Limited scrutiny and section 263 revision cannot be expanded by recharacterising customer advances as sundry creditors.

In a limited scrutiny assessment opened only on the issue of sundry creditors, the Principal Commissioner could not invoke revisionary jurisdiction by recharacterising advances from customers as sundry creditors and alleging inadequate verification. The text states that the advances were reflected in the balance sheet, accounted for under the project completion method, and offered to tax in later years on project completion. Both the Assessing Officer and the revisional authority were confined to the specific limited-scrutiny issue, and no sustainable error causing prejudice to revenue was shown. On that basis, the revision under section 263 was held unsustainable and quashed in favour of the assessee.

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Issues: Whether the Principal Commissioner could invoke revisionary jurisdiction under section 263 in a limited scrutiny assessment by treating advances from customers as sundry creditors and alleging lack of verification by the Assessing Officer.

Analysis: The assessment was selected for limited scrutiny on the specific issue of sundry creditors. The balance sheet did not contain any sundry creditors, but showed advances from customers, which were accounted for under the project completion method and offered to tax in subsequent years on completion of the relevant projects. In a limited scrutiny, both the Assessing Officer and the revisional authority were confined to the specific issue for which scrutiny was opened. The Principal Commissioner could not enlarge the enquiry by recharacterising advances from customers as sundry creditors. Since the assessment was completed within the scope of the limited scrutiny and no sustainable error causing prejudice to the revenue was shown, the preconditions for section 263 were not satisfied.

Conclusion: The revisionary order under section 263 was unsustainable and was quashed, in favour of the assessee.

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