Revisionary jurisdiction under section 263: interest and commission issues remitted for fresh, reasoned adjudication on evidence.

Principal Commissioner may exercise revisionary jurisdiction to direct reconsideration of interest disallowance as a distinct issue separate from a pending appeal against principal addition under the Explanation covering matters not decided in first appeal; matter remitted because the revisional order failed to address the assessee's presumptive taxation claim. Omission to adjudicate commission rendered the assessment erroneous and prejudicial, but the adopted 3% rate lacked recorded factual or evidentiary basis; commission issue also remitted for fresh, reasoned adjudication on the record.

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Issues: (i) Whether the Principal Commissioner of Income-Tax had jurisdiction under section 263 to direct reconsideration of disallowance of interest of Rs. 1,44,247/- where the assessing officer made addition of principal sum of Rs. 25,00,000/- and an appeal against that addition was pending before CIT(A); (ii) Whether the assessing officer's failure to make addition for alleged commission @3% (Rs. 75,000/-) rendered the assessment erroneous and prejudicial to the interest of revenue such that section 263 revision could be exercised.

Issue (i): Jurisdiction of PCIT under section 263 to revise assessment for non-disallowance of interest where appeal against addition of principal is pending.

Analysis: Explanation 1(c) to section 263(1) permits revision in respect of matters not considered and decided in first appeal; disallowance of interest is a distinct issue from addition of principal though factually connected; assessing officer's reasons referred to accommodation entry transactions and the AO had not inquired into interest disallowance; the assessee raised a claim based on presumptive taxation under section 44AD which the PCIT did not address.

Conclusion: The issue of interest is not covered by the pending first-appeal against the principal addition and falls within the scope of Explanation 1(c) to section 263(1); however, because the PCIT failed to deal with the assessee's claim regarding presumptive taxation under section 44AD, the matter is remitted to the PCIT for fresh adjudication on the interest issue.

Issue (ii): Whether omission to make addition for commission @3% rendered assessment erroneous and prejudicial to revenue.

Analysis: The assessing officer's reasons recorded refer to the modus operandi of accommodation entries and to commission being a common practice; the AO did not investigate commission despite these references; the PCIT adopted a 3% commensuration without explaining the basis; relevant material or statements supporting the 3% basis were not reflected in the record of lower authorities.

Conclusion: The omission to adjudicate the commission aspect substantiates revisionary jurisdiction, but because the PCIT's order does not explain the factual or evidentiary basis for adopting 3%, the commission issue is remitted to the PCIT for fresh, reasoned adjudication on the basis of material and explanation for the rate adopted.

Final Conclusion: Both disputed issues (interest disallowance and commission addition) are remitted to the file of the Principal Commissioner of Income-Tax for de novo consideration and a reasoned decision addressing the assessee's contentions; no final fiscal determination is made by this order.

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