2021 (11) TMI 924 - AT - Income Tax

Tribunal overturns PCIT's decision under Section 263, finding AO's actions appropriate.

Pawansut Media Services Pvt. Ltd. Versus The Principal Commissioner of Income Tax-7, New Delhi

The Tribunal held that the Principal Commissioner of Income Tax (PCIT) was not justified in invoking Section 263 of the Income Tax Act, as the Assessing ... Revision u/s 263 by CIT - Low income in comparison to very high investments, Large increase in investment in unlisted equities during the year and income in comparison to high loans/ advances/investment in shares - HELD THAT:- The error should be one that is not debatable or a plausible view. Section 263 of the Act invests a power of revision in a superior officer and therefore, by the very nature of the power, does not allow for supplanting or substituting the view of the AO. The appreciation of material placed before the AO is, exclusively within his domain which cannot be interdicted by a superior officer while exercising powers u/s 263 only on the ground that if he had appraised the said material, he would have come to a different conclusion. [See Parashuram Pottery Works Co. Ltd. [1976 (11) TMI 1 - SUPREME COURT]. Since in the instant case the A.O. had indeed made enquiries as per the reasons for which the case was selected for limited scrutiny and the case was not converted to full scrutiny, therefore, respectfully following the decision in the case of PCIT vs., M/s. Brahma Centre Development Pvt. Ltd. [2021 (7) TMI 347 - DELHI HIGH COURT] we hold that the Ld. PCIT was not justified in assuming the jurisdiction under section 263 of the I.T. Act, 1961. We, therefore, set aside the Order of the Ld. PCIT and allow the grounds raised by the assessee on this issue. So far as various decisions relied on by the Ld. D.R. are concerned, we are of the considered opinion that these are distinguishable and not applicable to the facts of the present case especially when the case of the assessee which was selected for limited scrutiny was never converted to full scrutiny and the assessee had submitted all the details as called for by the A.O. from time to time for the reasons for which the case was selected for limited scrutiny. The grounds raised by the assessee are accordingly allowed. Issues Involved:1. Authority and jurisdiction of the PCIT under Section 263 of the Income Tax Act.2. Applicability of Section 56(2)(viia) regarding the valuation of shares.3. Adequacy of the AO’s enquiry during the assessment proceedings.4. Scope of limited scrutiny versus full scrutiny.Issue-wise Detailed Analysis:1. Authority and Jurisdiction of the PCIT under Section 263:The primary issue was whether the PCIT had the authority to invoke Section 263 of the Income Tax Act, 1961, to revise the assessment order passed by the AO. The assessee argued that the order of the PCIT was ultra vires to the provisions of the Act, as it was based on incorrect and non-existing facts. The Tribunal noted that the PCIT’s jurisdiction under Section 263 is contingent upon the assessment order being both erroneous and prejudicial to the interests of the Revenue. The Tribunal found that the PCIT had not established these conditions as the AO had conducted due enquiries and the limited scrutiny was never converted to full scrutiny.2. Applicability of Section 56(2)(viia) Regarding the Valuation of Shares:The PCIT contended that the AO had not examined the applicability of Section 56(2)(viia) of the Income Tax Act, which pertains to the valuation of shares. The assessee argued that the AO had already examined the valuation provided by the company and found it satisfactory. The Tribunal observed that the AO had indeed made enquiries regarding the investments in unlisted shares and their valuation, and the PCIT’s assertion of lack of enquiry was not substantiated by the records.3. Adequacy of the AO’s Enquiry During the Assessment Proceedings:The PCIT argued that the AO had not conducted adequate enquiries, particularly regarding the valuation of shares under Section 56(2)(viia). The assessee countered that the AO had issued multiple notices and received detailed responses from the assessee, which were considered during the assessment. The Tribunal referred to the decision of the Hon’ble Delhi High Court in the case of PCIT vs. M/s. Brahma Centre Development Pvt. Ltd., which held that inadequacy in enquiry does not justify revision under Section 263 if the AO had applied his mind. The Tribunal concluded that the AO had made the necessary enquiries, and the PCIT’s revision was unwarranted.4. Scope of Limited Scrutiny versus Full Scrutiny:The case was selected for limited scrutiny based on specific reasons, such as low income compared to high investments and large increases in unlisted equity investments. The Tribunal noted that the AO’s enquiries were aligned with the scope of the limited scrutiny and that the case was never converted to full scrutiny. The Tribunal emphasized that the PCIT cannot expand the scope of limited scrutiny during revision under Section 263, as it violates the principles laid down by the CBDT and judicial precedents.Conclusion:The Tribunal held that the PCIT was not justified in invoking Section 263 of the Income Tax Act, 1961, as the AO had conducted adequate enquiries within the scope of limited scrutiny. The Tribunal set aside the order of the PCIT and allowed the appeal of the assessee, concluding that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue.Order Pronounced:The appeal of the assessee was allowed, and the order was pronounced in the open Court on 14.10.2021.