Where Assessing Officer Had Conducted Proper Enquiry, Revision Order by Commissioner under Section 263 Invalid: High Court

Case: Commissioner of Income-tax (Exemptions) v. Impact Foundation

ITA Nos.: 126 OF 2024

Court: Bombay High Court

Date of Order: 4 May 2026

Brief Facts:

• The assessee was a charitable institution registered under the Income-tax Act and entitled to exemption under sections 11 and 12. 

• During the relevant assessment year, the assessee had utilised ₹6 crores out of funds accumulated under section 11(2) in earlier years for charitable purposes.

• During assessment proceedings, the Assessing Officer issued notices seeking details regarding the accumulation and utilisation of such funds. In response, the assessee furnished details including Form No. 10, board resolutions, utilisation statements and supporting documents. After examining the material, the Assessing Officer accepted the claim and completed assessment at nil income.

• Subsequently, the Commissioner (Exemptions) invoked revisional jurisdiction under section 263 on the ground that the Assessing Officer had failed to conduct proper enquiry regarding utilisation of accumulated funds and that the assessment order was erroneous and prejudicial to the interests of the Revenue.

• The ITAT quashed the revisional order holding that adequate enquiries had already been conducted by the Assessing Officer. Aggrieved by the Tribunal’s decision, the Revenue filed an appeal before the Bombay High Court.

Observations:

The Court observed that:

• Before invoking section 263, the Commissioner must satisfy the twin conditions laid down by the Supreme Court in Malabar Industrial Co. Ltd., namely:

• The order of the Assessing Officer must be erroneous; and 

• Such error must be prejudicial to the interests of the Revenue. 

• The Court noted that the Assessing Officer had in fact issued specific notices calling for details regarding accumulation and utilisation of funds and that the assessee had furnished complete details including Form No. 10, board resolutions and utilisation records. Therefore, this was not a case of “no enquiry”.

• The Court held that merely because the Commissioner believed that further or deeper enquiry ought to have been conducted does not justify exercise of revisional jurisdiction under section 263. Once the Assessing Officer has conducted enquiry, applied his mind and adopted a plausible view, the Commissioner cannot invoke section 263 merely because another view is possible.

• The Court further observed that the Commissioner himself had not conducted any independent enquiry or verification to establish that the view taken by the Assessing Officer was erroneous or unsustainable in law. The revisional proceedings were therefore initiated merely on suspicion and conjecture, which is impermissible.

• The High Court also upheld the Tribunal’s finding that issues relating to non-utilisation of accumulated funds under section 11(3)(c), if any, could arise only upon expiry of the permissible accumulation period and not during the relevant assessment year itself.

• Further, the Court held that invocation of Explanation 2 to section 263 without specifically confronting the assessee in the show-cause notice was legally unsustainable, relying on the Supreme Court decision in Shreeji Prints (P.) Ltd.

  
  

Accordingly, the Court held that where the Assessing Officer had conducted enquiries and adopted a plausible view on utilisation of accumulated funds under section 11(2), the Commissioner (Exemptions) could not invoke section 263 merely for further enquiry. Since the Commissioner neither carried out independent verification nor confronted the assessee on Explanation 2 to section 263, the revision order was held unsustainable. The Revenue’s appeal was therefore dismissed and the ITAT’s order quashing the revision was upheld.