Revision under section 263 concerning inadequate enquiry into source of cash deposits results in upholding Pr.CIT revision.

Revision under section 263 was considered on the adequacy of the AOs inquiry into large cash deposits purportedly explained by a sale; the AO accepted unsupported affidavits and failed to probe sources exceeding the sale consideration and the assessees share, thereby causing prejudice to revenue. The Pr.CIT concluded the AOs order was erroneous and prejudicial for not examining the source of the excess cash, and the revision was sustained, resulting in the AOs order being set aside insofar as it failed to discharge proper inquiry and safeguard revenue interests.

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Issues: Whether the Principal Commissioner of Income Tax was justified in invoking revisionary powers under section 263 of the Income-tax Act, 1961 to set aside the assessment completed under section 147 read with section 144B for failure of the Assessing Officer to adequately enquire into and verify the source of substantial unexplained cash deposits in the assessee's bank account.

Analysis: The material shows large cash deposits in the assessee's bank account exceeding the sale consideration and the assessee's stated share; the Assessing Officer accepted the assessee's affidavit and documents without further enquiry into the source of cash deposits. The Principal CIT examined the sequence and amounts of deposits and withdrawals and found that the AO had not conducted adequate verification or sought corroborative evidence to support the assessee's claim that the deposits originated from sale proceeds and past savings. The Principal CIT concluded that the AO's acceptance of the return without proper inquiry rendered the assessment erroneous and prejudicial to the interests of revenue.

Conclusion: Revision under section 263 was correctly exercised in favour of the revenue; the assessment order was set aside as erroneous and prejudicial and the assessee's appeal against that revision was dismissed.

Ratio Decidendi: Where an assessing officer accepts an assessee's explanation for substantial unexplained cash deposits solely on the basis of an affidavit and documents without adequate inquiry or corroboration, the Principal Commissioner may validly invoke section 263 to revise and set aside the assessment as erroneous and prejudicial to the interests of revenue.

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