2012 (2) TMI 501 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of CIT u/s 263.
2. Taxability of income from the transfer of shares.
3. Whether the assessment order was erroneous and prejudicial to the interest of the revenue.

Summary:

1. Jurisdiction of CIT u/s 263:
The appeal challenges the jurisdiction of the Commissioner of Income-tax (CIT) to invoke section 263 of the Income-tax Act, 1961, setting aside the assessment framed u/s 143(3) as erroneous and prejudicial to the interest of the revenue. The Tribunal observed that the CIT must be satisfied with twin conditions: the order of the assessing officer (AO) is erroneous and prejudicial to the interest of the revenue. The Tribunal emphasized that mere change of opinion or view does not justify the exercise of revisional jurisdiction u/s 263. The Tribunal cited multiple judgments, including Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC), and Gabriel India Ltd., 203 ITR 108 (Bombay), to support this view.

2. Taxability of Income from the Transfer of Shares:
The CIT held that the profit from the sale of shares should be treated as business profit instead of capital gains, asserting a lack of inquiry by the AO. However, the Tribunal noted that the AO had raised specific queries on the issue during assessment proceedings, and the assessee had provided a detailed reply. The Tribunal referenced the assessee's submission that the shares were held as investments, not as stock in trade, and that no fresh investments were made during the year under review. The Tribunal found that the AO had applied his mind and accepted the assessee's explanation, thus the CIT's invocation of section 263 was not justified.

3. Whether the Assessment Order was Erroneous and Prejudicial to the Interest of the Revenue:
The Tribunal concluded that the AO had conducted an inquiry and accepted the assessee's explanation regarding the taxation of profit from shares as short/long-term capital gain. The CIT's observation of lack of inquiry was deemed factually incorrect. The Tribunal reiterated that an order cannot be termed erroneous unless it is not in accordance with law, and every loss of revenue as a consequence of an AO's order cannot be treated as prejudicial to the interests of the revenue unless the view taken by the AO is unsustainable in law. The Tribunal set aside the CIT's order u/s 263 and quashed the same.

Conclusion:
The appeal was allowed, and the Tribunal quashed the CIT's order u/s 263, concluding that the AO had conducted a proper inquiry and the CIT's invocation of section 263 was based on a mere change of opinion.