Tribunal upholds appeal dismissal, orders denovo assessment under section 263 for erroneous original assessment.

The tribunal dismissed the appeal, upholding the Principal Commissioner of Income Tax's order invoking section 263 and setting aside the assessment for a denovo assessment. The delay in filing the appeal was condoned as the assessee acted on legal advice. The tribunal found the original assessment erroneous due to the assessing officer's failure to inquire into significant issues, such as large commission expenses and low net profit, justifying the revisionary jurisdiction under section 263. The tribunal upheld the order for a denovo assessment based on the lack of necessary inquiries by the assessing officer.

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Issues Involved:
1. Condonation of Delay in Filing Appeal
2. Validity of Revisionary Jurisdiction under Section 263
3. Examination of Issues by Assessing Officer (AO)
4. Merits of Additions in Assessment
5. Invoking Explanation 2 to Section 263
6. Setting Aside the Issue to AO for Denovo Assessment

Summary:

1. Condonation of Delay in Filing Appeal:
The appeal was delayed by 284 days due to the assessee being ill-advised by his earlier counsel not to file an appeal against the order passed under section 263 of the Income Tax Act, 1961. The assessee later consulted another counsel who advised filing the appeal. The tribunal condoned the delay, noting that the assessee acted on legal advice and there was no negligence or laxity on his part.

2. Validity of Revisionary Jurisdiction under Section 263:
The Principal Commissioner of Income Tax (Pr.CIT) invoked section 263, finding the assessment order erroneous and prejudicial to the interest of the Revenue due to the AO's failure to conduct necessary inquiries. The tribunal upheld the Pr.CIT's invocation of section 263, noting that the AO did not examine the issues for which the case was selected for scrutiny, such as large commission expenses and low net profit.

3. Examination of Issues by Assessing Officer (AO):
The tribunal found that the AO conducted no inquiry into the issues of large commission expenses and low net profit. The AO merely accepted the assessee's submissions without further verification. The Pr.CIT noted specific instances where the AO failed to verify the genuineness of commission payments and other expenses, justifying the invocation of section 263.

4. Merits of Additions in Assessment:
The assessee argued that no additions were warranted on merits. However, the tribunal found that the AO did not examine the disproportionately large expenses claimed by the assessee. The tribunal held that the Pr.CIT was justified in setting aside the assessment order for a denovo assessment, as the AO failed to conduct necessary inquiries.

5. Invoking Explanation 2 to Section 263:
The assessee contended that the Pr.CIT could not apply Explanation 2 to section 263 without invoking it explicitly. The tribunal dismissed this contention, noting that the Explanation only clarifies the scope of section 263. The tribunal referred to the case of Shri Rajkot District Cooperative Bank Ltd. Vs. Pr.CIT, holding that the Pr.CIT need not specifically mention the Explanation if the reason for finding the assessment order erroneous is clearly pointed out.

6. Setting Aside the Issue to AO for Denovo Assessment:
The assessee argued that the Pr.CIT should have examined the order on merits and not set aside the issue for denovo assessment. The tribunal rejected this argument, noting that the Pr.CIT had examined the order on merits and found it erroneous due to the lack of necessary inquiries by the AO. The tribunal upheld the Pr.CIT's order for a denovo assessment.

Conclusion:
The tribunal dismissed the appeal of the assessee, upholding the Pr.CIT's order invoking section 263 and setting aside the assessment order for a denovo assessment due to the AO's failure to conduct necessary inquiries.

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