The present appeal arose from the second revisionary order passed by the Principal Commissioner of Income Tax under Section 263 of the Income-tax Act, 1961, seeking to revise the assessment framed pursuant to earlier revision proceedings. The core issue before the Tribunal was whether the revisionary jurisdiction under Section 263 could be validly exercised when the Assessing Officer had already conducted enquiries and adopted a plausible view based on material available on record.

The assessee’s original assessment under Section 143(3) resulted in additions on account of unsecured loans under Section 68. Subsequently, the Principal Commissioner initiated revision proceedings alleging understatement of income in respect of certain loan creditors. Pursuant to the first revision order, the Assessing Officer passed a fresh assessment after examining additional evidences, including confirmations, financial statements, bank records, and explanations establishing identity, creditworthiness, and genuineness of transactions for the remaining creditors.

Despite such examination, the Principal Commissioner again invoked Section 263 on the ground that additions relating to fifteen creditors were not reiterated and that interest payable reflected through journal entries ought to have been added under Section 68. The Tribunal noted that the Assessing Officer had consciously evaluated the evidences and had taken a legally sustainable and plausible view. Once such a view is adopted, the order cannot be branded as erroneous merely because the Commissioner holds a different opinion.

The Tribunal reiterated that revision under Section 263 is impermissible in cases of “adequate enquiry” where the Assessing Officer has applied his mind to the issue. Reliance was placed on the settled law laid down by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd and Max India Ltd, which unequivocally hold that where two views are possible and the Assessing Officer has taken one such view, the order cannot be revised.

Further, with respect to the proposed addition of interest payable reflected through journal entries, the Tribunal held that Section 68 applies only to a “sum of money received” during the year. Mere accounting entries without any actual inflow of funds do not attract the provisions of Section 68. This position was supported by the Supreme Court’s interpretation of the expression “sum of money” in H.H. Sri Rama Verma v. CIT.

Accordingly, the Tribunal concluded that the conditions precedent for invoking Section 263 were not satisfied.
The impugned revisionary order was held to be unsustainable in law and was consequently quashed.
The appeal of the assessee was allowed in full.

Source Link- https://itat.gov.in/public/files/upload/1767176035-XyUuCp-1-TO.pdf

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