CIT can exercise the revisionary power U/s 263 for making addition towards items which was wholly unconnected to the issue for which case was reopened 

Short Overview of the case:

The case is concerned with the revisionary power of CIT U/s 263 of the Income Tax Act-1961.

The power is exercisable only if there is an erroneous and prejudicial order

The issue before Court was as to whether there is a lack of proper inquiry on the part of the AO

While passing the assessment order, AO made additions towards bogus purchase of plant and machinery

It was an allegation  by the CIT that AO omitted to disallow depreciation claim thereon. For this reason the order was considered as erroneous.

Further, the second allegation was that the the AO has not verified or made enquiries in the matter of share capital, share application money and share capital

Principal CIT in revisionary order under s. 263 set aside the order passed by the AO under s. 143(3) r/w s. 147

Court Observation:

As regard to fact of additions carried out towards bogus plant and machinery in the assessment order, the AO has definitely committed error in not giving consequential effect to such action and thus failed to disallow depreciation as well

AO to disallow the consequential depreciation within the scope of s. 147

Issue being connected to the subject matter of reassessment, the action of the Principal CIT cannot be faulted per se without prejudice to the contentions on bona fides of purchases in the regular appellate proceedings

On the issue of the share capital and share premium, admittedly in the case said point did not form the basis for reopening the assessment

AO was not under any legal obligation to examine this aspect mandatory which was wholly unconnected to the issue for which case was reopening

Therefore, the subject reassessment order cannot be labelled as erroneous per se on the second issue and thus not susceptible to review contemplated under s. 263

Also in view of s. 263(2) revisional order qua share capital and share premium was barred by the limitation

The observation of Bhiva Shankar Rane vs. Asstt. CIT (ITA Nos. 813 & 814/PN/2014) and CIT vs. Alagendran Finance Ltd. (2007) 211 CTR (SC) 69 : (2007) 293 ITR 1 (SC) was followed in this case.