Section 263 Revision Even After Reply Filed? ITAT Mumbai Ruling on Lack of Inquiry vs Inadequate Inquiry Explained
Taxpayers and professionals often assume that once the Assessing Officer asks for details, the assessee submits documents, and the assessment order is passed, the issue is closed. However, a recent decision of the ITAT Mumbai shows that this assumption can be risky. Even where replies are filed and supporting documents are submitted, revision under Section 263 can still be upheld if the record does not show meaningful verification by the Assessing Officer.
This ruling is particularly relevant for cases involving deductions, political donations, and limited scrutiny assessments.
The Case in Brief
The matter arose from a limited scrutiny assessment where the issue selected for examination related to deductions under Chapter VI-A.
The assessee had claimed deduction under Section 80GGC in respect of a political donation of Rs.30 lakh. During assessment proceedings, the Assessing Officer asked the assessee to furnish details. In response, the assessee submitted donation receipts along with bank transaction evidence showing payment.
The assessment was completed thereafter without any discussion on the issue in the order.
Subsequently, the Principal Commissioner of Income Tax exercised revisionary powers under Section 263 on the ground that the Assessing Officer had failed to properly verify the genuineness of the donation claim. The matter reached the ITAT Mumbai, which upheld the revision.
Why the Revision under Section 263 Was Sustained
The Tribunal noted that merely calling for details and receiving documents does not automatically mean that the Assessing Officer has conducted a proper inquiry.
In this case, the records only showed:
• Submission of donation receipts
• Bank trail evidencing payment
• No further inquiry regarding genuineness of the political party
• No verification of eligibility of deduction
• No discussion in the assessment order
The Tribunal emphasised that there must be some indication that the Assessing Officer examined the issue beyond a mechanical acceptance of documents.
Because the assessment order was silent and the record did not demonstrate application of mind, the order was considered both erroneous and prejudicial to the interests of revenue – satisfying the twin conditions required for Section 263 revision.
Lack of Inquiry vs Inadequate Inquiry – The Critical Distinction
This decision again highlights one of the most important principles governing Section 263.
If the Assessing Officer makes no inquiry at all, revision is generally valid.
If the Assessing Officer makes some inquiry but the Commissioner feels it was insufficient, revision is usually not permitted.
However, courts often look beyond the existence of a notice or reply and examine whether the inquiry was real and meaningful.
A simple exchange of notices and replies, without verification, questioning, or reasoning, may still be treated as a lack of inquiry rather than merely an inadequate inquiry.
This is where many assessments become vulnerable.
Importance of a Speaking Assessment Order
One key factor in this case was the absence of discussion in the assessment order. When an order does not mention the issue examined, it becomes difficult to demonstrate that the Assessing Officer applied his mind.
While it is settled law that an order need not discuss every submission in detail, complete silence on a significant deduction claim often weakens the defence against revision proceedings.
For professionals, this means that documentation alone is not enough – the assessment record must reflect verification.
Practical Lessons for Tax Professionals and Assessees
This ruling carries important practical takeaways:
First, merely filing documents does not guarantee protection from revision.
Second, where large deductions are claimed, it is advisable to ensure that the Assessing Officer records satisfaction in some manner.
Third, maintaining proper submissions explaining eligibility, legal basis, and factual verification can help demonstrate that inquiry was indeed made.
Fourth, in sensitive claims such as political donations, charities, or exemptions, extra documentation and explanation may be necessary.
In other words, compliance should not stop at submitting receipts; it should extend to ensuring that the issue is properly examined and recorded.
Conclusion
The ITAT Mumbai decision reinforces a crucial message – assessment proceedings are not just about submitting papers but about demonstrating verification.
For taxpayers, the belief that “details were submitted, so the matter is closed” may not always hold true. If the assessment record fails to show meaningful inquiry, Section 263 revision can still arise.
In the current environment of increasing scrutiny and data-driven tax administration, ensuring that the assessment reflects application of mind may be just as important as ensuring that the claim itself is correct.
The copy of the order is as under:
