Section 263 Revision Quashed – Key Case Laws

(Inadequate Enquiry vs. No Enquiry)

Section 263 revision quashed cases clearly establish that inadequate enquiry is not the same as no enquiry, and revision under section 263 cannot be invoked merely because the PCIT holds a different view.

Section 263 is routinely invoked by the Principal Commissioner, often mechanically. Courts have repeatedly clarified that inadequate enquiry is not the same as no enquiry, and revision is not permitted merely because the PCIT holds a different view.

Legal issue involved

Whether an assessment order can be revised under section 263 when:

The Assessing Officer has made enquiries, but
The PCIT considers such enquiries to be inadequate, or
The PCIT prefers a different conclusion on the same facts

The settled law is that section 263 cannot be used to substitute the PCIT’s opinion for that of the AO.

Judicial Precedent

Courts have consistently held that section 263 revision quashed judgments apply where the Assessing Officer has applied his mind.

Malabar Industrial Co. Ltd. vs. CIT | Supreme Court | 2000

Facts:
The PCIT revised the assessment alleging that the AO had allowed a claim wrongly.

Held:
The Supreme Court held that for section 263 to apply, the order must be:

Erroneous, and
Prejudicial to the interests of revenue

Both conditions must co-exist.

Why it matters:
This is the foundational judgment. If either condition fails, section 263 fails.

CIT vs. Gabriel India Ltd. | Bombay High Court | 1993

Facts:
Revision was initiated on the ground that the AO had not conducted adequate enquiry.

Held:
The Court held that:

If the AO has conducted enquiries and applied his mind,
The PCIT cannot revise merely because the enquiry was inadequate

Why it matters:
This judgment clearly draws the line between inadequate enquiry and no enquiry.

CIT vs. Sunbeam Auto Ltd. | Delhi High Court | 2011

Facts:
The PCIT invoked section 263 alleging lack of proper enquiry.

Held:
The Delhi High Court held that:

Where the AO has made enquiries, even if not exhaustive,
Section 263 cannot be invoked

Why it matters:
Once enquiry exists on record, revision fails.

ITO vs. DG Housing Projects Ltd. | Delhi High Court | 2012

Facts:
The PCIT revised the assessment without conducting any independent enquiry.

Held:
The Court held that:

The PCIT must himself conduct enquiry before revising
Mere suspicion or disagreement is insufficient

Why it matters:
PCIT cannot act as a super-AO without enquiry.

Pr. CIT vs. Shreeji Prints Pvt. Ltd. | Gujarat High Court | 2021

Facts:
Revision was initiated despite the AO having examined the issue during assessment.

Held:
The Court quashed the revision holding that two views were possible, and the AO had adopted one permissible view.

Why it matters:
If two views are possible and the AO adopts one, section 263 cannot be invoked.

Common principles emerging

From the above judgments:

Both “erroneous” and “prejudicial” must exist
Inadequate enquiry ≠ no enquiry
PCIT cannot substitute his view
PCIT must conduct enquiry himself
Two permissible views protect the assessee

Practical Use of These Judgments in Section 263 Proceedings

These judgments are critical while challenging show cause notices and revision orders passed under section 263. Where the assessment record shows that the Assessing Officer raised queries, examined replies, and applied his mind, the revision jurisdiction fails even if the PCIT believes that further enquiry should have been conducted.

While replying to section 263 notices, assessees should specifically refer to queries raised during assessment, replies filed, and the assessment order passed. Courts have repeatedly held that section 263 cannot be used to substitute the PCIT’s opinion for that of the Assessing Officer.

How to use these judgments

These cases are decisive:

In replies to 263 show cause notices
Before CIT(A) and ITAT
In writ petitions against jurisdictional excess
To challenge revision at the threshold

If enquiry exists on record, attack jurisdiction first.

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Key Case Laws Where Revision under Section 263 Was Quashed