2025 (4) TMI 1564 - AT - Income Tax

Revision u/s 263 - re-assessment order so framed u/s 147 r.w.s. 144B to be modified/set aside on the ground that such order of the AO is erroneous and pre-judicial to the interest of the Revenue - without proper enquiry on the bonafides of LTCG claimed as exempt u/s 10(38) - HELD THAT - Pr.CIT in backdrop could step in u/s 263 only if it is demonstrated that the approach of the AO is perfunctory. Such finding would depend on specific facts emerging from record. In the instant case purchase/ allotment of shares took place nearly three years prior to the year of sale. The payments were made through banking channel. The company underwent corporate restructuring in the intervening period. The factum of actual payment and investment towards purchase of shares is demonstrable from record and further supportable by corresponding receipts of shares in Demat account. CIT has merely alleged inadequacy in enquiry on the basis of absence of the bank name which is also discredited from the facts emerging from record. No third party statement or SEBI report etc. is available to impair the bonafides of claim of the assessee. No adverse material is brought on record to warrant deeper scrutiny. In our opinion the view taken by the AO thus cannot be assailed when tested on the touchstone of circumscribed allegations on bank particulars leveled in the revisional order. We also find merit in the contention of the assessee that some inadequacy in the manner of inquiry cannot necessarily be a ground for invocation of powers u/s 263. Such view has been expressed in the judgments rendered by Sunbeam Auto Ltd 2009 (9) TMI 633 - DELHI HIGH COURT DG Housing Projects Ltd 2012 (3) TMI 227 - DELHI HIGH COURT Clix Finance India Pvt. Ltd. 2024 (3) TMI 157 - DELHI HIGH COURT And Klaxon Trading Pvt. Ltd. etc. 2023 (12) TMI 36 - DELHI HIGH COURT In the instant case the alleged inadequacy towards bank particulars is also not correct. The facts of the present case do not indicate that the twin conditions contained in sec. 263 are fulfilled in letter and spirit. Appeal of the assessee is allowed.

Summary

The core legal questions considered in this judgment revolve around the exercise of revisional powers under Section 263 of the Income Tax Act, 1961 ("the Act") by the Principal Commissioner of Income Tax (Pr.CIT) in relation to an order passed by the Assessing Officer (AO) under Sections 147, 144, and 144B of the Act for the assessment year 2016-17. The primary issues include:

1. Whether the revisional order under Section 263 setting aside the reassessment order passed by the AO is legally sustainable, particularly when the AO accepted the assessee's claim of Long Term Capital Gain (LTCG) exempt under Section 10(38) of the Act.

2. Whether the AO's assessment order was erroneous and prejudicial to the interest of revenue due to alleged lack of proper enquiry and verification of the genuineness of the LTCG claim.

3. The scope and limits of the Pr.CIT's jurisdiction under Section 263, especially in cases where the AO has made a debatable decision or where there is alleged inadequacy (rather than complete absence) of enquiry.

4. The applicability of Explanation 2 to Section 263(1) concerning the deeming of an order as erroneous if there has been a failure to make an enquiry or verification that should have been made.

5. Whether the Pr.CIT erred in setting aside the reassessment order without conducting any enquiry himself or making a definitive finding of error beyond mere dissatisfaction with the AO's enquiry.

6. The validity of the Pr.CIT's reliance on the absence of the bank name in payment details as a basis for assuming jurisdiction under Section 263.

Issue-wise Detailed Analysis

1. Legality of Revisional Jurisdiction under Section 263

The legal framework under Section 263 empowers the Pr.CIT to revise any order passed by the AO if such order is found to be erroneous and prejudicial to the interests of the revenue. The power is discretionary and supervisory but must be exercised judiciously and not to substitute the Pr.CIT's opinion for that of the AO where the AO has applied independent mind and taken a plausible view.

Precedents emphasize that mere inadequacy of enquiry or difference of opinion does not warrant interference under Section 263. The revisional authority must demonstrate that the AO's order is not merely debatable but is in fact erroneous in law or fact and prejudicial to revenue.

In the present case, the Pr.CIT set aside the reassessment order on the ground that the AO had accepted the LTCG claim without proper enquiry, specifically pointing to the absence of the bank name in payment details as a crucial lacuna.

The Court noted that the AO had conducted enquiries, called for documents such as Demat account statements, bank statements, contract notes, and evidence of Securities Transaction Tax (STT) payment. The AO was satisfied with the bonafides of the LTCG claim and accepted it accordingly.

The Court observed that the Pr.CIT's dissatisfaction was based on an alleged "inadequacy" of enquiry rather than a complete absence. The Court referred to settled legal principles that Section 263 cannot be invoked for correcting every error or perceived inadequacy but only where the order is demonstrably erroneous and prejudicial.

2. Adequacy of Enquiry by Assessing Officer

The Pr.CIT's revisional order alleged that the AO passed the reassessment order mechanically without verifying crucial facts, particularly the genuineness of the purchase of shares from Fidelo Power and Infrastructure Ltd. (FPIL) which led to the exempt LTCG. The Pr.CIT highlighted that the allotment advice did not indicate mode of payment and that the bank statement provided lacked the bank name, only showing the account number.

However, the Court found that the bank account number and bank name were indeed disclosed in the return of income and were available on record. The Court also noted that the purchase of shares occurred in FY 2011-12 (AY 2012-13), and the sale resulting in LTCG was in AY 2016-17, with shares held for nearly three years and sold on recognized stock exchange platforms.

The Court emphasized that the AO had examined documentary evidence, including payment through banking channels, Demat account credits, STT payment, and contract notes, and found no adverse material to discredit the claim. The Court held that the AO had applied mind and conducted enquiry as required.

It was further noted that the Pr.CIT did not bring any new material or adverse findings to demonstrate that the AO's enquiry was perfunctory or that the order was erroneous beyond doubt.

3. Application of Explanation 2 to Section 263(1)

Explanation 2 to Section 263(1) states that an order passed by the AO shall be deemed to be erroneous if the AO has not made an enquiry or verification which he ought to have made. The Pr.CIT invoked this provision to justify setting aside the reassessment order.

The Court analyzed that the AO had indeed made enquiries and verification by seeking and examining relevant documents and evidence. The Court distinguished between a complete lack of enquiry (which would attract Explanation 2) and an alleged inadequacy or dissatisfaction with the extent of enquiry, which does not.

The Court referred to authoritative judgments where it was held that Explanation 2 does not confer unfettered powers on the Pr.CIT to interfere with every order where the enquiry was not to his satisfaction, especially where the AO has taken a plausible view.

4. Treatment of Competing Arguments Regarding Bank Details

The Pr.CIT contended that the absence of bank name in the payment details was a significant omission undermining the genuineness of the transactions. The assessee argued that the bank name and account number were disclosed in the return of income and available to the AO, and that the Pr.CIT could have sought further details if required.

The Court agreed with the assessee, holding that the allegation of missing bank name was factually incorrect and legally insufficient to impugn the AO's order. The Court further noted that the payment was made through banking channels and corroborated by other documentary evidence.

The Court also observed that the Pr.CIT did not conduct any enquiry himself or seek further clarifications before setting aside the reassessment order, which is expected in cases of alleged inadequacy of enquiry.

5. Scope of Revisional Jurisdiction and Necessity of Pr.CIT's Own Enquiry

The Court reiterated that when the Pr.CIT is of the opinion that the AO has not made necessary enquiries, it becomes incumbent on the Pr.CIT to conduct or cause such enquiries before exercising revisional powers. Merely remitting the matter back without any independent enquiry or specific finding of error is not justified.

The Court found that the Pr.CIT failed to discharge this obligation and relied on a narrow ground of alleged missing bank name to set aside the order, without any further investigation or material.

6. Relevance of SEBI Report and Allegations of Penny Stock Trading

The assessee placed reliance on a SEBI report concerning the scrip of Yamini Investment Company Limited (YICL), stating that the assessee's name did not appear in any adverse list or notices issued by SEBI. The shares were held for a substantial period before sale, negating any suspicion of price manipulation or bogus transactions.

The Court noted that no material adverse to the assessee was brought on record to discredit the LTCG claim or to establish any accommodation entry or bogus transaction. The absence of such material further weakened the Pr.CIT's case for interference.

7. Final Conclusions on the Issues

The Court concluded that the twin conditions for exercise of revisional jurisdiction under Section 263 - that the order is erroneous and prejudicial to the interest of revenue - were not satisfied. The AO had applied independent mind, conducted relevant enquiries, and accepted the LTCG claim based on tangible evidence.

The Pr.CIT's dissatisfaction based on alleged inadequacy of enquiry, particularly the absence of bank name in payment details, was found to be factually incorrect and legally insufficient to impugn the AO's order.

The Court held that the Pr.CIT's order was thus without jurisdiction, and the reassessment order could not be set aside on such grounds.

Significant Holdings

"The revisional powers conferred on the Pr.CIT/CIT under s.263 of the Act are of wide amplitude with a view to address the revenue risks which however need to be objectively justifiable."

"Some inadequacy in the manner of inquiry cannot necessarily be a ground for invocation of powers under s. 263 of the Act."

"The AO had applied mind and conducted enquiry as required, examined documentary evidences such as contract notes, Demat statement, bank payments etc., and found the claim of the assessee to be acceptable in the absence of any adverse material."

"The allegation that proper enquiries have not been carried out in terms of Explanation-2 to s. 263 is clearly insipid, bald and casual."

"The Pr.CIT did not conduct any enquiry himself or seek further clarifications before setting aside the reassessment order, which is expected in cases of alleged inadequacy of enquiry."

"The facts of the present case do not indicate that the twin conditions contained in s. 263 are fulfilled in letter and spirit. The revisional order is thus quashed and set aside."

The Tribunal allowed the appeal of the assessee, quashing the revisional order passed by the Pr.CIT under Section 263 of the Act and restoring the reassessment order passed by the AO.