Revisional jurisdiction under Section 263 is unsustainable where the Assessing Officer adopts a plausible view.

The assessee filed a return for Assessment Year 2014-15 declaring an income of ₹78,030.

The case was reopened under Section 147 of the Income Tax Act, 1961, based on information regarding transactions in "penny stocks" of Fist Fin Services Ltd. to claim Long Term Capital Gains (LTCG) exemption under Section 10(38).

The Assessing Officer (AO) passed an order under Section 147 r.w.s. 144B making an addition of ₹10,05,173.

Subsequently, the Principal Commissioner of Income Tax (PCIT) invoked revisional jurisdiction under Section 263, alleging the AO failed to verify transactions in another penny stock, Centron Ind, where the assessee claimed LTCG of ₹9,57,333.

The Income Tax Appellate Tribunal (ITAT) quashed the PCIT’s order, holding the AO had already verified the relevant documents.

The Revenue appealed to the High Court.

1. Whether the PCIT validly exercised revisional jurisdiction under Section 263 of the Act when the AO had already examined the relevant material during assessment.

2. Whether the lack of a specific addition regarding one of two penny stocks constitutes an "erroneous" order prejudicial to the interest of the revenue if a plausible view was taken by the AO.

Section 263 of the Income Tax Act, 1961, regarding the Commissioner's power to revise orders erroneous and prejudicial to the revenue.

Section 263 requires the fulfillment of twin conditions: the order must be both erroneous and prejudicial to the revenue; if an AO adopts one of two possible courses in law, the order cannot be termed erroneous.

Distinction between "lack of inquiry" and "inadequate inquiry".

The Court observed that during the assessment proceedings, the assessee had submitted voluminous evidence, including contract notes, bank statements, and demat account details for both Fist Fin Services Ltd. and Centron Ind.

The ITAT found as a fact that the AO had verified these documents and taken a "plausible view".

The PCIT cannot invoke Section 263 merely because he disagrees with the AO’s conclusion or believes the inquiry was "inadequate" rather than non-existent.

Since the assessee proved the shares were purchased via banking channels and sold at prevailing market prices on the stock exchange, the AO’s decision to satisfy himself with the explanation was a valid legal course.

The PCIT failed to provide independent reasons to show how the AO’s order was factually incorrect.

The AO’s order was neither erroneous nor prejudicial to the revenue as it was based on a verification of books and documents.

The High Court upheld the ITAT’s decision to quash the PCIT’s revisional order and dismissed the Revenue’s appeal.