2019 (9) TMI 206 - AT - Income Tax

Tribunal quashes order under Section 263, finds jurisdiction exercise by Principal Commissioner as bad in law.

The Tribunal quashed the order passed under Section 263 by the Principal Commissioner of Income Tax, stating that the Assessing Officer had applied his ... Revision u/s 263 - capital loss on account of share transactions - HELD THAT:- Allegations that the sale of shares transactions was suspicion is not supported by facts. No revision can take place based on mere suspicion. Pr. CIT has not controverted the submissions and evidences filed by the assessee. When the assessee has furnished all the details, including the purchase details and sale details, CIT has not explained, as to how he came to a conclusion that there is an error that caused prejudice to the interest of the revenue. There is no verification or enquiry by the Pr. CIT of the information furnished by the assessee to him. The Pr. CIT has simply set aside the matter to the file of the AO for fresh adjudication, without himself conducting any enquiry into the matter. The law requires the Pr. CIT to himself conduct an enquiry and then only come to a conclusion that the order in question is erroneous and prejudicial to the interest of the revenue. If the Pr. CIT had not applied his mind to the replies, details and evidences filed by the assessee then the order passed, without application of mind or verification is bad in law. We have to necessarily hold that the exercise of power by the Pr. CIT u/s 263 was bad in law. We also find that in her reply, the assessee has stated before the Pr. CIT that the assessee has earned capital gain on the sale of shares of M/s. Goodwill Griha Nirmal Pvt. Ltd., and that she has not incurred any loss as alleged in the said notice. The details were furnished. Despite these explanation and evidences filed, the Pr. CIT had committed a factual error in concluding at page 10 para 5 of his order that the assessee has claimed capital loss on account of share transactions of M/s. Goodwill Griha Nirman Pvt. Ltd.. An order passed u/s 263 based on a mistake of fact, cannot be sustained. This is not a case of non enquiry or non application of mind. The allegation of the Pr. CIT is that the issue requires further verification and investigation. Appeal of the assessee is allowed. Issues Involved:1. Jurisdiction under Section 263 of the Income Tax Act, 1961.2. Alleged suspicious sale transactions and verification of purchase bills.3. Application of mind by the Assessing Officer (AO) during the assessment.4. Evidence and explanation provided by the assessee.5. Factual errors in the Principal Commissioner of Income Tax’s (Pr. CIT) order.Issue-wise Detailed Analysis:1. Jurisdiction under Section 263 of the Income Tax Act, 1961:The appeal challenges the jurisdiction exercised by the Pr. CIT under Section 263 of the Income Tax Act, 1961. The Pr. CIT issued a show-cause notice proposing to revise the AO's assessment order, claiming it was erroneous and prejudicial to the interest of the revenue. The Tribunal held that for the Pr. CIT to assume jurisdiction under Section 263, it must be shown unmistakably that the AO's order is unsustainable. The Tribunal cited various case laws to support that if the AO has taken a possible view after due examination, the Pr. CIT cannot revise the order merely because he holds a different opinion.2. Alleged Suspicious Sale Transactions and Verification of Purchase Bills:The Pr. CIT alleged that the sale transactions were suspicious and required further verification. The Tribunal noted that the AO, during the scrutiny proceedings, had specifically asked for details of the sale transactions in shares, and the assessee had provided comprehensive responses and documentation. The Tribunal emphasized that the AO had obtained all necessary details, and non-discussion or brief discussion of the issue in the assessment order does not imply non-application of mind, especially when voluminous details were reviewed.3. Application of Mind by the Assessing Officer (AO) During the Assessment:The Tribunal highlighted that the AO had raised specific queries and obtained detailed responses from the assessee, demonstrating application of mind. The Tribunal referenced case laws to assert that an AO's order cannot be deemed erroneous merely because it lacks elaborate discussion if the AO has conducted inquiries and applied his mind.4. Evidence and Explanation Provided by the Assessee:The assessee provided detailed explanations and evidence, including the declaration of transactions to the Reserve Bank of India, valuation certificates from a chartered accountant, and documentation of the shares' intrinsic value. The Tribunal found that the Pr. CIT did not properly consider these explanations and evidence. The Tribunal criticized the Pr. CIT for not conducting any investigation or verification himself and for setting aside the matter to the AO without proper inquiry.5. Factual Errors in the Principal Commissioner of Income Tax’s (Pr. CIT) Order:The Tribunal identified a factual error in the Pr. CIT's order, where he incorrectly stated that the assessee had claimed a capital loss on the sale of shares. The assessee had clarified that she had earned capital gains, not losses. The Tribunal held that an order under Section 263 based on a factual mistake cannot be sustained.Conclusion:The Tribunal quashed the order passed under Section 263 by the Pr. CIT, stating that the AO had applied his mind and taken a possible view after examining the issue. The Tribunal found the Pr. CIT's exercise of jurisdiction under Section 263 to be bad in law, as it was based on unsubstantiated allegations and factual errors. The appeal of the assessee was allowed.