2019 (12) TMI 448 - AT - Income Tax

Revision u/s 263 - addition on account of surrender by the assessee its claim of exemption u/s 10(38) - A.O. only disallowed the exemption claimed u/s 10(38) but did not treat income from other sources as undisclosed income u/s 68 and chargeable to tax u/s 115BBE - Pr. CIT, the investment made in the transaction would have been taxed as unexplained investment, which was required to be added u/s 68 of the Act and chargeable to tax u/s 115BBE - HELD THAT - The law is well settled that power conferred u/s 263 can be exercised where the order is erroneous, so far it is prejudicial to the interest of the revenue. Therefore, there has to be satisfaction of two conditions, firstly, the assessment order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the revenue. In the present case, Pr. CIT revised assessment on the ground that the A.O. has not carried out any investigation regarding the transactions of sale and purchase of shares of company namely M/s. Turba Tek Engineers. The case of the assessee that the transaction is effected through stock exchange, all related evidences have been filed. There is no adverse material regarding transactions carried out by the assessee. There is no specific finding/statement of any third party against the assessee. It is also stated that name of the assessee nowhere figures in any of the statement. Under these facts, Ld. Pr. CIT was not justified in invoking the provisions of section 263. Since the A.O. has treated the transaction as long term capital gain, therefore, in light of the judgement of DG HOUSING PROJECTS LTD 2012 (3) TMI 227 - DELHI HIGH COURT Pr. CIT should have brought some material rebutting the view adopted by the A.O., which has not been done. The issue is simply restored to the A.O. for making enquiry. For this reason, action of the CIT cannot be sustained. Hence, grounds raised in the appeal are allowed. The impugned order is quashed. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Legality of the order passed under Section 263 of the Income Tax Act.
2. Adequacy of the Assessing Officer's enquiry and investigation.
3. Treatment of long-term capital gains and unexplained investments.
4. Invocation of Section 263 in cases of "inadequate enquiry."

Detailed Analysis:

1. Legality of the Order Passed Under Section 263:
The appellant argued that the Principal Commissioner of Income Tax (Pr. CIT) passed the order under Section 263 of the Income Tax Act without properly considering the facts and circumstances of the case. The appellant contended that the order was illegal, wrong, and bad in law. The Tribunal noted that for the exercise of jurisdiction under Section 263, the assessment order should be both erroneous and prejudicial to the interest of the revenue. The Tribunal found that the Pr. CIT did not provide sufficient material to rebut the view adopted by the Assessing Officer (A.O.). Therefore, the action of the Pr. CIT was not sustainable, leading to the quashing of the impugned order.

2. Adequacy of the Assessing Officer's Enquiry and Investigation:
The Pr. CIT revised the assessment order on the grounds that the A.O. did not make necessary enquiries to verify the genuineness of the transactions involving the purchase and sale of shares. The appellant argued that the A.O. had thoroughly investigated and discussed all relevant aspects in the assessment order, including the genuineness of the long-term capital gains. The Tribunal observed that the A.O. had made requisite enquiries and had taken a plausible view. The Tribunal emphasized that where two views are possible, and the A.O. has adopted one, it cannot be considered erroneous or prejudicial to the interest of the revenue unless it is unsustainable in law.

3. Treatment of Long-Term Capital Gains and Unexplained Investments:
The Pr. CIT contended that the A.O. should have treated the income from the sale of shares as unexplained income under Section 68 and chargeable to tax under Section 115BBE. The appellant argued that the transaction was genuine and supported by evidence, including stock exchange records and payment details. The Tribunal noted that the A.O. had already taxed the surplus arising from the transaction as long-term capital gains after the appellant withdrew the exemption claim under Section 10(38). The Tribunal found no adverse material against the appellant and concluded that the Pr. CIT's direction to treat the investment as unexplained was not justified.

4. Invocation of Section 263 in Cases of "Inadequate Enquiry":
The appellant cited various judicial precedents to argue that Section 263 cannot be invoked merely on the grounds of "inadequate enquiry." The Tribunal referred to the judgment of the Hon'ble Delhi High Court in the case of ITO Vs. DG Housing Projects Ltd., which stated that in cases of alleged "inadequate investigation," the order of the A.O. cannot be considered erroneous unless the Pr. CIT provides reasons why it is erroneous. The Tribunal also noted that the Pr. CIT did not conduct any verification or inquiry to establish that the A.O.'s order was erroneous. Therefore, the Tribunal held that the invocation of Section 263 was not justified in this case.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the order passed under Section 263 of the Income Tax Act. The Tribunal concluded that the A.O. had made requisite enquiries and adopted a plausible view, and the Pr. CIT failed to provide sufficient material to rebut this view. The Tribunal emphasized that Section 263 cannot be invoked merely on the grounds of "inadequate enquiry" without establishing that the A.O.'s order was erroneous and prejudicial to the interest of the revenue.