PCIT Cannot Invoke Section 263 on Plausible AO View That Liability Had Not Ceased.

Issue

Whether a Principal Commissioner (PCIT) can invoke revisionary jurisdiction under Section 263 of the Income-tax Act to set aside a reassessment order, on the grounds that the Assessing Officer (AO) took an erroneous view by not treating a long-outstanding liability as “ceased” under Section 41(1), especially when the AO had already conducted an inquiry into the matter and accepted the assessee’s explanation.

Facts

The assessee imported goods from Chinese suppliers and sold them in transit to another party, AGP.
The goods were of inferior quality, so AGP withheld payment from the assessee.
Consequently, the assessee did not pay its Chinese suppliers, and the trade liabilities remained outstanding in its books.
The AO initiated a reassessment (under Section 147) and specifically enquired about this outstanding liability.
After examining the records and the assessee’s explanation (linking the non-payment to the ongoing dispute with AGP), the AO accepted the explanation that the liability had not ceased and completed the assessment.
The PCIT later invoked Section 263, holding that the AO’s order was erroneous. The PCIT’s view was that a liability outstanding for more than three years should be treated as having ceased under Section 41(1) and required further verification.

Decision

The High Court (implied) quashed the PCIT’s revisionary order under Section 263.
It held that the AO had conducted an inquiry, applied their mind to the issue, and taken a “plausible view”—that the liability, being linked to a genuine commercial dispute, had not ceased.
The court ruled that a PCIT cannot invoke Section 263 merely to substitute their own opinion for a plausible view taken by the AO.
Since the AO’s order was not “erroneous and prejudicial to the interest of the revenue” (the standard for Section 263), the PCIT lacked the jurisdiction to invoke these provisions.

Key Takeaways

High Bar for Section 263: A PCIT cannot use Section 263 to correct what they perceive as an “inadequate inquiry” or to simply hold a different opinion on a debatable issue.
“Plausible View” is a Valid Defense: If the AO has conducted an inquiry and taken a view that is “plausible” in law (even if other views exist), the order cannot be deemed “erroneous” for the purpose of a Section 263 revision.
No Automatic Cessation of Liability: A trading liability does not automatically cease under Section 41(1) just because it has been outstanding for a long period. The cessation must be established by the department. The AO’s acceptance that the liability (linked to a dispute) still exists is a valid quasi-judicial finding.
Change of Opinion is Not Permitted: This case reaffirms the principle that revisionary jurisdiction cannot be used as a tool to conduct a “change of opinion” on an issue that the AO has already examined.

IN THE ITAT MUMBAI BENCH ‘F’

Surbhit Impex (P.) Ltd.

Principal Commissioner of Income-tax – 8^*

Amit Shukla, Judicial Member
and Prabhash Shankar, Accountant Member

IT Appeal No. 2570 (MUM) of 2025
[Assessment year 2018-19]

OCTOBER 27, 2025

K. Shivaram, Sr. Adv. and Shashi Bekkal, AR for the Appellant. Vivek Perampurna, CIT-DR for the Respondent.

ORDER

Prabhash Shankar, Accountant Member.- The present appeal arising from the Revision order u/s 263 dated 18.03.2025 is filed by the assessee against the order passed by the Principal Commissioner of Income-tax, PCIT, Mumbai – 8 [hereinafter referred to as “PCIT”] pertaining to assessment order passed u/s. 147 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 07.03.2023 for the Assessment Year [A.Y.] 2018-19.

2. The grounds of appeal are as under:

On facts and circumstances of the case and in law, the Ld. Principal Commissioner of Income-tax (PCIT) has erred in passing an order under section 263 of the Income-tax Act, 1961 (Act) when the reassessment order is neither erroneous nor prejudicial to the interest of the Revenue hence the order under section 263 may be quashed and set aside.

On facts and circumstances of the case and in law, the Ld. PCIT has erred in issuing a Notice and passing an order under section 263 of the Act when the reassessment was initiated for the specific issue of creditors, which was examined by the Ld. Assessing Officer (AO) and has passed a speaking order considering the law and facts hence, the order under section 263 of the Act may be quashed and set aside.

Without prejudice to the above the order of the Assessing Officer is a possible view considering the facts and law hence, revision order under section 263 of the Act is bad in law and may be quashed and set aside.

Creditor(s) of Rs. 3,13,65,060/

Without prejudice to the above, on facts and circumstances of the case and in law, the Ld. PCIT has erred in issuing a Notice and passing an order under section 263 of the Act whereas the Hon’ble Bombay High Court (division bench) dated July 30, 2018, which does not fall in the Assessment year (AY) 2018-19 hence the revision order under section 263 is bad in law and liable to be quashed and set aside.

Without prejudice to the above, on facts and circumstances of the case and in law, the Ld. PCIT has erred in issuing a Notice and passing an order under section 263 of the Act when there is no loss of revenue as the Assessee has offered the sum to tax in AY 2020-21.

Creditor(s) of Rs.73,26,643/

Without prejudice to the above, on facts and circumstances of the case and in law, the Ld. PCIT has erred in issuing a Notice and passing an order under section 263 of the Act on an issue which was not the subject matter of reassessment.

Without prejudice to the above, on facts and circumstances of the case and in law, the Ld. PCIT has erred in issuing a Notice and passing an order under section 263 of the Act when a sum of Rs. 33,00,000/- was paid back in the latter year and the remaining amount was shown as outstanding in the books of account.

Without prejudice to the above, on facts and circumstances of the case and in law, the Ld. PCIT has erred in issuing a Notice and passing an order under section 263 of the Act when a sum of Rs. 7,37,676/- is written off and offered to tax in AY 2019-20.

On facts and circumstances of the case and in law, the Ld. PCIT erred in observing that no details were filed, whereas the appellant has filed the detailed submission along with the copy of the ledger account hence, the Revision order may be quashed and set aside.

10.

Without prejudice to the above the amount which is shown as outstanding in the books of account and acknowledged in the balance sheet cannot be assessed under section 41(1) of the Act.

3. Facts of the case are that the ld.PCIT on perusal of the assessment records for the relevant year noticed that the assessee had shown Trading liability of Rs.3,13,65,060/- out of which Rs.1,88,54,960/- was liability against one Zhejiang andRs.1,25,10,400/-against Jiangsu Go Intl Group Hua Tai Import & Hengdian Apeloa Imp & Exp Co. Ltd. It was observed that it had purchased materials from aforesaid parties in June 2012 and sold to M/s Act Gen Pharma(‘AGP’) in July 2012.The goods from the aforesaid parties were stated to be inferior and as there were no payments against the sale goods, the assessee did not make any payment to aforesaid parties. Its creditors preferred an appeal before the Hon’ble Bombay High Court which vide an order29.01.2018 dismissed the winding up petitions filed by the creditors. Being aggrieved, the creditors preferred appeal before Hon’ble ITAT Mumbai Division Bench (Appeal No.122 of 2018 and in Appeal No 129 of 2018). However, the Division Bench upheld the previous order passed by the Single Bench and dismissed the petition of the creditors vide order dated 30.07.2018.

3.1 He also noticed that the assessee had contended that the dispute was settled only in F.Y.2018-19 relevant to A.Y. 2019-20 and thus, the cessation of liability u/s 41(1)(a) of the Act could not be invoked for the F.Y.2017-18 relevant to A.Y.2018-19. Also, the trading liability of Rs.3,13,65,060/- was set off with the amount not received from the debtors AGP of Rs.2,99,93,196/- and the balance of Rs.13,72,164/- was shown as income in A.Y. 2020-21.This contention of the assessee was accepted and hence, no addition was made by the Ld. Assessing Officer while passing the reassessment order.

3.2 However, the ld.PCIT further observed that since such trading liability was outstanding for more than 3 years in F.Y. 2017-18 i.e. AY 2018-19 itself, the same was required to be treated as ceased liability in A.Y. 2018-19 only. As the matter was sub-judice in F.Y.2017-18 and the decision of appellate authority came in F.Y. 2018-19 against the assessee, hence as per provision of section 41(1) of the Act, such liability was required to be taxed in A.Y. 2018-19. Although the assessee had set off the said ceased liability considering the sales to similar goods to AGP, it was evident that the assessee had not produced any genuine details whether AGP had offered such income in their books of accounts considering it to be ceased liability due to non-payment to the assessee. Hence, he concluded that the above ceased liability to the extent of Rs.3,13,65,060/- was required to be disallowed and added back to total income of the assessee in A.Y. 2018-19 which was not done by the AO during assessment proceedings. Omission to do so by the AO had resulted in under assessment of income to the extent of Rs. 3,13,65,060/-.

3.3 It was further observed by him that the assessee in its Balance Sheet had shown Trade Payable of Rs.3,86,91,703/- which was outstanding for more than one year. Since aforementioned transaction was shown outstanding for more than 3 years in assessee’s books of accounts, the difference of trade payable of Rs.73,26,643/-[Rs.3,86,91,703 — Rs.3,13,65,060] which was shown outstanding for more than one year by the assessee, being “Ceased Liability” u/s. 41(1) Act, could not be ruled out. These aspects were required to be examined which was not done during the assessment proceedings. The ld.PCIT concluded that it was clear that the assessment order dated 07.03.2023 u/s. 147r.w.s. 148 of the Act passed by the AO was erroneous within the meaning of section 263 of the Act. The AO was directed to pass a fresh order in accordance with the law and after making necessary enquiries and providing sufficient opportunity to the assessee in accordance with the principles of natural justice.

4. Before us, the ld.AR has contended that the assessee is engaged in the trading business, importers, exporters etc. During the Financial Year 2012-13,it entered into high-seas trading transactions. It imported goods from Jiangsu Go Inti Group Hua Tai Import & export Co, China and Zhejaing Hengdian Apeloa Imp & Exp Co Ltd. to the tune of Rs. 1,25,10,400/-and Rs. 1,88,54,960/- from China, respectively and sold them to Mr. Vijay Hirani of ACG, while the goods were in transit. Income was offered in the year 2012-13.The goods received by ACG were of an inferior quality, and therefore, they did not make any payment to the assessee. The assessee could not make any payment to the above two creditors. The amount stood as a liability in the books of the assessee. It is further submitted that the case of the assessee for AY 2014-15 was selected for scrutiny by the AO and an addition was made of Rs. 3,13,65,360/- under section 41(1) of the Act. The ld. CIT(A) passed an order dated December 03, 2018 deleting the addition on the ground that matter was sub-judice, hence liability had not ceased to exist and provision of section 41(1)(a) of the Act could not be invoked. The Hon’ble ITAT for AY 2014-15 allowed the appeal of the assessee. The ITAT observed that the winding-up petitions concluded only in AY 2018-19.However,it did not mention the appeal filed by the creditors to the division bench of the Hon’ble High Court for recovery, which was decided on July 30, 2018, although the details were submitted.

4.1 It is explained that the assessee filed its return of income for AY 2018-19 declaring an income of 63,14,210/-. It received a notice under section 148A(b) of the Act on March 09, 2022 wherein the information stated that Rs. 3,13,65,060/-had escaped assessment and the same was liable to be taxed under section 41(1) of the Act. The assessee, in its response provided a copies of all the judgements in the winding up petitions and also a copy of the fact sheet that was filed before the Tribunal for AY 2014-15 to demonstrate that there has been no cessation of liability in AY 2018-19.Theassessee furnished further information i.e. Balance sheets, sales ledger, invoices, audit report etc. It also explained that the sum of Rs. 3,13,65,060/-, which was not paid, had been set off against the amount not received of Rs. 2.99,93,196/-and the balance of Rs. 13,72,164/-had been offered as income in AY 2020-21. After being satisfied with the documents and submissions made, the AO vide order u/s 148 read with section 143(3) of the Act, accepted the return of income filed by the assessee.

4.2 The ld.AR has vehemently argued against the impugned order advancing various propositions. At the outset, it is contended that the reassessment order is neither erroneous nor prejudicial to the interest of the Revenue, and the order of the AO was a speaking order after application of mind. The creditors preferred an appeal against the winding-up orders of the Bombay High Court, which was decided on July 30, 2018; hence, there was no cessation of liability in AY 2018-19.Further, the assessee had offered the amount to tax in AY 2020-21, which has been considered by the AO while passing the assessment order. The rate of tax for companies in AY 2019-20 and 2020-21 are the same. Therefore, the revenue has received its share of taxes and there is no prejudice to the interest of the revenue. The sum is offered for income and hence there is no loss of revenue. Hence, there is no cessation of liability of Rs. 3,13,65,060/-in AY 2018-19.Reliance in this regard is placed on the decision of the hon’ble Jurisdictional High Court in the case of CIT v. Nagri Mills Co. Ltd. [1958] 33 ITR 681 (Bombay). It is also sub mitted that the Hon’ble Jurisdictional High Court in the case of CIT v. Aditya Builders (Bombay) where the assessee had paid the taxes under a different method of accounting, it was held that the most appropriate method of accounting to correctly reflect a true financial statement is a matter of opinion and debate, which is not amenable to revisional jurisdiction under section 263 of the Act. Hence, it is prayed that the assessee has offered the sum as income in the subsequent year and the order of the AO is not prejudicial to the interest of the revenue.

4.3 It is further argued that the AO had taken a possible view in the reassessment order. The reassessment was for the purpose of examining cessation of liability. He vide notice dated January 16, 2023, asked a specific question pertaining to cessation of liability. The assessee replied with supporting documents. Considering the submissions, the AO passed a detailed order referring to the submissions and concluding that the liability did not cease in AY 2018-19.Reliance is placed on the decision of the Hon’ble Jurisdictional Tribunal in the case of Sir Dorabji Tata Trust v. Dy. CIT (Mumbai – Trib.)and CIT (Central) v. Development Credit Bank Ltd. ITR 206 (Bombay).

4.4 Without prejudice to the above, it is contended that the liability did not cease in AY 2018-19.The creditors preferred an appeal against the winding-up orders of the Bombay High Court which was decided on July 30, 2018; hence, there is cessation of liability in AY 2019-20.This is mentioned in the assessment order. Hence, there is no cessation of liability of Rs. 3,13,65,060/-in AY 2018-19.

4.5 In respect to the other issue of Creditor of Rs. 73,26,643/-, it is submitted this was never the issue raised in reassessment. It is a settled law that if the issue for which the case is reopened is dropped, a fresh notice has to be issued if, at all, some other issues need to be examined. Reliance is placed on the decision of hon’ble Bombay High Court o in the case of CIT v. Jet Airways (I) Ltd. (Bombay)and Pr. CIT v. Shark Mines and Minerals (P.) Ltd. (Orissa) wherein it was held that revision powers cannot be extended to additions that could not have been made by the AO. It is also submitted that a sum of Rs. 33,00,000/- was paid back. Further, a sum of Rs. 33,00,000/- was no longer outstanding as the sum had been paid back. Hence, it could not be said that there was a cessation of trading liability of Rs. 33 lakhs. Besides, a sum of Rs. 7,37,676/- was written off and offered to tax in AY 2019-20. Hence, it could not be said that there was cessation of trading liability of Rs. 7,37,676/-.

5. We have carefully considered rival submissions and have also perused the records. It is noticed from the reassessment order which is subject matter of revision that the proceedings were initiated u/s 148 of the Act by the AO on the issues of cessation liability only. The AO issued show cause notice u/s 148A(b) dated 9.3.2022 and after receiving the response of the assessee issued notice u/s 148 of the Act. Necessary compliances were duly made subsequently by the assessee by filing return u/s 148 of the Act and filing subsequent compliances to notices u/s 143(2) and 142(1) of the Act. As evident from the pages no. 149 and 150 of the factual Paper Book submitted before the Bench that the assesse submitted its reply alongwith relevant details and orders. As per para 4 of the order on page 4, the AO concluded after taking into consideration all documents and evidences by the assessee filed in response to the notice u/.s 148 of the Act,no addition was made. Thus, it is evident that after due application of mind based on the replies of the assessee, the AO was of the opinion that no addition was called for in the impugned assessment year, thus differing from the observations of the ITAT. In so far as the other issue of Rs 73,26,643/- is concerned, we find that the ld.PCIT has observed that the issues needed to be examined by the AO. In this regard, the ld.AR has contended that financials for last three previous years were submitted during assessment proceedings and were duly examined by the AO. He has verified and examined all the details and applied his mind and no adverse view was taken. It was submitted that as per Sundry creditors outstanding for more than a year Rs 73,26,343/- comprised of Rs 65,88,667/-out of which Rs 33,00,000/- was paid and remaining amount of Rs 32,88,667/- was outstanding in the books of the assessee as well as in the books of the creditor B.J. International. The other sum of Rs 7,37,676/- pertained to Eskaybee International P.Ltd was written back and offered for income in AY 2019-20.Relevant ledger folios were also placed on record. Therefore, we find that the AO has taken one of the two possible course permissible under law and in such a situation, it cannot be inferred that the assessment order was erroneous or prejudicial to the interest of the Revenue.

5.1 We notice that the ld.PCIT had simply directed to invoke section 41(1) because the amounts were outstanding for three years but there were no evidences brought by him that the liability had really ceased to exist. In our view, it is now a settled judicial view that the time-factor is not relevant for the purpose of section 41(1) of the Act. The revenue has to either demonstrate that the liability has really ceased to exist or the assessee has written off the liability in its books of account. We place reliance upon the decision of the Hon’ble jurisdictional high court in case of Pr. CIT v. Batliboi Environmental Engineering Ltd. ITR 238 (Bombay), wherein it was held as under:

11. Section 41(1) of the Income-tax Act. 1961 Remission or cessation of trading liability (General) – Assessment year 2011-12-Assessee had many creditors whose payments were outstanding for more than three years and some transactions were eight to nine years old Assessing Officer treated amount due to creditors as assessee’s income and added under section 41(1)-Commissioner (Appeals) deleted addition Tribunal upheld view of Commissioner (Appeals) – Revenue submitted before High Court that because liability was barred by period of limitation, same would be treated as income and added under section 41(1) to income of assessee. Whether merely because liability was barred by time, it did not cease to be debt and, thus, Tribunal was right in upholding view of Commissioner (Appeals) – Held.yes [Para 6] [In favour of assessee]

5.2 We also noticed that the assessee had paid liability of few creditors and in respect of remaining creditors, written off in subsequent years and shown as its income. Therefore, once an income tax is paid on the said written off then the said income cannot be taxed twice. Reliance in this regard is being placed on the decision of the Hon’ble Supreme Court in Laxmipat Singhania v. CIT [1969] 72 ITR 291 (SC), wherein the Hon’ble Supreme Court has observed that “It is a fundamental rule of law of taxation that, unless otherwise expressly provided, income cannot be taxed twice. Similar view was taken by the Hon’ble Apex Court in Jain Brothers v. Union of India [1970] 77 ITR 107 (SC) and Mahaveer Kumar Jain v. CIT ITR 738 (SC)/Civil Appeal No. 4166 of 2006.

5.3 The AO has taken a reasonable view by allowing the claim of the assessee to which the ld. PCIT does not concur with as he holds a different view of the impugned issues. In this connection, reference is made to the decision of Hon’ble Bombay High Court in the case of Commissioner to Income-tax v. Gabriel India Ltd. (Bombay)/[1993] 203 ITR 108 (Bombay) where the hon’ble Bombay High Court held as under:-

“An order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because according to him the order should have been written more elaborately. This section does not visualise a case of substitution of judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and, left to the Commissioner, he would have estimated the income at a higher figure than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject-matter of revision because the second requirement also must be fulfilled.”

5.4 Further, we find that Hon’ble Apex Court in the case of CIT (Central) v. Max India Ltd. (SC)/[2007] 295 ITR 282 (SC) had held that where two views are possible and ITO has taken one view which ld. CIT does not agree the order of A.O, cannot be treated as erroneous order prejudicial to the interest of Revenue unless the view taken by the A.O is unsustainable in law. Hon’ble Bombay High Court in the case of CIT v. Nirav Modi [2017] 390 ITR 292 (Bombay) in the light of provisions of Section 263 of the Act, held as under:

“It is a settled position of law that powers under section 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions viz. the assessment order should be erroneous and prejudicial to the revenue. By erroneous is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no occasion to exercise powers of revision can arise. Nor can revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. This power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry. [Para 6] In this case, during the assessment proceedings, the Assessing Officer issued a query memos to the assessee, calling upon him to justify the genuineness of the gifts. The assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their bank accounts.

On perusal, the Assessing Officer was satisfied about the identities of the donors, the source from where these funds have come-and also the creditworthiness/ capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the assessment order passed thereon. Thus, this objection on the part of the revenue, cannot be accepted. It is next submitted that the donor had not been examined by the Assessing Officer. It is not in every case that every evidence produced has to be tested by cross examination of the person giving the evidence. It is only in cases where the evidence produced gives rise to suspicion about its veracity that further scrutiny is called for. If there is nothing on record to indicate that the evidence produced is not reliable and the Assessing Officer was satisfied with the same, then it is not open to the Commissioner to exercise his powers of revision without the Commissioner recording how and why the order is erroneous due to not examining the donors. Thus, this objection to the impugned order by the revenue is also not sustainable. It was next submitted that no enquiry was done by the Assessing Officer to find out whether the donor had received money from one ‘C’ as claimed. Nor any inquiry was done to find out whether the sister had in fact earned amounts on account of foreign exchange transactions as claimed by her. The enquiry of a source of source is not the requirement of law. Once the Assessing Officer is satisfied with the explanation offered on inquiry, it is not open to the Commissioner in exercise of his revisional power to direct that further enquiry has to be done. At the very highest, the case of the revenue is that this is a case of inadequate inquiry and not of ‘no enquiry. It is well settled that the jurisdiction under section 263 can be exercised by the Commissioner only when it is a case of lack enquiry and not one of inadequate enquiry.”

5.5 In the instant case, the AO was satisfied of the correctness of the claim of the assessee consequent to making an enquiry and examining the evidence produced by assessee. The satisfaction of the AO on the basis of the documents produced was not shown to be erroneous in the absence of making a further enquiry. Even if this view, in the opinion of the ld.PCIT is not correct, it would not permit him to exercise power under section 263 of the Act.

5.6 Further, the hon’ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. (Delhi)/[2011] 332 ITR 167 (Delhi) held that if the AO while making assessment has made an inadequate enquiry, that would not, by itself, give rise to the PCIT to pass order u/s 263, merely because he has different opinion in the matter. The relevant observations of the hon’ble Court are as under:-

“The submission of the revenue was that while passing the assessment order, the Assessing Officer did not consider the aspect specifically whether the expenditure in question was revenue or capital expenditure. That argument predicated on the assessment order, which apparently did not give any reason while allowing the entire expenditure as revenue expenditure. However, that, by itself, would not be indicative of the fact that the Assessing Officer had not applied his mind to the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reasons in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. One has to keep in mind the distinction between ‘lack of inquiry’ and ‘inadequate inquiry’. If there was any inquiry, even inadequate, that would not, by itself, give occasion to the Commissioner to pass orders under section 263 merely because he has different opinion in the matter. It is only in cases of ‘lack of inquiry’ that such a course of action would be open. In the instant case, the Assessing Officer had called for explanation on items in question from the assessee and the assessee had furnished his explanation.

6. In view of the above discussion and respectfully following the cited judicial decisions, we are of the considered opinion that the revision order passed u/s 263 of the Act is not sustainable as the ld. PCIT lacked jurisdiction to invoke the provisions. Thus, the revision order is quashed. The grounds of appeal of the assessee are therefore, allowed.

7. In the result, the appeal of the assessee is allowed.