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2019 (1) TMI 1408 - AT - Income TaxRevision u/s 263 - lack of inquiry - exemption claimed u/s 10(38) disallowed due to the fault of the company - allowability of the exemption of the Long Term Capital Gain - Held that - AO has not applied his mind regarding the allowability of the exemption of the Long Term Capital Gain. This is not the case of inadequate enquiry but is a clear case of lack of enquiry which makes it different from the case of Nirav Modi 2016 (6) TMI 1004 - BOMBAY HIGH COURT . Obtaining of the information about the transaction cannot be taken as akin to enquiring about the information. This is a clear case of no enquiry for which the PCIT has rightly invoked the provisions of Section 263. PCIT has clearly brought about the error in the assessment order and has also directed the Assessing Officer to take remedial action to take action as per the law after providing due opportunity to the assessee. Thus, it can be said that the PCIT has not exceeded his jurisdiction nor directed the AO to pass the assessment order in any particular way thus not interfering in the judicial function of the AO. It can be observed that the AO has not conducted any enquiry and this is a clear case of lack of enquiry not a case inadequate enquiry. Further non application of mind by the AO can be easily gauzed from the fact that the information available with the AO has not been utilised during the assessment proceedings which makes the case fit for applying the provisions of explanation 2 (a) of section 263. The judgment of the Apex Court in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT wherein the action under section 263 is upheld when the Assessing Officer has accepted the statement of account filed by the Assessee without making any enquiry, the judgment of Hon ble Supreme Court in the case of Daniel Merchants Pvt. Ltd. 2017 (12) TMI 476 - SUPREME COURT which held that in the case where AO did not make any proper enquiry, the PCIT is correct in directing the Assessing Officer to carry thorough and detailed enquiry. On going through the questionnaire, assessment order, we have no hesitation to say that the Assessing Officer has not applied his mind to the issue of share transactions for which the detailed information is available regarding the suspicious nature of the transactions. Accordingly to us, based on the facts and circumstances, the case before us is a case of absolute lack of enquiry but not a case of inadequate enquiry by him. Hence, order passed u/s 263 of the act by the Id CIT is upheld and appeal of the assessee is dismissed.
Issues Involved:
1. Validity of the proceedings under section 263 of the Income Tax Act, 1961. 2. Whether the assessment order was erroneous and prejudicial to the interests of the revenue. 3. Distinction between "lack of inquiry" and "inadequate inquiry." 4. The role of the Principal Commissioner of Income Tax (PCIT) in revising the assessment order. 5. The evidentiary value of documents provided by the assessee. 6. The application of Explanation 2 of Section 263(1) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Validity of the proceedings under section 263 of the Income Tax Act, 1961: The proceedings under section 263 were initiated by the Ld. Principal CIT (PCIT) due to the alleged lack of proper inquiry by the Assessing Officer (AO) regarding the long-term capital gains claimed by the assessee. The Ld. PCIT issued a notice under section 263(1) to the assessee, highlighting the need for a detailed inquiry into the capital gains from the sale of shares of Kailash Auto Finance Ltd. The PCIT's action was based on the premise that the AO failed to verify the transactions adequately, making the assessment order erroneous and prejudicial to the interests of the revenue. 2. Whether the assessment order was erroneous and prejudicial to the interests of the revenue: The assessment order was deemed erroneous and prejudicial to the interests of the revenue because the AO did not conduct a thorough inquiry into the suspicious long-term capital gains. The AO merely mentioned the inputs from the investigation wing without examining the genuineness of the transactions. The Ld. PCIT had sufficient material to show that the tax lawfully exigible was not imposed, thus justifying the invocation of section 263. 3. Distinction between "lack of inquiry" and "inadequate inquiry": The judgment emphasized the distinction between "lack of inquiry" and "inadequate inquiry." It was noted that if there was any inquiry, even if inadequate, it would not give the Commissioner the right to pass orders under section 263 merely because of a different opinion. However, in this case, it was observed that the AO did not conduct any inquiry at all, making it a clear case of "lack of inquiry." This distinction was crucial in upholding the PCIT's action under section 263. 4. The role of the Principal Commissioner of Income Tax (PCIT) in revising the assessment order: The PCIT's role in revising the assessment order was to ensure that the AO conducted a proper inquiry into the suspicious transactions. The PCIT directed the AO to take remedial action as per the law after providing due opportunity to the assessee. The judgment clarified that the PCIT did not exceed his jurisdiction nor directed the AO to pass the assessment order in any particular way, thus not interfering in the judicial function of the AO. 5. The evidentiary value of documents provided by the assessee: The assessee provided various documents, including the D-MAT account statement, share purchase bill, bank statement, High Court order for share allotment, and contract notes for the sale of shares. However, the judgment noted that merely providing these documents did not suffice as a proper inquiry by the AO. The AO was required to verify the genuineness of the transactions, which he failed to do, leading to the invocation of section 263 by the PCIT. 6. The application of Explanation 2 of Section 263(1) of the Income Tax Act, 1961: Explanation 2 of Section 263(1) was applicable in this case as the AO passed the order without making inquiries or verification which should have been made. The judgment cited various case laws to support the view that the PCIT was justified in treating the assessment order as erroneous and prejudicial to the interests of the revenue. The judgment concluded that the AO's failure to apply his mind and conduct a proper inquiry warranted the invocation of section 263 by the PCIT. Conclusion: The judgment upheld the PCIT's action under section 263, concluding that the AO's assessment order was erroneous and prejudicial to the interests of the revenue due to the lack of inquiry into the suspicious long-term capital gains. The appeal of the assessee was dismissed, and the order passed under section 263 was upheld. The judgment emphasized the importance of proper inquiry by the AO and the PCIT's role in ensuring that the assessment orders are not erroneous and prejudicial to the revenue.
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