2022 (12) TMI 1389 - AT - Income Tax

Assessee prevails over PCIT in Income Tax Act challenge

The Tribunal found in favor of the assessee, quashing the Principal Commissioner of Income Tax's order under section 263 of the Income Tax Act. It held ... Revision u/s 263 - deduction u/s 54 EC beyond the stipulated period of six months - final payment was received on 24.12.2015 and the REC Bonds were purchased by the assessee on 30.06.2016 hence the statutory time limit has been exceeded - HELD THAT:- No case has been made out for exercise of power. The Revisionary Authority has held it to be a case where proper enquiries were not carried out and direction has been given to the AO to pass a fresh order after making necessary enquiries/investigation. Considering the replies on the queries raised based on the documents relied upon the AO has taken a plausible view on the facts. The Ld. PCIT, on the other hand, has not taken into consideration the full facts and has failed to bring out the error in the order and has also not cared to address the legal position as to why the interpretation given by the AO to the six month period can be said to be incorrect. On the other hand we find that the interpretation given by the ld. PCIT that the six month period should be interpreted on a day to-day basis instead of British Calendar month i.e. last date of the month is unsustainable in view of the legal position addressed earlier in this order. Thus, on a perusal of the material available on record, on the other hand find that the AO before passing of the order has made full and adequate enquiries on these issues. Accordingly, we find that the order passed by the ld. PCIT on this issue cannot be sustained. Capital Gain issue which has also been addressed by the Revisionary Authority in the impugned order, we find that it is an arbitrary order wherein the Revisionary Authority has not even cared to issue any Show Cause Notice to the assessee. We further find that on this issue also, the AO as per material available on record had enquired into the issues and thereafter passed the order. Accordingly, we find that the impugned order deserves to be quashed. We are of the view where on facts evidenced from the nature of queries raised, the reply available thereon, a plausible view is taken by the AO then in such circumstance a vested right is created in favour of the assessee. The Revisionary Authority referring necessarily to the assessment records available has to demonstrate in the order itself that the order passed is an unsustainable order necessitating the resort to the powers vested by Section 263 of the Act. The powers vested u/s 263 of the Act are not to be exercised merely because the powers are so vested. For unsettling a vested right accrued to the assessee by the passing of a valid order it is necessary and incumbent upon the Revisionary Authority to set out the error and the prejudice caused by the assessment order. The Revisionary Authority necessarily needs to see the records as available to the AO. The order cannot be passed on mere whims and fancies. The impugned order on a consideration of the peculiar facts and circumstances of the present case for the reasons herein above is quashed and the appeal of the assessee is allowed. Issues Involved:1. Jurisdiction under section 263 of the Income Tax Act.2. Consideration of assessee's replies and submissions.3. Assessing Officer's application of mind and scrutiny.4. Investment in bonds under section 54EC and sale of shares.5. Enquiry during revisionary proceedings.6. Overall correctness and sustainability of the Principal Commissioner of Income Tax's order.Issue-wise Detailed Analysis:1. Jurisdiction under section 263 of the Income Tax Act:The assessee challenged the jurisdiction of the Principal Commissioner of Income Tax (PCIT) under section 263, arguing that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal found that the PCIT's interpretation of the Memorandum of Understanding (MoU) was incorrect and incomplete. The Tribunal held that the Assessing Officer (AO) had made full and adequate enquiries before passing the order, and thus, the PCIT's assumption of jurisdiction was not justified.2. Consideration of assessee's replies and submissions:The assessee contended that the PCIT failed to consider various replies and submissions in the correct perspective. The Tribunal noted that the PCIT selectively considered part of the documents and ignored the rest. The Tribunal found that the AO had considered all relevant clauses of the MoU and other documents before passing the assessment order. Therefore, the PCIT's failure to consider the complete submissions of the assessee was arbitrary and unjustified.3. Assessing Officer's application of mind and scrutiny:The assessee argued that the AO had passed the assessment order after due application of mind and consideration of various replies and materials on record. The Tribunal agreed, stating that the AO had made full and proper enquiries on the issues before passing the order. The Tribunal emphasized that merely because the assessment order was cryptic did not make it erroneous or prejudicial to the interest of the Revenue. The AO's view was legally sustainable, and the PCIT's intervention was unwarranted.4. Investment in bonds under section 54EC and sale of shares:The PCIT questioned the exemption claimed by the assessee under section 54EC, arguing that the investment in REC Bonds was made after the expiry of six months from the date of receipt of the sale consideration. The Tribunal found that the AO had fully enquired into this issue and considered the legal position regarding the interpretation of 'month' as the last day of the month. The Tribunal held that the AO's view was correct and the PCIT's selective reading of the MoU was not justified.5. Enquiry during revisionary proceedings:The assessee claimed that the PCIT did not carry out any enquiry during the revisionary proceedings. The Tribunal confirmed that no additional Show Cause Notice or specific query was raised by the PCIT. The Tribunal held that the PCIT's action was sans jurisdiction and that the AO had already made due enquiries on the issues. Therefore, the PCIT's order was non-maintainable.6. Overall correctness and sustainability of the Principal Commissioner of Income Tax's order:The Tribunal concluded that the PCIT's order was erroneous, arbitrary, and unsustainable in law. The Tribunal emphasized that the powers under section 263 should not be exercised merely because they exist. The PCIT failed to demonstrate the error and prejudice caused by the assessment order. The Tribunal quashed the PCIT's order, stating that the AO's order was valid and legally sustainable.Conclusion:The Tribunal allowed the assessee's appeal, quashing the PCIT's order and upholding the AO's assessment order. The Tribunal emphasized the need for the Revisionary Authority to set out clear errors and prejudice in the assessment order before exercising powers under section 263. The Tribunal also highlighted the importance of considering all relevant documents and submissions in a holistic manner.