ITAT Delhi holds Section 263 revision unsustainable where reassessment enquiry already made on demonetisation cash deposits

1. Background and procedural history

The Income Tax Appellate Tribunal, Delhi Bench, in the case of Sikka Infrastructure Pvt Ltd Vs ACIT (ITAT Delhi), ITA No. 2362/DEL/2024, by order dated 18.02.2026, set aside a revisionary order passed by the ld. PCIT, Central, Delhi under Section 263 of the Income Tax Act 1961 for A.Y. 2017-18.

The assessee, M/s Sikka Infrastructure Private Limited, is engaged in the construction and infrastructure sector, a line of business that typically involves substantial cash handling. For A.Y. 2017-18, the assessee filed its original return of income under Section 139(1) on 31.10.2017, declaring Nil income. The case was selected for scrutiny, and an assessment order was passed under Section 143(3) on 31.12.2019, accepting the returned income without making any addition.

Subsequently, based on information from the Investigation Wing regarding cash deposits during the demonetisation period, the assessment was reopened by issue of notice under Section 148 on 30.06.2021. The information indicated that:

  • Cash of Rs. 2,06,00,000/- was deposited during the demonetisation window, as against
  • Cash deposits of Rs. 27,90,750/- made during the preceding seven months prior to demonetisation, and
  • Cash deposits aggregating Rs. 2,33,90,750/- were allegedly not properly reflected in the return.

Following reassessment proceedings, the Assessing Officer (AO) framed an order under Section 143(3)/147 on 30.03.2022, accepting the return filed in response to notice under Section 148, after examining the issue of cash deposits.

Thereafter, the ld. PCIT invoked his revisionary jurisdiction under Section 263 on 31.01.2024, alleging that the AO had not carried out adequate inquiry into the source of Rs. 1,95,00,000/-, and directed the AO to make an addition under Section 68, along with application of Section 115BBE. This order under Section 263 was challenged by the assessee before the ITAT.

2. Core dispute under Section 263

2.1 PCIT’s reasoning

The Section 263 order proceeded on the following key assumptions and conclusions:

  • The assessee had claimed that cash of Rs. 1,95,00,000/- deposited during the demonetisation period was sourced from cash lying as imprest to staff of Rs. 2.35 crore as on 20.03.2016.
  • Examining the return and balance sheet for the preceding year (A.Y. 2016-17), the ld. PCIT noticed:
    • Cash in hand disclosed as on 31.03.2016 was only Rs. 15,83,633/-.
    • The balance sheet, according to the PCIT, did not specifically show an item titled “imprest to staff” for the figure of Rs. 2.35 crore.
  • On this basis, the ld. PCIT concluded that:
    • The source of Rs. 1,95,00,000/- was not properly established.
    • The AO had failed to make adequate inquiry regarding the genuineness and source of this cash.
    • Consequently, the reassessment order was both erroneous and prejudicial to the interests of the Revenue within the meaning of Section 263.

Accordingly, the ld. PCIT:

  • Directed the AO to treat Rs. 1,95,00,000/- as unexplained cash credit under Section 68, and
  • Applied Section 115BBE to tax such income at the prescribed higher rate.

2.2 Assessee’s stand

Before the Tribunal, the ld. counsel for the assessee argued that:

  • The very jurisdictional foundation of the Section 263 order was flawed, as there was no “lack of enquiry” by the AO.
  • During reassessment:
    • The AO had raised focused queries on cash deposits during demonetisation and their source.
    • The assessee had filed detailed replies, its audited balance sheet, schedules and supporting records.
    • The AO, after considering this material, consciously accepted the explanation and did not make any addition.
  • Once the AO has conducted a proper enquiry and adopted a plausible view, the Commissioner cannot invoke Section 263 merely because he holds a different opinion or believes that more or deeper enquiry should have been undertaken.

The assessee relied heavily on the distinction between:

  • Total absence of enquiry, which may justify Section 263, and
  • Enquiry that the Commissioner considers inadequate, which cannot.

It was also pointed out that: