2017 (3) TMI 1172 - AT - Income Tax

Revision u/s 263 - Exemption under Section 54F - Held that - The claim of assessee regarding the consideration received on sale of shares was accepted by the AO. The AO neither enquired nor applied his mind to the notification applicability on sale of shares of resident to nonresident. The guidelines contained in notification issued by the RBI was not at all seen to say whether it is applicable or not. As per the notification, shares of an Indian companies are not listed on a recognized stock exchange in India, the transfer of shares shall be at a price not less than the fair value to be determined by a SEBI registered category-1- Merchant Banker or a Chartered Accountant as epr the discounted free cash flow method. Further, the claim of assessee regarding granting of exemption u/s.54F also and was also not examined by the AO. It is also to be noted that applicability of provisions regarding S.54F, no enquiry as to whether this amount was properly deposited in capital gains scheme or not, whether the condition laid down in Sec.54F was complied with or not seen by the AO. In view of this, the CIT by invoking the provisions of the section 263 of the Act, directed the AO to examine the issue raised by him in his order afresh and decide in accordance with law. In this finding of the CIT, we do not find any infirmity and he action of Ld. CIT is confirmed. Hence, the AO would examine the issue raised by the Ld. CIT in his order u/s.263 and decide the issue in accordance with law. - Decided against assessee

Summary

Issues Involved:
1. Erroneous and prejudicial assessment order by the Assessing Officer (AO).
2. Eligibility for exemption under Section 54F of the Income Tax Act.
3. Verification and enquiry regarding the sale consideration of shares.
4. Compliance with SEBI and RBI guidelines for share transactions.
5. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263.

Issue-wise Detailed Analysis:

1. Erroneous and Prejudicial Assessment Order by the AO:
The Principal Commissioner of Income Tax (PCIT) found the assessment order of the AO to be erroneous and prejudicial to the interests of the revenue. The AO accepted the assessee's claims without proper verification or discussion, particularly regarding the sale value of shares and the exemption under Section 54F. The PCIT issued a show cause notice under Section 263, highlighting the lack of proper enquiry and verification by the AO. The tribunal upheld the PCIT's view, stating that the AO's order was cryptic and lacked necessary enquiry, making it erroneous and prejudicial to the revenue.

2. Eligibility for Exemption Under Section 54F of the Income Tax Act:
The assessee claimed exemption under Section 54F, stating that the capital gains were deposited in the Capital Gain Account Scheme and used for the construction of a residential house. The PCIT directed the AO to examine whether the eligibility for the claim under Section 54F was disqualified due to the residential property not being completed before the due date. The tribunal agreed with the PCIT, noting that the AO failed to verify the conditions for exemption under Section 54F, such as the completion of the residential house and the proper deposit of capital gains in the scheme.

3. Verification and Enquiry Regarding the Sale Consideration of Shares:
The PCIT observed that the AO did not verify the sale consideration of shares as per RBI notifications and SEBI guidelines. The shares were sold to a non-resident at a price that needed verification against the fair value determined by a SEBI-registered Merchant Banker or Chartered Accountant. The tribunal supported the PCIT's direction to the AO to re-examine the sale consideration of shares, emphasizing the need for proper verification and enquiry.

4. Compliance with SEBI and RBI Guidelines for Share Transactions:
The PCIT noted that the AO failed to examine whether the share transaction complied with SEBI and RBI guidelines. The sale of shares to a non-resident required adherence to specific guidelines, which the AO did not verify. The tribunal upheld the PCIT's direction to the AO to ensure compliance with these guidelines, highlighting the importance of such regulatory checks in share transactions.

5. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) Under Section 263:
The tribunal discussed the jurisdiction of the PCIT under Section 263, which allows the PCIT to revise an assessment order if it is erroneous and prejudicial to the interests of the revenue. The tribunal cited various legal precedents, including the Supreme Court's judgment in Malabar Industrial Co. Ltd., to support the PCIT's jurisdiction. The tribunal concluded that the AO's failure to make necessary enquiries and verifications justified the PCIT's invocation of Section 263.

Conclusion:
The tribunal dismissed the appeal of the assessee, affirming the PCIT's order to set aside the AO's assessment and directing a re-examination of the issues highlighted. The tribunal emphasized the need for thorough verification and compliance with legal and regulatory requirements in the assessment process. The decision underscores the importance of the AO's duty to protect both the assessee's and the revenue's interests through diligent enquiry and fair adjudication.