Explanation 2 failure to make necessary inquiries permits revision under section 263, enabling de novo reassessment.

ITAT held that Explanation 2 permits revisional action where an assessing officer failed to make inquiries or verifications which should have been made, and on the facts found the assessment was erroneous and prejudicial, warranting setting aside for de novo assessment. The Tribunal ruled a promptly issued corrigendum cured an inadvertent naming error where no procedural prejudice arose. It also concluded that assessments completed under the faceless assessment scheme are not immune from revisionary jurisdiction and remain subject to review when jurisdictional conditions are satisfied. The appeal against the revisional order was dismissed and the section 263 order upheld as rectified.

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Issues: (i) Whether the order under section 263 of the Income-tax Act, 1961 passed initially in the name of the erstwhile (now non-existent) entity and subsequently rectified by corrigendum is valid; (ii) Whether the Pr. CIT properly invoked revisionary jurisdiction under section 263 (including reliance on Explanation 2 to section 263) by holding that the assessment order dated 15.12.2022 was erroneous and prejudicial to the interests of the Revenue for failure to make inquiries which should have been made on specified issues; (iii) Whether an assessment completed by the National Faceless Assessment Centre under section 143(3) read with section 144B of the Income-tax Act, 1961 is immune from revision under section 263.

Issue (i): Whether rectification by corrigendum cures the initial passing of the section 263 order in the name of a non-existent/erstwhile entity.

Analysis: The Tribunal examined the timeline: assessment passed 15.12.2022; show-cause under section 263 issued 12.12.2023 (when erstwhile entity still existed); scheme of amalgamation sanctioned 15.01.2024 with retrospective effect from 01.04.2022; the assessee informed PCIT on 20.02.2024; PCIT issued corrigendum on 29.03.2025, the day after the impugned order. The Tribunal distinguished authorities where substantive procedural defects (such as failure to follow draft/final assessment procedure or limitation bar) rendered orders incurable, and treated the initial naming error as an inadvertent/palpable mistake rectified promptly by corrigendum without procedural prejudice to the assessee.

Conclusion: The corrigendum dated 29.03.2025 validly rectified the initial naming error and the section 263 order as rectified is not vitiated for that reason.

Issue (ii): Whether the Pr. CIT was justified in invoking section 263 (including Explanation 2) by holding the AO's assessment order erroneous and prejudicial to revenue for failure to make inquiries which should have been made on issues including related party transactions, platform selling expenses, provisions and inventory matters, trade payables, financing liabilities and advertisement expenses.

Analysis: The Tribunal considered (a) the material placed before the AO (queries issued, replies, audited financial statements, invoices and other records); (b) the scope of Explanation 2 to section 263 which makes an order erroneous if enacted without inquiries or verifications which should have been made; (c) the distinction between an assessment where inquiries were made (possibly inadequately) and an assessment where inquiries that should have been made were not conducted at all; and (d) the recent statutory context and case law guidance. On the facts, the Tribunal found that although the AO issued questionnaires and received voluminous documents, the AO had in several respects not made necessary enquiries or verifications that should have been made (particularly in relation to reversal of prior-year disallowances claimed as current-year adjustments, adequacy of verification of related party transactions and certain inventory/large balance-sheet items). The Tribunal held that where the AO has not made inquiries which should have been made under Explanation 2, the assessment may be held erroneous and prejudicial to the Revenue and can be set aside for de novo assessment. The Tribunal rejected the assessee's submissions that the AO's view was a merely plausible view insulating it from section 263 in the presence of such failures of inquiry.

Conclusion: The Pr. CIT was justified in holding the assessment order erroneous and prejudicial on the grounds specified and in setting aside the assessment for de novo adjudication by the Assessing Officer.

Issue (iii): Whether an assessment completed by the National Faceless Assessment Centre under section 143(3) read with section 144B is beyond revision under section 263.

Analysis: The Tribunal analysed the faceless assessment scheme in section 144B and the internal roles of the National Faceless Assessment Centre, assessment units, verification units and review units. The Tribunal concluded that the assessment unit functions as the faceless counterpart of the assessing officer and retains control over the final assessment; the faceless procedure contains inbuilt checks but does not oust the statutory revisionary jurisdiction of the Commissioner under section 263. Accordingly, a final assessment passed by NaFAC/AU remains subject to review under section 263 where jurisdictional conditions are met.

Conclusion: An assessment completed under the faceless scheme is not immune from revision under section 263 and the Pr. CIT has jurisdiction to exercise revisionary powers in such cases.

Final Conclusion: The Tribunal, after evaluating the corrigendum, the scope of Explanation 2 to section 263 and the faceless assessment process and on factual review of the impugned order, concluded that the Pr. CIT's section 263 order as rectified was sustainable. The assessee's grounds challenging the naming of the order, the jurisdiction to invoke section 263 in respect of a NaFAC assessment, and the invocation of Explanation 2 were rejected. The appeal is dismissed and the revisionary order under section 263 stands upheld, directing de novo assessment as directed by the Pr. CIT.

Ratio Decidendi: Explanation 2 to section 263 of the Income-tax Act, 1961 permits revisional action where an assessing officer has failed to make inquiries or verifications which should have been made; a promptly issued corrigendum may cure an inadvertent naming error where no procedural prejudice results; and assessments completed under the faceless scheme remain subject to section 263 when the statutory conditions for revision are satisfied.

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