2021 (5) TMI 791 - AT - Income Tax

Revision u/s 263 - allowability of LTCL - HELD THAT - We find that the assessee had furnished replies before the ld AO in writing from time to time by collating all the queries that were raised in writing by way of questionnaire as well as the queries raised by the ld AO at the time of personal hearing. As audit objection of the Revenue Audit Department goes to prove that the Revenue Audit Department apparently had not agreed with the view taken by the ld AO. Hence there exists two views on the same subject within the Income Tax Department itself. There is absolutely no incorrect assumption of fact or incorrect application of law by the ld AO. Hence it could be safely concluded that the ld AO had taken one of the possible view. Once a possible view has been taken by the ld AO, his order cannot be termed as erroneous warranting revision proceedings u/s 263. In any case, we find that there is no dispute that the Revenue Audit Party had indeed raised an objection on the very same subject of allowability of Long Term Capital loss and that the ld AO had not accepted the same. This is evident from the detailed reply given by the ld AO to the Revenue Audit Party vide his letter dated 3.7.2017. We find that the ld PCIT had invoked revision jurisdiction u/s 263 of the Act on the very same point of allowability of LTCL. Hence it could be safely concluded that the revision proceedings has been invoked by the PCIT u/s 263 of the Act based on audit objection, which is nothing but borrowed satisfaction. Hence the said revision proceedings u/s 263 of the Act need to be construed as bad in law. Appeal of the assessee is allowed.

Issues Involved:

1. Justification of the Principal Commissioner of Income Tax (PCIT) in invoking revision jurisdiction under Section 263 of the Income Tax Act.
2. The allowability of Long Term Capital Loss (LTCL) claimed by the assessee.

Detailed Analysis:

1. Justification of the Principal Commissioner of Income Tax (PCIT) in invoking revision jurisdiction under Section 263 of the Income Tax Act:

The core issue is whether the PCIT was justified in invoking revision jurisdiction under Section 263 of the Income Tax Act. The assessee had filed its return of income for the Assessment Year (A.Y.) 2013-14, which was revised and assessed by the Assessing Officer (AO). The AO completed the assessment determining the total income and specifically mentioned the eligibility of a sum to be carried forward for set-off in subsequent years.

The PCIT sought to revise the AO's order on the grounds that the AO had allowed the claim of LTCL which ought not to have been allowed. The PCIT argued that the AO took an incorrect view based on improper and incomplete appreciation and verification of facts, thus making the order erroneous and prejudicial to the interest of the revenue. The PCIT relied on Explanation 2(a) to Section 263 of the Act to support his conclusion and directed the AO to carry out a complete verification of the legal tenability of the Special Purpose Vehicle (SPV) created, the source of finances of the SPV, and the valuation and sale of shares.

The Tribunal found that the AO had issued several notices to the assessee and received detailed replies. The AO had specifically inquired about the details of the LTCL and received comprehensive responses from the assessee. The Tribunal noted that the AO had addressed a letter to the Deputy Director objecting to the audit objection raised by the audit party, where the AO accepted the assessee's contentions.

The Tribunal concluded that the AO had taken one of the possible views, and merely because the PCIT had a different view, it did not justify invoking revision proceedings under Section 263. The Tribunal emphasized that the revision proceedings were based on an audit objection, which amounted to borrowed satisfaction, making the revision proceedings bad in law.

2. The allowability of Long Term Capital Loss (LTCL) claimed by the assessee:

The assessee claimed LTCL arising from the sale of shares of Aditya Birla Minacs Worldwide Ltd. to ABNL IT & ITES Ltd. The details were disclosed in the return of income and computation of income filed by the assessee. The AO issued multiple notices and received detailed explanations from the assessee regarding the LTCL.

The assessee explained that the shares were sold at a cost higher than the net worth of Minacs India, and the provisions of Section 47(iv) of the Income Tax Act, which exempts transfers to wholly-owned subsidiaries, did not apply as the subsidiary was not wholly owned (95% owned by the assessee and 5% by ABNL Investments Ltd).

The AO accepted the assessee's explanations and allowed the LTCL to be carried forward. The PCIT, however, disputed this allowance, leading to the revision proceedings.

The Tribunal found that the AO had conducted adequate inquiries and accepted the assessee's contentions based on facts and legal points. The Tribunal held that the AO's order was a possible view, and the PCIT's different view did not warrant revision under Section 263. The Tribunal also noted that the PCIT's revision proceedings were based on an audit objection, which was not an independent application of mind.

Conclusion:

The Tribunal quashed the revision order passed by the PCIT under Section 263 of the Income Tax Act, holding that:

a) Adequate inquiries were conducted by the AO in the original assessment proceedings.
b) The AO took a possible view on the issue of LTCL, and the PCIT's different view did not justify revision.
c) The revision proceedings were based on borrowed satisfaction from an audit objection, not an independent application of mind by the PCIT.

The appeal of the assessee was allowed, and the Tribunal directed that the revision order be quashed. The other arguments on the applicability of provisions of Section 170(2) and the merits of the case were left open.

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