2026 (3) TMI 530 - AT - Income Tax

Revisionary jurisdiction under section 263 affirmed where inadequate verification of expenditures rendered the assessment erroneous and prejudicial.

Exercise of revisionary jurisdiction under section 263 was affirmed where the assessment was completed after scrutiny selection without adequate ... Revision u/s 263 - Revisionary jurisdiction for orders erroneous and prejudicial to the interest of revenue - Validity of initiation and order under revisionary jurisdiction on the ground that the assessment order was erroneous and prejudicial to the revenue because the assessing officer did not verify large expenditures and directors' credentials - HELD THAT: - The Tribunal upheld the Principal CIT's conclusion that the assessment order accepting the return was prima facie erroneous and prejudicial to the interest of revenue because the assessing officer did not examine or verify the sizeable freight and labour expenditure and did not make enquiries regarding directors whose company registrations were noted in the scrutiny selection. The Principal CIT issued show-cause, considered the assessee's replies, held that the AO had not made necessary inquiries or verification and set aside the assessment on that issue with directions to make enquiries and afford opportunity of hearing to the assessee. The Tribunal found that the omission to verify those matters in a case selected for scrutiny rendered the order susceptible to revision under the supervisory power and dismissed the appeal against the revisionary order. [Paras 3, 5, 6] Final Conclusion: The appeal is dismissed - Tribunal sustained the Principal CIT's exercise of revisionary jurisdiction on the finding that the assessing officer failed to verify the large expenditures and directors' credentials, and that omission rendered the assessment order erroneous and prejudicial to the revenue, with directions for further enquiry and opportunity to the assessee. Issues: Whether the Principal Commissioner of Income Tax validly exercised jurisdiction under section 263 of the Income-tax Act, 1961 by holding the assessment dated 23.2.2024 to be erroneous and prejudicial to the interest of revenue for not verifying/examining expenditure of Rs. 27,20,11,899/- and related director inquiries.Analysis: The Principal Commissioner identified that the assessment was completed after scrutiny selection but without adequate enquiries or verification regarding large expenditure entries and the status/verification of directors, and noted absence of calling for details or issuing enquiries to third parties to verify payments. The assessing officer had accepted affidavits and certain explanations but had not examined the claimed expenditure and related particulars as required to satisfy genuineness. The Principal Commissioner applied the legal standard for exercising revisionary jurisdiction to determine whether the assessment order was both erroneous and prejudicial to revenue, relying on supervisory power to remit for fresh enquiry and to direct the assessing officer to afford opportunity of hearing before finalizing assessment.Conclusion: The exercise of jurisdiction under section 263 was upheld and the assessment order was set aside as erroneous and prejudicial to the interest of revenue; the appeal by the assessee is dismissed (decision adverse to the assessee).