Revisionary Proceedings u/s 263 Income Tax Act cannot be invoked merely on Stock Valuation on Second Opinion: ITAT [Read Order]

In a recent ruling, the Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) held that the revisionary proceedings under Section 263 Income Tax Act, 1961, cannot be invoked merely on stock valuation on second opinion.

The assessee, Sona Alloys Private Limited, is in the business of producing pig iron and related goods. The assessee had filed its Income Tax Returns ( ITR ) for the assessment year 2018-2019, declaring a loss of Rs. 3,59,78,20,682 on 31.10.2018. A statutory notice under Section 143(2) of the Income Tax Act, 1961, was issued to the assessee on  22.09.2019, and later on, questionaries were also sent under  Section 142(1) of the Income Tax Act.

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But the department received no replies for the same. Although the directors of the company replied to the notice, it did not contain any details. The Assessing Officer

The Assessing Officer ( AO ) made an addition of Rs. 4,61,44,176 under Section 68 of the Income Tax Act as unexplained credits due to the assessee's failure to prove the identity, genuineness, and creditworthiness of certain creditors. Additionally, disallowances were made under Section 37 of the Income Tax Statute, including Rs. 1,23,20,51,028 for interest paid as reflected in the Balance Sheet, Rs. 47,92,04,167 for selling distribution expenditure, Rs. 8,93,59,099 for sales tax IPS written off, Rs. 1,12,83,48,940 for bad debt written off, and Rs. 4,88,41,569 for consultancy fee expenditure.

The assessee appealed before the Principal Commissioner of Income Tax ( PCIT ). The PCIT instructed the AO to issue a new assessment order by invoking Section 263 of the Act. It was observed by the PCIT that the AO had not taken into account the difference in closing stock, and besides these unsecured loans received from various parties amounting to Rs. .71,42,11,010 were also not proved by the assessee. The PCIT  was of the opinion that the order passed by the AO was erroneous and prejudicial to the interest of Revenue.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The counsel on behalf of the assessee contended that since the assessment order was issued following the start of the corporate insolvency resolution process, which was announced on 16-06-2020, the PCIT's order under Section 263 of the Act was illegal and void.

It was contended by the counsel on behalf of the assessee that the issue of stock valuation difference was not raised during the assessment, so the PCIT's order under Section 263 is unjustified.

The counsel on behalf of the respondent contended that the PCIT has rightly invoked Section 263 of the Act, as the PCIT has also looked into the assessment order, which has not taken into account the stock difference.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The ITAT bench observed that the invocation of Section 263 by the PCIT regarding the Rs. 6,38,93,218, discrepancy in stock valuation, is unjustified, as the Assessing Officer has already considered the matter, and that simply seeking a second opinion does not warrant Section 263's application.

The ITAT bench, comprising  Makrand Vasnat Mahadeokar ( Accountant Member ) and Suchitra Kamble ( Judicial Member ), partly allowed the appeal of the assessee.

To Read the full text of the Order CLICK HERE

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