ITAT upholds the invocation of S. 263 of Income Tax Act by the PCIT to set aside an assessment order for being prejudicial to interests of the Revenue

Income Tax Appellate Tribunal

Income Tax Appellate Tribunal (ITAT): The Coram of Manish Borad (Accountant Member) and Rajpal Yadav (Vice President), in the instant appeal filed by the assessee pertaining to the Assessment Year (AY) 2012-13,upheld the decision by the Principal Commissioner of Income-Tax (hereinafter PCIT) for invoking jurisdiction u/s 263 of the Act and holding the assessment order dated 03.02.2016 as erroneous insofar as prejudicial to the interests of the Revenue and to set asidethe reconciliation of gross profit due to complete mismatching of figures as presented by the assessee in the impounded books and the audited books of account. 


Factual Background 

The present appeal for the AY- 2012-13 was raised against the Order issued by the PCIT under S. 263 of the Income Tax Act, 1961 dated 26.02.2018 which is arose out of the assessment order framed under S. 147of the Act dated 03.02.2016.    

As per the facts of the case, the assessee is an individual engaged in business. As per records, revised return of income declaring total income of Rs. 5,93,510/-was filed on 30.09.2012.A survey u/s 133A of the Act was conducted on 28.11.2014. Thereafter, notice u/s 148 of the 1961 Act was issued and served upon the assessee.  

The assessment was completed after making addition for unsecured loan at Rs. 17,00,000/-and income assessed at Rs. 22,93,510/-. Subsequently ld. PCIT-17, Kolkata called for assessment records and after examining the same, issued a show cause notice u/s. 263 of the 1961 Act.  

After following the required procedures, the PCIT came to conclusion that relevant issues relating to computation of gross profit, capitalization of the amount of Rs. 16,00,000/-, genuineness of unsecured loans and sundry creditors needs to be re- examined and re- computed.  

Aggrieved with the impugned order, the assessee preferred appeal before this Tribunal. None appeared on behalf of the assessee. However, a paper book dated 27.12.2019 containing 48 pages was placed on record contained written submissions, details of records and the submissions filed by the assessee before the ld. AO as well as ld. PCIT. 



The assessee challenged the assumption of jurisdiction by ld. PCIT u/s 263 of the Act and also submitted that all the issues raised by ld. PCIT were duly verified by the ld. AO in the course of the assessment and, therefore, the order u/s 263 of the Act is bad in law and against the principle of res judicata and natural justice. 


Observations and Conclusion 

Upon perusing the facts and the contentions, it was observed the assessee made submissions with regard to difference in gross profit, source of capital interest, reconciliation of gross profit with impounded book, a note on unsecured loan with inability to provide details of the loan.  

Itwas also noted that during the year under appeal, the AO was required to examine the unsecured loan taken by the assessee. However, AO only gave reference to the balances of unsecured loan appearing on 31-03-2013 and comparing the same with the balances for FY 2011-12. This overlooks the fact that various unsecured loans were taken during this period. 

The Tribunal also noted that the assessee duly explained the source of capital addition in the account of the proprietorship concern which ld. AO has examined properly and the source of addition to capital account stands duly explained. The Tribunal noted that there is no reason to doubt the genuineness of the sundry creditors appearing in the balance sheet as on 31-03-2012.  


Thus, regarding the issues of unsecured loans, calculation of gross profit and addition of fixed assets, the Tribunal upheld the decision by the PCIT to direct the A.O. for doing the needful.  it was held that the action of ld. PCIT invoking jurisdiction u/s 263 of the Act and holding the assessment order dated 03.02.2016 as erroneous insofar as prejudicial to the interests of the Revenue is partly sustained in view of the observations made herein above. The appeal of the assessee was partly allowed.  [Debdas Ghosal v. ITO, I.T.A.No.:993/Kol/2018 , decided on 24-05-2022] 


Respondent: D.K. Sonowal, CIT(D/R)  

*Sucheta Sarkar, Editorial Assistant has reported this brief.

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