2016 (4) TMI 1452 - AT - Income Tax

Tribunal Overturns CIT's Jurisdictional Assumption, Upholds AO's Assessment Order

The Tribunal found that the Principal CIT wrongly assumed jurisdiction under Section 263 in challenging the AO's assessment order. It concluded that the ... Revision u/s 263 - issue of lack of application of mind of AO to the figures relating to purchase price and sale price of “beneficial interest” qua its market rate of Rs. 6.83 Crs - HELD THAT:- Principal CIT should clearly demonstrate the errors and revenue loss and not tax loss alone. Principal CIT is not allowed to assume jurisdiction u/s 263 under the guise of AO’s failure to conduct adequate inquiries. In principle, the aspect of AO’s failure is an unending process and it is difficult to find end to it. AO has to stop his inquiries somewhere given the time restrictions imposed on him for completing the assessment. Principal CIT cannot invoke the amended provisions of Explanation-2 (a) to section 263 of the Act to justify his order. We dismiss the Ld CIT-DR’s reliance on the order of the ITAT in the case of Crompton Greaves Ltd. [2016 (2) TMI 169 - ITAT MUMBAI] we find the same constitutes obiter dicta only and has no binding nature. In any case, we find that it is not a case of completing regular assessment “without making inquiries or verification, which should have been made” [clause (a) of Explanation-2 to section 263(1) of the Act is relevant]. The clause (a) reads as - 'The order is passed without making inquiries or verification which should have been made'. The above provisions apply only to the cases of orders passed by AO without making inquiries or verification at all, which should have been done. Unlike in the case of Marigold Nariman Pvt Ltd [2015 (8) TMI 174 - ITAT KOLKATA] heavily relied by the AO, in the instant case, AO made inquiries on the matter of transactions leading to short term capital loss. Therefore, in our opinion, the order passed u/s 263 of the Act on this issue is invalid. Generation of long term capital gains and assessee’s claim of the same u/s 10(38) - Assessee became the owner of such shares resultantly. These shares were traded involving the SE platform electronically and de-mat accounts of the parties involves evidences the same. There is no sustainable unfavourable finding of the fact by the Principle CIT on the rates / shares involved and payments. The allegation of the Principal CIT and Ld DR is that the AO should have done more probing into the transactions and the allegation of collusive / synchronous transactions. We also find that the AO undertook the cross verification exercise in order to verify the claims with broker. The proceedings initiated by the AO u/s 133(6) of the Act evidences the same. In our opinion, it is very clear that allegations by the Principal CIT are based on suspicion, which is unsustainable in law. There is no iota of evidence against the assessee that supports the collusiveness. Regarding as based allegations, we find that the principles of probability should take care. As such, we find there is no sustainable revenue loss reported by the Principal CIT. Actually, assessee gained in the process. In our opinion, as per the claim of assessee u/s 10(38) of the Act cannot constitute a revenue loss as it is otherwise a legitimate one. Thus, it is a case of suspicion of the Principal CIT rather than any allegations with substance. Therefore, we dismiss the finding of the Principal CIT and hold that the CIT has wrongly assumed jurisdiction. Long term capital loss on sale of shares - We find that the inquiries of the AO cannot be considered “perfunctory or inadequate”. We need to consider the time limitation to the AO / the work load on any AO of this period. On merits also, it is not the case of Principal CIT that preferential shares of RPG-CITHL are sold below price. There were sold at face values. Of course, after indexation benefits were claimed, the capital losses are reported. Regarding shares of Saregama, we find that they are “quoted shares” and the sale price are competitive even if they are “off-market transactions”. Prevailing price of the shares on Bombay Stock Exchange are placed on record. Regarding shares of CFL also, we find that the relevant financial statements reveals that the capital of company is eroded its worth and Chartered Accountants also certified this fact in their Annual Reports of the company. Regarding, purchase prices, we find that issue is not relevant to the year consideration. Reasons for the same includes that the shares in question were acquired in the earlier AYs and there are no new purchases in the year under consideration. We are of the opinion, the AO conducted reasonable inquiries into the basic facts material to the making of the assessment. It is obviously not the case of “lack of inquiries” by the AO during the assessment. The documentation cited above in this order suggest the above finding. We cannot understand why the AO should travel into zone of “purchase price” of the shares of CFC, Saregama RPGCITHL as they were acquired in the past. Any addition on the account of purchase price in this year is unsustainable in law. It is a settled legal principle. Any addition relating to investment should be made in the year of investment. Regarding sale price also, the same are competitive qua the prices quoted in BSE and the financials, as the case may be. No adverse data is placed by the CIT on records. CIT also failed to demonstrate the “loss of revenue” as required when he assumes jurisdiction u/s 263 - We also noticed that both the Principal CIT and CIT-DR have not listed / elaborated the meaning of the expression “all aspects” used by them while commenting on the AO’s failure to carryout inquiries. Thus, it is the case of AO conducting the inquiries during the regular assessment proceedings, forming an opinion in the matter with due application of his mind and not making any addition after due inquiries. With so much of evidence on records in support of the above, we cannot hold AO failed to make “meaningful inquiries”. Thus, we dismiss the arguments of Ld DR and allow the views of the Ld Counsel for the assessee. Accordingly, we hold, Principal CIT erroneously assumed jurisdiction on this issue too. Principal CIT cannot resort to “hit and run” approach. He is under legal obligation to enlist the details of inquiries not done by the AO, the manner of conducting such inquiries etc and quantify or demonstrate the revenue in clearly expressed language in his order. Therefore, on the facts of the present case and the settled legal propositions in force, we are of the opinion that the Principal CIT wrongly assumed jurisdiction u/s 263 on all these issues raised by him. Considering the inquiries done by the AO clearly made out in the records above, we are of the opinion that this is not the case of “inadequate inquiry or improper inquiry or perfunctory inquiry”. Therefore, we restore the order of the AO originally passed on 19.3.2014. Accordingly, ground nos.1 to 3 raised by the assessee are allowed. Issues Involved:1. Jurisdiction under Section 263 of the Income Tax Act.2. Non-application of mind by the Assessing Officer (AO) regarding transactions of purchase and sale of beneficial interest.3. AO's acceptance of long-term capital gains (LTCG) claim under Section 10(38) without sufficient inquiry.4. AO's acceptance of long-term capital loss (LTCL) claim without sufficient inquiry.Issue-wise Detailed Analysis:1. Jurisdiction under Section 263 of the Income Tax Act:The appeal challenges the Principal CIT's invocation of Section 263, claiming it was done without proper grounds. The Principal CIT issued a show-cause notice and revised the AO’s assessment order, citing lack of application of mind and insufficient inquiry into key transactions. The Tribunal examined whether the Principal CIT had valid grounds to assume jurisdiction under Section 263 and whether the AO’s order was erroneous and prejudicial to the interests of the Revenue.2. Non-application of mind by the AO regarding transactions of purchase and sale of beneficial interest:The assessee claimed a short-term capital loss of Rs. 17.68 Crs from the sale of beneficial interest, which the AO disallowed. The Principal CIT criticized the AO for not examining the purchase price of Rs. 45.31 Crs and the sale price of Rs. 27.63 Crs, especially when the market value was only Rs. 6.83 Crs. The Tribunal noted that the AO had disallowed the loss after examining relevant details, indicating that the AO did apply his mind to the transactions. The Tribunal concluded that the Principal CIT’s assumption of lack of application of mind was not justified, as the AO had conducted meaningful inquiries.3. AO's acceptance of LTCG claim under Section 10(38) without sufficient inquiry:The Principal CIT questioned the AO’s acceptance of the assessee’s LTCG claim of Rs. 30.66 Crs under Section 10(38), alleging the transactions were collusive and synchronous. The Tribunal found that the AO had examined relevant details, including broker notes and transactional dates, and conducted cross-verification exercises. The Tribunal held that the Principal CIT’s allegations were based on suspicion without tangible evidence, and the AO had conducted reasonable inquiries. Therefore, the Principal CIT’s assumption of jurisdiction on this issue was not valid.4. AO's acceptance of LTCL claim without sufficient inquiry:The Principal CIT raised concerns about the AO’s acceptance of the assessee’s LTCL claim of Rs. 15.93 Crs. The Tribunal reviewed the AO’s inquiries and found that the AO had examined relevant documents, including purchase and sale details, financial statements, and market prices. The Tribunal concluded that the AO had conducted adequate inquiries, and the Principal CIT’s assumption of jurisdiction on this issue was not justified.Conclusion:The Tribunal held that the Principal CIT wrongly assumed jurisdiction under Section 263 on all issues raised. The AO had conducted reasonable inquiries and applied his mind to the transactions in question. The Tribunal restored the original assessment order passed by the AO and allowed the appeal of the assessee. The order was pronounced in the open court on 20th April 2016.