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2022 (4) TMI 291 - AT - Income TaxRevision u/s 263 by CIT - power of suo motu revision u/s 263(1) - As per CIT claim of the assessee of the short term capital gains was accepted by the AO and the AO had failed to conduct necessary field enquiry/third party verification to examine the genuineness of short term capital gain offered by the assessee - HELD THAT - The power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous, prejudice has been caused to the interests of the Revenue. We find that to examine the issues for which the case of the assessee was selected for limited scrutiny, notice u/s 143(2) and 142(1) of the Act was issued by AO along with questionnaire and the assessee was also asked to submit the various details contained therein. The paper book filed by the assessee reveals that in response to the notice issued by AO, assessee had made submissions on various dates -assessee had inter alia filed the computation of capital gains, details from whom the shares were purchased, their PAN numbers, copies of purchase bills, copies of bank account evidencing payment to sellers, contract note for sale of shares, PAN number and SEBI registration number of the broker, copy of the DMAT account, copy of notice for listing of shares by BSE ledger account in the books of sellers, bank account evidencing payment to sellers, contract note for sale of shares. It is also a fact that the purchasing of shares being off market was also informed to the AO and the complete details from whom they were purchased by the Assessee was also furnished to the AO AO had applied his mind to the information and details furnished by the assessee and after considering the information, he was of the view that the short term capital gains has been correctly computed by the assessee and accordingly accepted the claim, and, 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. Further, it is a settled law that 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. We also find that PCIT has observed that the present case was a case where it was a clear case of lack of inquiry. It is a settled law that the power of revision can be exercised only where no inquiry as required under the law is done. 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 On the issue of the order of AO being cryptic and therefore the order being passed by non application of mind resulting into justification of the invocation of powers u/s 263 being justified, we are of the view that if a query is raised during the assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied to it. 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 set aside the order of PCIT. Thus the grounds of the assessee are allowed.
Issues Involved:
1. Assumption of jurisdiction by PCIT under Section 263 of the Income Tax Act, 1961. 2. Validity of the assessment order dated 27-12-2017 as erroneous and prejudicial to the interest of revenue. 3. Compliance with the principles of natural justice in issuing notices under Section 263. 4. Adequacy of inquiry conducted by the Assessing Officer (AO) during the assessment proceedings. Issue-wise Detailed Analysis: 1. Assumption of Jurisdiction by PCIT under Section 263: The primary issue raised by the assessee was challenging the assumption of jurisdiction by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The assessee argued that the pre-requisite conditions specified under Section 263 were not satisfied, and therefore, the proceedings initiated under this section lacked jurisdiction and were bad in law. The assessee contended that for PCIT to revise an order, two conditions must be met: (i) the order must be erroneous, and (ii) it must be prejudicial to the interests of the Revenue. The assessee further argued that the error envisaged by Section 263 should be an actual error of fact or law, not based on possibility or guesswork. The tribunal agreed with the assessee, stating that the AO had taken a possible view after conducting inquiries and considering the responses and documents provided by the assessee. 2. Validity of the Assessment Order as Erroneous and Prejudicial: The PCIT deemed the assessment order dated 27-12-2017 as erroneous and prejudicial to the interests of the Revenue because the AO had accepted the assessee's claim of short-term capital gains without conducting necessary field inquiries or third-party verification. The PCIT pointed out that the shares involved were likely to be penny stocks and that the fundamentals of the companies did not justify the price movement. However, the tribunal found that the AO had indeed conducted inquiries and verified the details provided by the assessee, including purchase bills, bank statements, and demat account statements. The tribunal emphasized that the AO's order could not be considered erroneous merely because the PCIT disagreed with the AO's conclusion. The tribunal cited the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, which held that an order could only be revised if it was both erroneous and prejudicial to the interests of the Revenue. 3. Compliance with Principles of Natural Justice: The assessee argued that the notices issued by the PCIT under Section 263 were vague and did not provide specific reasons for considering the assessment order erroneous and prejudicial. The tribunal agreed with the assessee, noting that the first notice dated 24-02-2021 was general and did not specify the issues for which the assessee was required to provide information. The tribunal referred to the Madhya Pradesh High Court's decision in CIT vs. Sattan Dass Mohan Dass Sidhi, which held that a valid notice under Section 263 must state the reasons for exercising revisional jurisdiction. The tribunal found that the second notice dated 03-03-2021 also did not conclusively establish that the shares were penny stocks, as the PCIT's observation was speculative. 4. Adequacy of Inquiry Conducted by the AO: The PCIT argued that the AO's order was cryptic and non-speaking, indicating a lack of inquiry. The tribunal, however, found that the AO had raised specific queries during the assessment proceedings and the assessee had provided detailed responses and supporting documents. The tribunal held that the AO had applied his mind and taken a possible view based on the information available. The tribunal cited the Allahabad High Court's decision in CIT vs. Goyal Private Family Specific Trust, which stated that a brief or cryptic order does not necessarily indicate non-application of mind. The tribunal concluded that the AO had conducted adequate inquiries and that the PCIT's invocation of Section 263 was not justified. Conclusion: The tribunal set aside the order of the PCIT, holding that the PCIT was not justified in invoking the provisions of Section 263 to set aside the assessment order passed by the AO under Section 143(3). The tribunal allowed the appeal of the assessee, concluding that the AO's order was neither erroneous nor prejudicial to the interests of the Revenue and that the principles of natural justice were not violated in the issuance of notices under Section 263.
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