2019 (7) TMI 135 - HC - Income Tax

Revision u/s 263 - exemption claimed u/s 10(38) of the LTCG from the sale of shares of Radford Global Ltd. - AO during assessment proceedings not only asked to furnish all relevant documents pertaining to the investment but also called copies of the assessment orders for immediately preceding three years including AY 2012-13, wherein the assessee made investments - whether A.O. has passed the assessment order without making inquiries/verification in the light of the survey report which should have been made ? - HELD THAT - The assessee being dissatisfied with the order passed by the CIT preferred an appeal before the Appellate Tribunal. Tribunal took the view that the CIT while holding that the assessment order was erroneous in exercise of its power u/s 263 ought to have indicated that the conclusion or findings recorded by the AO were either not based on correct facts or the order had been passed in breach of the provisions of the Act or revision made thereunder. Tribunal took the view that the CIT had not undertaken any such exercise reaching to the conclusion that the assessment order was erroneous and prejudicial to the interest of the Revenue. In short, on the facts and materials on record, the Appellate Tribunal recorded a finding that the PCIT was not correct and justified in issuing notice u/s 263 and also was not justified in passing the order revising the assessment order. No error not to speak of any error of law could be said to have been committed by the Tribunal in passing the impugned order. In our opinion, none of the two questions formulated in the memorandum of the Tax Appeal could be termed as substantial questions of law. The matter is more on facts. We would not like to disturb the findings recorded by the Appellate Tribunal. The Appellate Tribunal is the last fact finding authority. Having regard to the scope of appeal under Section 260-A of the Act, we would not like to disturb the findings of fact arrived at by the Appellate Tribunal.

Summary

Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1961 regarding revision of assessment order.
2. Application of Explanation 2 to Section 263 in determining errors prejudicial to the interest of the Revenue.
3. Assessment of long term capital gains under Section 10(38) based on share transactions.
4. Adequacy of inquiries and verifications conducted by the Assessing Officer.

Issue 1: Interpretation of Section 263:
The High Court addressed the issue of whether the Assessing Officer (AO) had erred in revising the assessment order under Section 263 of the Income Tax Act. The Court analyzed whether the AO had conducted sufficient inquiries and verifications as required by law before passing the assessment order. The Court examined the powers of the Principal Commissioner of Income Tax (PCIT) under Section 263 and assessed whether the order was erroneous and prejudicial to the interest of the Revenue.

Issue 2: Application of Explanation 2 to Section 263:
The Court delved into the application of Explanation 2 to Section 263 in determining errors prejudicial to the interest of the Revenue. It scrutinized whether the AO had followed the provisions of the Act and whether the PCIT had provided a basis for invoking the revisionary powers under Section 263. The Court analyzed the legal requirements for revising an assessment order and emphasized the need for the PCIT to undertake necessary inquiries before deeming an order as erroneous.

Issue 3: Assessment of long term capital gains:
The case involved the assessment of long term capital gains under Section 10(38) of the Act based on share transactions. The Court examined the details of the share transactions, including the purchase and sale of shares, to determine the eligibility of the assessee for claiming exemption under Section 10(38). The Court reviewed the assessment order and the actions taken by the CIT (Appeals) in invoking Section 263 based on the alleged errors in the assessment.

Issue 4: Adequacy of inquiries and verifications:
The Court assessed the adequacy of inquiries and verifications conducted by the Assessing Officer in relation to the share transactions and the claimed long term capital gains. It scrutinized whether the AO had conducted a thorough inquiry, including requesting relevant documents and assessing the facts of the case. The Court considered precedents and legal interpretations to determine whether the inquiries conducted were sufficient and adequate to justify the assessment order.

In conclusion, the High Court dismissed the Tax Appeal filed by the Revenue, upholding the findings of the Appellate Tribunal. The Court emphasized that the Tribunal's decision was based on factual findings and declined to disturb those findings. The Court highlighted the Tribunal's role as the final fact-finding authority and concluded that no error of law was committed in passing the impugned order.