The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that once the assessment record shows that the Assessing Officer had issued multiple notices, called for explanations and documents, examined the seized material and the alleged transactions, and thereafter taken a view to make no addition, the assessment order cannot be branded as erroneous and prejudicial to the interests of the Revenue merely because the PCIT considers the enquiry inadequate. The law draws a clear distinction between “lack of enquiry” and “inadequate enquiry,” and Section 263 applies only in the former case, not the latter.
The Tribunal further held that the present assessment order did not fall within Explanation 2 to Section 263 because it was not passed without enquiry or verification, no relief had been granted without examination, and nothing was shown to establish breach of any Board instruction under Section 119 or any binding adverse decision of the jurisdictional High Court or Supreme Court. On that basis, the assumption of revisional jurisdiction by the PCIT was held to be unsustainable in law. Accordingly, the Tribunal quashed the impugned order passed by the PCIT under Section 263 and held that the revisionary order was unsustainable.
The Division Bench comprising Narender Kumar Choudhry (Judicial Member) and Prabhash Shankar (Accountant Member) examined the sequence of notices and replies during the Section 153C assessment proceedings. It noted that after notice under Section 143(2), the assessee had sought copies of the computation sheet, statements and search-related evidence. The Assessing Officer then issued notice under Section 142(1) calling for details of transactions allegedly undertaken with M/s Alankit Ltd., and the assessee replied that he had not entered into any transaction with that entity. Later, another notice required explanation of transactions allegedly reflected in the data recovered from Sunil Kumar Gupta’s laptop, and the assessee denied dealing with Sunil Kumar Gupta, requested cross-examination, and also explained the ledger accounts.
On factual record, the Tribunal found that the Assessing Officer had in fact examined the issues arising from the Alankit Group search and the alleged transactions with Alok Agrawal & Sons (HUF) and Alok K. Agrawal. After such examination, the Assessing Officer chose to make no addition. The Tribunal therefore held that this was not a case where no enquiry had been conducted. It also made it clear that merely because the assessment order did not discuss the enquiry in detail, Section 263 could not be invoked on that ground alone.
The Tribunal relied on the Delhi High Court ruling in CIT v. Sunbeam Auto Ltd. [332 ITR 167 (Del.)] and reiterated the settled distinction between “lack of enquiry” and “inadequate enquiry.” It observed that where an Assessing Officer has made enquiries and applied his mind, even if the Commissioner feels that such enquiry was insufficient, revision under Section 263 is not permitted merely because the Commissioner holds a different opinion. According to the Tribunal, the power under Section 263 can be exercised only where there is a complete lack of enquiry.
Briefly, the assessee, Mridul Shashikant Khandelwal, originally filed his return declaring income of Rs. 1.08 lakhs under Section 139(1). Later, a search under Section 132 was conducted in the Alankit Group cases, during which certain documents were recovered from the laptop of Sunil Kumar Gupta, stated to be an associate of Alok Agrawal of the Alankit Group. Based on this seized material, the Department recorded a satisfaction note and issued notice under Section 153C. In response, the assessee filed a fresh return declaring total income of Rs. 10.88 lakhs. Eventually, the Assessing Officer accepted the returned income without making any addition.
The Principal Commissioner of Income Tax later examined the assessment record and seized material and took the view that the assessee had allegedly entered into transactions through beneficiary entities connected with share entities controlled by Alok Agrawal for obtaining accommodation entries. According to the PCIT, the Assessing Officer had accepted the returned income without properly examining these issues, and therefore the matters remained unverified. On that basis, the PCIT issued a show cause notice under Section 263 asking why the assessment order should not be treated as erroneous and prejudicial to the interests of the Revenue.
In reply, the assessee raised several objections. He argued that the satisfaction note and assessment order did not bear DIN in violation of CBDT Circular No. 19/2019, that a valid satisfaction note under Section 153C had not been recorded, that the consolidated satisfaction note was illegal, that detailed enquiries had already been conducted during assessment, and that no revision could be sustained only on the basis of a retracted statement. However, the PCIT rejected these submissions and held that the Assessing Officer had not carried out adequate enquiry and verification, and therefore Explanation 2 to Section 263 was attracted. The PCIT accordingly set aside the assessment and directed the Assessing Officer to complete the assessment afresh after conducting necessary enquiries.
