Explanation 2 to S. 263 Doesn’t Give Unfettered Revision Powers: ITAT Quashes PCIT’s Order [Read Order]
ITAT held that Explanation 2 to Section 263 does not give PCIT unfettered powers to revise assessments where the AO has conducted a proper inquiry.
![Explanation 2 to S. 263 Doesn’t Give Unfettered Revision Powers: ITAT Quashes PCIT’s Order [Read Order]](https://images.taxscan.in/h-upload/2025/06/05/2041338-itat-itat-jaipur-2-to-s-263-itat-taxscan.webp "Explanation 2 to S. 263 Doesn’t Give Unfettered Revision Powers: ITAT Quashes PCIT’s Order [Read Order]")
The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) quashed the revision orders passed under Section 263 of the Income Tax Act, 1961, holding that the Principal Commissioner of Income Tax (PCIT) cannot use Explanation 2 to Section 263 as a tool to revise assessments where the Assessing Officer (AO) has already conducted proper inquiries. Shree Shyam Buildstructure Pvt. Ltd.,...
The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) quashed the revision orders passed under Section 263 of the Income Tax Act, 1961, holding that the Principal Commissioner of Income Tax (PCIT) cannot use Explanation 2 to Section 263 as a tool to revise assessments where the Assessing Officer (AO) has already conducted proper inquiries.
Shree Shyam Buildstructure Pvt. Ltd., the assessee, filed appeals against the revisionary orders for Assessment Years 2014–15 and 2016–17. The PCIT had invoked Section 263, stating that the AO failed to properly examine certain cash transactions and advances, making the assessment orders erroneous and prejudicial to the interest of the revenue.
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For A.Y. 2014–15, the PCIT raised issues regarding cash received in property deals and unexplained bank deposits. For A.Y. 2016–17, the concern was over cash deposits and cheque transactions allegedly left unverified. The PCIT relied on Explanation 2(a) and (b) to Section 263, which presumes orders to be erroneous if the proper inquiry is not made.
The assessee’s counsel argued that the AO had issued multiple notices and conducted thorough inquiries during the assessment proceedings. Detailed replies and evidence were submitted and considered. The AO passed final orders after analyzing the material, and no findings were made without verification. It was also pointed out that some amounts questioned by the PCIT were either not part of the relevant year or were already assessed in later years.
The two-member bench comprising Rathod Kamlesh Jayantbhai (Accountant Member) and Sandeep Singh Karhail (Judicial Member) considered the arguments and examined the records. The tribunal observed that the AO had indeed conducted inquiries and applied his judgment in accepting the assessee’s explanations. It held that the presence of Explanation 2 in Section 263 does not grant the PCIT unrestricted powers to revise every assessment, especially where no error of fact or law is found.
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The tribunal clarified that Section 263 cannot be used to merely substitute the PCIT’s view for that of the AO. It explained that the assessment orders in both years were not erroneous or prejudicial to revenue and therefore, not fit for revision.
The tribunal quashed the revisionary orders under Section 263 and allowed the assessee’s appeals.
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