ITAT Quashes PCIT's Revision u/s 263, Finds AO Conducted Proper Verification of Investment and ESI Payments [Read Order]

The Jaipur Bench of Income Tax Appellate Tribunal(ITAT) quashed the Principal Commissioner of Income Tax(PCIT)’s revision order under Section 263 of Income Tax Act,1961, holding that the Assessing Officer (AO) had properly verified the investment and Employees State Insurance(ESI) payments.

Rajesh Choudhary,appellant-assessee,a doctor by profession, ran a diagnostic center under M/s Bharat Ultrasounds. A survey under Section 133A was conducted on August 28, 2018, at his business premises in Haryana. He filed his return on October 30, 2019, declaring an income of ₹78,98,350. The case was selected for scrutiny, and a notice under Section 143(2) was issued on September 23, 2020. Later, the case was transferred to the Central Circle, Alwar.

During the survey, the AO found a cash shortfall of ₹4,26,874. The assessee claimed ₹3,00,000 was at home, and the rest was spent on household expenses but did not provide proof. The AO found ₹1,26,874 recorded under the drawing account without a corresponding entry in the capital account. Treating it as unexplained expenditure under Section 69C, the AO added it to the income and taxed it under Section 115BBEof the Act.

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Later, the PCIT reviewed the case under Section 263 and noted that the assessee had surrendered ₹22,62,143 as unexplained investment but disclosed only ₹22,50,000 in the return, leaving a shortfall of ₹12,143. The PCIT also found late ESI payments of ₹17,298, which should have been disallowed under Section 36(1)(va). Since the AO had not made these additions, the PCIT held the assessment order as erroneous and directed a fresh examination.

The assessee, represented by CA Vinod Agarwal, responded to the PCIT’s notice, but the PCIT found the explanations unsatisfactory. The assessment order dated September 20, 2021, was set aside, and the AO was directed to verify the issues.

Aggrieved, the appellant filed this appeal, seeking to quash the PCIT’s order under Section 263 of the Act.

Read More: Proper Enquiry done by AO: ITAT quashes Revision Order u/s 263 of Income Tax Act

The two member bench comprising Dr.S.Seethalakshmi(Judicial Member) and Rathod Kamlesh Jayantbhai(Accountant Member) reviewed the case and found that the PCIT's claim of non-verification by the AO was incorrect. The AO had examined whether the investment was recorded in the books and verified the source, which the appellant had explained during the survey. No contradictory material was found.

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Regarding the valuation difference, the appellate tribunal noted that the actual discrepancy was ₹12,143, not ₹59,343, and was based on an estimated report. It deemed the amount insignificant in construction costs.

On delayed ESI payments, the ITAT found the PCIT miscalculated the amount as ₹17,298 instead of ₹9,819. Since the AO had already verified this, disallowance was unjustified.

For Section 115BBE, the bench held that the source of investment was explained and verified, with no clear identification of the year or amount. It ruled that the PCIT’s order under Section 263 was based on assumptions and did not establish revenue loss. Hence, the tribunal disagreed with the PCIT’s findings.

Therefore the PCIT’s order was quashed,allowing the appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

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