Undisclosed commission income in assessment reopened on investigation, AO's verification failures led to dismissal of appeal

Revision under tax assessment was initiated after investigation revealed undisclosed commission receipts; the assessing officer limited adjustments by conferring TDS benefit without verifying reasons for reopening. The assessing officer's failure to appreciate mercantile accounting principles applicable to a company and to record commission on accrual rendered an apparent error on record, justifying revision proceedings and resulting in dismissal of the taxpayer's appeal.

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Issues: Whether the Principal Commissioners revision under section 263 to set aside the assessment for failure to bring undisclosed commission income to tax was justified.

Analysis: The facts show reassessment was opened on information that substantial commission receipts (including service tax) from a third party exceeded the amount reflected in the assessee's profit & loss and computation; TDS was claimed while corresponding commission income was not fully offered. The Assessing Officer allowed TDS benefit but did not bring the undisclosed commission amount to tax. Explanation 2 to section 263 and the statutory framework empower revision where an order is erroneous for having been passed without inquiries or verification which should have been made. The tribunal found that the Assessing Officers treatment was an apparent mistake on record because, under mercantile accounting, the commission ought to have been recorded irrespective of receipt, and the AO did not appropriately tax the undisclosed commission income. The Principal Commissioner invoked section 263 to direct fresh adjudication and enhancement of assessment after verification; this invocation addressed the AOs apparent error rather than a mere change of opinion.

Conclusion: The invocation of revision under section 263 and the setting aside of the assessment order is upheld; the assessee's appeal is dismissed in favour of Revenue.

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