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2022 (11) TMI 942 - AT - Income TaxRevision u/s 263 by CIT - As per CIT excess purchases debited to the P L account and short admission of interest income, which are not verified by the AO - HELD THAT - A perusal of the assessment order clearly shows that the AO has not at all examined the difference in purchases as per P L account and as per VAT returns and has also not discussed anything regarding the discrepancy in the interest income offered for taxation and the interest income as per From 26AS . Since, there is complete non application of mind by the AO and the assessee has not filed any reconciliation statement at the time of original assessment proceedings, therefore, there is complete non application of mind by the AO to this vital issue. Non application of mind by the AO and non examination of this vital issue in our opinion makes the order erroneous as well as prejudicial to the interest of the revenue and therefore, the ld.PCIT in our opinion is fully justified in invoking the provisions of section 263 As against the interest income as per Form 26AS, the assessee has accounted for the same at less in the P L account and there is under assessment of interest income which the AO failed to enquire. Therefore, the order passed by the AO in our opinion has become erroneous and prejudicial to the interest of the revenue for which the PCIT is justified in invoking the provisions of section 263 of the I.T.Act. Accordingly, the same is upheld. Directions given by the ld.PCIT to recompute the total income of the assessee by disallowing excess purchases debited to the P L account and directing the AO to add the interest income in our opinion is not in accordance with law. PCIT should have either examined himself or should have given direction to the AO to recompute the income after verifying the details and decide the issue by giving an opportunity of being heard to the assessee. We, therefore, modify the order of the ld.PCIT to this extent and direct the AO to examine the details and pass appropriate order as per law after giving due opportunity of being heard to the assessee and without being influenced by the direction given by the ld.PCIT at para 8 of this order. Appeal filed by the assessee is dismissed.
Issues Involved:
1. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue. 2. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking the provisions of section 263 of the Income Tax Act, 1961. 3. Whether the difference in purchases as per Profit & Loss (P&L) account and VAT returns was adequately examined. 4. Whether the discrepancy in interest income reported in Form 26AS and P&L account was adequately addressed. Issue-wise Detailed Analysis: 1. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue: The Tribunal found that the AO did not examine the difference in purchases as per the P&L account and VAT returns, nor did he discuss the discrepancy in the interest income offered for taxation and the interest income as per Form 26AS. This lack of examination and non-application of mind by the AO rendered the order erroneous and prejudicial to the interest of the revenue. The Tribunal upheld the PCIT's invocation of section 263 on this ground. 2. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking the provisions of section 263 of the Income Tax Act, 1961: The Tribunal agreed with the PCIT's decision to invoke section 263, as the AO failed to verify the discrepancies in purchases and interest income. The PCIT's action was deemed justified because the AO's failure to examine these vital issues made the assessment order erroneous and prejudicial to the revenue's interest. 3. Whether the difference in purchases as per Profit & Loss (P&L) account and VAT returns was adequately examined: The Tribunal noted that the AO did not examine the difference between the purchases reported in the P&L account (Rs.52,33,65,669) and the VAT returns (Rs.51,80,57,530). The assessee argued that the difference was due to exempt purchases and other purchases, but this reconciliation was not provided during the original assessment proceedings. The Tribunal found that the AO's failure to address this discrepancy justified the PCIT's invocation of section 263. 4. Whether the discrepancy in interest income reported in Form 26AS and P&L account was adequately addressed: The Tribunal observed that the AO did not verify the discrepancy in interest income, where the assessee reported Rs.39,311 in the P&L account compared to Rs.43,320 in Form 26AS. This under-assessment of interest income, which the AO failed to inquire into, further justified the PCIT's invocation of section 263. Conclusion: The Tribunal upheld the PCIT's decision to invoke section 263, finding that the AO's order was erroneous and prejudicial to the revenue's interest due to the non-examination of discrepancies in purchases and interest income. However, the Tribunal modified the PCIT's directions, stating that the PCIT should have either examined the issues himself or directed the AO to verify the details and decide the issue after giving the assessee an opportunity of being heard. The AO was directed to examine the details and pass an appropriate order as per law, without being influenced by the PCIT's specific directions. The assessee's appeal was dismissed.
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