Delhi HC recently had an occasion to consider the scope of section 263 vis a vis Non enquiry and inadequate enquiry.


Delhi HC recently had an occasion to consider the scope of section 263 vis a vis Non enquiry and inadequate enquiry.



No inquiry vs inadequate inquiry & Revisionary power under section 263 of Income Tax Act

The case detail is as under:





[ ITA 125/2021]

The court in above case has held as under:

PCIT, in the instant case, while concluding that the cash sale transactions, according to him, had not been duly verified, chose not to carry out any enquiry on his own before cancelling the original assessment order and directing a fresh assessment to be made in the matter. The PCIT, in our view, wrongly equated a case of “no enquiry” with what he construed as “inadequate enquiry”.

Assessee had offered an explanation with regard to cash deposits. In the course of the assessment proceedings, the AO had accepted the explanation given by the respondent/assesse that the source of the cash deposits was cash sales. Assessee had also explained why several invoices were issued on the same date bearing the same amount. It was the respondent/assessee’s submission that since it was in the business of selling gold, the quantity sold often did not vary, and therefore, the amounts shown in the invoice were also similar.

This was a plausible explanation which found favour with the AO. The respondent/assessee, in support of the plea that the cash sales were the source of the deposits found credited in the subject bank account, had concededly submitted relevant material, which the AO examined in the course of the assessment proceedings. AO, having been satisfied with the explanation given, chose not to make any addition with regard to the cash deposit. PCIT on the other hand, without making any inquiry at his end, chose to cancel the assessment order with a direction to pass a fresh assessment order.

PCIT had to reach a conclusion in the factual situation obtaining in the instant case, that the assessment order was erroneous by conducting an enquiry before passing an order u/s 263.

PCIT, in our opinion, took the easy route by cancelling the impugned order and remanding the matter for a fresh assessment to the AO.

While exercising powers under Section 263 of the Act, the concerned officer is entitled to examine the entire record, which includes not only the assessment order but also the notices issued, queries raised, responses received, and the material/evidence placed on record by the assessee. In a nutshell, the record should disclose whether the AO had applied his mind to various facets that cropped up during the assessment proceedings. In other words, furnishing reasons in the assessment order is not the sine qua non of a sustainable assessment order. Courts have repeatedly stated that the AO is not required to give detailed reasons for accepting or not accepting a particular transaction.

The record should reflect whether the AO applied his mind to the transaction in issue

[CIT v. Ashish Rajpal [2009] DELHI HIGH COURT]

Tribunal set aside the PCIT’s order correctly – Decided in favour of assessee.

The copy of the order is as under:


1640164766-ITA 125 & 126 of 21_Chandra Suresh Kothari Vs DCIT