ARULMIGU DHARMARAJAR THIRUKOVIL ,DHARMAPURI vs. ITO, EXEMPTIONS WARD,, SALEM

ITA 3399/CHNY/2026Status: DisposedITAT Chennai28 September 2026AY 2019-2010 pages
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What did the Tribunal hold?

The Tribunal held that the CIT(E) was justified in invoking Section 263 regarding the erroneous quantification of interest income. The Tribunal reasoned that Explanation 1(c) to Section 263 bars revision only on matters actually considered and decided. The CIT(A)'s direction was confined to re-characterizing the interest addition, not examining its correctness. The substantial discrepancy between the AO's assessed interest (Rs. 13,04,904/-), the assessee's revised working (Rs. 32,20,201/-), and the CIT(E)'s computation (Rs. 1,00,96,400/-) indicated that the quantum was not independently examined or affirmed by the AO or CIT(A). Therefore, the CIT(E) had jurisdiction to direct verification of the correct quantum. However, the Tribunal held that the CIT(E) was not justified in invoking Section 263 for lack of enquiry into Hundi collections. The Tribunal reasoned that an AO's power to travel beyond the reasons for reopening does not impose an unqualified duty to enquire into every unrelated source of income. Hundi collections were not part of the reasons for reopening, nor were they raised or examined during the reassessment. The CIT(E) failed to record any factual finding or material to show the reassessment order was erroneous on this count, merely directing an enquiry. Thus, this direction was set aside. The order of the CIT(E) was modified to direct the AO to verify the correct quantum of interest income and assess accordingly.

What were the facts?

The assessee, Arulmigu Dharmarajar Thirukovil, an AOP, did not file a return of income for AY 2019-20. The Assessing Officer (AO) reopened the assessment under Section 147 after receiving information about deposits of Rs. 3,49,90,546/- and interest income of Rs. 29,214/-. The assessee responded to a show cause notice, explaining the source of deposits, which the AO accepted. However, the AO treated the interest income of Rs. 13,04,904/- as unexplained under Section 69A. The assessee appealed to the Commissioner of Income Tax (Exemptions) (CIT(E)). The CIT(E) directed the AO to treat the interest as income from other sources. Subsequently, the CIT(E) invoked Section 263, stating the AO's order was erroneous and prejudicial to revenue due to incorrect quantification of interest income (Rs. 1,00,96,400/- as per bank statements) and lack of enquiry into Hundi collections. The assessee appealed this order.

What were the issues?

1. Whether the CIT(E) was justified in invoking Section 263 of the Income Tax Act, 1961 (the Act) for the erroneous quantification of interest income, considering Explanation 1(c) to Section 263, which bars revision on issues already considered and decided by the appellate authority (CIT(A))? Assessee's contention: The CIT(E) erred in invoking Section 263 as the issue of interest income was already considered by the AO and the CIT(A) had given directions regarding its treatment. Reliance was placed on Shiv Punj vs. CIT (IT) [ITA No.4556/Del./2025]. Revenue's contention: The CIT(A) only considered the head of income for interest and not its quantum. The CIT(E) invoked Section 263 due to erroneous quantification, which is distinct from the head of income. 2. Whether the CIT(E) was justified in invoking Section 263 of the Act for lack of enquiry towards the Hundi collections of the assessee, when Hundi collections were not part of the reasons for reopening the assessment under Section 147? Assessee's contention: When the AO reopened the assessment and made an addition, the CIT(E) cannot invoke Section 263. The assessment was reopened for specific reasons, and the CIT(E) cannot direct enquiry into unrelated matters. Revenue's contention: An AO, upon reopening an assessment, can travel beyond the reasons recorded. The AO failed to consider Hundi income, justifying the CIT(E)'s invocation of Section 263.

Which sections of the Income-tax Act were involved?

Section 263,Section 147,Section 148,Section 148A,Section 69A,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI

Before: SHRI SS VISWANETHRA RAVI & MS. PADMAVATHY.S

For Respondent: Ms. R. Anitha, CIT

PER PADMAVATHY.S, A.M: This appeal by the assessee is against the order of the Commissioner of Income Tax (Exemptions), Chennai (in short "CIT(E)") passed u/s. 263 of the Income Tax Act, 1961 (in short "the Act") dated 18.03.2026 for Assessment Year (AY) 2019-20. The assessee raised the following grounds of appeal: “1) The Impugned Order is bad, erroneous and unsustainable in law. 2) The Ld. PCIT erred in directing the Asse

The order continues below.

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