2016 (12) TMI 1490 - AT - Income Tax

Tribunal overturns CIT's Section 263 decision, rules in favor of taxpayer

Smt. G. Lakshmi Versus DCIT, Circle-3 (1), Visakhapatnam

The Tribunal held that the Commissioner of Income Tax (CIT) erred in invoking Section 263 of the Income Tax Act as the reassessment order by the Assessing ... Revision u/s 263 - A.O. failed to examine cost of acquisition of an asset claimed by the assessee even though registered deeds shows cost of acquisition, which is less than the cost of acquisition claimed by the assessee - Held that:- On perusal of the facts available on record, we find that the A.O. has conducted detailed enquiry and also examined the issue of computation of cost of acquisition in the reassessment proceedings. The re-assessment proceeding was initiated for a specific purpose of examination of cost of acquisition claimed by the assessee. In the re-assessment proceedings, the A.O. after satisfied with the explanations offered by the assessee, has accepted explanations and completed assessment by accepting the income assessed in the original assessment. Once, the issues on which CIT wants further verification, have been considered by the A.O. at the time of assessment, the CIT cannot assume jurisdiction unless proved that the assessment order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue. In the present case, the assessment order passed by the A.O. is neither erroneous nor prejudicial to the interest of the revenue, therefore, the CIT was erred in assuming jurisdiction to revise the assessment order u/s 263 of the Act. We, therefore, set aside order passed by the CIT u/s 263 of the Act and restore assessment order passed by the A.O. u/s 143(3) r.w.s. 147 of the Act. - Decided in favour of assessee Issues Involved:1. Legitimacy of invoking Section 263 of the Income Tax Act by the CIT.2. Examination of cost of acquisition claimed by the assessee.3. Determination of short term capital gain from the sale of property.4. Validity of the reassessment order passed by the A.O. under Section 143(3) r.w.s. 147 of the Act.5. Consequential order passed by the A.O. under Section 143(3) r.w.s. 263 of the Act.Issue-wise Detailed Analysis:1. Legitimacy of Invoking Section 263 of the Income Tax Act by the CIT:The CIT issued a show cause notice under Section 263 of the Act, questioning why the assessment order by the A.O. should not be revised due to the A.O.'s failure to examine the cost of acquisition of the property claimed by the assessee. The CIT argued that the A.O. did not properly scrutinize the unregistered purchase agreements and the registered sale deeds, leading to an erroneous decision prejudicial to the revenue's interest. However, the assessee contended that the A.O. had already examined these documents during the reassessment proceedings, and the order was neither erroneous nor prejudicial to the revenue. The Tribunal found merit in the assessee's arguments, stating that the A.O. had indeed conducted a detailed enquiry and accepted the cost of acquisition based on unregistered agreements. Thus, the CIT erred in invoking Section 263.2. Examination of Cost of Acquisition Claimed by the Assessee:The A.O. re-opened the assessment under Section 147 of the Act due to discrepancies in the cost of acquisition claimed by the assessee. The assessee had declared the cost of acquisition as Rs. 28,98,700/- based on unregistered agreements, while the registered sale deeds showed a cost of Rs. 4,45,805/-. The CIT argued that the A.O. failed to verify the authenticity of the unregistered agreements and the correctness of the purchase consideration. However, the Tribunal noted that the A.O. had considered both registered and unregistered documents and concluded that the cost of acquisition claimed by the assessee was correct. Therefore, the assessment order was not erroneous.3. Determination of Short Term Capital Gain from the Sale of Property:The assessee computed a short term capital gain of Rs. 42,300/- from the sale of property, considering the actual transaction values in unregistered agreements. The CIT claimed that the A.O. did not properly verify the cost of acquisition, leading to an incorrect computation of capital gains. However, the Tribunal found that the A.O. had accepted the assessee's computation after thorough examination, and the short term capital gain declared was higher than what would have been computed using the registered deeds. Thus, there was no prejudice to the revenue.4. Validity of the Reassessment Order Passed by the A.O. under Section 143(3) r.w.s. 147 of the Act:The reassessment was initiated to examine the cost of acquisition claimed by the assessee. The A.O. completed the reassessment by accepting the explanations and documents provided by the assessee. The CIT's revision under Section 263 was based on the belief that the A.O. did not conduct a proper examination. However, the Tribunal found that the A.O. had indeed scrutinized the relevant details, and the reassessment order was neither erroneous nor prejudicial to the revenue.5. Consequential Order Passed by the A.O. under Section 143(3) r.w.s. 263 of the Act:Following the CIT's directions under Section 263, the A.O. made an addition of Rs. 24,44,195/- towards short term capital gains. The assessee appealed against this consequential order. Since the Tribunal set aside the CIT's order under Section 263, the consequential order by the A.O. became infructuous. Therefore, the Tribunal also set aside the consequential order, allowing the assessee's appeal.Conclusion:The Tribunal concluded that the CIT erred in invoking Section 263 of the Act, as the reassessment order passed by the A.O. was neither erroneous nor prejudicial to the revenue. Consequently, the Tribunal set aside the CIT's order and the consequential order passed by the A.O., allowing the appeals filed by the assessee.