The Income Tax Appellate Tribunal ( ITAT ) upheld the revision order under Section 263 of the Income Tax Act, which was initiated because the Assessing Officer ( AO ) had made an addition of ₹12.10 lakh to the assessee’s income, instead of ₹27 crore, which was found during a search action.
The case revolves around cash loans or investments amounting to ₹27 crore that were allegedly made by the assessee, Naveen Narang, and recorded in seized documents.
Original return of income under Section 139 of the Income-tax Act, 1961 was filed on 30/07/2016 declaring income of Rs 57,91,510/- by the assessee. A search and seizure action under Section 132 of the Act was carried out in the case of the assessee on 14/10/2020. Notice under Section 153A of the Act was issued by the AO on 4/6/2021 in response to which the assessee filed the return of income declaring the same income of Rs 57,91,510/- as was originally declared in the return of income filed under Section 139 of the Act.
The assessing officer completed the assessment under Section 153A/143(3) on 30/03/2022 at income of Rs 14,93,82,868/- after making certain additions against which the assessee has filed appeal before CIT(A) which is pending on the additions made.
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The PCIT issued notice dated 26/03/2024 under Section 263 of the Act asking the assessee to show cause as to why the aforesaid assessment order dated 30/03/2022 should not be revised as the same was erroneous and prejudicial to the interest of the revenue.
The assessee was asked to submit its reply on 27/03/2024. The assessee submitted its reply on 27/03/2024 explaining that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The PCIT did not agree with the contentions of the assessee and passed an order dated 30/03/2024 under Section 263 of the Act.
In this case, the Principal Commissioner of Income Tax ( PCIT ) invoked Section 263, which allows the revision of an order if it is deemed erroneous and prejudicial to the interests of the revenue. The PCIT argued that the AO failed to add the correct amount of ₹27 crore, which was evident from the seized documents, and instead only added ₹12.10 lakh. The Tribunal found that the AO did not conduct the necessary inquiries or verification regarding the larger sum, which led to the under-assessment of income.
During the proceedings, the assessee challenged the jurisdiction of the PCIT under Section 263 and claimed that the addition of ₹27 crore could not be made based on documents found during a search of a third party. However, the Tribunal rejected these contentions, ruling that the AO’s failure to adequately address the ₹27 crore transaction rendered the assessment order erroneous and prejudicial to the interest of the revenue, justifying the revision under Section 263.
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Thus, the tribunal bench of Sudhir Kumar, Judicial Member and Dr. B. R. R. Kumar, Accountant Member upheld the revision order by PCIT correcting the error in limiting the addition to ₹12.10 lakh, instead of ₹27 crore, warranted correction under the powers provided by Section 263 of the Income Tax Act.
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