2020 (1) TMI 83 - AT - Income Tax

Revision u/s 263 - CIT held that AO's order was erroneous and prejudicial to the revenue for lack of enquiry in respect of the claim of loss - difference between lack of inquiry and inadequate inquiry - HELD THAT - We note how the AO enquired about the claim of STCL as an investigator as well as accepted the claim by discharging the role of an adjudicator. In such a scenario, if the Ld. Pr. CIT is not satisfied with the line of investigation or if he is of the opinion that AO misdirected himself from the real issue or if the investigation was not carried out as per his standards/depth as suggested then he ought to have conducted enquiry and recorded a factual finding to show that the AO s investigation was erroneous. Without doing so, in our opinion, Pr. CIT cannot hold the assessment order to be erroneous for the reason that AO s investigation was inadequate. When the AO has investigated as in the present case, then the Ld. Pr. CIT without recording a factual finding after enquiry cannot upset the decision of AO as erroneous when he has not himself conducted any enquiry. The revisional jurisdiction of Ld. Pr. CIT u/s. 263 cannot be used to conduct roving enquiries time and again or there will be no finality of the assessment proceeding and the Parliament would not have stipulated the condition precedents in sec. 263 of the Act to invoke the same. We find that before the order of assessment was passed, the AO had required the assessee to furnish transactional documents proving the purchase and sale of all shares held as investment during the year. On examination of the material placed before him by the appellant, the AO was satisfied that the short term capital loss was incurred by the appellant on sale of shares listed on the Bombay Stock Exchange. The appellant had filed before the AO the relevant details and also produced the time stamped contract notes issued by its broker. All the transactions were made through registered share broker at rates prevailing on the stock exchange on the relevant dates. The payment for acquisition of shares and the subsequent sale proceeds were also transacted through the appellant s regular bank account. It is noted that the listed shares were sold within a period of one year from the date of acquisition and therefore the gain/loss was short term in nature. In the facts and circumstances as discussed above therefore we find that the AO had discharged his duties as an investigator as well as that of an adjudicator and applied his mind on the issue before him and taking into consideration the explanation rendered by the appellant, the AO had taken a plausible decision to allow the claim of short term capital loss as made by the appellant in the return of income in consonance with judicial decisions In the present case while passing the assessment order, the AO did not follow a view which can be said to be unsustainable in law rather we would say that it was a plausible view taken by AO after inquiry in line with the judicial precedents cited supra. In the circumstances therefore, the jurisdictional facts as well as law for usurping the jurisdiction, being absent, we hold that the action of Ld. Pr. CIT was without jurisdiction and, therefore, all subsequent actions are 'null' in the eyes of law. We therefore quash the order of Ld. Pr. CIT impugned before us. - Decided in favour of assessee.

Summary

Issues Involved:
1. Usurpation of jurisdiction by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income-tax Act.
2. Alleged lack of enquiry by the Assessing Officer (AO) into the short-term capital loss claimed by the assessee.
3. Compliance with CBDT Instruction No.287/30/2014-IT(Inv II)Vol. III dated 16.03.2016.

Issue-wise Detailed Analysis:

1. Usurpation of Jurisdiction by Pr. CIT under Section 263:
The assessee challenged the jurisdiction of the Pr. CIT to invoke his revisional powers under Section 263 of the Income-tax Act. The Tribunal examined whether the necessary jurisdiction existed before the Pr. CIT exercised his powers. The Tribunal referred to the judicial precedent set by the Hon'ble Supreme Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83 (SC), which established that the twin conditions for invoking Section 263 are that the AO's order must be erroneous and prejudicial to the interest of the Revenue. The Tribunal found that the AO had conducted a detailed enquiry into the short-term capital loss claimed by the assessee, and thus, the order was not erroneous. Consequently, the Pr. CIT's assumption of jurisdiction under Section 263 was deemed erroneous and bad in law.

2. Alleged Lack of Enquiry by the AO:
The Pr. CIT held that the AO's order was erroneous and prejudicial to the Revenue due to a lack of enquiry into the short-term capital loss. The Tribunal reviewed the AO's actions, noting that the AO had issued multiple notices and collected detailed information from the assessee regarding the short-term capital loss. The AO had examined the audited accounts, tax audit report, computation of income, bank statements, contract notes, and other relevant documents. The Tribunal concluded that the AO had conducted a thorough enquiry and that the Pr. CIT's claim of lack of enquiry was factually incorrect. The Tribunal emphasized that inadequate enquiry does not make an order erroneous unless the Pr. CIT demonstrates that the AO's findings were unsustainable in law.

3. Compliance with CBDT Instruction No.287/30/2014-IT(Inv II)Vol. III:
The Pr. CIT alleged that the AO did not follow the CBDT Instruction dated 16.03.2016, which related to handling cases of penny stocks and suspicious transactions. The Tribunal examined the instruction and found that it did not outline specific guidelines for the AO's enquiry into suspicious transactions. The instruction merely informed field officers about the addition of a 'Penny Stock' button on their Individual Transaction Screen to display relevant information. The Tribunal concluded that the Pr. CIT's premise of lack of compliance with the CBDT instruction was factually untenable.

Conclusion:
The Tribunal found that the AO had conducted a detailed enquiry into the short-term capital loss claimed by the assessee and that the Pr. CIT's assumption of jurisdiction under Section 263 was without basis. The Tribunal held that the AO's order was not erroneous or prejudicial to the interest of the Revenue and quashed the Pr. CIT's revision order. The appeal of the assessee was allowed.