Exempt income not disclosed in ITR vis a vis revision under section 263

CA V.K. Subramani

For the taxpayers when the income admitted is accepted by the Department it provides relief for the reason that there is no uncertainty with regard to tax liability. It may so happen that the case is selected for scrutiny under section 143(3) and it amplifies the tension and anxiety of the taxpayer. However, where the assessment is completed under section 143(3) it provides again a big relief in case the returned income is accepted or a meagre addition to the returned income is made. However, the disappointment may happen when the higher authority upon seeing the assessment under section 143(3) invokes revisionary jurisdiction contained in section 263.

The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may invoke jurisdiction under section 263. He may call for and examine the record of any proceeding under the Act in the process. If such authority considers the order passed therein by the Assessing Officer or the Transfer Pricing Officer (TPO) is (i) erroneous; and (ii) prejudicial to the interests of revenue, he may pass an order as he deems necessary including (a) enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; (b) modifying the order under section 92CA i.e. order of the TPO; and (c) cancel the order passed under section 92CA and directing a fresh order thereon.

The time limit for passing the order of revision is 2 years from the end of the financial year in which the order sought to be revised was passed.

In Karan Jain v. Union of India & Ors (2024) 465 ITR 1 (Gauhati) : 2024 TaxPub(DT) 2442 (Gau-HC) the assessee for the assessment year 2017-18 filed ITR which was selected for limited scrutiny under Computer Assisted Scrutiny Selection (CASS). The returned income was accepted subsequently. Later, the Commissioner invoked section 263 for the reason that a higher sum was shown as long-term capital gain in the capital account and whereas it was disclosed less in the computation sheet. The income was nevertheless exempt under section 10(38) of the Act. The assessee challenged the revision proceedings under section 263 by filing a writ.

The court held that a revision under section 263 can be initiated when the order passed by the Assessing Officer is erroneous and prejudicial to the interests of revenue. Both the conditions have to be satisfied for doing revision. The long-term capital gain is an exempt income and the non-disclosure of the same would not result in prejudice to the revenue. The net long-term capital gain was however shown in the ITR. There is no tax liability in respect of such exempt income and there is no loss of revenue. Accordingly, it was held that the invocation of power under section 263 is not tenable in law.