2022 (7) TMI 670 - AT - Income Tax

Revision u/s 263 - Irregular allowance of capital loss as Business loss - HELD THAT - In the present case as the Ld PCIT has not considered the request of the assessee under the time limitation. Further the PCIT has not arrived at any conclusion on the issues raised under proceedings initiated u/s 263 only the issues were set aside to the files of AO with directions to verify and pass a fresh assessment order as per law. Our considered view on this issue is that, if Pr. CIT/CIT is of the view that any enquiry is necessary in the matter, then he should either himself make such enquiry or may get such enquiry conducted. For the purpose of exercising jurisdiction u/s 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interest of the revenue has to be preceded by some minimal enquiry by Pr. CIT/CIT. If the Pr. CIT/CIT is of the view that the AO did not undertake any enquiry, it becomes incumbent on the Pr. CIT/CIT to conduct such enquiry. If the Pr. CIT/CIT does not conduct such basic exercise then the Pr. CIT/CIT is not justified in setting aside the order u/s. 263 of the Act. Ld PCITs stand to set aside the case back to the files of AO on count of the limitation of time is not acceptable. PCIT s action to initiating proceedings u/s 263 are not according to law and was not able to establish that the order of AO was erroneous and prejudicial to the interest of revenue, therefore order passed u/s 263 for the AY 2011-12 is not sustainable, hence quashed. Assessee stated regarding order u/s 263 by the Ld PCIT for AY 2010-11 is a copy paste of the order for the AY 2011-12 of the same assessee - We have perused the material available and observed that the order u/s 263 of the was passed for AY 2010-11 by the Ld PCIT is entirely akin to the order passed for AY 2011-12 and hence cannot be considered as a valid order, therefore not sustainable, accordingly quashed. Appeal of assessee allowed.

Issues Involved:

1. Delay in filing appeals and condonation of delay.
2. Validity of the order passed under section 263 of the Income Tax Act.
3. Examination of irregular allowance of capital loss as business loss.
4. Examination of non-addition of excess claim of inventory.
5. Adequacy of inquiry conducted by the Assessing Officer (AO).

Detailed Analysis:

1. Delay in Filing Appeals and Condonation of Delay:

The appeals were filed by the assessee with a delay of 114 days. The assessee explained that the delay was due to the 'Fani' cyclone, which caused misplacement of relevant files and papers. The Tribunal, after hearing both parties and considering the condonation petition, was satisfied that the assessee was prevented by sufficient cause from filing the appeals within the stipulated period. Hence, the delay was condoned, and the appeals were admitted for adjudication.

2. Validity of the Order Passed Under Section 263 of the Income Tax Act:

The Principal Commissioner of Income Tax (Pr. CIT) invoked section 263 to revise the assessment order passed under section 153C, citing that the AO had not properly examined certain issues. The Tribunal noted that the Pr. CIT did not conduct any minimal enquiry or arrive at a conclusion on the issues raised. The Tribunal emphasized that for exercising jurisdiction under section 263, the Pr. CIT must conduct some basic enquiry if they believe the AO did not undertake any. The Tribunal found that setting aside the case back to the AO due to time limitations was not acceptable. Consequently, the Tribunal quashed the order passed under section 263 for both assessment years.

3. Examination of Irregular Allowance of Capital Loss as Business Loss:

The Pr. CIT identified that the AO had allowed a capital loss of Rs. 14,44,631/- as a business loss, which should have been disallowed under section 37 of the Income Tax Act. The assessee argued that the loss from option transactions was correctly set off against the business income, as these transactions were regular and frequent, falling under the head of profit and gain as normal business income. The Tribunal agreed with the assessee, noting that the AO had rightly allowed the claim.

4. Examination of Non-Addition of Excess Claim of Inventory:

The Pr. CIT observed that the value of land shown by the assessee was higher than the actual purchase value, implying that the lands were purchased from undisclosed sources. The assessee clarified that the total land cost included stamp duty and other charges, which were shown in the balance sheet and verified by the AO. The Tribunal found that the Pr. CIT's observations were based on a non-application of mind and quashed the proposed addition.

5. Adequacy of Inquiry Conducted by the Assessing Officer (AO):

The Tribunal noted that the AO had scrutinized documents, examined accounts, and applied his mind before passing the assessment order. The Pr. CIT's contention that the AO's order was erroneous and prejudicial to the interest of revenue was not substantiated by any specific findings or new information. The Tribunal cited precedents, including CIT Vs Leisure Wear Exports Pvt. Ltd. and Hari Iron Trading Co. Vs. CIT, to emphasize that the Pr. CIT must record an express finding that the AO's order was erroneous and caused loss to revenue. The Tribunal concluded that the Pr. CIT's action was based on mere change of opinion and was not sustainable.

Conclusion:

The Tribunal quashed the orders passed under section 263 for both assessment years, finding that the Pr. CIT did not establish that the AO's orders were erroneous and prejudicial to the interest of revenue. The appeals filed by the assessee were allowed.

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