2022 (9) TMI 1232 - AT - Income Tax

Tribunal upholds Assessing Officer's inquiries, quashes revisional order, and allows assessee's appeal.

The Tribunal found that the Assessing Officer (AO) had conducted adequate inquiries and verifications regarding the assessee's transactions in shares, ... Revision u/s 263 by CIT - a report from DDIT (Investigation) Kolkata with respect to price manipulation of penny stock but the AO did not consider the same - As per CIT, assessment order has been passed by AO without making inquiries or verification with respect to the deduction/exemption claimed under section 10(38) - HELD THAT:- Phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. Now coming to the facts of the case before us, we note that the AO during the course of assessment proceedings, has made enquiries on this issue and after consideration of written submissions filed by the assessee and documents / evidence placed on record. Thereafter, the AO framed the assessment under section 143(3) of the Act accepting the return of income. It is not the case that the AO has not made enquiry. Indeed, the Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of exemption claimed under section 10(38) of the Act. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the Ld. AO had made enquiries and after consideration of materials placed on record accepted the genuineness of the claim of the assessee. We thus find no error in the order of Ld. AO so as to justify the initiation of 263 proceedings by the Ld. Pr. CIT. assessee is thus allowed. No error in the assessment framed by the AO under section 143(3) causing prejudice to the interest of revenue. Thus, the revisional order passed by the learned principal CIT is not sustainable and therefore, we quash the same. Hence the ground of appeal of the assessee is allowed. Issues Involved:1. Whether the assessment order passed under section 143(3) of the Income Tax Act was erroneous and prejudicial to the interest of the Revenue, warranting revision under section 263 of the Act.Issue-Wise Detailed Analysis:1. Erroneous and Prejudicial Assessment Order:The primary issue raised by the assessee was that the Principal Commissioner of Income Tax (PCIT) erred in holding the assessment framed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act as erroneous and prejudicial to the interest of the Revenue under section 263 of the Act.Facts and Background:The assessee, an individual deriving income from salary and other sources, declared an income of Rs. 8,99,020/-. The return was selected for scrutiny under CASS for suspicious transactions in shares and long-term capital gain. The AO, after verification, accepted the return income. The PCIT found that the assessee purchased shares of M/s Sunrise Asian Limited at Rs. 20 per share and sold them at Rs. 480-490 per share, claiming a long-term capital gain of Rs. 10,08,673/- as exempt under section 10(38) of the Act. The PCIT noted a report from DDIT (Investigation) Kolkata regarding price manipulation of penny stocks, which the AO did not consider. The PCIT held that the AO failed to conduct proper inquiries despite having reports from DDIT and SEBI, thus making the assessment order erroneous and prejudicial to the interest of the Revenue.Assessee's Argument:The assessee contended that all necessary details were furnished during the assessment proceedings, and the AO, after proper verification, accepted the genuineness of the capital gain. The assessment order, therefore, could not be deemed erroneous or prejudicial to the Revenue's interest.Tribunal's Analysis:The Tribunal examined whether the AO made adequate inquiries or verifications regarding the exemption claimed under section 10(38) of the Act. It was emphasized that an inquiry deemed inadequate by the Commissioner does not make the AO's order erroneous. The Tribunal referred to various judicial precedents distinguishing between lack of inquiry and inadequate inquiry, noting that the AO's prerogative is to decide the extent of inquiry.Judicial Precedents:- Delhi High Court in CIT Vs. Sunbeam Auto 332 ITR 167 (Del.): Held that if the AO made any inquiry, even if inadequate, it does not justify the Commissioner passing orders under section 263 merely because he has a different opinion.- Bombay High Court in Gabriel India Ltd. [1993] 203 ITR 108 (Bom): Emphasized that the Commissioner must base his consideration on materials on record and cannot initiate proceedings for fishing and roving inquiries.- Supreme Court in Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates [2019] 106 taxmann.com 31 (SC): Upheld that detailed inquiries by the AO, even if leading to a different conclusion by the Commissioner, do not justify revision under section 263.- Supreme Court in Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd [2020] 114 taxmann.com 545 (SC): Held that 263 proceedings are invalid if the AO made inquiries and took a plausible view in law.Conclusion:The Tribunal found that the AO made inquiries and verified the details regarding the assessee's transactions in shares. The AO's acceptance of the genuineness of the capital gain was based on materials placed on record. The Tribunal held that there was no error in the AO's order causing prejudice to the Revenue's interest. Consequently, the revisional order passed by the PCIT was quashed, and the appeal of the assessee was allowed.Application to Similar Case:For the similar issue raised in the case of another assessee, the Tribunal applied the same findings, allowing the appeal.Final Order:Both appeals filed by different assessees were allowed, and the revisional orders passed by the PCIT were quashed.Order Pronouncement:The order was pronounced in the Court on 20/07/2022 at Ahmedabad.