2020 (4) TMI 215 - AT - Income Tax

Revision u/s 263 - AO had erred in allowing the impugned set off of LTCL - set- off of long term capital loss - HELD THAT - Assessment has to be both erroneous as well as causing prejudice to the interest of the Revenue before sec.263 revision jurisdiction is invoked. Coming to the relevant facts involved in the instant lis, we note that although the assessee s returns of income assessment year(s) 2005-06, 2010-11 and 2011-12 had stated LTCL the corresponding sec. 143(3) assessment dated 28.12.2007 had taken the loss figure as nil in the assessment year and the latter two assessment year(s) returns had been summarily processed on 27.07.2011 and 21.02.2012 u/s 143(1) we observe in this backdrop of facts that the impugned LTCL stood reduced to the extent of ₹19,85,394/- only whereas the relief granted to the assessee during the course of re-assessment read an amount of ₹40,31,675/-. PCIT has rightly exercised his sec. 263 revision jurisdiction followed by his directions under challenge to the Assessing Officer for finalizing the impugned computation afresh as per law. The same stands affirmed therefore. Suffice to say, the Assessing Officer s consequential assessment shall be framed after affirming adequate opportunity of hearing to this taxpayer who shall be at liberty to raise all factual legal pleas in support of the impugned LTCL set off claim. - Decided against assessee.

Issues Involved:
1. Legality of the Principal Commissioner of Income Tax (PCIT)'s exercise of revision jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Allowability of Long Term Capital Loss (LTCL) set-off against Long Term Capital Gains (LTCG) for the assessment years 2005-06, 2010-11, and 2011-12.

Issue-Wise Detailed Analysis:

1. Legality of the Principal Commissioner of Income Tax (PCIT)'s exercise of revision jurisdiction under Section 263 of the Income Tax Act, 1961:

The PCIT exercised revision jurisdiction under Section 263 of the Income Tax Act, 1961, on the grounds that the assessment order dated 16.03.2016 was erroneous and prejudicial to the interest of the revenue. The PCIT found that the Assessing Officer (AO) had allowed the set-off of LTCL without adequate verification, particularly regarding the nature of the losses from the assessment years 2005-06, 2010-11, and 2011-12. The PCIT issued a show-cause notice to the assessee, which led to the filing of written submissions by the assessee's authorized representative. The PCIT concluded that the AO had failed to examine the issue adequately, making the assessment order erroneous and prejudicial to the revenue.

The tribunal upheld the PCIT's exercise of revision jurisdiction, citing various judicial precedents that emphasize the necessity of thorough investigation by the AO. The tribunal referenced the Calcutta High Court's decision in Commissioner of Income tax, Central-l Kolkata Vs Maithan International, which held that inadequate investigation by the AO results in an erroneous and prejudicial order. The tribunal also cited the Hon'ble Supreme Court's decisions in Rampyari Devi Saraogi-Vs- CIT and Smt. Tara Devi Aggarwal-Vs-CIT, which support the PCIT's authority to revise an order lacking proper inquiries.

2. Allowability of Long Term Capital Loss (LTCL) set-off against Long Term Capital Gains (LTCG) for the assessment years 2005-06, 2010-11, and 2011-12:

The core issue was whether LTCL arising from the transfer of shares and securities, after payment of Securities Transaction Tax (STT), could be carried forward and set off against LTCG of subsequent years. The assessee argued that LTCL should be allowed to be carried forward and set off as per Section 74(1)(c) of the Income Tax Act, 1961, which does not distinguish between losses from shares/M.F. qualifying under Section 10(38) or other losses. The assessee contended that the set-off of LTCL had been examined and allowed during the reassessment, and any change would amount to a change of opinion, which is not permissible under Section 263 proceedings.

The tribunal, however, found that the AO had not adequately examined the nature and genuineness of the transactions leading to the LTCL. The tribunal noted that the AO had failed to verify whether the LTCL from the assessment years 2005-06, 2010-11, and 2011-12, which were exempted losses, could be carried forward and set off against the current year's LTCG. The tribunal concluded that the AO's failure to make requisite inquiries rendered the assessment order erroneous and prejudicial to the revenue. Consequently, the tribunal affirmed the PCIT's direction to the AO to re-examine the issue and finalize the computation afresh, providing the assessee with an opportunity to present relevant documents and evidence.

Conclusion:

The tribunal dismissed the assessee's appeal, upholding the PCIT's exercise of revision jurisdiction under Section 263 and affirming the need for re-examination of the LTCL set-off claim. The AO was directed to provide the assessee with a reasonable opportunity to substantiate its claim before passing a fresh assessment order.

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