Jurisdiction under Section 263 cannot be invoked where Assessing Officer conducted enquiry and no revenue prejudice exists.

The Appellant-Assessee, a digital marketing firm, buy media space (Google, LinkedIn, etc.) for clients and recovers the costs as "reimbursement of expenses," recognizing only its 4-7% commission as revenue.

For A.Y. 2017-18, the Assessing Officer (AO) conducted a scrutiny assessment under Section 143(3), issuing notices under Section 142(1) and a show-cause notice regarding a ₹19.07 crore discrepancy between Form 26AS/Service Tax returns and the P account.

The Assessee provided detailed reconciliations and party-wise reimbursement details, which the AO accepted, making only a minor addition.

Subsequently, the PCIT invoked revisionary powers under Section 263, alleging "lack of inquiry" into the nature of reimbursements and TDS compliance.

The ITAT upheld the PCIT’s order, primarily citing the Assessee's non-appearance before the PCIT and potential deficiency in the AO's verification.

1. Whether the ITAT was justified in upholding the revision order under Section 263 despite the AO having examined the issue of revenue reconciliation and reimbursement during original assessment?

2. Whether the non-appearance of the Assessee before the PCIT is a sufficient ground to sustain a Section 263 order if the assessment record contains the relevant inquiries?

3. Whether the original assessment order was "erroneous" and "prejudicial to the interests of the revenue"?

The court applied Section 263 of the Income Tax Act, 1961, which requires the satisfaction of twin conditions—the order must be "erroneous" and "prejudicial to the interests of revenue"—to exercise revisionary jurisdiction.

CIT v. Gabriel India Ltd., establishing that a Commissioner cannot substitute their judgment for the AO’s if the AO has conducted inquiries and taken a "plausible view," even if the order is not elaborate.

PCIT v. Prabhu Poly Pipes Ltd. and CIT v. Chandan Magraj Parmar, holding that where specific queries were raised and answered during scrutiny, the PCIT cannot allege "lack of inquiry" merely because the AO did not discuss the details in the final written order.

The High Court found that the ITAT's reasoning was inherently contradictory; the ITAT admitted that all relevant information was on record before the AO, yet upheld the revision solely due to the Assessee’s non-appearance before the PCIT.

The Court observed that the AO had issued specific notices (21 Oct 2019 and 07 Dec 2019) regarding the mismatch in turnover and service tax returns, to which the Assessee had provided exhaustive reconciliations.

Since the AO applied his mind to these replies, it was not a case of "lack of inquiry".

Furthermore, the Court noted no "prejudice" to the revenue existed because the transaction was revenue-neutral; even if reimbursements were added to income, the corresponding payments to media companies would be deductible expenses.

The Court distinguished Ballarpur Industries Ltd. and Sify Software Ltd., noting that in those cases, the AO had failed to raise any query, whereas here, the AO had conducted specific verification.

The Court quashed and set aside the ITAT’s order dated 2 January 2023, thereby restoring the original assessment order.