PCIT's revision order under section 263 quashed for inadequate inquiry before deeming assessment erroneous

ITAT Chandigarh quashed PCIT's revision order u/s 263, holding that the AO had conducted proper inquiry before accepting the return of income. The tribunal found that multiple notices u/s 142(1) and 143(2) were issued and adequately replied to by the assessee firm, demonstrating due diligence. The AO applied his mind and verified the assessee's affairs before passing the assessment order. PCIT failed to conduct minimal inquiry before terming the AO's order erroneous and prejudicial to revenue interest. The revision order was deemed without jurisdiction and irregular exercise of supervisory powers.

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Issues Involved:
1. Legality of the revisionary order under Section 263 of the Income Tax Act.
2. Adequacy of inquiries conducted by the Assessing Officer (AO) during the assessment proceedings.
3. Whether the assessment order was erroneous and prejudicial to the interests of the Revenue.
4. Requirement of detailed reasoning in the assessment order by the AO.
5. The necessity for the Principal Commissioner of Income Tax (PCIT) to conduct an inquiry before passing a revisionary order.

Issue-wise Detailed Analysis:

1. Legality of the revisionary order under Section 263 of the Income Tax Act:
The Tribunal held that the impugned order under Section 263 by the PCIT was not proper, just, and fair. It was observed that the PCIT did not conduct any minimal inquiry before holding that the AO had not made any inquiry. The Tribunal emphasized that Section 263 can be invoked only to set right distortions and prejudices to the revenue, not for setting aside favorable orders without proper grounds. The PCIT's failure to examine the entire record, including the assessment order under Section 147 dated 24/03/2023, which was part of the record before the impugned order dated 27/03/2023, rendered the revisionary order illegal and contrary to law.

2. Adequacy of inquiries conducted by the Assessing Officer (AO) during the assessment proceedings:
The Tribunal found that the AO had conducted adequate inquiries during the assessment proceedings. The AO had issued multiple notices under Sections 143(2) and 142(1), and the assessee had duly replied to these notices with all required information. The Tribunal observed that the AO had applied his mind and verified the state of affairs of the assessee firm before passing the assessment order dated 12/06/2020. The Tribunal held that the AO had examined the papers and proceedings of the case and accepted the return under Section 143(3) after due diligence.

3. Whether the assessment order was erroneous and prejudicial to the interests of the Revenue:
The Tribunal held that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The PCIT's conclusion that the AO's order was erroneous and prejudicial was based on the assumption that the AO had not made any inquiry or verification, which the Tribunal found to be incorrect. The Tribunal emphasized that the AO had conducted proper inquiries and verifications, and the acceptance of the returned income was arrived at after a thorough examination of the details provided by the assessee.

4. Requirement of detailed reasoning in the assessment order by the AO:
The Tribunal held that the AO is not required to give detailed reasons in the assessment order for each and every item of deduction or claim. It is sufficient if the AO has applied his mind and conducted inquiries before allowing the claims. The Tribunal referred to the judgment of the jurisdictional High Court in Hari Iron Trading Company Vs. CIT, which held that the absence of detailed reasoning in the assessment order does not render it erroneous if the AO has made full inquiries before accepting the claims.

5. The necessity for the Principal Commissioner of Income Tax (PCIT) to conduct an inquiry before passing a revisionary order:
The Tribunal held that it is incumbent upon the PCIT to conduct at least a bare minimum inquiry before passing a revisionary order under Section 263. The Tribunal referred to the judgment of the Hon'ble Delhi High Court in PCIT Vs. Delhi Airport Metro Express Pvt. Ltd., which held that the PCIT must undertake an inquiry himself before sending the matter back to the AO for a fresh assessment. The Tribunal found that the PCIT had not conducted any inquiry and had passed the revisionary order in a mechanical manner, which was not in accordance with law.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the impugned order under Section 263 was bad in law, illegal, and not proper. The Tribunal emphasized that the AO had conducted adequate inquiries and verifications, and the assessment order was not erroneous or prejudicial to the interests of the Revenue. The Tribunal also highlighted the necessity for the PCIT to conduct an inquiry before passing a revisionary order under Section 263.

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