2025 (10) TMI 24 - AT - Income Tax

Revision under Section 263 upheld for nondisclosure of substantial cash and in-kind perquisites; failure to provide reconciliations and records

Sh. Durbar Ganguly Versus Pr. CIT, Delhi-1, New Delhi

ITAT (Del) upheld the revisional order under section 263 where the assessee failed to disclose nature and taxability of substantial perquisites received ... Revision u/s 263 - assessee has claimed huge amount, received in cash and kind as exempt perquisites, but the assessee failed to disclose the nature of perquisites and how these are not taxable - HELD THAT:- We make it clear that the assessee has not even bothered to file all the relevant scrutiny notices issued by the Assessing Officer seeking the corresponding reconciliation in the capital account vis-à-vis the corresponding figures in the assessee’s form 26AS as well as the increase in capital, so as to rebut the PCIT’s revision findings concluding the said failure triggering his jurisdiction herein u/s 263 of the Act. Faced with this situation, we quote Malabar Industrial Co. Ltd. [2000 (2) TMI 10 - SUPREME COURT] as well as Paville Projects Pvt. Ltd. [2023 (4) TMI 295 - SUPREME COURT] to affirm the learned PCIT’s impugned revision directions in very terms. The assessee fails in the instant appeal therefore. This assessee’s appeal is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Principal Commissioner/Commissioner could validly exercise jurisdiction under section 263 by holding the assessment order to be erroneous and prejudicial to the interests of revenue where the Assessing Officer allegedly failed to make inquiries or verification regarding unexplained exempt perquisites, cash receipts and reconciliation between TDS claimed and income returned. 2. Whether an assessment order is 'erroneous and prejudicial to the interests of revenue' within the meaning of Explanation 2 to section 263 where (a) unexplained receipts (cash and kind) treated as exempt perquisites were not disclosed or reconciled by the assessee during assessment, (b) there is a material mismatch between amounts on which TDS was deducted and amounts returned as income, and (c) corresponding entries are absent or unexplained in the capital account/balance sheet. 3. Whether the Assessing Officer's conduct in the assessment proceedings - specifically, absence of recorded factual verification in the assessment order and alleged failure to take issues to a logical conclusion - satisfies clause (a) or (b) of Explanation 2 to section 263 justifying revision. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Scope and legal framework for exercise of section 263 revisionary jurisdiction Legal framework: Explanation 2 to section 263 declares an order by the Assessing Officer to be erroneous and prejudicial to the interests of revenue if, in the opinion of the Principal Commissioner/Commissioner, (a) the order is passed without making inquiries or verification which should have been made; or (b) the order is passed allowing any relief without inquiring into the claim; (c) or the order is contrary to Board directions or to binding decisions of higher courts. Precedent Treatment: The Court referred to and followed earlier Supreme Court authorities establishing the limits and application of section 263 in circumstances where the AO failed to make necessary inquiries or the assessment was prima facie deficient. Those precedents were applied to affirm the revisional exercise. Interpretation and reasoning: The Tribunal accepted the PCIT's view that Explanation 2 empowers revision where the AO omitted inquiries/verifications which ought to have been made. The observed factual matrix - large cash and kind receipts claimed as exempt perquisites without disclosure of nature or reconciliation, and mismatches between TDS records and returned income - constituted material matters warranting inquiry. The absence of recorded factual verification or detailed enquiries in the assessment order and the assessee's failure to submit reconciliation were treated as factors demonstrating that inquiries which should have been made were not made. Ratio vs. Obiter: The pronouncement that Explanation 2 authorizes revision where AO fails to make necessary inquiries is applied as ratio; reliance on precedent confirming the statutory test is ratio. Observations about the assessee's non-appearance and failure to file notices are factual findings supporting ratio rather than obiter dicta. Conclusion: The Tribunal upheld the exercise of section 263 jurisdiction on the ground that the AO's assessment was prima facie rendered without making inquiries/verification which should have been made, thereby satisfying clause (a)/(b) of Explanation 2. Issue 2 - Adequacy of AO's inquiry into unexplained perquisites, mismatch between TDS and returned income, and capital account entries Legal framework: The AO is obliged under the Act to examine and verify material facts affecting tax liability, including reconciliation between third-party records (e.g., TDS entries in Form 26AS) and amounts returned by the assessee, and to investigate the nature and taxability of perquisites and receipts in cash or kind. Precedent Treatment: The Tribunal cited binding authority that a revision under section 263 is appropriate where the AO has not made necessary inquiries into discrepancies or unexplained receipts, and applied those authorities to the facts before it. Interpretation and reasoning: The PCIT's factual findings highlighted several specific discrepancies: (i) claimed exempt perquisites in cash and kind were not disclosed in nature nor reconciled; (ii) a difference of Rs. 12,72,600 in salary income appeared short declared; (iii) professional receipts showed TDS on Rs. 84,50,000 while the assessee's accounts recorded Rs. 67,63,500 as gross professional income, with the assessee asserting receipt of a demand draft and a car (value asserted) as settlement benefits and transferring only a smaller amount to capital; (iv) no corresponding reflection of the car's value in capital account/balance sheet; (v) an apparent short declaration of professional income of Rs. 16,86,500. The Tribunal treated these unaddressed material discrepancies as matters which the AO ought to have inquired into but did not, thus rendering the assessment order erroneous and prejudicial. Ratio vs. Obiter: The determination that such unexplained mismatches and non-reconciliation amount to failure of inquiry by the AO - thereby invoking section 263 - is advanced as the operative ratio. Specific arithmetic findings regarding the amounts in controversy are factual conclusions applied to justify the revision. Conclusion: The Tribunal concluded that the AO failed to make necessary inquiries and verifications into material discrepancies (perquisites, TDS vs. returned income, capital account entries), thereby falling within Explanation 2 and justifying the Principal Commissioner's revisionary direction to set aside the assessment for fresh adjudication. Issue 3 - Effect of the assessee's non-appearance and failure to produce records on the propriety of revision Legal framework: The adequacy of assessment proceedings is judged by the record and material before the AO. The assessee's cooperation (production of reconciliation, responses to scrutiny notices) is relevant to whether issues were properly examined; non-cooperation may strengthen the case for revision where inquiries remain unmade. Precedent Treatment: The Tribunal applied precedent recognizing that the revisionary power under section 263 can be exercised where the AO's order is shown to be prima facie erroneous and the assessee has not furnished material to dispel discrepancies. Interpretation and reasoning: The Tribunal noted the assessee's persistent non-appearance before the Tribunal and failure to furnish relevant scrutiny notices and reconciliations that were allegedly sought during assessment. That factual posture reinforced the view that the AO had not carried out or recorded necessary inquiries and that, in the absence of rebuttal or relevant documents from the assessee, revision was warranted to enable fresh assessment after proper verification. Ratio vs. Obiter: The conclusion that the assessee's non-cooperation supports the exercise of revisionary jurisdiction is part of the ratio in light of the statutory test under Explanation 2; ancillary observations about repeated non-appearance are factual and confirmatory. Conclusion: The Tribunal treated the assessee's failure to supply reconciliation and to appear as material in justifying the revisional order; accordingly, it affirmed the direction to set aside the assessment and to remand for fresh assessment with necessary verification. Outcome and Direction On the articulated legal and factual analysis, the Tribunal upheld the Principal Commissioner's invocation of section 263, held the original assessment order to be erroneous and prejudicial to the interests of revenue under Explanation 2, and dismissed the appeal, directing fresh assessment/de novo by the Assessing Officer to undertake the required inquiries and verification. The Tribunal expressly followed the cited higher-court authorities in support of its conclusion.