2022 (4) TMI 234 - AT - Income Tax

Tribunal Quashes Jurisdiction Assumption Order

The Tribunal quashed the Principal Commissioner of Income Tax's order under Section 263, finding the jurisdiction assumption based on incorrect facts. It ... Jurisdiction to exercise revisionary powers under section 263 of the Income tax Act - order erroneous in so far as it is prejudicial to the interests of the revenue - requirement of materials on record before suo motu exercise of revisionary power - distinction between lack of enquiry and inadequate enquiry for invoking section 263 - obligation to record satisfaction and reasons before remitting assessment under section 263Jurisdiction to exercise revisionary powers under section 263 of the Income tax Act - requirement of materials on record before suo motu exercise of revisionary power - order erroneous in so far as it is prejudicial to the interests of the revenue - obligation to record satisfaction and reasons before remitting assessment under section 263 - Validity of Principal Commissioner of Income Tax's invocation of section 263 and consequent setting aside of assessment order for A. Y. 2015-16 - HELD THAT: - The Tribunal held that the PCIT's exercise of revisionary power was without jurisdiction because the foundational material on the record did not support the PCIT's premise that a claim under section 54B had been made and left unverified. The PCIT recorded a conclusion that exemption under section 54B had been claimed and, since there was 'no reflection of agriculture income or loss' in the return, the long term capital gain should be added back. The return and computation filed in the assessment records, however, showed no claim of deduction under section 54B and identified the amount instead under exempt income. Section 263 permits suo motu examination, but the revising authority must have materials on record to form a prima facie satisfaction that the assessment is 'erroneous in so far as it is prejudicial to the interests of the revenue.' Where the AO has made enquiries (even if those enquiries are argued to be inadequate), the PCIT must itself examine and record clear, non debatable reasons showing error before remitting; he cannot merely remit for the AO to decide whether the order was erroneous. On the facts, the PCIT proceeded on a misconception of fact, did not conduct or record independent verification to establish error, and simply set aside the assessment directing a fresh assessment. That approach contravened the statutory requirement and judicial dicta emphasising that initiation of suo motu revision must be based on verifiable materials on record and not on arbitrary satisfaction. Accordingly, the exercise of power under section 263 was held illegal and without jurisdiction. [Paras 11, 12, 14]The PCIT's order under section 263 setting aside the assessment for A. Y. 2015 16 was quashed as being illegal and without jurisdiction.Final Conclusion: Impugned order passed under section 263 dated 19.02.2021 for A. Y. 2015 16 is quashed; appeal allowed. Issues Involved:1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income-tax Act, 1961.2. Examination of the claim of exemption under Section 54B of the Income-tax Act.3. Adequacy of the Assessing Officer’s (AO) inquiry during the assessment proceedings.4. Validity of the PCIT’s order setting aside the AO’s assessment.Detailed Analysis:1. Jurisdiction of the PCIT under Section 263:The assessee challenged the jurisdiction assumed by the PCIT under Section 263 of the Income-tax Act, 1961. The PCIT invoked Section 263, considering the assessment order erroneous and prejudicial to the interest of the Revenue due to the alleged improper allowance of exemption under Section 54B. The Tribunal examined whether the PCIT had the necessary material on record to justify the initiation of proceedings under Section 263. It was noted that the PCIT must base his consideration on materials available at the time of examination and not on arbitrary or incorrect facts.2. Examination of the Claim of Exemption under Section 54B:The PCIT alleged that the assessee claimed an exemption under Section 54B on long-term capital gain (LTCG) on the sale of agricultural land without reflecting agricultural income in the return. However, the Tribunal found that no such claim under Section 54B was made in the return of income filed by the assessee. The Tribunal highlighted that the PCIT's assumption was based on a misconception of facts, as verified from the return of income and computation of income, where no claim under Section 54B was reported.3. Adequacy of the AO’s Inquiry During the Assessment Proceedings:The Tribunal observed that the AO had issued notices under Sections 143(2) and 142(1) of the Act and conducted inquiries into the reasons for selecting the case for scrutiny, including the claim of large exempt income and low capital gains. The assessee had provided necessary documents, including details of the sale of property and calculation of capital gain. The Tribunal noted that the AO had made adequate inquiries and taken a permissible view based on the submissions and documents provided by the assessee.4. Validity of the PCIT’s Order Setting Aside the AO’s Assessment:The Tribunal held that the PCIT's order setting aside the AO's assessment was based on an incorrect assumption that the assessee claimed exemption under Section 54B without reflecting agricultural income. The Tribunal emphasized that the PCIT must record a clear finding on how the AO’s order was erroneous and prejudicial to the interest of the Revenue. The Tribunal referred to judicial precedents, including the Supreme Court and High Court decisions, which mandate that the PCIT must conduct necessary inquiries and provide cogent reasons for invoking Section 263. The Tribunal concluded that the PCIT had not verified the facts correctly and had not established that the AO’s order was erroneous and prejudicial to the Revenue.Conclusion:The Tribunal quashed the PCIT’s order under Section 263, holding that the assumption of jurisdiction was based on incorrect facts and that the AO had conducted adequate inquiries during the assessment proceedings. The appeal of the assessee was allowed, and the assessment order passed by the AO was upheld.