2025 (10) TMI 858 - AT - Income Tax

PCIT's s.263 Jurisdiction Unwarranted Where AO Examined Evidence for Long-Term Capital Gains Claim under s.10(38)

ITAT, Patna held that the PCIT's exercise of jurisdiction under s.263 was unwarranted because the AO had conducted inquiries, called for and recorded ... Revision u/s 263 - revising the assessment framed by the AO u/s 143(3) - inadequate inquiry v/s no inquiry - assessee claimed exemption u/s 10(38) of the Act in respect of long-term capital gain from sale of equity shares - PCIT noted that no documents or relevant papers were found /placed in the assessment records in respect of sale and purchase of the said shares. HELD THAT:- We note that even the allegation by the learned PCIT that no inquiry was conducted and evidences were called for qua these share transactions by the learned AO during the assessment proceedings. In our opinion the conclusion of the ld. PCIT appears to be not correct and is in fact contrary to the facts available in assessment records. We have been examined the documents furnished before us by the assessee and find that certified copies were obtained from the learned AO which comprised of the evidences qua the sale and purchase of shares and ledger copies of purchase and sale of equity shares. These evidences were part of the assessment folder. Thereafter, the conclusion drawn by the learned PCIT that the issue is not examined at all by the Learned AO is contrary to the facts available on record. AO has examined this issue after calling for the information/details/evidences from the assessee, as this was the only reason for selection of scrutiny of assessee’s case under CASS. We have also examined the evidences such as the contract notes issued by the Steel Security Traders Ltd., Bombay Exchange broker, along with statement and bank Statements etc., which are also available in the paper book. Therefore, we find merit in the contention of AR that it is not a case of no inquiry or absence of any inquiry, but the AO has conducted inquiry into the alleged issue and then framed the assessment. So, if at all, the learned PCIT cannot say that this is a case of inadequate inquiry. But in the case of inadequate inquiry the jurisdiction u/s 263 of the Act is not available to the PCIT to revise the assessment of the assessee. Even there are the evidences on record that the learned AO has called for the evidences from the assessee and assessee has duly supplied the same. Then it is to be presumed that assessment is framed after taking into account all these evidences and it is not necessary that the AO to specifically mention in the assessment order about the correctness of these evidences as the AO cannot deal with each and every aspect in the assessment order. Also, where two views are possible on the issues and AO has taken one of the possible views, then the jurisdiction u/s 263 of the Act is not available to the PCIT on the ground that he does not agree with the view taken by the learned AO and to substitute his own view by setting aside the assessment order. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the revisionary jurisdiction under section 263 of the Income-tax Act can be validly invoked where the Assessing Officer issued notices, called for and received documents/evidence on share transactions and framed assessment after considering those materials. 2. Whether an alleged 'inadequate inquiry' by the Assessing Officer (as opposed to 'no inquiry') furnishes a valid ground for exercise of section 263 powers. 3. Whether the Central/Pr. Commissioner can set aside an assessment merely because he prefers a different view to that taken by the Assessing Officer where the AO has taken one of two possible plausible views. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity of invoking section 263 where AO called for and considered evidence Legal framework: Section 263 empowers the Commissioner to revise an assessment if the order of the AO is found to be erroneous and prejudicial to the interests of the Revenue; exercise of jurisdiction requires satisfaction of both components (error and prejudice) and is supervisory, not appellate. Precedent treatment: The Tribunal applied the settled principle that revision under s.263 is not permissible where the AO has called for relevant materials and framed an assessment after considering the same; reliance was placed on the line of authorities holding that mere disagreement with an AO's view does not warrant invocation of s.263 (citing principles in Malabar Industrial, Max India and later decisions). Interpretation and reasoning: The record shows notices under sections 143(2) and 142(1) were issued, the assessee furnished books, contract notes, ledger copies and bank statements, and certified copies of the assessment file likewise contained these materials. The Tribunal found those materials were available and examined in the assessment proceedings. Therefore the prerequisite factual premise for invoking s.263 - that no inquiry was made - was not established; the PCIT's conclusion that the AO did not call for or examine evidence conflicts with documentary record. Ratio vs. Obiter: Ratio - where an AO has called for and taken into account relevant documents and evidence, a revision under s.263 cannot be sustained merely on the ground that the Commissioner believes additional verification should have been performed. Obiter - observations on the sufficiency of specific documentary proof (contract notes, broker verification) beyond the finding that materials were on record. Conclusion: Revision under section 263 was invalid because the assessment was framed after inquiry and consideration of the relevant evidence; the PCIT's contrary conclusion was contrary to assessment records and therefore unsustainable. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Effect of 'inadequate inquiry' vs 'no inquiry' on section 263 jurisdiction Legal framework: Jurisdiction under s.263 arises only where the AO's order is erroneous and prejudicial; jurisdiction is not a tool to substitute the Commissioner's view for a possibly less-than-exhaustive inquiry unless the order is shown to be legally incorrect or founded on incorrect assumptions of fact. Precedent treatment: The Tribunal followed authority holding that 'inadequate inquiry' per se does not confer power under s.263; only absence of inquiry or an order vitiated by wrong application of law or erroneous findings may justify revision. Interpretation and reasoning: The Tribunal analysed the documentary trail - notices issued, replies filed, books produced and material present in assessment folder - concluding that inquiry indeed took place. Even if the depth of inquiry were arguable, the presence of inquiry distinguishes the case from one of no inquiry, and mere inadequacy (if any) does not satisfy the statutory twin conditions for s.263 exercise. Ratio vs. Obiter: Ratio - inadequate inquiry does not ipso facto validate a s.263 revision; where inquiry occurred and the AO reached a possible view after considering evidence, s.263 cannot be invoked to correct perceived insufficiency unless the AO's view is contrary to law or based on incorrect assumptions. Obiter - commentary that the AO need not enumerate every documentary detail in the assessment order. Conclusion: The PCIT could not rely on alleged inadequate inquiry to invoke s.263; the assessment was not vitiated by absence of inquiry and therefore revision was not legally justified on that ground. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Whether two possible views by AO preclude s.263 intervention Legal framework: The supervisory jurisdiction of the Commissioner under s.263 is not an appellate power to prefer an alternate view; it can be exercised only where the AO's view is not tenable as per law or is based on incorrect assumptions of fact. Precedent treatment: The Tribunal applied established jurisprudence that where two reasonable views are possible, the AO's adoption of one such view precludes exercise of s.263 merely because the Commissioner prefers the other view. Interpretation and reasoning: The Tribunal found that the AO had taken a plausible view after examining the documents called for; there was no finding that the AO's view was contrary to statutory provisions or based on demonstrably incorrect facts. The Commissioner's disagreement with the AO's conclusion therefore could not be the basis for setting aside the assessment under s.263. Ratio vs. Obiter: Ratio - where the AO's conclusion represents one of two reasonable views, s.263 cannot be invoked to substitute the Commissioner's preferred view; only incorrectness as to law or clear factual error permits revision. Obiter - discussion that third-party verifications may be desirable but cannot be mandated by s.263 where AO has otherwise examined the material. Conclusion: The PCIT's attempt to set aside the assessment because he disagreed with the AO's view was impermissible under s.263; such disagreement does not satisfy the statutory requirement for revision. OVERALL CONCLUSION The Tribunal concluded that the revisionary order under section 263 was invalidly invoked, because (a) the AO had issued notices, received and had before him the relevant documentary evidence and had conducted an inquiry; (b) alleged inadequacy of inquiry did not vest the PCIT with power under section 263; and (c) the AO had taken a possible and plausible view on the facts which could not be supplanted by the PCIT's differing opinion. Accordingly, the revisionary order was quashed. (Ratio applied to remaining similar appeals mutatis mutandis.)