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2021 (12) TMI 1072 - AT - Income TaxRevision u/s 263 by CIT - as per CIT AO had failed to verify applicability of the provisions of Section 56(2)(viia) - HELD THAT - AO had applied his mind to the information and details furnished by the assessee and after considering the information, the AO did not proceed to make any addition on account of purchase of unlisted equity shares, which according to us is a possible view - Before us, no material has been placed by the Revenue to demonstrate that the view taken by the AO was wholly unsustainable in law or the AO has not examined the issue which he was required to examine in a limited scrutiny matter. The order of the AO cannot be branded as erroneous if the Commissioner is not satisfied with the conclusion arrived by the Assessing Officer. The order can be brought within the purview of an erroneous order only if it involves an error by deviating from law or upon erroneous application of the legal principle. It is a settled law that the power of revision can be exercised only where no inquiry as required under the law is done and it is not open to enquire in cases of inadequate inquiry. In the present case, as noted above, the AO had raised various queries and the same were also replied by the Assessee. In such a situation it cannot be said that there was lack of inquiry from the end of AO. Co-ordinate Bench of Tribunal in the case of M/S Pawansut Media Services Pvt. Ltd. 2021 (11) TMI 924 - ITAT DELHI on identical facts and relying on the decision of Hon ble Delhi High Court in the case of Pr. CIT vs. Brahma Center Development P. Ltd. 2021 (7) TMI 347 - DELHI HIGH COURT held that PCIT was not justified in assuming the jurisdiction. As far as the invocation of Explanation 2 to Section 263 by PCIT in the present case is concerned, we are of the view that only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. PCIT was not justified in invoking the provisions of Section 263 of the Act to set aside the assessment order passed by AO u/s 143(3) of the Act. We therefore setaside the order of PCIT. Ground of the assessee are allowed.
Issues Involved:
1. Assumption of power under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT). 2. Examination of the fair market value of investments under Section 56(2)(viia) of the Income Tax Act. 3. Validity of the assessment order under Section 143(3) of the Income Tax Act. 4. Scope of inquiry in limited scrutiny cases. Issue-wise Detailed Analysis: 1. Assumption of Power under Section 263 of the Income Tax Act by the PCIT: The primary issue was whether the PCIT correctly assumed jurisdiction under Section 263 of the Income Tax Act. The PCIT believed that the assessment order dated 29.08.2017 was erroneous and prejudicial to the interest of the Revenue. However, the tribunal noted that for Section 263 to be invoked, two conditions must be satisfied: the order must be erroneous and prejudicial to the interests of the Revenue. The tribunal referred to the Supreme Court's decision in Malabar Industrial Co., Ltd., Vs CIT, which clarified that if the Assessing Officer (AO) adopts one of the permissible views, the order cannot be termed erroneous unless the view is unsustainable in law. 2. Examination of Fair Market Value of Investments under Section 56(2)(viia) of the Income Tax Act: The PCIT argued that the AO did not examine the fair market value of investments in unlisted equity shares as required under Section 56(2)(viia). The tribunal found that the AO had indeed scrutinized the investments and concluded that the fair market value was within permissible limits. The tribunal emphasized that the AO had issued notices under Sections 143(2) and 142(1) and had received detailed responses from the assessee, including the book value of shares and other relevant documents. 3. Validity of the Assessment Order under Section 143(3) of the Income Tax Act: The tribunal held that the AO had conducted a proper inquiry into the investments made by the assessee. The AO had accepted the return of income after examining the details provided by the assessee. The tribunal stated that the AO's order was a possible view and could not be considered erroneous or prejudicial to the interest of the Revenue. The tribunal cited the case of M/S Pawansut Media Services Pvt. Ltd., where a similar issue was decided in favor of the assessee, emphasizing that the AO's inquiry was adequate and within the scope of limited scrutiny. 4. Scope of Inquiry in Limited Scrutiny Cases: The tribunal highlighted that the case was selected for limited scrutiny to verify investments in unlisted equity shares. The AO's scope of inquiry was limited to this issue, and the AO had complied with the requirements by examining the investments. The tribunal noted that the PCIT's attempt to expand the scope of inquiry to include the application of Section 56(2)(viia) was not justified. The tribunal referred to the Delhi High Court's decision in Pr. CIT vs. Brahma Center Development P. Ltd., which held that the PCIT could not expand the scope beyond the limited scrutiny without following due procedures. Conclusion: The tribunal concluded that the PCIT was not justified in invoking Section 263 to set aside the assessment order passed by the AO under Section 143(3). The tribunal set aside the PCIT's order and allowed the appeal of the assessee. The tribunal emphasized that the AO had conducted an adequate inquiry, and the order was neither erroneous nor prejudicial to the interest of the Revenue. Order: The appeal of the assessee was allowed, and the order of the PCIT was set aside. The tribunal pronounced the order in the open court on 22.12.2021.
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