Tribunal quashes IT Commissioner's Section 263 order, finds AO's decision not erroneous. Assessee's appeal allowed.

The Tribunal quashed the Principal Commissioner of Income Tax's order under Section 263, ruling that the Assessing Officer's order was not erroneous or prejudicial to the Revenue's interest. The appeal of the assessee was allowed.

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Issues Involved:
1. Usurpation of jurisdiction by the Pr. C.I.T. u/s 263 of the Act.
2. Whether the AO's order was erroneous and prejudicial to the interest of the Revenue due to lack of enquiry.

Issue-wise Detailed Analysis:

1. Usurpation of jurisdiction by the Pr. C.I.T. u/s 263 of the Act:
The assessee challenged the jurisdiction of the Pr. C.I.T. to invoke revisional powers under Section 263 of the Income Tax Act. The Pr. C.I.T. had interfered with the assessment order dated 07.10.2016, claiming it was erroneous and prejudicial to the Revenue due to lack of enquiry into the short term capital loss on shares. The Pr. C.I.T. issued a show cause notice and, after hearing the assessee, set aside the AO's order, directing a fresh assessment. The appellant contended that the AO had conducted sufficient enquiry and that the assumption of jurisdiction under Section 263 was legally unfounded.

2. Whether the AO's order was erroneous and prejudicial to the interest of the Revenue due to lack of enquiry:
The Tribunal examined whether the AO's order was both erroneous and prejudicial to the Revenue. According to the judicial precedent set by the Supreme Court in Malabar Industries Ltd. vs. CIT, both conditions must be satisfied for the Pr. C.I.T. to exercise revisional powers under Section 263. The Tribunal noted that the AO had conducted specific enquiries regarding the short term capital loss through notices under Section 142(1) and had received detailed responses from the assessee. The AO had examined the appellant's transactions, bank statements, contract notes, and other relevant documents, and was satisfied with the explanations provided.

The Tribunal emphasized that the AO's role is both investigative and adjudicative. If the AO fails in either role, the order can be termed erroneous. However, in this case, the AO had made due enquiries, and the alleged lack of enquiry was not substantiated by the Pr. C.I.T. The Tribunal referred to the distinction between "lack of enquiry" and "inadequate enquiry," stating that inadequate enquiry does not make an order erroneous unless the Pr. C.I.T. conducts further enquiry and demonstrates that the AO's findings were factually or legally wrong.

The Tribunal also examined the CBDT Instruction No. 287/30/2014-IT(Inv II)Vol. III dated 16.03.2016, which the Pr. C.I.T. claimed the AO had not followed. The Tribunal found that the instruction did not outline specific guidelines for the AO's enquiry into suspicious transactions and that the AO had conducted the necessary enquiries as per the instruction.

The Tribunal concluded that the AO had applied his mind and conducted a reasonable and plausible enquiry into the short term capital loss. The Pr. C.I.T.'s action of setting aside the AO's order was deemed without jurisdiction, as the AO's order was not unsustainable in law.

Conclusion:
The Tribunal quashed the Pr. C.I.T.'s order under Section 263, holding that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The appeal of the assessee was allowed.

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