Arulmigu Dharmarajar Thirukovil Vs ITO (ITAT Chennai)
Summary: The Income Tax Appellate Tribunal, Chennai, partly allowed the appeal of Arulmigu Dharmarajar Thirukovil against the revisionary order dated 18 March 2026 for AY 2019-20. The assessee, an AOP, had not filed a return of income. The Assessing Officer reopened the assessment after receiving information concerning bank deposits of ₹3,49,90,546 and interest of ₹29,214. The assessee explained that the deposits represented renewal of amounts originating from the sale of agricultural land in an earlier year. The AO accepted the explanation regarding the deposits but assessed interest of ₹13,04,904 as unexplained money under section 69A. In the appellate proceedings, the interest addition was directed to be treated as income from other sources. Subsequently, the CIT(E) invoked section 263, citing erroneous quantification of interest and lack of enquiry into hundi collections. The CIT(E) computed interest at ₹1,00,96,400 from the bank statements, while the assessee furnished a revised working showing ₹32,20,201.
On interest quantification, the assessee argued that Explanation 1(c) to section 263 barred revision because the appellate authority had already considered the interest addition. The Revenue maintained that the appellate decision concerned only the head of income and did not determine the correct amount of interest. The Tribunal accepted this distinction. It held that the statutory bar applies only to matters actually considered and decided in appeal; acting upon an amount without examining its correctness does not amount to deciding that the amount is correct. The appellate direction merely re-characterised the addition from unexplained money to income from other sources. Even the assessee’s revised interest figure was nearly two and a half times the amount assessed. Failure to reconcile this substantial discrepancy with the bank statements already on record constituted lack of enquiry rather than adoption of a plausible view. Revision on this issue was therefore upheld.
On hundi collections, the assessee relied on the Delhi Tribunal’s decision in Shiv Punj to contend that reassessment for specified reasons could not be revised merely because an entirely unrelated matter had not been examined. The Revenue argued that the AO could examine income beyond the recorded reasons. The Tribunal held that the power to assess other income coming to the AO’s notice during reassessment does not create an unrestricted obligation to conduct a comprehensive enquiry into every possible source of income. The enquiry expected must be assessed in the context of the nature and purpose of the proceedings and the material actually before the AO. Hundi collections were neither part of the reopening reasons nor connected with any material identified in the reassessment record. The CIT(E) had not identified any specific factual or legal error or material suggesting receipt of hundi collections requiring examination. Accordingly, the direction concerning hundi collections was set aside. The revisionary order was modified to require the AO to verify the correct quantum of interest income and assess the assessee in accordance with law; the Tribunal did not determine the final interest amount.
Cases Discussed
ITA No. 4556/Del/2025; 13/05/2026; AY 2019-20 — Shiv Punj Vs Commissioner of Income Tax (International Taxation)-2 (ITAT Delhi). Relied upon by the assessee concerning revision of a reassessment for failure to examine a wholly unconnected issue; discussed by the Tribunal while considering the direction for enquiry into hundi collections.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
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 Assessing Officer to verify Hundi Collections without considering that the Reassessment Order cannot be said to be erroneous, when the Assessing Officer had made an addition on reason on which the case was reopened under section 147 of the Act.
3) The Ld. CIT (E) erred in resorting to section.263, when order u/s.250 was passed on 18/10/2025.
And for all other grounds of appeal that may be adduced later, the Appellant humbly prays that the appeal be admitted, be considered and justice be rendered.
2. The assessee is an AOP and did not file the return of income for the year under consideration. The A.O received information that the assessee had deposited money to the tune of Rs. 3,49,90,546/- and has also received interest to the tune of Rs. 29,214/-. Since the assessee did not file the return of income, the A.O reopened the assessment by issue of notice u/s. 148 of the Act after passing order u/s. 148A(d) of the Act. The assessee did not file the return of income in response to notice u/s. 148 of the Act. However, the assessee filed response only to the show cause notice dated 08.03.2024 explaining the source for the deposit and the details of interest income earned during the year under consideration. The A.O after considering the submissions of the assessee accepted the submission regarding the source for deposit. However, the A.O treated the interest income earned by the assessee as unexplained u/s. 69A of the Act to make an addition of Rs.13,04,904/-. Aggrieved by the order of the A.O, the assessee filed further appeal before the CIT(E). The CIT(E) directed the A.O to treat the addition made towards interest as income from other sources instead of treating it as unexplained money u/s. 69A of the Act. Subsequently, the CIT(E) vide show cause notice dated 04.02.2026 issued u/s. 263 of the Act stating that the interest income offered by the assessee is not correct and based on the bank statements the assessee has earned interest income of Rs.1,00,96,400/-. The CIT(E) also stated that the A.O has not conducted any enquiry on verification with respect to the Hundi collections of the assessee. For these reasons, the CIT(E) held the order of the A.O as erroneous and prejudicial to the intertest of the revenue. The assessee in response to the show cause notice submitted that the interest income earned by the assessee is only Rs. 32,20,201/- and submitted the workings for the same. The CIT(E) accordingly passed an order u/s. 263 of the Act holding the order of the A.O as erroneous and prejudicial to the interest of the revenue towards erroneous quantification of the interest income and lack of enquiry towards hundi collections. The assessee is in appeal before the Tribunal against the order of the CIT(A).
3. With regard to the lack of enquiry towards hundi collections, the Ld. Authorized Representative (AR) of the assessee submitted that when the AO has reopened the assessment u/s. 147 of the Act and has made an addition then the CIT(E) is not correct in invoking the provisions of Section 263 of the Act. The Ld. AR in this regard relied on the order of the Delhi Bench of the Tribunal in the case of Shiv Punj vs. CIT (IT) [ITA No.4556/Del./2025 dated 13.05.2026] to submit that when the assessment is reopened for the reasons stated therein then the same cannot be held as erroneous. With regard to the order being held as erroneous for short addition towards interest income, the Ld. AR argued that as per Explanation-1(c) to Section 263 of the Act, the CIT(E) has jurisdiction under section 263 of the Act only to those issues which has not been considered by the CIT(A) against the assessment order. The Ld. AR accordingly argued that the issue of interest on the deposits has already been considered by the A.O and the CIT(A) has also given direction to the A.O with regard to the treatment of the interest income. Therefore the Ld. AR submitted that as per Explanation -1(c) to Section 263 of the Act, the CIT(E) do not have jurisdiction.
4. The Ld. Departmental Representative (DR), on the other hand, submitted that when the A.O reopens the assessment he can travel beyond the reasons while completing the reassessment. In the present case, the A.O though has reponed the assessment to examine the deposits and interest income failed to consider the hundi income of the assessee. Therefore, the Ld. DR submitted that the CIT(E) has rightly invoked the provisions of Section 263 of the Act. With regard to the argument on the applicability of Explantion-1(c) to Section 263 of the Act, the Ld. DR submitted that the CIT(A) has considered only the head of income under which the interest income needs to be taxed and that the CIT(A) has not given any findings regarding the correctness of the quantum of interest earned by the assessee. The Ld. DR further submitted that the CIT(E) while exercising jurisdiction u/s. 263 of the Act, did so on account of the erroneous quantification of interest, which is distinct from the issue of the head under which it should be taxed. Therefore, the ld. DR argued that the contention of the assessee that Explanation -1(c) of the Act is applicable in the present case is untenable.
5. We heard the parties and perused the material on record. Two issues arise for our consideration, namely, whether the Ld. CIT(E) was justified in invoking section 263 of the Act towards the erroneous quantification of the interest income, and whether the Ld. CIT(E) was justified in invoking section 263 of the Act for lack of enquiry towards the hundi collections of the assessee. We first take up the issue of erroneous quantification of interest income. The Ld. AR submitted that as per Explanation 1(c) to section 263 of the Act, the Ld. CIT(E) has jurisdiction only over those matters which have not been considered and decided by the Ld. CIT(A) in appeal, and since the Ld. CIT(A) has already given a direction with regard to the treatment of the interest income, the Ld. CIT(E) lacks jurisdiction to revisit the same issue. The Ld. DR, on the other hand, submitted that the Ld. CIT(A) had only addressed the head of income under which the interest was to be taxed, and had recorded no finding on the correctness of the quantum of interest earned by the assessee, which is a distinct matter. We are of the view that Explanation 1(c) to section 263 of the Act bars revision only in respect of matters that have actually been considered and decided in appeal, and merely acting upon a figure without testing its correctness cannot be equated with deciding that the figure itself is correct. In this regard, we notice that the direction of the Ld. CIT(A) was confined to re-characterising the interest addition from unexplained money under section 69A to income from other sources, and nothing in the said order suggests that the quantum of Rs.13,04,904/- assessed by the AO was independently examined or affirmed. We further notice that the discrepancy in this regard is substantial, since the Ld. CIT(E), based on the bank statements available on record, has computed the interest income at Rs.1,00,96,400/-, and even the assessee’s own revised working furnished in response to the show cause notice admits an interest income of Rs.32,20,201/-, being nearly two and a half times the amount originally assessed. It is relevant to mention here that where such a wide variance is capable of being reconciled by reference to bank statements already available on record, and the AO has proceeded to accept a considerably lower figure without any such reconciliation then it reflects a lack of enquiry rather than a plausible view taken by the AO. In view of these discussions, we see no infirmity in the invocation of section 263 of the Act by the Ld. CIT(E) on this count.
6. We now take up the issue of lack of enquiry towards hundi collections. The Ld. AR submitted that since the assessment was reopened under section 147 of the Act for specific reasons, and the AO made an addition confined to those very reasons, the Ld. CIT(E) could not invoke section 263 of the Act to fault the AO for not examining an entirely different issue. Reliance was placed on the decision of the Delhi Bench of the Tribunal in Shiv Punj vs. ITO (IT) [ITA No.4556/Del/2025 dated 13.05.2026], where a reassessment reopened to examine a specific item of interest income was held not liable to revision merely because a wholly unconnected issue, arising from survey material in a different matter, had not also been examined. The Ld. DR, on the other hand, submitted that an AO, upon reopening an assessment, is entitled to travel beyond the reasons recorded while completing the reassessment, and having failed to examine the hundi income of the assessee, the Ld. CIT(E) rightly invoked section 263 of the Act. We are of the view that while an AO may, in the course of reassessment, bring to tax other income that comes to his notice, this does not place upon him an obligation to conduct a comprehensive and roving enquiry into every possible source of income wholly unconnected with the reasons for which the case was reopened. In this regard, the scope of enquiry an AO is expected to undertake, for the purpose of testing whether an order suffers from a lack of enquiry within the meaning of section 263 of the Act, must be assessed with reference to the nature and purpose of that particular proceeding, and a reassessment initiated for a specific and limited reason cannot be held to the same standard as a full scrutiny assessment. In the present case we notice that the case was reopened for verification of deposits in the bank account of the assessee which the assessee explained saying that the same is arising out of the sale of agricultural land in the earlier year and that the assessee has only renewed the deposits in the bank during the year under consideration. We further notice that the AO has accepted the said contention and has concluded the assessment making addition only towards the interest on deposits. The CIT(E) while holding the order of the AO as erroneous has not brought on record any factual finding with regard to the error but has merely stated that the AO has not carried out any enquiry relating to Hundi collections. The relevant observations of the CIT(E) in this regard is extracted here under:
3.3. Lack of Enquiry Regarding Hundi Collections
(i) It is further observed that the Assessing Officer has not conducted any enquiry or verification with respect to the hundi collections of the temple. The failure to examine this issue indicates lack of proper enquiry.”
7. Further it is noticed that the CIT(E) while setting aside the order of the AO has directed the AO to conduct necessary enquiries regarding hundi collections of the assessee. From these facts it is clear that exercise of the jurisdiction under section 263 has been exercised by the CIT(E) directing the AO to conduct enquiry on an issue which has not been considered by the AO at all during reassessment proceedings. We are further of the view that the wide power available to an AO during reassessment, to bring to tax any income that comes to his notice in the course of the proceedings, does not translate into an unqualified duty to enquire into every possible source of income of the assessee, irrespective of whether any material on record points to it. The obligation to enquire, for the purpose of testing whether an order suffers from a lack of enquiry within the meaning of section 263 of the Act, is triggered by what is actually before the AO, whether in the reasons recorded, the assessee’s own submissions, or the material gathered during the proceedings, and does not extend to matters having no connection whatsoever with anything on the record of that proceeding. In such a scenario, it becomes relevant to notice that hundi collections form no part of the reasons recorded for reopening the assessment, and nothing in the assessment order or the material on record suggests that the same was in any manner raised or examined by the AO during the reassessment proceedings. We are therefore of the view that the failure of the AO to examine the hundi collections of the assessee, being an issue wholly unconnected with and outside the scope of the reassessment proceedings, cannot render the reassessment order erroneous within the meaning of section 263 of the Act. As already stated the CIT(E), while directing the AO to examine the hundi collections of the assessee, has not recorded any specific finding as to what error, whether of law or of fact, is said to exist in the reassessment order on this count. It is well settled that the exercise of jurisdiction under section 263 of the Act requires the revisional authority to record how the order under revision is erroneous, and a mere direction to the AO to carry out verification or enquiry, without identifying the material that renders the existing order erroneous, does not meet this requirement. In the present case, the Ld. CIT(E) has not pointed to any material on record suggesting that the assessee was in fact in receipt of hundi collections requiring examination and has proceeded merely on the basis that the said aspect was not looked into. We accordingly hold that the Ld. CIT(E) was not justified in invoking section 263 of the Act towards the hundi collections of the assessee, and the said direction is set aside. Accordingly, the order of the CIT(E) is modified to the extent that the AO is directed to verify the correct quantum of interest income and assess the income of the assessee in accordance with law.
8. The appeal of the assessee is accordingly partly allowed.
Order pronounced on 28th day of September, 2026 at Chennai.
