Section 263 Revision Quashed: Partial Verification of Documents After Search Does Not Amount to "No Enquiry" — ITAT Bangalore

Case Background

Case Name: Byrapura Gowde Gowda Deepu Vs DCIT (ITAT Bangalore)
Appeal Number: ITA 2540/BANG/2026
Date of Order: 16/09/2026
Assessment Year: 2023-24

The Income Tax Appellate Tribunal, Bangalore Bench, delivered a significant ruling on the scope and limitations of revisional jurisdiction under Section 263 of the Income Tax Act, 1961. The Tribunal quashed a revision order passed by the Principal Commissioner of Income Tax (PCIT), holding that where an Assessing Officer (AO) has conducted genuine enquiry into seized materials and reached an independent conclusion — even if not exhaustive — the PCIT cannot invoke Section 263 merely on the ground that the inquiry was insufficiently wide.

Facts of the Case

The assessee carried on profession as an architect and Vastu consultant through a proprietorship concern called Design Studio and Architect (DSA). He was also a partner in M/s Shri Balaji Saravara and M/s DSC Constructions & Developers. For Assessment Year 2023-24, the assessee filed his return of income under Section 139(1) of the Income Tax Act, 1961 on 29-09-2023, declaring income of Rs. 46,97,800/-.

A search operation under Section 132 of the Income Tax Act, 1961 was conducted at the assessee's premises on 14th October 2023. The search team seized:

  • Cash of Rs. 41,21,52,000/-
  • Jewellery valued at Rs. 10.43 crore
  • Luxury watches worth Rs. 1.7557 crore
  • Pocket diaries, scribbling pads, loose sheets and digital records containing transaction notings

Statements of the assessee were recorded on multiple occasions under Section 132(4) and Section 131(1) of the Income Tax Act, 1961, both during and after the search. Statements of employees, associates, and certain clients were also recorded in connection with the seized materials.

Assessment Proceedings and Additions Made

Following the search, the assessee's return for AY 2023-24 was selected for compulsory scrutiny. The AO completed the assessment under Section 143(3) of the Income Tax Act, 1961 vide order dated 31st March 2025, assessing total income at Rs. 2,77,42,580/- against the returned income of Rs. 46,97,800/-, thereby making an addition of Rs. 2,30,44,780/-.

The addition was based on the assessee's own working of transactions derived from seized diaries and Excel sheets, but the AO rejected the percentage of fees claimed by the assessee and independently applied higher rates, arriving at his own computation. The AO did not accept the assessee's explanation in its entirety and drew independent conclusions from the material on record.

PCIT Initiates Revision Under Section 263

Within fourteen days of the assessment order, the PCIT issued a show-cause notice under Section 263 of the Income Tax Act, 1961 on 15th April 2025. The PCIT's primary concern was that:

  1. The seized documents reflected transactions aggregating to approximately Rs. 71 crores for AY 2023-24.
  2. Although the assessee had produced over 2,000 bills, vouchers and payment receipts, the AO had verified only about 10% to 12% of these documents.
  3. The true nature of transactions in the seized documents was not fully ascertained.
  4. The identity of persons connected with the seized entries had not been established.
  5. It was not determined whether the entries represented actual receipts/payments or mere estimates.
  6. No independent investigation was conducted to corroborate seized materials with supporting assets or evidence.

Based on these observations, the PCIT concluded that the assessment was passed without making necessary enquiries within the meaning of Explanation 2(a) to Section 263 of the Income Tax Act, 1961, and set it aside with a direction to the AO to conduct fresh assessment after thorough cross-verification.

The PCIT also referred to assessments for other assessment years (AY 2019-20 to AY 2022-23 and AY 2024-25) which, in his view, demonstrated that the AO's verification for AY 2023-24 was inadequate.

Arguments Before the Tribunal

Assessee's Contentions

The assessee's Authorised Representative (AR) made the following submissions before the Tribunal: