2026 (2) TMI 1184 - AT - Income Tax

Revision under Section 263 requires lack of inquiry; mere disagreement with AO's appreciation cannot sustain revisionary action.

Whether revisionary powers under Section 263 were rightly invoked: the tribunal applied the principle that revision is permissible only where the ... Revision u/s 263 - 'Lack of Enquiry' or 'inadequate inquiry'- unexplained cash deposits - PCIT observed that the AO has failed to make adequate inquiry to determine the source of unexplained cash and held that the assessment order in question is erroneous in so far as it is prejudicial to the interests of the revenue - HELD THAT:- AO reopened the assessment u/s 148 and conducted enquiries on the precise issue of cash deposit during demonetisation period and carried out due scrutiny. Upon being satisfied with assessee’s explanation and Audited balance sheet/documents, accepted the return. PCIT questioned the credibility of amount as ‘imprest to staff’ account, which we find, are duly reflected in the balance sheet under Advances Recoverable (in Cash or Kind) and the schedule of imprest/staff advances. We therefore, agree with the assessee that mere classification under a different accounting head cannot render the source unexplained, particularly when the amount is recorded in audited books. PCIT has attempted to invoke revisionary powers u/s 263 of the Act based on incorrect appreciation of balance sheet entries and therefore reached a different conclusion. No error or infirmity in the reassessment order which could make it erroneous and prejudicial to the interest of the revenue. Distinguishing 'lack of enquiry' from 'inadequate enquiry' - As decided in Sunbeam Auto [2009 (9) TMI 633 - DELHI HIGH COURT] one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of 'lack of inquiry' that such a course of action would be open. Assessee appeal allowed. Issues: Whether the Commissioner (PCIT) correctly invoked powers under Section 263 of the Income-tax Act, 1961 to revise the assessment on the ground that the Assessing Officer failed to determine the source of cash deposits and that the assessment order was erroneous and prejudicial to the interests of revenue.Analysis: Applicable law requires that revision under Section 263 be exercised only if the assessment order is both erroneous (contrary to law) and prejudicial to the interests of the revenue. A distinction exists between lack of inquiry and inadequate inquiry; only lack of inquiry can justify exercise of revisionary jurisdiction. Where the Assessing Officer has raised queries, received and examined explanations and supporting audited books and schedules, and accepted the return after enquiry, the essential condition of lack of inquiry is not satisfied. In the present case, the Assessing Officer reopened the assessment, specifically examined cash deposits during the demonetisation period, obtained schedules and audited balance sheet entries showing advances recoverable/imprest to staff, and accepted the explanation. The PCIT re-appreciated balance sheet classifications and reached a different view, treating an amount recorded in audited books under advances as unexplained cash credit. Such re-appreciation amounts to change of opinion rather than correction of an assessment that is erroneous and prejudicial to revenue. Judicial authority confirms that inadequate inquiry does not permit Section 263 revision and that revision cannot be based on mere difference of opinion or on an incorrect appreciation of record entries.Conclusion: The invocation of Section 263 was not justified; the impugned revision order dated 31.01.2024 is quashed and the appeal is allowed in favour of the assessee.Ratio Decidendi: Revision under Section 263 of the Income-tax Act, 1961 is permissible only where there is lack of inquiry and the assessment order is shown to be erroneous and prejudicial to revenue; where the Assessing Officer has made enquiries, considered explanations and accepted audited books and schedules, a revisional order based on mere disagreement or different appreciation of those records is invalid.