2021 (10) TMI 456 - AT - Income Tax

Revision u/s 263 - As per CIT order passed by the A.O. is found to be erroneous in so far as it is prejudicial to the interests of the Revenue - incorrect/mistaken assumption of the facts of the case by way of accepting the statement of the assessee without due verification/erroneous application of provisions of the Act - HELD THAT - A.O. had carried out all the necessary enquires and examined all the issues and had formed a possible view. It is also settled law that where two views are possible and the A.O. has taken one view, then in that eventuality, the assessment order cannot be treated as erroneous. See KWALITY STEEL SUPPLIERS COMPLEX 2017 (7) TMI 620 - SUPREME COURT Even otherwise a bare perusal or bare reading of Section 263 of the Act, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo moto under it, is that the order of ITO/AO is erroneous in so far as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied or twin condition and in case if one of them is absent then recourse cannot be had to Section 263. Thus while applying the principles laid down in the case of Sir Dorabji Tata Trust Vs DCIT(E) 2020 (12) TMI 1121 - ITAT MUMBAI it is evident that in the present case, the A.O. had made all necessary enquiries and verifications as can be expected of a prudent, judicious and responsible A.O. in normal course of his assessment work. Even ld. PCIT has not specified as to what type of enquiry ought to have been made by the A.O. which would have resulted into income or disallowance or any other adverse action, therefore, in such circumstances, the order passed by the A.O. cannot be branded as erroneous and prejudicial to the interest of revenue, therefore, we set aside and quash the order passed u/s 263 of the Act. - Decided in favour of assessee.

Issues Involved:
1. Legality of the Principal Commissioner of Income Tax (PCIT)'s setting aside of the Assessing Officer (AO)'s order.
2. Establishment of pre-requisite conditions for invoking the revisional provision under Section 263 of the Income Tax Act, 1961.
3. Classification of income from the sale of land as business income or short-term capital gain.
4. Non-disclosure of sale consideration of certain properties in the return of income.
5. Examination of the source of acquisition of immovable assets.
6. Verification of creditworthiness of unsecured loan creditors.
7. Verification of the source of interest payments.
8. Non-declaration of certain income as per Form 26AS.

Detailed Analysis:

1. Legality of PCIT's Setting Aside of AO's Order:
The ITAT analyzed whether the PCIT was justified in setting aside the AO's order under Section 263 of the Income Tax Act, 1961. The assessee argued that the AO had conducted a thorough examination of the short-term capital gain (STCG) on the sale of land, including detailed scrutiny of purchase deeds, sale deeds, and improvement costs. The ITAT noted that the AO had indeed made extensive verifications and computations, concluding that the PCIT's directive to reclassify the income as business income instead of STCG was a mere change of opinion, not an error in law.

2. Establishment of Pre-Requisite Conditions for Invoking Section 263:
The ITAT emphasized that for the PCIT to invoke Section 263, the order must be both erroneous and prejudicial to the interests of the revenue. The ITAT found that the AO had conducted appropriate inquiries and verifications, and the PCIT's differing opinion did not meet the threshold for invoking Section 263.

3. Classification of Income from Sale of Land:
The PCIT contended that the sale of land should be treated as business income due to the construction of roads and colonies on the land, which was not legally allowable under the conversion terms. The ITAT, however, noted that the AO had already scrutinized these aspects and made necessary adjustments, including disallowing certain improvement costs. The ITAT concluded that the AO's classification of the income as STCG was a plausible view, and the PCIT's directive was an unwarranted change of opinion.

4. Non-Disclosure of Sale Consideration of Certain Properties:
The PCIT pointed out that the assessee had not disclosed the sale consideration of two properties. The assessee clarified that no sale had occurred and that the properties were merely converted for industrial use, with costs apportioned accordingly. The ITAT found the PCIT's allegation unfounded and based on an incorrect appreciation of facts.

5. Examination of Source of Acquisition of Immovable Assets:
The PCIT argued that the AO had not verified the source of acquisition of certain immovable properties. The assessee provided detailed explanations and evidence, including fixed assets charts and financial statements, showing that the properties were acquired in preceding years and interest was capitalized. The ITAT concluded that the AO had conducted thorough verifications, and the PCIT's directive was unjustified.

6. Verification of Creditworthiness of Unsecured Loan Creditors:
The PCIT contended that the AO had not verified the creditworthiness of unsecured loan creditors. The assessee demonstrated that all necessary documents, including bank statements and ITRs, were furnished and verified by the AO. The ITAT cited judicial precedents to support that the AO's inquiries were adequate and the PCIT's invocation of Section 263 was untenable.

7. Verification of Source of Interest Payments:
The PCIT claimed that the AO failed to verify the source of interest payments on unsecured loans. The assessee provided detailed interest accounts and evidence of capitalized interest. The ITAT found that the AO had examined these aspects thoroughly, and the PCIT's directive lacked jurisdiction.

8. Non-Declaration of Certain Income as per Form 26AS:
The PCIT noted discrepancies in the declaration of income as per Form 26AS, specifically a payment of ?2 crore and interest of ?2,43,110. The assessee clarified that the ?2 crore was a sale consideration for land, not a dividend, and the interest was correctly reflected but deducted under the wrong section. The ITAT found the PCIT's observations baseless and unsupported by facts.

Conclusion:
The ITAT concluded that the AO had conducted all necessary inquiries and verifications, and the PCIT's order under Section 263 was based on a change of opinion rather than any error in law. The ITAT quashed the PCIT's order, allowing the assessee's appeal.

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