2019 (4) TMI 400 - AT - Income Tax

Tribunal overturns Pr.CIT's order under Income Tax Act, rules original assessment not erroneous.

M/s Arun Kumar Garg HUF Versus Pr. CIT, Delhi-13, New Delhi.

The Tribunal allowed the appeal against the order passed under section 263 of the Income Tax Act, finding that the original assessment order was not ... Revision u/s 263 by CIT - Long term capital gain allowed by AO - proof of AO's order as erroneous in so far as being prejudicial to the interest of the revenue - HELD THAT:- AO had made detailed inquiries regarding the assessee’s claim of long term capital gain and, thereafter, after considering the reply submitted by the assessee, the Assessing Officer had made further inquiries also which is evident from the copy of questionnaire as well as the reply thereto which has been placed in the Paper Book filed by the assessee before us. Thus, in view of the documentary evidences as called for and examined by the AO, it is very much evident that the AO had applied his mind to the issue of long term capital gains and it was only after having been satisfied with the correctness of the claim that he accepted the return filed by the assessee. Therefore, we can safely conclude that proper inquiries had been made by the AO while accepting the claim of the assessee and, therefore, the contention of the Pr.CIT that no inquiry was made by the AO is factually incorrect. It is not the case where no inquiry has been made by the AO. Merely because the Ld. Pr. CIT felt that further inquiry should have been made does not make the order of the Assessing Officer erroneous and prejudicial to the interest of the revenue. Pr.CIT has merely remitted the matter back to the AO without making any inquiry himself. It is apparent that no independent inquiries have been made by the Pr.CIT although it was incumbent upon him to make such inquiry so as to reach the conclusion that the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue - Pr.CIT had wrongly invoked the revisionary powers u/s 263 - Decided in favour of assessee. Issues:1. Revision of assessment order under section 263 of the Income Tax Act, 1961.2. Proper inquiries conducted by the Assessing Officer.3. Application of Explanation 2 to section 263 for deeming an order as erroneous and prejudicial to revenue.4. Jurisdiction of CIT to make inquiries and revision under section 263.5. Retrospective nature of Explanation 2 to section 263.Revision of Assessment Order:The appeal was against an order passed under section 263 of the Income Tax Act, 1961, for the assessment year 2013-14. The Principal Commissioner of Income Tax (Pr.CIT) held that the original assessment order was erroneous and prejudicial to revenue due to lack of proper inquiries by the Assessing Officer. The Pr.CIT canceled the original assessment and directed a fresh assessment concerning suspicious transactions related to long-term capital gains on shares.Proper Inquiries by Assessing Officer:The Assessing Officer had conducted detailed inquiries during the original assessment proceedings, including issuing notices and questioning the assessee regarding long-term capital gains. The Assessing Officer examined documentary evidence provided by the assessee, such as ledger accounts, contract notes, and purchase bills of shares, to verify the transactions. The Tribunal concluded that the Assessing Officer had appropriately investigated the matter, and the contention that no inquiry was made was factually incorrect.Application of Explanation 2 to Section 263:The Pr.CIT invoked Explanation 2 to section 263, which deems an order erroneous if inquiries or verifications necessary for the assessment were not conducted by the Assessing Officer. However, the Tribunal noted that the Assessing Officer had indeed made inquiries and reached a conclusion after examining all relevant information. The Tribunal emphasized that the mere feeling that further inquiries should have been made does not render the original order erroneous.Jurisdiction of CIT and Retrospective Nature of Explanation 2:The Tribunal highlighted that the Pr.CIT failed to conduct independent inquiries before deeming the original order as erroneous and prejudicial to revenue. Referring to legal precedents, the Tribunal emphasized that the Pr.CIT cannot outsource the jurisdiction under section 263 to the Assessing Officer and must undertake minimal inquiries to reach a valid conclusion. Additionally, the Tribunal noted that Explanation 2 to section 263, introduced in 2015, is not retrospective and cannot be applied to assessments for the year 2014-15.Conclusion:Based on the above analysis, the Tribunal allowed the appeal, quashing the revisionary powers invoked by the Pr.CIT under section 263. The Tribunal held that the Assessing Officer had conducted proper inquiries, and the Pr.CIT's order was not justified. The decision was pronounced on 8th January 2019.