2025 (3) TMI 1548 - AT - Income Tax

Assessment under section 263 quashed where AO made adequate inquiries into alleged bogus accommodation entries; reassessment set aside

ITAT DELHI-AT held that the AO conducted adequate inquiries and verifications regarding alleged bogus accommodation entries; mere assertion of a bogus ... Revision u/s 263 - as per CIT AO has not made proper inquiries and verification with respect to the bogus accommodation entries - HELD THAT:- Merely stating than as per information available, a transaction is bogus, it cannot be said that no inquiry or verification was carried out by the AO, more particularly when the assessee had categorically stated that it had not entered into any transaction with any entity of Pandhe group. Further in the instant case, the AO went to such extent that when during the verification of the detailed filed by the assessee, he found a remotest link with the information available with him such as date and amounts are matching, he immediately made further inquiry to verify the genuineness of such transaction. This fact is verifiable from the show cause notice wherein when the AO found that dates and amounts of transactions with M/s Patel Engineering Ltd. are matching with the information available, he asked the assessee to explain all such transactions and also further proposed to make the additions in the hands of the assessee of entire payment as bogus and unexplained. This clearly shows that adequate and sufficient inquiries and verification was done by the AO taking the plausible view that no such alleged transaction was carried by the assessee with any entity of Pandhe group. All these documents and relevant replies filed by the assessee find place in the paper book filed by the assessee. Now, ld. PCIT alleged that the assessment order is erroneous and prejudicial to the interest of revenue as the AO has not made proper inquiries and verification which in our opinion is not correct nor there is any lack of inquiries on the part of the AO who has taken the plausible view on the material available on record and submissions made by the assessee. In view of the above discussion and by respectfully following the judgments of Shreeji Prints [2021 (9) TMI 108 - SUPREME COURT] and also in the case of NYA International [2025 (3) TMI 882 - SC ORDER] and Clix Finance [2024 (3) TMI 157 - DELHI HIGH COURT] we are of the considered view that in the instant case, AO had made proper and adequate inquiry and it is not a case of no inquiry or lack of inquiry. The PCIT had failed to point out any specific and definite error in the reassessment order and on the other hand the AO had taken a plausible view as a result concrete and definite inquiry, which was in the exclusive domain of the AO and it is not open for revisional authority to arrive at a conclusion merely on the basis of subjective exercise. This being so, we quashed the order passed u/s 263 - Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Principal Commissioner could validly exercise powers under section 263 of the Income Tax Act in relation to a reassessment order passed under section 143(3)/147, where the Assessing Officer had conducted inquiries during reassessment and reached a plausible view accepting the genuineness of transactions. 2. Whether mere alleged inadequacy of inquiry by the Assessing Officer, without identification of a specific and definite error in the assessment/reassessment order, suffices to invoke jurisdiction under section 263. 3. Whether the revisional order under section 263 can be sustained where the revisional authority has not specified which transaction or which entity's dealings were erroneously accepted and prejudicial to revenue, and where the reassessment file contains show-cause notices and enquiries evidencing inquiry/verification. ISSUE-WISE DETAILED ANALYSIS Issue 1: Valid exercise of power under section 263 where AO took a plausible view after reassessment enquiries Legal framework: Section 263 empowers the Commissioner to revise an assessment if it is 'erroneous' and prejudicial to the interests of revenue. Revisionary power is circumscribed; where the AO has made inquiries and taken a plausible view based on material on record, the exercise of section 263 is impermissible. Precedent treatment: The Court treated earlier authoritative pronouncements as controlling: decisions holding that where the AO has made inquiries and reached a plausible view (e.g., cases dismissing revision where AO investigated and accepted genuineness), exercise of section 263 is not warranted. The decision follows and applies the principles in those precedents. Interpretation and reasoning: The Tribunal examined the reassessment record (including notice under section 142(1)/show-cause dated 27.03.2022 and replies), finding that AO had identified suspected matches, issued queries, and examined documentary evidence (work orders, Form-16, ledger, bank statements, confirmations). AO proposed additions when suspicious but, after examination, accepted the assessee's explanation and made no addition. The Tribunal reasoned that this constituted adequate inquiry and a permissible assessment conclusion. The revisional order merely stated information of bogus entries without specifying error or additional material overlooked; it therefore amounted to impermissible reassessment of conclusions and change of opinion by the Commissioner. Ratio vs. Obiter: Ratio - where AO has made concrete inquiries and reached a plausible conclusion on genuineness based on material, revision under section 263 cannot be invoked merely because the Commissioner disagrees. Obiter - ancillary observations on the extent of AO's inquiries (e.g., whether specific statutory summons under sections 131/133(6) were required) are persuasive but not foundational to the decision. Conclusions: The revisional order under section 263 was quashed because AO had conducted adequate inquiries in reassessment and taken a plausible view; the Commissioner failed to point to any specific and definite error in the AO's order and thus could not validly exercise section 263. Issue 2: Whether inadequacy of inquiry alone triggers section 263 when no definite error is pointed out Legal framework: Section 263 requires the order to be both erroneous and prejudicial; inadequacy of inquiry may be relevant but is not automatically sufficient. The revisional power is to correct an error of law/obvious illegality or omission, not to supplant AO's judgment where AO conducted inquiries and reached a reasonable conclusion. Precedent treatment: The Tribunal relied on higher court pronouncements distinguishing 'no inquiry or verification' (which may support revision) from 'different/ wrong conclusion after inquiry' (which does not). It followed authority holding that inadequacy alone is not a ground unless tied to a demonstrable specific error prejudicial to revenue. Interpretation and reasoning: The Tribunal contrasted situations where AO made no investigation versus where AO made inquiries reflected in the reassessment proceedings. It found the reassessment record showed targeted inquiries and a show-cause process responsive to information; consequently, the Commissioner's attack based on alleged inadequate inquiry amounted to disputing the AO's conclusion rather than identifying a legal or factual error. Ratio vs. Obiter: Ratio - inadequacy of inquiry, absent identification of a specific, demonstrable error in the assessment order, does not justify exercise of section 263. Obiter - remarks discussing the conceptual difference between 'failure to investigate' and 'wrong conclusion' as distinct consequences under section 263. Conclusions: The Commissioner's reliance on alleged inadequate enquiry was not sustainable because the AO had conducted inquiries; absence of a pinpointed error rendered section 263 inapplicable. Issue 3: Requirement that revisional order specify the erroneous aspect and demonstrate prejudice to revenue Legal framework: Section 263 jurisdiction presupposes the revisional authority specifies the error and its prejudicial effect. The revisional order must be speaking and identify the exact omission or mistake in the assessment order. Precedent treatment: The Tribunal applied authorities emphasizing that revisional orders must point to definite/specific errors and cannot be summary or conclusory. Decisions cited establish that the Commissioner must indicate the particular infirmity in the AO's order; mere disagreement or summary assertion is insufficient. Interpretation and reasoning: The Tribunal noted the impugned revisional order did not identify which transactions (or with which Pandhe group entity) were ignored or wrongly accepted, and merely stated that certain information indicated bogus entries. Given the reassessment file contained specific show-cause communications and the AO's reactive inquiries, the revisional order's general allegation did not meet the statutory requirement to specify error and prejudice. Ratio vs. Obiter: Ratio - a revisional order under section 263 must identify specific error(s) in the assessment/reassessment order and show how the error prejudiced revenue; failure to do so invalidates revision. Obiter - illustrative comments on the nature of adequate explanation in a revisionary order. Conclusions: The revisional order failed to specify errors or demonstrate prejudice; consequently exercise of section 263 was beyond jurisdiction and the revisional order was quashed. Cross-reference between issues The conclusions under Issues 1-3 are interdependent: because the AO conducted inquiries and took a plausible view (Issue 1), mere assertion of inadequate inquiry without identifying a specific error (Issue 2) and the revisional authority's failure to specify the erroneous aspect and prejudice (Issue 3) together render the exercise of section 263 invalid.