The Income Tax Appellate Tribunal, Patna ‘DB’ Bench at Kolkata has upheld the revisionary order passed by the Principal Commissioner of Income Tax (Central), Patna under Section 263 of the Income Tax Act, 1961 in the case of Nikhat Fatma Vs. PCIT Central, Patna. The Tribunal held that an assessment order can be treated as erroneous and prejudicial to the interests of the Revenue where the Assessing Officer makes an addition but fails to invoke the correct statutory provision, resulting in non-application of the applicable special rate of tax and initiation of penalty under an incorrect section.
The appeal related to Assessment Year 2022-23 and arose from an assessment completed under Section 143(3) after a search and seizure action under Section 132. During the proceedings, the Assessing Officer examined a cash payment of ₹94 lakh made by the assessee in connection with the purchase of property. The assessee had, along with her spouse, purchased certain shops at Panorama Rameshwaram, Purnea, and an amount of ₹94 lakh was paid in cash over and above the consideration stated in the sale deed.
The Assessing Officer accepted the disclosure and added ₹94 lakh as undisclosed investment while determining the assessee’s total income at ₹1,53,66,520. However, the assessment order did not specify the statutory provision under which the addition was made. Further, tax was not computed by applying Section 115BBE and penalty proceedings were initiated under Section 271AAB(1A)(a) instead of Section 271AAC.
The PCIT exercised revisionary jurisdiction under Section 263 and held that the assessment suffered from non-application of mind and incorrect application of law. The assessment order was consequently set aside with directions to the Assessing Officer to conduct the necessary inquiry and pass a fresh order in accordance with law.
Before the Tribunal, the assessee contended that the Assessing Officer had already carried out detailed inquiries regarding the ₹94 lakh payment and that the assessment had been passed after examination of the seized material. It was argued that the case was therefore not one of “no inquiry” and that the PCIT could not invoke Section 263 merely because he preferred a different view.
The Tribunal, however, observed that the scope of Section 263 is not confined only to cases where no inquiry has been conducted. An assessment can also be revised where there is an incorrect application of law and the resulting order is prejudicial to the Revenue.
The Tribunal held that the Assessing Officer had failed to mention the correct provision governing the addition. According to the Tribunal, this omission resulted in failure to apply the special rate of tax prescribed under Section 115BBE. The Revenue was therefore exposed to loss of tax lawfully payable, making the assessment order both erroneous and prejudicial to the interests of the Revenue.
The Tribunal further noted that initiation of penalty proceedings under an incorrect provision could affect the sustainability of the eventual penalty order in appellate proceedings. Since the correct statutory provision had not been applied, the PCIT was justified in directing the Assessing Officer to reconsider the matter and invoke the appropriate provisions of law.
The Tribunal also reiterated that the expression “prejudicial to the interests of the Revenue” is not confined merely to an unfavourable assessment order. Where an erroneous application or omission of the correct statutory provision results in tax lawfully payable not being realised, revisionary jurisdiction under Section 263 may validly be exercised.
Accordingly, the ITAT found no reason to interfere with the PCIT’s order. The assessee’s appeal was dismissed and the revisionary order under Section 263 was upheld.
Case Details
Case: Nikhat Fatma Vs. PCIT Central, Patna
Forum: Income Tax Appellate Tribunal, Patna ‘DB’ Bench at Kolkata
Appeal No.: ITA No. 303/PAT/2026
Assessment Year: 2022-23
Bench: Shri Pradip Kumar Choubey, Judicial Member & Shri Rakesh Mishra, Accountant Member
Date of Hearing: 8 July 2026
Date of Order: 12 August 2026
Result: Assessee’s appeal dismissed; PCIT’s order under Section 263 upheld.
Key Legal Principle
Where the Assessing Officer makes an addition but fails to apply the correct statutory provision, resulting in non-application of the applicable rate of tax and initiation of penalty under an incorrect section, the assessment order may be treated as erroneous and prejudicial to the interests of the Revenue for the purpose of revision under Section 263.