In the case of Vitthaldas Nathubhai Shah v. Pr. CIT-3, decided by the Income Tax Appellate Tribunal (ITAT), Ahmedabad on 24 September 2025, the Tribunal examined the validity of a Section 263 revision order issued by the Principal Commissioner of Income Tax. The revision pertained to the assessee’s claim of deduction under Section 80GGC of the Income Tax Act for a donation made to a political party.
The PCIT alleged that the donation was part of a bogus political funding scheme and that the Assessing Officer (AO) had failed to conduct adequate inquiry. However, the Tribunal found that the AO had issued detailed notices, obtained all relevant evidence—including bank statements and donation receipts—and verified the genuineness of the claim before completing the assessment. As no direct evidence linked the assessee to any wrongdoing, and the AO had already made a proper enquiry, the Tribunal held that the revision under Section 263 was unsustainable in law.
This decision reinforces the settled legal principle that a difference of opinion or inadequate inquiry cannot justify a revision under Section 263, unless the assessment is both erroneous and prejudicial to the interests of the Revenue.
Facts & Procedural History
- Assessee & Return Filing
The assessee filed his return for AY 2020-21 (on 5 February 2021), declaring a total income of ₹1,01,09,280. - Scrutiny & AO’s Notice
The case was selected for limited scrutiny under CASS, specifically for verification of Chapter VI-A deductions.
The AO issued a notice under section 142(1) (on 5 November 2021), calling for details, documentary evidence, bank statements, etc. - Submission by Assessee
In reply (17 November 2021), the assessee furnished:- Audited accounts
- Computation of income
- Bank statements / passbooks
- Receipts for donations to political parties (including ₹15,00,000 to “Kisan Party of India”) under section 80GGC
- Assessment Order
The AO, after examining the submissions and verifying the evidences, accepted the 80GGC deduction claim and completed the assessment under section 143(3) read with 144B on 25 August 2022. - PCIT’s Revision under Section 263
Subsequently, the Principal Commissioner of Income Tax (PCIT) initiated revision under section 263, contending that:- The annotated political party (Kisan Party of India) had been subjected to a search under section 132 in March 2021.
- The search revealed a “bogus donation racket” in which donations via banking channels were allegedly routed back to donors in cash after retaining commission.
- The PCIT held that the AO had not made “proper and meaningful enquiry” into the genuineness of the donation claimed and hence the assessment was “erroneous and prejudicial to the revenue.”
A revision notice under section 263 was issued on 16 January 2025.
- Assessee’s Objection
The assessee objected, inter alia, that:- The AO had made detailed enquiries (via the 142(1) notice) and accepted the explanations after verifying documents.
- The PCIT had not produced any specific adverse material (from the search or otherwise) linking the assessee’s particular donation to the alleged bogus scheme.
- The revisional jurisdiction cannot be invoked merely because PCIT disagrees with AO’s considered view.
- Tribunal’s Decision
The ITAT (Ahmedabad) allowed the appeal of the assessee and quashed the revision order. Key findings included:- AO had made enquiry: The AO had raised specific queries, obtained replies, and verified the documents (receipts, bank statements) before accepting the donation.
- No incriminating material specific to assessee: The PCIT did not place on record any document, statement, or finding from the search action that directly implicated the assessee’s donation. The PCIT’s case rested on general observations and audit objections, without establishing a nexus to the assessee.
- Distinction between “lack of enquiry” and “inadequate enquiry”: The Tribunal reiterated the settled legal principle that revision under section 263 is available only where there is a lack of enquiry (i.e. AO did nothing), and not where AO has made enquiries but the jurisdictional authority considers them insufficient.
- Substitution of opinion not permissible: The PCIT’s action effectively substituted his view for that of AO, which is not allowed under the limited scope of section 263.
- No error + no prejudice established: The Tribunal held that the assessment could not be said to be “erroneous” or “prejudicial to revenue” on the facts.
Accordingly, the impugned section 263 order was quashed.
Legal Principles & Take-Aways
From this decision and the factual matrix, the following legal principles emerge (reinforcing existing jurisprudence) as to when section 263 revision is or is not sustainable, especially in the context of 80GGC / political donation claims:
| Principle | Explanation / Judicial Support |
|---|---|
| Jurisdiction under section 263 is limited | It can be invoked only when the assessment is erroneous and prejudicial to the interests of the revenue, which implies a defect in the assessment (e.g. lack of enquiry) not merely a different view. (Citing Malabar Industrial Co. Ltd. v. CIT, High Court / Supreme Court principles) |
| AO’s plausible view after enquiry protects against revision | Where the AO, after issuing notices, obtaining replies, examining documents, takes a plausible and reasonable view, PCIT cannot disturb it merely because it disagrees—with no additional incriminating material. |
| Need for specific adverse material | General adverse findings (for instance, search findings against a political party) are not enough unless there is specific material linking the assessee’s donation to the wrongdoing. |
| Distinction: lack of enquiry vs inadequate enquiry | If the AO made no inquiry at all, revision may be justified; but if he made some inquiry (even if PCIT deems it inadequate), that alone is not sufficient to invoke revisional jurisdiction. |
| Non-speaking order is not fatal when the claim is accepted | The AO’s acceptance of a claim, after verification, does not always require elaborate reasons in the assessment order. The requirement for a speaking order is much more critical when making additions or disallowances. |
Thus, this case strengthens the protective bulwark for assessees in genuine donation claims under 80GGC, especially when AO has actively and meaningfully engaged with the claim.