Revision u/s 263 upheld on discrepancy in turnover between tax audit report & PL A/c

In the absence of enquiry on discrepancy in turnover between tax audit report vis-à-vis turnover disclosed in P&L account, order of AO was erroneous and prejudicial to the interest of the revenue.

In a Recent judgment, ITAT Surat has held in view of discrepancy in the figure of turnover between tax audit report vis-à-vis the turnover as disclosed in the P&L account, PCIT rightly held that the order of the AO was erroneous and prejudicial to the interest of the revenue.

ABCAUS Case Law Citation:
4947 (2025) (12) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the PCIT in holding that the assessment order passed by the AO was erroneous and prejudicial to the interests of revenue and passing order u/s 263, directing to pass fresh assessment order in the case.

A search was conducted in a Business Group of cases wherein various documents and digital data were seized.  The case of the assessee was selected for complete scrutiny.  The assessment was completed under section 143(3) of the Act as per returned income. 

Thereafter, the case record was called for and examined by PCIT who found that the assessee there was a substantial difference in the gross turnover disclosed in P&L Account and Tax Collected at Source (‘TCS’) in respect of trading of alcoholic liquor, forest produce, scrap, and other items as sale. Thus there was a discrepancy in the turnover as per TCS data and the turnover as disclosed by the assessee in its account, suggesting an underreporting of turnover for the year under consideration. 

Since, the AO did not examine this discrepancy in the turnover in the course of assessment, the PCIT held that the order of the AO was erroneous and prejudicial to the interest of the revenue. Accordingly, he set aside the order of the AO passed u/s.143(3) of the Act with a direction to pass fresh assessment order after examining this discrepancy in turnover.

Before the Tribunal, the assessee submitted that the difference in turnover as per TCS data and the turnover disclosed in the accounts was for the reason that TCS was made even on advances.

He submitted that a clarification in this regard was duly furnished before the PCIT in the course of proceeding under section 263 of the Act.  Under the circumstances, the PCIT was not correct in setting aside the assessment order to the AO for fresh verification of the matter.

The Tribunal noted that as per Sl. No.34(a) of tax audit report, the total amount on which TCS was collected u/s.206C of the Act by the assessee, was much higher than the turnover declared in P&L Account. Thus, the discrepancy in the turnover of assessee was apparent from the tax audit report vis-à-vis the P&L account. 

The Tribunal further noted that in the course of assessment, no query was made by the AO in respect of this discrepancy in the turnover. As per Explanation-2 to Section 263 of the Act, the order of the AO is deemed to be erroneous and prejudicial to the interest of revenue if the order is passed without making inquiries or verification, which should have been made.

The Tribunal opined that the AO should have made inquiries or verification in respect of discrepancy in the turnover as appearing in the tax audit report vis-à-vis the turnover as disclosed in the P&L account.  In the absence of any inquiry in this regard, the PCIT rightly held that the order of the AO was erroneous and prejudicial to the interest of the revenue. 

Accordingly, the Tribunal held that order passed by the PCIT was in accordance with the provisions of the Act and is, therefore, upheld it

In the result, the appeal of the assessee was dismissed.

Download Full Judgment Click Here >>

• RBI specifies ‘Related Party’ with respect to banks
• Advisory on Filing Opt-In Declaration for Specified Premises, 2025
• FAQs for HSNS Cess Act, 2025 and HSNS Cess Rules, 2026
• Refusing to condone delay can result in a meritorious matter thrown out at threshold
• Prior period income cannot be considered as income of the current year