2018 (4) TMI 328 - AT - Income Tax

Assessing Officer's Verification Upheld, Appeal Allowed, Order Quashed

The Tribunal found that the Assessing Officer (AO) had adequately verified the loss claimed by the assessee in future and options transactions. The ... Revision u/s 263 - proper enquiry with regard to loss claimed by assessee in future & option was not carried out by the AO - Held that:- CIT in his impugned order has duly admitted the fact that necessary documents explaining the loss in future & option were available on record. Yet the Ld. Pr. CIT was of the view that proper enquiry has not been made during the assessment proceedings The assessment was framed after necessary verification. We also note that Ld. Pr. CIT himself was also not clear about the error which is causing prejudice to the interest of Revenue. We further observe that provision of Section 263 of the Act does not give any power whatsoever to the Ld. CIT to remit the issue to the file of AO without finding that the order of AO is erroneous in so far as prejudicial to the interest of revenue. Therefore, the impugned order passed by Ld. Pr. CIT u/s 263 of the Act is not sustainable - Decided in favour of assessee Issues Involved:1. Justification for setting aside the assessment order under Section 263 of the Income Tax Act, 1961.2. Adequacy of the Assessing Officer's (AO) inquiry into the loss claimed by the assessee in future and options transactions.3. Determination of whether the assessment order was erroneous and prejudicial to the interest of revenue.Issue-wise Detailed Analysis:1. Justification for Setting Aside the Assessment Order under Section 263:The Principal Commissioner of Income Tax (Pr. CIT) set aside the assessment order dated 02.03.2015, passed under Section 143(3) of the Income Tax Act, 1961, for the Assessment Year 2012-13. The Pr. CIT directed the Assessing Officer (AO) to re-do the assessment, focusing on the allowability of the loss in future and options as an admissible business expenditure. The Pr. CIT found that the AO had not made proper inquiries regarding this issue during the assessment proceedings, rendering the assessment order erroneous and prejudicial to the interest of revenue.2. Adequacy of the AO's Inquiry into the Loss Claimed by the Assessee:The assessee argued that the AO had duly verified the loss in future and options during the assessment proceedings. The AO had issued a notice under Section 133(6) to the National Stock Exchange (NSE), which confirmed the loss. The assessee contended that the AO had allowed the loss after due verification and that the Audit Wing of the Income Tax Department had also raised and subsequently dropped objections regarding the allowability of the loss. The assessee cited Section 43(5)(d) of the Act, which states that transactions in future and options carried out in a recognized stock exchange cannot be treated as speculative transactions, thus making the loss eligible for set-off against income.3. Determination of Whether the Assessment Order Was Erroneous and Prejudicial to the Interest of Revenue:The Tribunal examined whether the AO's inquiry was adequate and whether the Pr. CIT's invocation of Section 263 was justified. The Tribunal noted that the AO had indeed conducted an inquiry and verified the loss through the NSE. The Tribunal emphasized that there is a distinction between 'lack of inquiry' and 'inadequate inquiry.' If there is an inquiry, even if deemed inadequate, it does not justify the Pr. CIT's revision under Section 263 merely because of a different opinion. The Tribunal referenced several judicial pronouncements, including the cases of Ritech Kumar Boyed vs. CIT, Smt. Juthika Kar vs. ITO, and M/s Damodar Developers P. Ltd. vs. CIT, which supported the view that an order cannot be held erroneous and prejudicial if the AO has conducted an inquiry and formed an opinion based on available evidence.The Tribunal concluded that the AO had made the necessary verification and that the Pr. CIT's order lacked clarity on the specific error causing prejudice to the interest of revenue. The Tribunal held that the Pr. CIT did not have the authority under Section 263 to remit the issue back to the AO without a clear finding of error and prejudice. Consequently, the Tribunal set aside the Pr. CIT's order under Section 263 and allowed the assessee's appeal.Conclusion:The Tribunal found that the AO had conducted a sufficient inquiry into the loss claimed by the assessee in future and options transactions. The Pr. CIT's order setting aside the assessment under Section 263 was deemed unsustainable as the AO's order was not shown to be erroneous and prejudicial to the interest of revenue. The assessee's appeal was allowed, and the Pr. CIT's order was quashed.