Revisional jurisdiction for lack of enquiry: closing stock valuation can justify revision when assessment ignores a material income issue.

An assessment order can be revised under section 263 of the Income-tax Act, 1961 where the Assessing Officer fails to make enquiry on a material issue affecting taxable income. In this note, the material issue was the valuation of closing stock, where the assessment order contained no discussion despite audit and balance-sheet material indicating a possible discrepancy. The revisional authority examined the computation adopted by the assessee, found it incorrect, and recomputed closing stock on the basis of purchase invoices without disturbing the valuation method itself. The revision was sustained because lack of enquiry on a relevant valuation issue rendered the assessment erroneous and prejudicial to the interests of the Revenue.

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Issues: Whether the Principal Commissioner was justified in invoking revisional jurisdiction under section 263 of the Income-tax Act, 1961 on the ground that the Assessing Officer had not enquired into the valuation of closing stock and had failed to add the alleged undervaluation to income.

Analysis: The assessment order contained no discussion on closing stock valuation. The tax audit report and balance-sheet materials indicated closing stock of iron ore, quantitative details, and a possible discrepancy in valuation. On those materials, the Assessing Officer was required to make proper enquiry and verify whether the stock had been correctly valued under the stated FIFO method. The revisional authority did not disturb the method of valuation itself, but found the computation adopted by the assessee to be incorrect and recomputed the stock value on the basis of the relevant purchase invoices. An order passed without enquiry on a material issue affecting taxable income can be treated as erroneous and prejudicial to the interests of the Revenue.

Conclusion: The revisional order under section 263 was upheld and the enhancement directed towards undervaluation of closing stock was sustained.

Ratio Decidendi: Where a material issue affecting taxable income is not enquired into by the Assessing Officer, the resulting assessment order is erroneous and prejudicial to the interests of the Revenue and is amenable to revision under section 263 of the Income-tax Act, 1961.

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