2013 (9) TMI 327 - AT - Income Tax

Revision u/s 263 - Held that - an order erroneous or prejudicial to revenue - Held that - At the time of original assessment, the A.O. has made the necessary enquiries and called for the necessary explanation and material from the assessee - The ld. Authorised Representative has demonstrated as discussed in submission of the ld. Authorised Representative above that the A.O. has made the assessment after considering all relevant records and materials. - The CIT has wrongly invoked section 263 of the Act. Therefore, order of the CIT is quashed - Decided in favor of assessee.

Summary

Issues Involved:
1. Invocation of Section 263 of the Income-tax Act, 1961 by the CIT.
2. Assessment under Section 143(3)/148 and the acceptance of Long Term Capital Gain (LTCG) by the A.O.
3. Examination of whether the A.O.'s order was erroneous and prejudicial to the interest of Revenue.

Detailed Analysis:

Invocation of Section 263 of the Income-tax Act, 1961 by the CIT:
The primary issue in both appeals was the invocation of Section 263 by the Commissioner of Income Tax (CIT). The CIT observed that the Assessing Officer (A.O.) had completed the assessment without conducting adequate investigation and simply accepted the Long Term Capital Gain (LTCG) claims made by the assessees. The CIT deemed the A.O.'s order as erroneous and prejudicial to the interest of Revenue, and thus set aside the assessment order, directing the A.O. to reassess after providing an opportunity of hearing to the assessees.

Assessment under Section 143(3)/148 and Acceptance of LTCG by the A.O.:
The A.O. completed the assessment under Section 143(3)/148, recording an income of Rs. 9,70,934/- for one assessee and Rs. 7,48,324/- for another. The assessments were based on the belief that accommodation entries were provided by Gupta & Gupta, New Delhi. The assessees claimed LTCG on the sale of shares, which the A.O. accepted without further investigation. The CIT found that the A.O. had not applied his mind correctly and had not conducted a thorough investigation, which led to the order being considered erroneous and prejudicial to the interest of Revenue.

Examination of Whether the A.O.'s Order was Erroneous and Prejudicial to the Interest of Revenue:
The Tribunal examined the facts and submissions made by the assessees. The assessees had provided detailed explanations, affidavits, and relevant documents during the original assessment proceedings. The A.O. had considered these submissions and materials before completing the assessment. The Tribunal noted that the CIT invoked Section 263 not because the A.O.'s order was erroneous, but because the CIT was not satisfied with the A.O.'s conclusion. The Tribunal emphasized that an order cannot be termed erroneous unless it deviates from the law. The A.O. had exercised his quasi-judicial power and made the assessment in accordance with the law. The Tribunal concluded that the CIT's invocation of Section 263 was based on a different opinion rather than an error in the A.O.'s order.

Conclusion:
The Tribunal found that the A.O. had made the necessary inquiries and considered all relevant materials before completing the assessment. The CIT's dissatisfaction with the A.O.'s conclusion did not justify the invocation of Section 263. Therefore, the Tribunal quashed the CIT's order and allowed the appeals filed by the assessees. The Tribunal's decision was based on the principle that the A.O.'s order was not erroneous and was made in accordance with the law. The Tribunal emphasized that the CIT's power of revision under Section 263 is supervisory and can only be exercised if the order is both erroneous and prejudicial to the interest of Revenue.