Revision of Assessment Order u/s 263 Not Valid for "Notional Interest" recognized under IND-AS: ITAT Limits Reassessment to Stock Valuation Issue
The Tribunal upheld revisionary order only to extent of verification of stock valuation and ordered re-examination
In a recent ruling on the scope of revisionary jurisdiction under Section 263 of the Income Tax Act, 1961, the Chandigarh Bench of the Income Tax Appellate Tribunal has partly upheld the order of the Principal Commissioner of Income Tax while quashing revisionary directions on multiple issues. The Tribunal held that mere disagreement or re-appreciation of facts cannot justify...
In a recent ruling on the scope of revisionary jurisdiction under Section 263 of the Income Tax Act, 1961, the Chandigarh Bench of the Income Tax Appellate Tribunal has partly upheld the order of the Principal Commissioner of Income Tax while quashing revisionary directions on multiple issues. The Tribunal held that mere disagreement or re-appreciation of facts cannot justify invoking Section 263 where proper inquiries were already conducted during assessment.
The appeal was filed by AVON Cycles Ltd. challenging the order passed by the Principal Commissioner of Income Tax, Ludhiana-1 under Section 263 for the Assessment Year 2021-22. The revisionary authority had set aside the assessment framed under Section 143(3) read with Section 144B, directing the Assessing Officer to conduct a fresh assessment on five issues including professional fees, sundry creditors, notional interest, reconciliation of Form 26AS, and stock valuation.
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The Bench, comprising Laliet Kumar (Judicial Member) and Krinwant Sahay (Accountant Member), noted that the Assessing Officer had specifically raised queries during the original assessment proceedings regarding TDS deductions and corresponding expenses. The assessee had furnished detailed replies along with challans and returns, which were duly examined. The Tribunal found the finding of the PCIT to be unsustainable in the eyes of law.
With respect to the outstanding amount of ₹41.63 lakh in the name of the District Magistrate, the Tribunal found a clear factual error in the revisionary order. The Tribunal observed that a debit balance shown as receivable could not be treated as income or be considered prejudicial to the interests of the Revenue. Consequently, the invocation of Section 263 on this issue was held to be invalid.
Addressing the issue of notional interest recognised under Ind-AS, the Tribunal held that non-examination of an issue that has no immediate tax impact cannot render an assessment order prejudicial to the interests of the Revenue. The revision on this issue was therefore set aside.
Similarly, on the alleged mismatch between sales figures and Form 26AS, the Tribunal observed that the PCIT failed to point out any specific defect in the reconciliation. And due to the absence of any discrepancy, the Tribunal held that revision under Section 263 was unwarranted.
Lastly, the Tribunal noted that while the assessee had provided figures of opening and closing stock and the basis of valuation, the Assessing Officer failed to examine qualitative and quantitative details, stock registers, or verify whether valuation was carried out in accordance with Section 145A of the Act.
The Tribunal held that this constituted a lack of proper inquiry, justifying invocation of Explanation 2 to Section 263. Accordingly, the Tribunal upheld the revisionary order only to the extent of verification of stock valuation and ordered re-examination.
The appeal was thus partly allowed, with the revisionary directions quashed on four issues and sustained solely on the issue of stock valuation.
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