Inadequate Inquiry’ Not Ground for PCIT to Exercise Revisionary Power under Section 263: Delhi High Court
In a recent judgment, the Delhi High Court has upheld the order of the Income Tax Appellate Tribunal (ITAT) regarding the Principal Commissioner of Income Tax’s (PCIT) exercise of revisionary powers under Section 263 of the Income Tax Act. The Court emphasized that “inadequate inquiry by an Assessing Officer (AO) cannot be a basis for the PCIT to exercise powers under Section 263,” setting a significant precedent in tax law.
The appeal, filed by the Principal Commissioner of Income Tax-4 against Klaxon Trading Pvt Ltd, challenged the ITAT’s decision to set aside the PCIT’s order, which had originally cancelled the AO’s assessment order. The PCIT’s decision was based on what he perceived as inadequate inquiry into unexplained cash deposits in the respondent’s bank accounts.
In their detailed analysis, the bench comprising Hon’ble Mr Justice Rajiv Shakdher and Hon’ble Mr Justice Girish Kathpalia meticulously examined the sequence of events and the inquiries conducted by the AO. The Court observed that the AO had indeed conducted a substantive inquiry, and the respondent had provided a plausible explanation and evidence for the cash deposits in question.
The Court pointed out an essential legal nuance, stating, “The PCIT, In our view, wrongly equated a case of ‘no enquiry’ with what he construed as ‘inadequate enquiry’.” This observation underlines the Court’s stance that the PCIT’s action to exercise revisionary powers was not justified solely on the grounds of perceived inadequacy of the AO’s inquiry.
Further cementing their decision, the Court referenced multiple judicial precedents, underscoring that the AO is not required to provide detailed reasons for every aspect of their assessment if their records reflect an application of mind to the transactions in question.
Date of Decision: 29th November 2023
PRINCIPAL COMMISSIONER OF INCOME VS KLAXON TRADING PVT LTD
