Assessment order erroneous for failing to inquire into income mismatch between Form 26AS and audited statements under section 263

ITAT Ahmedabad upheld CIT's revision order u/s 263 finding the assessment erroneous and prejudicial to revenue. The case involved income mismatch between Form 26AS and audited financial statements that AO failed to inquire during assessment proceedings. While assessee claimed income was declared across two different assessment years without revenue loss, ITAT noted AO conducted no inquiry into the highlighted discrepancy. Despite assessee's contentions remaining unverified by both AO and CIT, ITAT concluded assessment order was erroneous for lack of proper inquiry, dismissing assessee's appeal.

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Issues involved:
The only issue in this case is whether the assessment framed under section 143(3) of the Income Tax Act, 1961, is erroneous and prejudicial to the interest of the revenue.

Details of the Judgment:

Issue 1: Assessment under section 143(3) deemed erroneous:
The appeal was filed by the Assessee against the order of the Principal Commissioner of Income Tax, Ahmedabad, regarding the assessment order passed under section 263 of the Income Tax Act, 1961, for the Assessment Year 2013-2014. The Assessee, a limited company engaged in providing Dredger and Infrastructure facilities, was found to be following the mercantile system of accounting. The Principal Commissioner observed a discrepancy in the income declared by the Assessee from M/s Shivam Construction, leading to the issuance of a notice under section 263. The Assessee contended that the income from M/s Shivam Construction had already been taxed in the earlier assessment year, providing a reconciliation to support this claim. However, the Principal Commissioner disagreed with the Assessee's explanation, stating that the Assessing Officer failed to verify the TDS credit claimed and did not conduct a thorough inquiry during the assessment proceedings. The Principal Commissioner held that the assessment was erroneous and prejudicial to the revenue's interest, directing the Assessing Officer to conduct a fresh assessment after proper inquiry.

Issue 2: Tribunal's Analysis and Decision:
The Tribunal, after hearing both parties, noted that there was no loss to the revenue if the income declared by the Assessee from M/s Shivam Construction in two different assessment years was aggregated. Referring to a previous Tribunal decision, the Tribunal emphasized the importance of verifying the Assessee's contentions, which was not done by the Assessing Officer or the Principal Commissioner in this case. The Tribunal found that the assessment order lacked proper inquiries and verifications, supporting the Principal Commissioner's decision that the assessment was prejudicial to the revenue's interest. Consequently, the Tribunal upheld the Principal Commissioner's order, dismissing the Assessee's appeal. The Tribunal directed the Assessing Officer to conduct a fresh assessment in line with the law.

Conclusion:
In conclusion, the Tribunal dismissed the Assessee's appeal, upholding the Principal Commissioner's order that the assessment under section 143(3) was erroneous and prejudicial to the revenue's interest. The Tribunal emphasized the need for proper verification and inquiry during assessment proceedings to ensure a fair assessment of the Assessee's income. The decision was pronounced in the Court on 06/12/2023 at Ahmedabad.

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