2020 (2) TMI 1101 - HC - Income Tax

Revision u/s 263 - information from the Investigation Wing about suspicious long term capital gain on shares, the case was selected for scrutiny - HELD THAT - Section 263 of the Act gives a supervisory power to PCIT and the two requirements are that the order passed by the Assessing Officer is erroneous and is prejudicial to the interest of the revenue. Explanation 2 to Section 263 of the Act was added by Finance Act, 2015 w.e.f. 1.6.2015. In the present case, a cursory look at the assessment order is good enough to hold the same to be erroneous. There was a specific information provided to the Assessing Officer about suspicious long term capital gain. Without going by the length of the order, there is not even a whisper that an enquiry was held with regard to the long term capital gain what to say about recording of satisfaction. The contention of assessee that it was a case of change of opinion or case of inadequate enquiry is not well founded. There is no enquiry at all by the Assessing Officer, there is no question of change of opinion. The information which was with the Assessing Officer from the Investigation Wing was not examined and the transaction was not verified. There was material on record before the PCIT that the tax leviable was not imposed as the Assessing Officer had not applied his mind while allowing exemption of long term capital gain. It would be worth mentioning that the present case is squarely covered within the four corners of explanation 2 to Section 263 of the Act. Be that as it may, even otherwise for the reasons mentioned above, the order of the Assessing Officer is erroneous. - Decided against assessee.

Summary

Issues involved:
1. Interpretation of Section 263 of the Income Tax Act, 1961 regarding the powers of the Principal Commissioner of Income Tax (PCIT) to revise orders.
2. Determination of whether the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue.
3. Analysis of the application of Explanation 2 to Section 263 of the Act in the context of the case.

Detailed Analysis:
1. The appellant appealed under Section 260A of the Income Tax Act, challenging the order passed by the Income Tax Appellate Tribunal (ITAT). The appellant raised substantial questions of law regarding the justification of confirming the order passed by the Commissioner of Income Tax (CIT) under Section 263, setting aside the order under Section 143(3). The appellant argued that the original order under Section 143(3) was not erroneous, and a correct view was expressed after considering all relevant aspects. The case involved scrutiny of long term capital gain on shares and the subsequent initiation of proceedings under Section 263 by the PCIT.

2. The PCIT invoked Section 263, deeming the Assessing Officer's order as erroneous and prejudicial to revenue. The appellant contended that the twin conditions for invoking Section 263 were not met, and revision cannot be based on a mere change of opinion. However, the Court held that Section 263 empowers the PCIT to supervise and correct erroneous orders prejudicial to revenue. The addition of Explanation 2 to Section 263 by the Finance Act, 2015, provided specific situations deeming orders erroneous, including lack of inquiries or verification. In this case, the assessment order was found to be erroneous due to inadequate examination of the suspicious long term capital gain.

3. The Court referenced the Supreme Court's decision in M/s Malabar Industrial Co. Ltd. v. Commissioner of Income-tax, emphasizing the importance of the Assessing Officer applying their mind to avoid erroneous orders. In the present case, the Assessing Officer failed to investigate the long term capital gain adequately, leading to an erroneous order. The Court concluded that the Assessing Officer did not apply his mind, and the order was indeed erroneous, justifying the PCIT's exercise of jurisdiction under Section 263. The case fell within the ambit of Explanation 2 to Section 263, further supporting the dismissal of the appeal.

In summary, the Court upheld the PCIT's decision under Section 263, emphasizing the importance of thorough examination and application of mind by the Assessing Officer to avoid erroneous orders prejudicial to revenue.