2022 (11) TMI 1036 - AT - Income Tax

Tribunal overturns PCIT decision, finds AO assessment order valid

The Tribunal found that the Principal Commissioner of Income Tax erred in assuming jurisdiction under Section 263 of the Income-tax Act, 1961. It ... Revision u/s 263 - distinction between “lack of enquiry” and “inadequate enquiry”- as per CIT, AO has not enquired about the transaction entered into by the assessee, which resulted in capital gains and it was claimed as exempt u/s 10(38) of the Act, thereby making the assessment order not only erroneous but also prejudicial to the interest of the Revenue - HELD THAT:- We are of the considered view that the Assessing Officer had made specific enquiries during the assessment proceedings to which specific reply was furnished by the assessee alongwith supporting documentary evidences and all such evidences were duly examined and considered by the Assessing Officer before completing the assessment proceedings u/s 143(3) of the Act. In our considered view, the power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry as held by the Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi[2016 (6) TMI 1004 - BOMBAY HIGH COURT] We find that in the case of CIT Vs Sunbeam Auto [2009 (9) TMI 633 - DELHI HIGH COURT] has held that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Whether there was application of mind before allowing the expenditure in question has to be seen. If there was any inquiry, even inadequate, that would not by itself give occasion to the CIT to pass orders under section 263 of the Act, merely because he has different opinion in the matter. In the case of Anil Kumar Sharma [2010 (2) TMI 75 - DELHI HIGH COURT] has held that there is a distinction between “lack of enquiry” and “inadequate enquiry” If there was any enquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass orders u/s 263 of the Act. Appeal of assessee allowed. Issues Involved:1. Jurisdiction under Section 263 of the Income-tax Act, 1961.2. Erroneous and prejudicial nature of the assessment order dated 13.11.2017.3. Adequacy of the Assessing Officer's (AO) inquiry into the assessee's transactions.Issue-wise Detailed Analysis:1. Jurisdiction under Section 263 of the Income-tax Act, 1961:The primary grievance of the assessee was that the Principal Commissioner of Income Tax (PCIT) erred in assuming jurisdiction under Section 263 of the Income-tax Act, 1961. The PCIT issued a notice alleging that the assessment order dated 13.11.2017 was erroneous and prejudicial to the revenue's interest. The PCIT's notice highlighted that the assessee had shown the sale of shares of CCL International Ltd., resulting in short-term capital gains, which the PCIT claimed were not adequately scrutinized by the AO.2. Erroneous and Prejudicial Nature of the Assessment Order:The PCIT contended that the AO failed to verify the suspicious sale transaction of shares, leading to an erroneous assessment order prejudicial to the revenue. The PCIT emphasized the significant increase in the share price (over 600%) within nine months, suggesting it was a 'Penny Stock' transaction. However, the Tribunal found that the PCIT's allegation that the assessee claimed an exemption under Section 10(38) of the Act was incorrect, as the gains were returned as short-term capital gains.3. Adequacy of the Assessing Officer's Inquiry:The Tribunal examined whether the AO conducted an adequate inquiry during the assessment proceedings. The records showed that the AO issued multiple notices and questionnaires to the assessee, to which detailed replies and supporting documents were provided. The AO reviewed bank statements, Demat accounts, purchase and sale details of shares, and other relevant documents. The Tribunal noted that the AO made specific inquiries, and the assessee furnished specific replies with documentary evidence, which were duly examined before completing the assessment.Legal Precedents and Tribunal's Conclusion:The Tribunal referred to several judicial decisions to support its conclusion. It cited the Bombay High Court's decision in CIT vs. Nirav Modi, which held that the power of revision under Section 263 can only be exercised where no inquiry is conducted. The Tribunal also referred to the Bombay High Court's decision in Gabriel India Ltd., which clarified that an order cannot be termed erroneous unless it deviates from the law. The Tribunal emphasized that the AO's assessment cannot be branded erroneous merely because the PCIT had a different opinion.The Tribunal further cited the Delhi High Court's decisions in Sunbeam Auto and Anil Kumar Sharma, which distinguished between 'lack of inquiry' and 'inadequate inquiry.' It held that if there was any inquiry, even if inadequate, it would not justify the PCIT's revision under Section 263.Final Judgment:Considering the facts and judicial precedents, the Tribunal concluded that the AO conducted a proper inquiry and the assessment order was neither erroneous nor prejudicial to the revenue's interest. Therefore, the Tribunal set aside the PCIT's order dated 22.03.2021 and restored the AO's assessment order dated 13.11.2017.Result:The appeal of the assessee in ITA No. 708/DEL/2021 was allowed. The order was pronounced in the open court on 21.11.2022.