2022 (11) TMI 578 - AT - Income Tax

Tribunal overturns PCIT's order under Section 263 for 2014-15 assessment, ruling in favor of assessee.

The Tribunal quashed the Principal Commissioner of Income Tax's order under Section 263, setting aside the assessment order for the assessment year ... Revision u/s 263 by CIT - AO has not examined the issue of taxable long term capital gain and income from other sources - As per CIT AO has failed to make necessary enquiry and verification in respect of certain items of income during the assessment proceedings which has rendered the order framed u/s 143(3) of the Act as erroneous as well as prejudicial to the interest of the revenue - HELD THAT:- We find that there is no mistake in the order of AO and no prejudice is caused to the revenue as the assessee has duly shown the sale consideration falling to his share. Similarly all other 27 co-owners have also shown the sale in their returns.Besides the confirming parties have also disclosed the sale transaction in their respective returns of income. The said fact was examined and enquired by the AO in the case of assessee during assessment proceedings which culminated u/s 143(3) - We note that at the time of sale by the confirming parties vide sale deed dated 06.08.2013 out of total consideration of Rs. 16.04 crores, Rs. 13.78 crores was paid to confirming parties and therefore the assessee’s contentions that it has correctly shown the transaction of sale in its return has legal force and merit. We are of the view that the facts were not correctly appreciated by ld. PCIT. In our opinion, the assessment framed by the AO is neither erroneous nor prejudicial to the interest of the revenue so far as the first issue is concerned. The case of the assessee is squarely covered by the decision in the case of Malabar Industrial Co [2000 (2) TMI 10 - SUPREME COURT] wherein the Hon’ble Court has held that in order to invoke the provisions u/s 263 of the Act, the PCIT has to be first satisfy twin conditions i.e. the order of AO sought to be revised has to be erroneous as well as prejudicial to the interest of Revenue and if one of them is absent i.e if the order is erroneous but is not prejudicial to the Revenue or vice versa , recourse cannot be had to Section 263(1) of the Act. Similarly in respect of second issue proposed by the PCIT, we note that the sale and purchase were amongst the family members which was also acknowledged by the PCIT in the impugned order. Once this is established that the transaction is between family members the provisions of Section 56(2)(viib) of the Act does not apply. On this issue also , the PCIT has made a finding that the AO has not made any enquiry without making any enquiry himself as to how the assessment order is erroneous and prejudicial to the interest of the revenue which is contrary to the ratio laid down by the Hon’ble Delhi High Court in the case of D.G. Housing Project [2012 (3) TMI 227 - DELHI HIGH COURT] Thus the assumption of jurisdiction u/s 263 of the Act by the Ld. PCIT and consequent order are invalid and are quashed. The appeal of the assessee is allowed. Issues:Challenge to exercise of jurisdiction u/s 263 by PCIT setting aside assessment order.Analysis:The appeal pertains to the PCIT's order u/s 263 of the Income Tax Act, 1961, for the assessment year 2014-15. The PCIT observed that the AO failed to make necessary enquiries regarding certain income items, rendering the assessment order erroneous and prejudicial to revenue. The PCIT issued a show cause notice to the assessee, questioning the computation of long-term capital gain and income from other sources. The PCIT set aside the assessment order, directing the AO to frame a fresh assessment after necessary enquiries. The assessee contended that the capital gain was correctly computed, and the provisions of Section 56(2)(vii)(b) did not apply due to the purchase from family members. The PCIT's order was challenged on the grounds that the AO had examined the issues, and the PCIT failed to appreciate the facts correctly. The assessee argued that the conditions for invoking jurisdiction u/s 263 were not met, citing the decision in Malabar Industrial Co. Ltd. vs CIT. The PCIT's order was deemed contrary to the Act, requiring necessary enquiry before setting aside the assessment, as per the decision in ITO vs. D.G Housing Projects Ltd.The Tribunal found that the AO's order was not erroneous or prejudicial to revenue regarding the issues raised by the PCIT. It noted that the sale consideration was correctly reported by the assessee and other co-owners, with confirming parties also disclosing the transaction. The Tribunal held that the PCIT did not correctly appreciate the facts and that the conditions for invoking Section 263 were not satisfied. In the case of family member transactions, the provisions of Section 56(2)(viib) did not apply, as acknowledged by the PCIT. The Tribunal emphasized the need for the PCIT to conduct necessary enquiries before deeming an order erroneous and prejudicial to revenue, as per the decision in D.G. Housing Projects Ltd. Consequently, the Tribunal quashed the PCIT's assumption of jurisdiction u/s 263 and allowed the assessee's appeal.In conclusion, the Tribunal found that the PCIT's order was invalid and quashed, allowing the appeal of the assessee. The decision highlighted the importance of meeting the twin conditions for invoking Section 263 and the necessity for the PCIT to conduct proper enquiries before setting aside an assessment order.