Revision under section 263 sustained for lack of inquiry in assessing unrecorded sales and related verification failures.

The ITAT upheld revision under section 263 where the Assessing Officer had accepted additional income from unrecorded sales without proper verification of related purchases, the profit element in the transactions, or the applicability of sections 69A and 115BBE. It found that no contemporaneous evidence supporting the alleged expenditure was examined at assessment, and that the invoices were produced only in revision proceedings. On that basis, the Tribunal held the assessment was made without adequate inquiry and fell within Explanation 2 to section 263, which treats an order as erroneous and prejudicial when necessary verification has not been done. The challenge to the direction for fresh assessment failed.

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Issues: Whether the revisionary order under section 263 of the Income-tax Act, 1961, directing fresh assessment on the ground of lack of inquiry and non-application of mind by the Assessing Officer, was valid.

Analysis: The assessment records showed that the Assessing Officer accepted the additional income offered on account of unrecorded sales without making proper verification of the corresponding purchases, the actual profit embedded in the transactions, or the applicability of section 69A and section 115BBE. The Tribunal found that no contemporaneous documentary evidence regarding the alleged expenditure had been examined during assessment, and that the invoices relied upon were produced only in the revision proceedings. It held that the assessment was framed without adequate inquiry and that the case squarely attracted Explanation 2 to section 263, which deems an order erroneous and prejudicial where inquiries or verification that ought to have been made were not made.

Conclusion: The revisionary assumption of jurisdiction under section 263 was upheld and the challenge to the direction for fresh assessment failed.

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