Revisional Powers Justified where AO Accepted Returned Income without Verification: ITAT Orders Fresh Assessment allowing Proof [Read Order]

The Income Tax Appellate Tribunal, Chennai, held that revisional powers under Section 263 are justified where the Assessing Officer (AO) accepted the returned income without proper verification.

The appellant, M/s. Priya Construction, a firm engaged in civil construction contracts, filed the present appeal against the order of the Principal Commissioner of Income Tax (PCIT) issuing directions under Section 263 of the Income Tax Act, 1961 for the assessment year 2020-21. The firm had discontinued business from June 30, 2019, transferring operations to a limited company, M/s. Priya Engineering Projects Private Limited.

During a survey under Section 133A of the Income Tax Act, 1961 conducted at the company’s premises, certain vouchers and receipts substantiating expenses claimed in the books were not produced. The Managing Director had agreed to declare profits at 8% of total turnover from the years 2013-14 to 2020-21. Assessment was initially completed accepting declared income of Rs.1,53,24,440, but the PCIT contended the income ought to be higher based on turnover, directing reassessment under Section 263.

The appellant, represented by Advocate S. Bhupendran, contended that a statement recorded under Section 133A of the Income Tax Act, 1961 has no evidentiary value without corroborative material. It was submitted that the Assessing Officer (AO) had conducted adequate inquiry, verified submissions, and found the return of income maintainable, negating any erroneous or prejudicial order.

It was further stressed that the revisionary order was issued on a mechanical basis without pinpointing specific errors and relying solely on an uncorroborated statement. Hence, the appellant urged cancellation of the revision.

The revenue authorities, represented by CIT Bipin C.N., argued that the statement recorded under Section 133A was supported by primary evidence during the survey, namely the undisputed failure of the assessee to produce vouchers substantiating claimed expenses. This corroboration validated the estimated profit of 8% of turnover. The PCIT rightly exercised powers under Section 263 as the initial assessment was completed without adequate inquiry, thereby prejudicing revenue interests.

The Bench comprising of Vice President, George George K and Accountant Member, Amitabh Shukla, upheld the PCIT’s order. The Tribunal observed that while a statement under Section 133A alone cannot form the basis of an addition, in this case, it supplemented tangible findings during survey revealing inflated unsubstantiated expenses.

The Tribunal stated that revisionary powers under Section 263 can validly be invoked where there is a complete absence of inquiry, especially when survey findings expose discrepancies corroborated by statements recorded under statutory provisions.

The Tribunal noted that the AO had not conducted a proper inquiry during the original assessment, which was therefore erroneous and prejudicial to revenue. The Tribunal directed reassessment allowing the assessee to substantiate any claims showing net profits below 8% with relevant evidence.

Accordingly, the appeal was dismissed.

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