2013 (2) TMI 16 - AT - Income Tax

Tax Tribunal affirms revision order for erroneous assessment under Section 263, emphasizing thorough scrutiny.

The Tribunal upheld the Commissioner of Income Tax's revision order under Section 263, finding the original assessment erroneous and prejudicial to ... Jurisdiction power u/s 263 by CIT(A) - exemption u/s. 10(38) on LTCG on transfer of equity shares of companies and units of equity oriented mutual funds - AO had omitted to examine the dates of acquisition of these shares and units - No evidence for receipt of dividends such as dividend warrants - AO ignored the provisions of Sec 14A - Held that:- Perusal of the assessment order passed by AO does not show any application of mind on his part. The evidence available on record is not enough to hold that the return of the assessee was objectively examined or considered by the AO as an order becomes erroneous because inquiries, which ought to have been made on the facts of the case, were not made and not because there is anything wrong with the order if all the facts stated or the claims made in the return are assumed to be correct. Thus, it is mere failure on the part of the Assessing Officer to make the necessary inquiries or to examine the claim made by the assessee in accordance with law, which renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing more is required to be established in such a case. Adverting to the facts of the present case, there is no enquiry by the AO as he just accepted the claim of set off of earlier year unabsorbed depreciation in the assessment year under consideration. The argument of the assessee that there are decisions in favour of the assessee. Therefore, the view adopted by the AO is one of the possible views. The general law on the question of revisional jurisdiction is that an order passed by the AO cannot be held to be erroneous, if the AO has followed one of the possible views on the subject. But in this case the AO not adopted any view on the issue raised by the CIT. Further, the assessee's counsel harped upon that the bonus shares of 56,400 were allotted to the assessee in relation to original equity shares of 28,200 and 14,408 bonus shares were allotted with regard to original shares held by the assessee at 8,209. In support of this, the assessee filed a letter dated 27th November, 2012 from Megasoft Ltd., Chennai. Carefully going through the arguments as well as contents of the letter from Megasoft Ltd. & comparing this letter with the Demat account it is noticed that as on 14th August, 2000 the assessee is holding only 8,209 shares. Consequent to this on 21st September, 2000 the assessee got bonus offer at 16,418 shares. Thus, the total balance on this date is at 24,627 shares. Later, on 27th September, 2000 there was an entry by transaction No. 3238 with narration 'by transaction No. 3238 by corporation action' at 56,400 shares. It is to be noted herein that there is no mention of anything about bonus offer or mention of any original shares in relation to which 56,400 shares were allotted. The argument of the assessee's counsel is totally misleading and faraway from truth. Being so, not in a position to give any credit to the letter filed by the assessee from Megasoft Ltd., as the Demat account having no mention about the original shares of 28,200 against which purported to be bonus shares were allotted. On this issue, we have no hesitation to confirm the order of the CIT who has taken great pain in bringing the various true facts related with this issue. Regarding the other issue, the CIT has only given the direction to the AO to enquire and redo the assessment in accordance with law. No infirmity in the order of the CIT passed u/s. 263 and the same is confirmed - against assessee. Issues Involved:1. Validity of the Revision Order by the Commissioner of Income Tax (CIT).2. Examination of the dates of acquisition of shares for capital gains exemption.3. Submission and examination of Demat accounts.4. Evidence of receipt of dividends for exemption under Section 10(34).5. Classification of interest income.6. Disallowance of expenditure related to exempt income under Section 14A.7. Examination of the original assessment process by the Assessing Officer.Issue-wise Detailed Analysis:1. Validity of the Revision Order by the Commissioner of Income Tax (CIT):The assessee challenged the revision order passed by the CIT under Section 263, claiming it was contrary to law and based on presumptions and guesswork. The CIT had set aside the original assessment order and directed a re-assessment. The Tribunal upheld the CIT's order, stating that the original assessment was erroneous and prejudicial to the interest of the revenue due to the lack of proper examination and inquiry by the Assessing Officer.2. Examination of the dates of acquisition of shares for capital gains exemption:The CIT noted that the Assessing Officer failed to examine the dates of acquisition of shares for which the assessee claimed long-term capital gains exemption under Section 10(38). The assessee had erroneously included short-term capital gains from the sale of bonus shares of IPCA Laboratories Limited as long-term capital gains. The CIT directed the Assessing Officer to bring the short-term capital gains to tax.3. Submission and examination of Demat accounts:The CIT observed that the Demat accounts for the relevant periods were neither called for nor furnished by the assessee. The Assessing Officer had completed the assessment without bringing on record any evidence regarding the dates of acquisition of equity shares. The Tribunal upheld the CIT's observation, emphasizing the necessity of examining the Demat accounts to verify the dates of acquisition.4. Evidence of receipt of dividends for exemption under Section 10(34):The CIT noted that no evidence for receipt of dividends was called for by the Assessing Officer or filed by the assessee to claim exemption under Section 10(34). The Tribunal upheld the CIT's direction to the Assessing Officer to examine the matter with reference to original dividend warrants and allow the exemption only if the assessee provides proper evidence.5. Classification of interest income:The CIT observed that the interest income of Rs. 11,89,745 should have been brought to tax under the head 'Income from other sources' instead of allowing deductions related to exempt income, which was against the provisions of Section 14A. The Tribunal upheld the CIT's direction to bring the entire amount of interest income to tax as 'Income from other sources.'6. Disallowance of expenditure related to exempt income under Section 14A:The CIT found that the Assessing Officer had allowed deductions of expenditure related to exempt income, ignoring the provisions of Section 14A. The Tribunal upheld the CIT's direction to disallow such expenditure and recompute the assessment accordingly.7. Examination of the original assessment process by the Assessing Officer:The Tribunal noted that the Assessing Officer had not properly examined or verified the claims made by the assessee regarding the acquisition of shares, receipt of dividends, and classification of income. The original assessment order was found to be a non-speaking order, passed without proper scrutiny or application of mind. The Tribunal confirmed the CIT's action in exercising revisional jurisdiction under Section 263 and directing a fresh assessment.Conclusion:The Tribunal dismissed the assessee's appeal, upholding the CIT's revision order under Section 263. The original assessment was found to be erroneous and prejudicial to the interest of the revenue due to the lack of proper examination and inquiry by the Assessing Officer. The Tribunal emphasized the necessity of proper scrutiny and verification in the assessment process to ensure the correctness of the claims made by the assessee.