2019 (10) TMI 927 - HC - Income Tax

Revision u/s 263 - Show cause notice proceeds on the basis that the books of accounts transaction accounts of share trading carried out by the assessee vis-a-vis D-mat accounts have not been examined by the AO during the course of assessment proceedings - HELD THAT - In the assessment order AO has recorded that he examined D-mat account in order to verify the share trading activities claimed by the assessee. Moreover the before passing the assessment order sale purchase and closing stocks were also examined by the AO. Thus the basis to invoke section 263 of the Act factually did not exist as there was due enquiry by the AO during the assessment proceedings leading to the assessment order dated 28 March 2014. Thus it is amply clear that the Assessing Officer has applied his mind while accepting the claim of the Respondent of operating loss making the proceedings under section 263 of the Act bad in law. In any event the view taken on fact by the Assessing Officer is a possible view and the same is not shown to be bad. - Decided against revenue.

Summary

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal under section 260-A of the Income Tax Act, 1961 for assessment year 2011-12.
2. Validity of the order passed under section 263 of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax.
3. Examination of operating loss claimed by the assessee and the Assessing Officer's application of mind in accepting the claim.

Analysis:
1. The appeal challenges the order of the Income Tax Appellate Tribunal (Tribunal) for assessment year 2011-12. The Revenue raised a question of law regarding the correctness of canceling the order of the Commissioner of Income Tax under section 263 of the Income Tax Act without verifying the Assessing Officer's application of mind in accepting the operating loss claim of the assessee amounting to ?8.79 crore.

2. The Principal Commissioner of Income Tax issued a notice under section 263 of the Act, questioning the assessment order due to the unexamined operating loss of ?8.79 crore claimed by the assessee. The Commissioner set aside the assessment order and directed a fresh assessment. The Tribunal noted that detailed evidence and explanations were provided by the assessee during the assessment proceedings to justify the operating loss. It concluded that the Assessing Officer had conducted a thorough examination before accepting the claim, rendering the Commissioner's order erroneous.

3. The High Court observed that the Tribunal's finding that the initiation of proceedings under section 263 lacked examination of records by the Assessing Officer was not unfounded. However, it noted that the Assessing Officer had indeed examined the relevant accounts and details before passing the assessment order. The Court concluded that the Assessing Officer had applied his mind in accepting the operating loss claim, making the section 263 proceedings legally flawed. The Court dismissed the appeal, stating that the proposed question did not raise any substantial legal issue, as the Assessing Officer's decision was based on a valid interpretation of facts and evidence.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of the Assessing Officer's examination and application of mind in accepting claims to avoid erroneous section 263 proceedings.