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

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 erroneous or prejudicial to revenue. It held that the Assessing Officer had conducted proper inquiries regarding long-term capital gains on shares, and the Pr.CIT's invocation of Explanation 2 to section 263 was deemed incorrect. The Tribunal emphasized that the Pr.CIT must undertake independent inquiries and that Explanation 2 is not retrospective. As a result, the revisionary powers invoked by the Pr.CIT were quashed, and the original assessment order stood.

---

---

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.

---