2021 (3) TMI 942 - AT - Income Tax

Revision u/s 263 - Income derived from the partnership firm and claimed as exemption under s.10(2A) - non-application of mind to the pattern of transaction which smacks of a device to transfer the land in favour of new partners without paying due taxes. The impact of omission of s.47(ii) has also not found to be weighed - HELD THAT - No document had been placed before us on behalf of the assessee to show that the AO, at any point of time, applied his mind to the apparent mis-match in the amount of exemption income claimed under s.10(2A) of the Act qua the corresponding income declared by the partnership firm. The issue apparently did not weigh in the mind of the AO, which has resulted in serious prejudice to the Revenue. The plea of all pervasive scrutiny conducted by AO thus does not resonate with apparent gaffes shown. We find that the AO has passed a very cryptic and nondescript order without any discussion on any of the point raised in the revisional order. Alongside, it also could not be shown that the AO was alive to such pertinent concerns and reason thereof at the time of assessment. A plain reading of Explanation to Section 10(2A) of the Act does not summarily rule out an embedded plausibility in the concern of excess deduction claimed as expressed by the Revisional Commissioner. Non-examination of such crucial aspects which has direct bearing on the correct assessment of income has ostensibly rendered the assessment order to be erroneous as well as prejudicial to the interest of the Revenue. We thus hold that the assessment order passed in such gross lack of application of mind causing prejudice is thus amenable to jurisdiction under s.263 - Decided against assessee.

Issues Involved:
1. Jurisdiction assumed by the Principal Commissioner of Income Tax (Pr.CIT) under Section 263 of the Income Tax Act, 1961.
2. Validity of the revisional order passed by the Pr.CIT under Section 263 of the Act.
3. Examination of the assessment order's compliance with Section 10(2A) of the Act.
4. Alleged non-application of mind by the Assessing Officer (AO) in the assessment order.

Issue-wise Detailed Analysis:

1. Jurisdiction Assumed by the Pr.CIT under Section 263 of the Act:
The assessee challenged the jurisdiction assumed by the Pr.CIT under Section 263 of the Income Tax Act, 1961. The Pr.CIT issued a show cause notice to the assessee to explain why the assessment order should not be modified or set aside on the grounds that it was erroneous and prejudicial to the interest of the Revenue. The Pr.CIT alleged that the AO failed to apply his mind and did not conduct proper inquiries and verification of crucial facts. Consequently, the Pr.CIT invoked revisional powers under Section 263 to set aside the assessment order for a de novo assessment.

2. Validity of the Revisional Order Passed by the Pr.CIT under Section 263 of the Act:
The Pr.CIT concluded that the assessment order was passed mechanically, accepting the returned income without carrying out worthwhile inquiries to ascertain the true chargeable income. The Pr.CIT invoked the revisional powers under Section 263, read with Explanation (2), to set aside the assessment order and directed the AO to frame a fresh assessment order after conducting requisite inquiries on the pertinent issues involved.

3. Examination of the Assessment Order's Compliance with Section 10(2A) of the Act:
The Pr.CIT alleged that the AO failed to examine the quantum of income eligible for exemption under Section 10(2A) of the Act. The assessee claimed exemption under Section 10(2A) for the share of profit from the partnership firm, Suyog Infrastructure. The Pr.CIT noted that the income declared by the partnership firm was significantly lower than the exemption claimed by the assessee. The Pr.CIT also pointed out that the AO did not consider the Explanation attached to Section 10(2A), which specifies that the exemption should be proportionate to the partner's share in the firm's total income. The AO's failure to address this discrepancy rendered the assessment order erroneous and prejudicial to the Revenue.

4. Alleged Non-application of Mind by the AO in the Assessment Order:
The Pr.CIT alleged that the AO did not apply his mind to the following aspects:
- The AO did not examine the quantum of income eligible for exemption under Section 10(2A) of the Act, especially when the assessee was not a partner in the firm at the end of the financial year.
- The AO failed to consider that the transaction of transferring interest in the partnership firm to new partners could be a colorable device to transfer the capital asset without paying due taxes.
- The AO did not consider the impact of the deletion of Section 47(ii) of the Act, which would result in the amount distributed by the partnership firm being taxed as the assessee's income.

The Tribunal found that the AO passed a cryptic and nondescript order without any discussion on the points raised by the Pr.CIT. The Tribunal held that the non-examination of crucial aspects rendered the assessment order erroneous and prejudicial to the Revenue, making it amenable to jurisdiction under Section 263 of the Act.

Conclusion:
The Tribunal upheld the action of the Pr.CIT in invoking jurisdiction under Section 263 of the Act. The Tribunal emphasized that its observations were limited to the scope of jurisdiction under Section 263 and did not express any opinion on the merits of the allegations made by the Pr.CIT. Consequently, the appeal of the assessee was dismissed.

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