2024 (3) TMI 1153 - AT - Income Tax

ITAT upholds dividend income exemption after PCIT's failed Section 263 revision attempt

The ITAT Delhi ruled in favor of the assessee in a revision case under section 263. The PCIT attempted to revise the AO's assessment order regarding ... Revision u/s 263 - another possible view of the matter - PCIT opined that no exemption on account of dividend income could be claimed / allowed but the Ld. AO accepted the claim of the assessee - assessee’s case was picked up for scrutiny under CASS for four specific reasons, namely, reduction in profit, excess claim of exemption of dividend income, large increase in unsecured loans during the year and large refund claimed out of advance tax - HELD THAT:- It is now well established that an incorrect assumption of fact and an incorrect application of law will satisfy the requirement of assessment order being erroneous. In the assessee’s case it would be obvious that the Ld. AO has neither assumed facts incorrectly nor there is incorrect application of law. On the contrary, he applied his mind. In our opinion, therefore the impugned order of the Ld. AO is not erroneous. If that be so, the question of it being prejudicial to the interest of Revenue will hardly arise in the given facts and law related to them. The deeming provision contained in Explanation 2 to section 263(1) inserted w.e.f. 01.06.2015 referred to by the Ld. PCIT is inapplicable to the assessee’s case in view of admitted submission of details, e.g. income from dealing in shares and securities (NET); sale and purchase of shares and securities along with proof of transaction ledger/trading account, DEMAT account; Form -10DB and evidence of dividend income in the form of Dividend Advice issued by Taurus Mutual Fund and JM Financial Mutual Fund before the Ld. AO/PCIT in reply to questionnaires. This amply demonstrates that adequate requisite enquiry was made by the Ld. AO on the issue of excess claim of exemption of dividend income and necessary verification was made by him examining the details and documentary evidence produced before him by the assessee. This finding recorded by the AO in the assessment order could not be controverted by the Ld. PCIT. The direction of thePCIT to the AO to examine and reconcile claim of dividend income and its exemption is therefore unwarranted and to say the least superfluous. The remaining direction of the PCIT to the AO to reconcile the information on purchase of mutual fund units and to examine the sources of investment therein is beyond the reason being not even part thereof for selection of assessee’s case for scrutiny. AR has relied on several judicial precedents in support of the view that revisionary powers u/s 263 of the Act can be exercised only on issues for which the case was selected for scrutiny under CASS. The details of purchase and sale of mutual fund units were furnished in reply to notice u/s 142(1) of the Act issued by the Ld. AO. Enquiry as to the source of investment in mutual fund units was neither envisaged nor called for. Thus we are of the opinion that suo-moto assumption of jurisdiction by the Ld. PCIT u/s 263 of the Act in the case of the assessee is not sustainable. Decided in favour of assessee. Issues Involved:1. Validity of revisional order u/s 263 of the Act.2. Examination of assessment order u/s 143(3) of the Act.3. Condonation of delay in filing the appeal.4. Admission of additional ground of appeal.Summary of Judgment:Issue 1: Validity of Revisional Order u/s 263 of the ActThe assessee challenged the revisional order dated 27.03.2022 passed by the Ld. Principal Commissioner of Income Tax (PCIT), Noida u/s 263 of the Income Tax Act, 1961. The Tribunal noted that for invoking u/s 263, the order must be both 'erroneous' and 'prejudicial to the interests of the Revenue.' The PCIT's direction to the Assessing Officer (AO) to conduct specific inquiries was found to be unwarranted and superfluous as the AO had already examined the issues during the assessment proceedings. The Tribunal held that the PCIT's assumption of jurisdiction u/s 263 was not sustainable and set aside the revisional order, restoring the AO's order.Issue 2: Examination of Assessment Order u/s 143(3) of the ActThe assessment order dated 07.12.2019 u/s 143(3) was scrutinized. The AO had issued multiple notices u/s 142(1) and examined the details and documentary evidence provided by the assessee. The AO concluded that there was no adverse inference on the issues of reduction in profit, exemption of dividend income, increase in unsecured loans, and large refund claimed. The Tribunal found that the AO made adequate inquiries and verifications, and thus, the assessment order was neither erroneous nor prejudicial to the interests of the Revenue.Issue 3: Condonation of Delay in Filing the AppealThe appeal was filed late by 27 days. The Tribunal condoned the delay, considering that the appeal was e-filed in time, and proceeded to decide the appeal on merits.Issue 4: Admission of Additional Ground of AppealThe assessee moved an application for the admission of an additional ground of appeal regarding the jurisdiction of the assessment order dated 07.03.2019 u/s 143(3), claiming no notice u/s 143(2) was issued by the jurisdictional AO. However, this additional ground was not pressed by the assessee.Conclusion:The Tribunal allowed the appeal of the assessee, set aside the revisional order u/s 263, and restored the AO's assessment order. The judgment emphasized the necessity of both conditions (erroneous and prejudicial) for invoking u/s 263 and recognized the AO's due diligence in the assessment process.