2023 (2) TMI 125 - AT - Income Tax

Tax Tribunal Overturns Commissioner's Jurisdiction Decision

The Tribunal held that the Principal Commissioner of Income Tax erred in assuming jurisdiction under Section 263 of the Income-tax Act, 1961, as the ... Revision u/s 263 - PCIT setting aside the assessment order dated 31.12.2019 framed u/s 143(3) - assessee computed capital gains being long term capital gains on sale of land to DMRC Ltd and in computation of income, the assessee also claimed exemption u/s 54 - HELD THAT:- A perusal of the notice of the PCIT clearly shows that the PCIT wants to examine the same details and same documents which were examined by the AO during the course of scrutiny assessment proceedings. It is a settled position of law that powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the AO has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This 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. We set aside the order of the PCIT and restore that of the Assessing Officer framed under section 143(3) - Appeal of assessee allowed. Issues Involved:1. Jurisdiction under Section 263 of the Income-tax Act, 1961.2. Examination and verification of documents by the Assessing Officer (AO).3. Conditions for invoking Section 263.4. Adequacy of inquiry conducted by the AO.5. Precedents and judicial interpretations of Section 263.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, and setting aside the assessment order dated 31.12.2019 framed under Section 143(3) of the Act.2. Examination and verification of documents by the Assessing Officer (AO):The AO had issued notices on 21.11.2019 and 13.12.2019 requesting various details and documents from the assessee, including the sale deed of the property, purchase deeds, and bank statements. The assessee provided detailed replies and furnished the necessary documents. The AO examined these documents thoroughly and computed the taxable income, making a minor addition of Rs. 8,25,000 to cover any leakage of revenue due to cash payments.3. Conditions for invoking Section 263:The Hon'ble Supreme Court in Malabar Industrial Co. Ltd., 243 ITR 83, established that for the PCIT to exercise jurisdiction under Section 263, the order of the AO must be both erroneous and prejudicial to the interests of the Revenue. The Hon'ble Bombay High Court in Gabriel India Ltd 203 ITR 108 further clarified that an order cannot be termed erroneous unless it is not in accordance with the law. The PCIT must have material to show that the AO's order was erroneous and caused prejudice to the Revenue.4. Adequacy of inquiry conducted by the AO:The judgment emphasized that the AO had indeed conducted a thorough inquiry, examining all relevant documents and making a reasoned decision. The PCIT's attempt to re-examine the same documents and details already scrutinized by the AO was not justified. The Hon'ble Delhi High Court in CIT Vs Sunbeam Auto, 332 ITR 167, distinguished between 'lack of inquiry' and 'inadequate inquiry,' stating that the PCIT cannot invoke Section 263 merely because he has a different opinion if the AO has conducted some inquiry.5. Precedents and judicial interpretations of Section 263:The judgment cited several precedents, including the Hon'ble High Court of Gujarat in CIT vs. Nirma Chemical Works Ltd., 309 ITR 67, and the Hon'ble Bombay High Court in CIT vs. Nirav Modi, [2016] 71 Taxmann.com 272, to support the view that the PCIT cannot substitute his judgment for that of the AO if the AO's order is based on a thorough examination of facts and is in accordance with the law.Conclusion:The Tribunal concluded that the PCIT's order under Section 263 was not justified as the AO had conducted a thorough inquiry and made a reasoned decision. The order of the PCIT was set aside, and the AO's order dated 31.12.2019 was restored. The appeal of the assessee was allowed.