2024 (6) TMI 151 - AT - Income Tax

Revision u/s 263 - addition u/s 68 - report of the Investigation Mumbai relied upon - As alleged assessee has introduced his own unaccounted funds through the colour of bogus LTCG entry, by trading in penny scrip - PCIT observed that AO did not examine the issue of bogus long term capital gain properly and failed to make inquires / investigation which was required to be considered and the bogus LTCG claimed was required to be added to the total income of the assessee - HELD THAT - If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, provision of section 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue's interest, than the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue because of the order of the ld. AO not made addition, cannot be treated as prejudicial to the interest of the Revenue. As pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law for which nothing has been placed on record by the PCIT that view of the ld. AO is totally incorrect. In this process even the AO has no power to review his own order. Ergo, despite our deep and careful consideration of the material on record and the findings recorded in the order under challenge, we do not find any incorrectness and incompleteness in the appreciation of facts made by the ld. AO. We do not agree on this aspect to this extent with Ld. Pr. CIT. Even before us the ld. DR did not placed on record any other contrary material on the issue which has been decided by the ld. AO and therefore, the view already taken by the ld. AO attain finality in the absence of any error on the part of the ld. AO and thus, we are of the considered view that the law and does not attract the clause (a) or (b) to explanation 2 of section 263 of the Act based on the set of facts of the case. Thus, we note that it is merely a change of opinion of the PCIT which is not permitted in the eyes of the law. In the light of the aforesaid discussion, we hold that the order of the PCIT is not in accordance with the provisions of section 263 as the twin conditions failed in this case and therefore, we vacate the order of the PCIT passed u/s. 263 - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Whether the Principal Commissioner of Income Tax (PCIT) erred in passing an order u/s 263 of the Income Tax Act.
2. Whether the PCIT erred in treating the exempt Long-Term Capital Gain (LTCG) as bogus.
3. Whether the PCIT ignored detailed submissions made by the assessee in response to notice u/s 263.

Summary:

Issue 1: Whether the Principal Commissioner of Income Tax (PCIT) erred in passing an order u/s 263 of the Income Tax Act.

The assessee filed a return of income on 26.10.2016, declaring total income at Rs. 16,40,790/-. The return was processed u/s 143(1) on 14.04.2017. Based on information from the Directorate of Income Tax (Investigation), Mumbai, it was found that the assessee introduced unaccounted funds through bogus LTCG entries by trading in penny stocks of M/s Goenka Business and Finance Limited and Ejecta Marketing Ltd. Consequently, a notice u/s 148 was issued on 31.03.2021, and the assessee filed a return declaring the same income. The assessment was completed on 23.03.2022, accepting the returned income. The PCIT, upon examining the records, observed that the Assessing Officer (AO) did not properly examine the issue of bogus LTCG and initiated proceedings u/s 263. The PCIT held that the AO failed to make necessary inquiries, making the assessment order erroneous and prejudicial to the interest of the revenue. The ITAT held that the AO had conducted the required inquiry, and the PCIT merely had a different opinion. The ITAT quashed the order of the PCIT, stating that the twin conditions of the order being erroneous and prejudicial to the interest of the revenue were not satisfied.

Issue 2: Whether the PCIT erred in treating the exempt Long-Term Capital Gain (LTCG) as bogus.

The PCIT observed that the AO did not examine the issue of bogus LTCG properly and failed to make necessary inquiries, despite detailed information from the Investigation Wing. The AO accepted the assessee's claim without proper verification. The assessee argued that all relevant documents supporting the transactions were submitted and verified by the AO. The ITAT noted that the AO had conducted inquiries and verified the details before accepting the returned income. The ITAT held that the AO's order was not erroneous or prejudicial to the interest of the revenue, as the AO had taken a possible view based on the inquiries conducted. Therefore, the PCIT's order treating the LTCG as bogus was not justified.

Issue 3: Whether the PCIT ignored detailed submissions made by the assessee in response to notice u/s 263.

The assessee filed detailed submissions in response to the notice u/s 263, providing all relevant documents and evidence supporting the transactions. The PCIT considered the submissions but found them untenable. The ITAT observed that the AO had examined the issue based on the details provided by the assessee and had recorded satisfaction in the assessment order. The ITAT held that the PCIT's order was based on a mere change of opinion and not on any error or prejudice in the AO's order. Therefore, the ITAT quashed the PCIT's order, stating that the detailed submissions made by the assessee were duly considered by the AO, and the assessment was completed after proper verification.

Conclusion:

The ITAT allowed the appeal of the assessee, quashing the order of the PCIT passed u/s 263 of the Income Tax Act. The ITAT held that the assessment order passed by the AO was not erroneous or prejudicial to the interest of the revenue, as the AO had conducted necessary inquiries and verified the details before accepting the returned income. The ITAT emphasized that the PCIT's order was based on a mere change of opinion, which is not permissible under the law.