Revision under Section 263: Discrepancy between TCS data and disclosed turnover led to direction to verify reconciliation.

Discrepancy between turnover reported in tax audit records and the profit and loss account indicated apparent underreporting; the assessing officer failed to make inquiries or verification required by law, rendering the assessment order erroneous and prejudicial to revenue. The revisional authority set aside the assessment and directed the assessing officer to verify the assessees reconciliation statement and the claim that tax collected at source related to certain advances, confining inquiries to those issues. The revisional direction was upheld and the appeal dismissed.

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Issues: (i) Whether the PCIT was justified in holding the assessment order passed under Section 143(3) to be erroneous and prejudicial to the interests of revenue for failure to verify a material discrepancy between turnover declared in accounts and turnover reflected in TCS data, and in setting aside the assessment order under Section 263 of the Income-tax Act, 1961.

Analysis: The assessee declared turnover of Rs. 28,18,15,158 in its profit and loss account whereas Sl. No.34(a) of the tax audit report showed total amount subject to TCS of Rs. 35,12,12,958, indicating a discrepancy of Rs. 9,45,31,708. No inquiry or verification was made by the assessing officer regarding this discrepancy during the assessment proceedings under Section 143(3). Explanation 2 to Section 263 deems an order to be erroneous and prejudicial to the revenue if it is passed without making inquiries or verification which should have been made. The PCIT directed the AO to verify the assessee's reconciliation statement and the contention that TCS was collected on advances; the appellate authority confined the scope of further inquiry to those points.

Conclusion: The PCIT's exercise of powers under Section 263 to set aside the assessment order for failure to make requisite inquiries into the turnover discrepancy is upheld; the matter is remitted to the AO for verification confined to the issues directed by the PCIT.

Ratio Decidendi: Where an assessing officer passes an assessment order without making inquiries or verification into an apparent material discrepancy between declared turnover and statutory TCS records, the order is liable to be treated as erroneous and prejudicial to the revenue under Explanation 2 to Section 263 of the Income-tax Act, 1961.

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