MRIDUL SHASHIKANT KHANDELWAL,MUMBAI vs. PCIT (CENTRAL) MUMBAI-1, MUMBAI

In this case, the Assessee declared a total income of ₹1,08,700/- by filing the return of income on 29.07.2014 under Section 139(1) of the Act. Subsequently, a search action under Section 132 of the Act was conducted on 18.10.2019 in the cases of the Alankit Group, wherein certain documents were recovered from the laptop of Shri Sunil Kumar Gupta, an associate of Shri Alok Agrawal of the Alankit Group. Pursuant to the search, a satisfaction note regarding incriminating material pertaining to the Assessee was recorded, and accordingly, a notice under Section 153C of the Act was issued to the Assessee on 26.09.2022, calling for the return of income for the assessment year under consideration. In response thereto, the Assessee filed the return of income on 19.10.2022 declaring a total income of ₹10,88,700/-. Thereafter, notices under Sections 143(2) and 142(1) of the Act, along with questionnaires, were issued on 02.11.2022, 08.12.2022, and 01.06.2023. The Assessee duly responded to the said notices.

The Assessing Officer (hereinafter referred to as the “AO”) ultimately accepted the returned income of ₹10,88,700/- without making any addition.

However, upon perusal of the assessment order and the seized material, the Learned Principal Commissioner of Income Tax (hereinafter referred to as the “Ld. PCIT”) observed that the Assessee had allegedly entered into transactions through various beneficiary entities with share entities controlled by Shri Alok Agrawal against unaccounted cash or otherwise for obtaining accommodation entries, as reflected in the seized material, which read as under:

The Ld. PCIT further observed that the AO completed the assessment without making any addition and accepted the returned income of ₹10,88,700/-, thereby allegedly failing to examine the aforesaid issues in accordance with the applicable and binding statutory provisions. According to the Ld. PCIT, these matters remained unverified. Consequently, in exercise of powers under Section 263 of the Act, a show-cause notice dated 14.08.2025 was issued to the Assessee requiring him to explain “as to why the assessment order should not be treated as erroneous and prejudicial to the interests of the Revenue”.

Though the Assessee initially did not file any reply to the show-cause notice, however he subsequently furnished written submissions along with annexures in response to the notice dated 30.10.2025, inter alia, contending as under:

The Ld. PCIT though considered the aforesaid submissions but found the same as unacceptable and held that the enquiries and investigations required to be carried out by the AO had not been adequately conducted, thereby attracting the provisions of Explanation 2 to Section 263 of the Act, more or less holding as under:

The Ld. PCIT on the aforesaid analyzations, ultimately held the assessment order dated 16.03.2024 passed under Section 143(3) read with Section 153C of the Act to be erroneous and prejudicial to the interests of the Revenue. Accordingly, the Ld. PCIT set aside the assessment order and directed the AO to complete the assessment de novo after conducting necessary enquiries and verifications on all issues involved, including those specifically identified, and after affording adequate opportunity of being heard to the Assessee.

The Assessee thus being aggrieved by the aforesaid order, has preferred the present appeal.

We have heard the parties and perused the material available on record. It is observed that during the proceedings under Section 153C, the AO initially issued a notice under Section 143(2) dated 02.11.2022 to the Assessee, who in response, submitted a letter dated 10.11.2022 along with the computation of income and requested copies of the computation sheet, recorded statements, and other search-related evidences, pertaining to his case, arising from the Alankit Group search.

Thereafter, the AO issued another notice dated 08.12.2022 under Section 142(1), inter alia, calling for information and explanations regarding transactions allegedly undertaken with M/s Alankit Limited during the relevant assessment year, along with supporting documents.

In response thereto, the Assessee furnished a detailed reply dated 20.12.2022 along with various documents and specifically stated that he had not entered into any transaction with M/s Alankit Ltd.

Subsequently, the AO issued another notice dated 10.01.2023 under Section 142(1) along with annexures requiring the Assessee to explain transactions allegedly pertaining to him and his family members, along with supporting documentary evidence, based on data recovered from the laptop of Shri Sunil Kumar Gupta.

The Assessee in response to the aforesaid notice as well, filed a reply dated 20.01.2023 along with relevant documents and contended that he had never dealt with Shri Sunil Kumar Gupta and was therefore unable to comment upon the audited accounts maintained by him. The Assessee also requested an opportunity to cross-examine Shri Sunil Kumar Gupta to obtain clarity regarding the allegations made. Further, explanations were furnished regarding the ledger accounts relied upon by the AO.

Thereafter, further notices dated 27.02.2023 and 01.06.2023, along with questionnaires and annexures, were also issued seeking various details, including explanations regarding the incriminating material seized during the search on the Alankit Group, ledger accounts maintained in Tally, and details relating to capital gains arising from the sale of shares. The Assessee furnished replies dated 10.03.2023 and 07.06.2023 respectively, along with supporting documents. Thereafter various other statutory notices were also issued, which were also duly responded to by the Assessee.

From the foregoing sequence of events, it becomes evident that the AO examined the issues arising out of the search and seizure action conducted in the Alankit Group cases and the alleged transactions undertaken during the relevant assessment year with Shri Alok Agrawal & Sons (HUF) and Shri Alok K. Agrawal amounting to ₹ 2,00,000/- and ₹ 5,100/- respectively. And upon such examination, ultimately made no addition. Therefore, it cannot be said that the AO failed to conduct any enquiry, so as to render the assessment order erroneous and prejudicial to the interests of the Revenue.

Though it is true that the AO did not elaborate upon the details of the enquiries conducted in the assessment order. However, that by itself cannot justify invocation of Section 263 of the Act. In this regard, we consider it appropriate to refer to the principles laid down by the Hon’ble Delhi High Court in CIT v. Sunbeam Auto Ltd. [332 ITR 167 (Del.)], wherein it was held that a distinction exists between “lack of enquiry” and “inadequate enquiry.” Where enquiries have in fact been conducted, even if considered inadequate, the Commissioner cannot invoke Section 263 merely because he holds a different opinion. The power under Section 263 can be exercised only in cases, where there is a complete lack of enquiry.

Thus, as held by the Hon’ble Delhi High Court in Sunbeam Auto Ltd. (supra), once it is established that the AO applied his mind to the issue and conducted enquiries, but somehow did not give any reason while allowing the expenditure, then the mere fact that the Commissioner considers such enquiries inadequate, does not confer jurisdiction under Section 263 of the Act. For brevity and ready reference, the conclusion drawn by the Hon’ble High Court is reproduced as under:

We further observe that the Coordinate Bench of the Tribunal, while dealing with the Assessee’s cases for A.Ys. 2018–19 and 2020–21 involving similar assessment orders and revisionary proceedings under Section 263, had also held that assumption of jurisdiction under Section 263 was unjustified.

Thus, in view of the foregoing analysis, we are of the considered opinion that the assessment order cannot be regarded as erroneous and prejudicial to the interests of the Revenue, as the AO had duly conducted enquiries as per his own wisdom, experience, and fashion, which ultimately resulted into making ‘no addition’. Furthermore, we observe that the assessment order was neither passed without making the enquiries or verifications that ought to have been made, nor was any relief allowed without proper examination of the claim. It has also not been shown that the assessment order was passed in violation of any order, direction, or instruction issued by the Board under Section 119 of the Act, or contrary to any decision rendered by the jurisdictional High Court or the Supreme Court that is prejudicial to the Assessee, whether in the case of the Assessee or any other person. Accordingly, the assessment order does not attract the provisions of Section 263 of the Act. Consequently, the impugned order passed under Section 263 of the Act is unsustainable and is hereby quashed.

In the result, the appeal filed by the Assessee is allowed.