Revision u/s263 quashed where AO's computation correctly reduced disclosed LTCG; higher figure was apparent mistake

ITAT Delhi-AT allowed the assessee's appeal and quashed the revisionary order u/s 263 passed by PCIT. It held that the AO's computation sheet correctly reflected the taxable long-term capital gain after reducing the amount already disclosed in the return, whereas the higher figure in the body of the assessment order was an apparent mistake arising from adoption of gross LTCG. Since the assessment order, as per the computation sheet, was neither erroneous nor prejudicial to the interests of the Revenue, the foundational jurisdictional requirement for invoking s.263 was not satisfied.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the conditions for assumption of revisionary jurisdiction under section 263 of the Income-tax Act, 1961 were satisfied, namely, that the assessment order was both "erroneous" and "prejudicial to the interests of the revenue".

1.2 Whether a discrepancy between the figure of assessed income mentioned in the body of the assessment order and the correct figure reflected in the computation sheet annexed thereto justified revision under section 263, where tax and interest had been computed on the correct figure.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Validity of revision under section 263 based on alleged error in assessed income

Legal framework

2.1 The Tribunal proceeded on the settled requirement that for valid exercise of jurisdiction under section 263, the order sought to be revised must be (i) erroneous, and (ii) prejudicial to the interests of the revenue.

Interpretation and reasoning

2.2 The assessment under section 143(3) had computed long term capital gains at Rs. 9,31,96,472 as against the assessee's disclosed long term capital gains of Rs. 1,89,47,440. Instead of adding only the differential amount of Rs. 7,42,49,032, the Assessing Officer erroneously added the entire figure of Rs. 9,31,96,472 in the body of the assessment order, resulting in a double addition of Rs. 1,89,47,440.

2.3 In the separate computation sheet annexed to the assessment order, the Assessing Officer actually adopted total income of Rs. 12,07,19,604, which correctly reflected the income after reducing the long term capital gains already disclosed by the assessee in the return, and tax and interest were computed on this correct figure.

2.4 The Principal Commissioner invoked section 263 on the premise that the total income in the computation sheet had been wrongly taken at Rs. 12,07,09,600 (approx.) instead of Rs. 13,96,56,992 as mentioned in the body of the assessment order, treating the assessment order as erroneous and prejudicial to the interests of the revenue.

2.5 The Tribunal found that the figure in the body of the assessment order was incorrect owing to the double addition of long term capital gains, and the figure in the computation sheet was, in fact, correct. Thus, the computation sheet did not contain any error requiring correction to protect the interests of the revenue.

2.6 Since the correct total income had been adopted in the computation sheet for the purpose of charging tax and interest, there was no prejudice to the interests of the revenue arising from the computation adopted by the Assessing Officer.

2.7 The Tribunal also noted that the assessee had already filed a rectification application under section 154 seeking correction of the apparent mistake in the body of the assessment order, which underscored that the error, if any, was one of form and not of substance affecting the tax computation.

Conclusions

2.8 The Tribunal held that the computation sheet annexed to the assessment order contained the correct figure of total income and tax liability, and therefore there was no "error" in that computation which was "prejudicial to the interests of the revenue".

2.9 The very basis on which the Principal Commissioner assumed jurisdiction under section 263-treating the computation sheet as erroneous and prejudicial-was found to be fundamentally flawed.

2.10 Consequently, the order passed under section 263 was quashed in toto, and the assessee's appeal was allowed.

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