2025 (12) TMI 412 - AT - Income Tax

Revision under Section 263 quashed as PCIT lacked independent inquiry, cannot replace AO's plausible, approved view

ITAT allowed the assessee's appeal and quashed the revisionary order passed u/s 263. It held that the PCIT's assumption of jurisdiction was invalid as no ... Revision u/s 263 - assessment order be treated as 'erroneous in so far as it is prejudicial to the interests of the Revenue' - HELD THAT:- On a plain reading of the impugned order, it is evident that the PCIT has not conducted any inquiry whatsoever. No independent verification has been carried out, no third- party inquiry was initiated, no books were called for, and no evidence was examined beyond what was already on record. The order merely reproduces the show cause notice issued by the Assessing Officer and proceeds to infer lack of inquiry. Assessee has placed on record that it had filed detailed submissions before the Assessing Officer in response to the show cause notice dated 11.03.2023. PCIT has reproduced portions of the assessee’s reply dated 20.02.2025, acknowledging that the assessee asserted having filed all supporting documents. The Principal Commissioner, however, has not examined these materials nor assigned any reason for discarding them. A mere allegation that the Assessing Officer did not conduct adequate inquiry cannot, in law, justify revision unless the PCIT himself undertakes an inquiry that establishes the error. It is well-settled that where the AO has taken a possible view after conducting certain inquiries, the PCIT cannot substitute his subjective standard of inquiry unless the view is demonstrably unsustainable in law. Here, the assessment order was passed with prior approval of the Additional CIT and nothing has been brought on record to show that the view adopted by the Assessing Officer was perverse or contrary to law. PCIT has proceeded on a general assumption of inadequacy of inquiry without identifying any specific legal error. Assumption of jurisdiction under section 263 is not sustainable in law. Appeal of the assessee is allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the assumption of revisionary jurisdiction under section 263 was valid when the Principal Commissioner alleged lack of enquiry by the Assessing Officer regarding sales promotion and packing expenses. 1.2 Whether, on the facts, the assessment order could be treated as 'erroneous in so far as it is prejudicial to the interests of the Revenue' in terms of section 263, in the absence of any independent enquiry or verification undertaken by the Principal Commissioner. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Validity of assumption of jurisdiction under section 263 and requirement of enquiry by the Principal Commissioner Legal framework (as discussed) 2.1 The Court noted that section 263 mandates that the Principal Commissioner may revise an order 'after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary'. The second limb, relating to making necessary enquiry, was treated as a mandatory safeguard against arbitrary revision. Interpretation and reasoning 2.2 The Court found from the impugned order that the Principal Commissioner had not conducted any enquiry whatsoever: no independent verification was carried out, no third-party enquiry was initiated, no books of account were called for, and no evidence was examined beyond what was already on record. The order merely reproduced the show cause notice issued by the Assessing Officer and inferred lack of enquiry. 2.3 The assessee had specifically asserted, and the Principal Commissioner had reproduced in the revisionary order, that detailed submissions with over 100 pages of documentary evidence (including ledger accounts, sales invoices, bank statements and GST returns) were filed before the Assessing Officer in response to the show cause notice. The Principal Commissioner nonetheless concluded that no credible evidence was produced, without examining or objectively dealing with such materials or giving reasons for discarding them. 2.4 The Court held that a mere allegation that the Assessing Officer did not conduct adequate enquiry cannot justify exercise of section 263 powers unless the Principal Commissioner himself undertakes an enquiry and brings material on record to demonstrate an error rendering the order erroneous and prejudicial to the interests of the Revenue. 2.5 The Court further observed that it is well-settled that where the Assessing Officer has taken a possible view after conducting certain enquiries, the Principal Commissioner cannot substitute his own standard or degree of enquiry unless the view taken is shown to be perverse or unsustainable in law. In this case, the assessment order was passed with the prior approval of the Additional CIT, and no specific legal error or perversity in the Assessing Officer's approach was identified by the Principal Commissioner. Conclusions 2.6 The Court concluded that the Principal Commissioner did not satisfy the statutory requirement of making or causing to be made such enquiry as he deemed necessary under section 263, and had proceeded only on a general assumption of inadequacy of enquiry by the Assessing Officer. 2.7 In the absence of any independent enquiry or demonstrated legal error, the assessment order could not be held to be 'erroneous in so far as it is prejudicial to the interests of the Revenue'. 2.8 Consequently, the assumption of jurisdiction under section 263 was held to be not sustainable in law, and the revisionary order was quashed. The appeal was allowed.