Tribunal quashes tax revision, upholds AO's thorough enquiry into URD purchases.

The Tribunal held that the Principal Commissioner of Income Tax (Pr.CIT) erred in assuming revisionary jurisdiction under Section 263 of the Income-tax Act, 1961. The Assessing Officer (AO) had conducted adequate enquiries into Unregistered Dealer (URD) purchases, disproving the Pr.CIT's claim of no or inadequate enquiry. Consequently, the order under Section 263 was quashed, and the assessee's appeals for all assessment years (2009-10 to 2015-16) were allowed.

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Issues Involved:
1. Assumption of revisionary jurisdiction under Section 263 of the Income-tax Act, 1961 by the Principal Commissioner of Income Tax (Pr.CIT).
2. Adequacy of the Assessing Officer’s (AO) enquiry into Unregistered Dealer (URD) purchases.
3. Application of Explanation 2 to Section 263 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Assumption of Revisionary Jurisdiction under Section 263:
The core grievance of the assessee is the Pr.CIT's assumption of revisionary jurisdiction under Section 263 of the Income-tax Act, 1961. The Pr.CIT issued a show-cause notice on 14.01.2019 and passed an order on 18.03.2019, stating that the AO’s decision to disallow only 2% of gold purchases from URD in cash was erroneous and prejudicial to the interest of the Revenue. The Pr.CIT argued that there was a complete lack of application of mind and incorrect assumption of facts by the AO.

2. Adequacy of the Assessing Officer’s Enquiry:
The assessee contended that the AO had conducted detailed and specific enquiries regarding URD purchases. Summons were issued to 43 persons, of which 19 were served, and 4 attended and deposed. The AO issued several questionnaires and received continuous responses from the assessee. Despite these detailed enquiries, the AO disallowed 2% of the total URD purchases in cash. The Tribunal observed that the AO had conducted adequate and reasonable enquiries into the matter, and thus, it was not a case of in-application of mind or incorrect assumption of facts by the AO.

3. Application of Explanation 2 to Section 263:
The Tribunal noted that Explanation 2 to Section 263, effective from 01.06.2015, applies to cases where no enquiries or verification were made by the AO. However, in this case, the AO had conducted detailed verification and disallowed 2% of URD purchases. The Tribunal referenced similar cases, such as Chandukaka Saraf and Sons Pvt. Ltd., where the AO's detailed enquiries were acknowledged, and the Pr.CIT's assumption of revisionary jurisdiction under Section 263 was deemed unwarranted. The Tribunal also cited binding decisions from the Hon’ble Bombay High Court, which established that revisionary jurisdiction under Section 263 can be assumed only in cases of no enquiry, not inadequate enquiry.

Conclusion:
The Tribunal concluded that the Pr.CIT was not correct in resorting to revisionary jurisdiction under Section 263, as the AO had conducted adequate enquiries into the URD purchases. The order passed under Section 263 was quashed, and the appeals of the assessee for all assessment years (2009-10 to 2015-16) were allowed.

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