellant. Maunil G. Yajnik for the Respondent.

ORDER

Bhargav D. Karia, J.- Heard learned Senior Advocate Mr. Saurabh Soparkar with learned advocate Mr. Manya Anjaria for learned advocate Mr. B.S.Soparkar for the appellant and learned Senior Standing Counsel Mr. Maunil Yajnik for the respondent.

2. By this appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’), the appellant has proposed the following questions of law arising out of the order dated 12.02.2026 passed by the Income Tax Appellate Tribunal Rajkot Bench (for short ‘the Tribunal’) in Hollis Vitrified (P.) Ltd. v. Pr. CIT [ITA No. 363(RJT) OF 2024, dated 12-2-2026] for Assessment Year 2018-19:

“(A) Whether the Income Tax Appellate Tribunal erred in law in upholding the invocation of revisional jurisdiction under section 263 of the Income-tax Act, 1 961, in a case selected for ‘Limited Scrutiny’ on the specific criterion of ‘large share premium’, when the Assessing Officer had raised specific queries on share premium and the assessee had furnished detailed responses thereon?

(B) Whether the Tribunal erred in law in upholding the order of the Ld. PCIT u/s 263, which directed a de-novo assessment on the issue of share capital and unsecured loans, when the Ld. PCIT had not independently applied his own mind to the material on record but merely catalogued perceived deficiencies in the A.O.’s examination and whether such an order of the PCIT meets the jurisdictional requirements of section 263, namely forming a genuine ‘opinion’ that the assessment order is erroneous and prejudicial to the interest of the revenue?

(C) Whether the Tribunal erred in law in upholding the revisional order u/s 263 by referring to and relying upon the assessment order passed by the A.O. pursuant to the PCIT’s direction u/s 263 to justify the correctness of the PCIT’s original revisional action thereby importing hindsight conclusions into the jurisdiction question under section 263, which must be assessed as on the date of the revisional order?

(D) Whether the Tribunal erred in law in upholding the revisional order u/s 263 by referring to and relying upon the assessment order passed by the A.O. pursuant to the PCIT’s direction u/s 263 to justify the correctness of the PCIT’s original revisional action thereby affecting the pending appeal before the CIT(A) against the said assessment order?”

3. The appeal is admitted on the aforesaid proposed questions of law.

4. With the consent of learned advocates appearing for the respective parties and considering the findings of the Tribunal, the appeal is taken up for final hearing.

5. The appellant-assessee being aggrieved by the order dated 31.03.2024 passed by the Principal Commissioner of Income Tax (for short ‘PCIT’) under Section 263 of the Act, preferred an appeal before the Tribunal.

6. The Tribunal, after considering the facts of the case dismissed the appeal. However, the Tribunal in Paragraph No.23 of the impugned order has taken into consideration the assessment order passed by the Assessing Officer under Section 143(3) of the Act read with Section 263 of the Act dated 14.3.2025 to justify the action of the PCIT for assumption of jurisdiction under Section 263 of the Act. In Paragraph No.24 of the impugned order, the Tribunal, upon setting aside of the original assessment order dated 01.04.2021 by PCIT, has observed as under:

“Therefore, we find merit in the submissions of Learned DR for the revenue, who has explained that proviso to section 68 was inserted with effect from 01.04.2013 and as per the said proviso, the assessee needs to prove “Source of the Source”. The Id DR pointed out that considering the contents of the assessment order, neither the assessing officer examined the “Source of the Source”, nor assessee has submitted documents/evidences to explain “Source of the Source”. Before making investment in shares of the assessee company, there is sufficient cash deposit in the bank account of share applicants and the same has escaped from examination by the assessing officer. As the assessment year involved in the assessee’s case is the assessment year 2018-19, where amended provisions of section are clearly applicable to the assessee. For loan transaction, the assessee has not furnished the documents pertaining to source. Hence, assessment order passed by the assessing officer, is erroneous and prejudicial to the interest of the revenue.”

7. We are of the opinion that the Tribunal could not have considered the assessment order dated 24.03.2025 which was passed pursuant to the order dated 31.3.2024 passed under Section 263 of the Act by the PCIT nor it could have referred to it while deciding the appeal challenging the invocation of jurisdiction under Section 263 of the Act by the PCIT while passing order dated 31.03.2024. Therefore, without entering into the merits of the matter and without opining on any of the issues raised in this appeal, we quash and set aside the impugned order passed by the Tribunal to consider the appeal being Hollis Vitrified (P.) Ltd. (supra) for Assessment Year 2018-19 by the appellant-assessee denovo afresh after giving an opportunity of hearing to both the sides.

8. In view of our above findings, we decline to answer to question Nos. ‘A’, ‘B’ and ‘C’ raised in this appeal, however, question ‘D’ is answered in favour of the assessee and against the revenue, in affirmative.

9. The appeal is accordingly disposed of.