O.P Associates Vs PCIT (ITAT Lucknow)
Assessee, engaged in liquor business, was selected for complete scrutiny with two specific triggers – large cash deposits during demonetization & abnormal sales with lower profits. AO issued multiple notices, obtained month-wise cash sales & deposits, compared GP/NP ratios, verified purchases through Form 26AS, examined stock, unsecured loans, creditors, rent payments, major expenses, & accepted books (audit u/s 44AB). Only ₹1 lakh was disallowed for unverifiable expenses.
Later, PCIT invoked Section 263, claiming AO failed to make proper enquiries on cash deposits, licences, purchases, unsecured loans, creditors, & expenses, & therefore the assessment was erroneous & prejudicial. He set aside the assessment for de novo enquiry.
Assessee argued that AO did make enquiries on every issue now cited by PCIT, & furnished detailed replies & documents. What PCIT calls “lack of enquiry” is at best difference of opinion or inadequate enquiry, which cannot justify Section 263. PCIT never conducted his own verification, nor pointed out any specific error or escapement of income.
ITAT agreed with Assessee. It held that Sec 263 applies only when AO makes no enquiry at all, not when he has in fact examined the issue & taken a plausible view. Tribunal noted that AO focused exactly on the CASS reasons, verified cash deposits & sales pattern, checked books, analysed profitability, examined loans & creditors with confirmations & ITRs, & reviewed rent & expenses with supporting documents. PCIT simply wanted a deeper enquiry, but “inadequate enquiry” is not “no enquiry.” ITAT also applied precedents like Malabar Industrial Co., Gabriel India, Max India, Sunbeam Auto, Jyoti Foundation, holding that PCIT cannot revise an order merely because he has a different view or wants further investigation.
