PCIT cannot invoke Section 263 without conducting own enquiry when AO properly examined assessee's explanations

The Delhi HC upheld the Tribunal's decision setting aside the PCIT's order under Section 263. The PCIT had cancelled the original assessment order claiming inadequate enquiry regarding unexplained cash deposits, without conducting any enquiry himself. The court held that the AO had properly examined the assessee's explanation that cash deposits originated from gold sales, including supporting material. The PCIT wrongly equated inadequate enquiry with no enquiry. The court emphasized that assessment orders don't require detailed reasons if the record shows the AO applied his mind to relevant issues during proceedings.

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Issues Involved:
1. Whether the Principal Commissioner of Income Tax (PCIT) correctly exercised his revisionary power under Section 263 of the Income Tax Act, 1961.
2. Whether the Assessing Officer (AO) conducted adequate inquiry regarding the unexplained cash deposits before passing the original assessment order.

Summary:

Issue 1: Exercise of Revisionary Power by PCIT
The appeal concerns the Assessment Year (AY) 2013-14, where the appellant/revenue challenged the order of the Income Tax Appellate Tribunal (Tribunal) dated 27.01.2020. The primary question was whether the PCIT correctly exercised his revisionary power under Section 263 of the Income Tax Act, 1961. The PCIT had cancelled the assessment order dated 30.12.2016, claiming the AO failed to inquire about the unexplained cash deposits in the respondent/assessee's bank accounts. The Tribunal found that the AO had indeed conducted an inquiry before passing the original assessment order.

Issue 2: Adequacy of Inquiry by AO
The respondent/assessee, part of the Dua Group, filed its Return of Income (RoI) declaring an income of Rs. 59,99,560/-. During a search and seizure operation, cash deposits of Rs. 1.94 crores and Rs. 1.30 crores were found in the respondent/assessee's Axis Bank and Kotak Mahindra Bank accounts, respectively. The AO issued notices under Sections 142(1) and 143(2), followed by a detailed questionnaire seeking explanations for the cash deposits. The respondent/assessee provided explanations supported by audited financial accounts, stock summaries, VAT returns, and bank statements, asserting that the deposits were from cash sales.

The AO, after examining the submissions, passed the original assessment order accepting the declared income. However, the PCIT issued a show cause notice and subsequently cancelled the assessment order, stating that the AO did not conduct a proper inquiry. The Tribunal set aside the PCIT's order, noting that the AO had made adequate inquiries and accepted the respondent/assessee's explanations.

Arguments and Analysis:
The appellant/revenue argued that the original assessment order was erroneous and prejudicial to the revenue's interests, citing inadequate evidence for cash deposits and discrepancies in sales transactions. The respondent/assessee countered that the AO had conducted a thorough inquiry and accepted their explanations, and the PCIT's order was based on a different opinion rather than a lack of inquiry.

The court found that the AO had indeed made inquiries, as evidenced by the order sheets, questionnaires, and responses. The PCIT's conclusion that no inquiry was made was contrary to the record. The court emphasized that the PCIT should have conducted his own inquiry before cancelling the assessment order. The distinction between "lack of inquiry" and "inadequate inquiry" was crucial, and the PCIT had wrongly equated the two.

Conclusion:
The court concluded that the PCIT had wrongly exercised his revisionary power under Section 263 of the Act, as the AO had conducted an inquiry and accepted the respondent/assessee's explanations. The Tribunal's order setting aside the PCIT's order was upheld, and the appeal was dismissed, with no substantial question of law arising for consideration.

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