Section 263 review of reassessment under Section 147 for unverified trading losses upheld; order set aside and remand directed

Whether revisionary jurisdiction can be invoked where a reassessment under Section 147 was completed without necessary inquiries into large trading losses and possible bogus entries; the tribunal held that absence of evidence showing the assessing officer conducted or considered required transactional verification rendered the assessment erroneous and prejudicial to revenue, authorising exercise of revisionary power to set aside the assessment and direct fresh adjudication. Appeal against the revision order was dismissed.

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Issues: (i) Whether the Principal Commissioner of Income Tax validly invoked jurisdiction under Section 263 of the Income-tax Act, 1961 to set aside the assessment completed under Section 147 for assessment year 2016-17 on the ground that the assessing officer completed the assessment without making required enquiries regarding large trading losses and possible bogus entries.

Analysis: The issue concerns whether the assessment order was erroneous and prejudicial to the revenue because required inquiries and verification regarding trading transactions and claimed loss were not carried out during reassessment proceedings under Section 147. The statutory framework permits revision under Section 263 where an assessment is erroneous in so far as it is prejudicial to the interest of the revenue, including cases where the assessment is completed without necessary inquiry or verification. The assessee relied on having filed return and certain documents during reassessment, but no evidence was placed on record to show that the assessing officer had the claimed transactional documents and verifications before finalising the assessment. The absence of inquiries on the merits of the claimed loss and the lack of demonstration that relevant material was considered by the assessing officer satisfy the conditions for invoking Section 263.

Conclusion: The invocation of Section 263 to set aside the assessment and direct fresh adjudication was valid and justified; the appeal against the Section 263 order is dismissed.

Ratio Decidendi: Section 263 of the Income-tax Act, 1961 may be exercised where an assessment under Section 147 is completed without making necessary inquiries or verification, rendering the order erroneous and prejudicial to the interests of the revenue.

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