The assessee dealt with a penny stock, and the Assessing Officer...

The assessee dealt with a penny stock, and the Assessing Officer (AO) failed to conduct proper inquiry during reassessment proceedings. The Principal Commissioner of Income Tax (PCIT) rightly invoked Section 263, as the AO did not ask for the demat account or make necessary inquiries regarding the penny stock transaction. Explanation 2 to Section 263 is applicable. The PCIT correctly set aside the reassessment order and directed the AO to pass a fresh order after examining the facts, as the AO merely accepted the assessee's contentions without thorough investigation. Once reassessment was initiated on grounds of dealing in manipulated penny stocks to generate bogus long-term capital gains/losses, the AO was obligated to conduct a detailed inquiry to unravel the truth behind the transaction. However, the AO made a superficial inquiry, necessitating the PCIT's intervention. The Appellate Tribunal dismissed the assessee's appeal.