Adequacy of enquiry by an Assessing Officer constitutes a question of fact, not a substantial question of law.

The assessee filed its return of income for Assessment Year (AY) 2015-16, which was selected for scrutiny.

The Assessing Officer (AO) passed a scrutiny assessment order under Section 143(3) of the Income Tax Act (the "Act") on May 31, 2017

The Principal Commissioner of Income Tax (PCIT) reviewed the order and, finding it erroneous and prejudicial to the interest of the revenue, issued a notice under Section 263 of the Act.

On March 27, 2021, the PCIT set aside the AO’s order, directing a fresh enquiry into three issues: taxability of payments to Avenue Venture Real Estate Fund, deductions under Section 35(2AB), and commission payments to M/s Reynolds Petro Chems Ltd

The assessee appealed to the Income Tax Appellate Tribunal (ITAT), Patna, which quashed the PCIT’s order on June 20, 2022, restoring the AO's original assessment

The Revenue then filed the instant Miscellaneous Appeal before the High Court

1. Whether the ITAT was correct in law by accepting the assessee’s claim under Section 35(2AB) solely because a similar issue was dropped by the PCIT, Mumbai?

2. Whether the ITAT's order improperly restricted the PCIT’s powers under Section 263 to direct a reframing of the assessment order where no proper enquiry or investigation was conducted by the AO?

3. Whether the ITAT was justified in holding that the PCIT was not authorized to explore the taxability of Rs. 20,17,86,432/- given the alleged lack of enquiry by the AO?

4. Whether the ITAT was justified in quashing the Section 263 order regarding commission payments of Rs. 1,61,83,762/- where the PCIT observed a lack of proper verification?

Section 263 of the Income Tax Act, which empowers the Commissioner to revise orders that are "erroneous in so far as they are prejudicial to the interests of the revenue"

Section 263 cannot be invoked if the AO has conducted a reasonable enquiry, even if the assessment order does not contain a detailed discussion on every issue

CIT, Patna v. Mr. Mukul Kumar (2009) 4 PLJR 417, which held that if materials on record demonstrate that an enquiry was made regarding expenditure, the ITAT is justified in quashing a revisionary order

The Revenue contended that the AO's failure to discuss specific issues in the assessment order constituted a "lack of enquiry," rendering the order erroneous

However, the court observed that the assessee had submitted invoices, TDS details, and explanations during the original assessment proceedings

The court reasoned that the language or brevity of an assessment order is the AO's prerogative and does not necessarily imply a lack of mind application or enquiry

By applying the Mukul Kumar precedent, the court noted that the ITAT had already performed a factual appreciation of the records and determined that the AO had indeed conducted a reasonable enquiry

Since the ITAT found that the AO took a "plausible view" based on the evidence, the court determined that the PCIT could not substitute its own view under Section 263

Since the ITAT had already concluded as a matter of fact that a reasonable enquiry was held, no "substantial question of law" arose for consideration under the High Court's appellate jurisdiction

Consequently, the High Court dismissed the appeal and upheld the ITAT’s order quashing the Section 263 revision