2021 (9) TMI 1167 - AT - Income Tax

Revision u/s 263 by CIT - short term capital loss from three scrips - As per PCIT, the AO has not enquired into this issue making the order passed by the AO erroneous as well as prejudicial to the revenue - HELD THAT - The assessee an NBFC has shown revenue from sale of shares which has not been found fault by the Ld. PCIT, whereas the loss claimed from sale of shares have been found to be at fault for AO not conducting proper enquiry i.e. Ld. PCIT was aware that enquiry was conducted so it is a case of inadequate enquiry by the Ld. PCIT itself. In such a scenario, the Ld. PCIT ought to have conducted enquiry by himself and recorded his finding as to how the AO erred in his role as an investigator and also must be able to demonstrate how the view of AO on the facts of the case was unsustainable in law. We presume that the AO has discharged his duty as an investigator on the issue of loss on the scrips in question and after taking note of CBDT circular No. 287/30/2014-IT(Inv. II)-Vol-III dated 16.03.2016 on penny stock and thereafter conducted the enquiry. And after perusal of the reply of the assessee to the specific queries and details called for and after perusal of the supporting materials, the AO being satisfied has accepted the claim of assessee in respect of loss on these scrips. Therefore the AO's action of accepting loss on the three (3) scrips cannot be termed as a case of no-enquiry on the part of the AO. Pre-condition to invoke revisional jurisdiction u/s. 263 of the Act is absent and therefore the Ld. PCIT has invoked the jurisdiction without satisfying the condition precedent i.e. the AO's action should be validly held to be erroneous as well as prejudicial to the revenue. Therefore, the impugned action of Ld. PCIT is without jurisdiction and therefore the impugned order is nullify. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Ld. PCIT to invoke revisional jurisdiction under section 263 of the Income Tax Act, 1961.
2. Validity of the assessment order passed by the AO concerning the short-term capital loss claimed by the assessee.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Ld. PCIT to Invoke Revisional Jurisdiction under Section 263 of the Income Tax Act, 1961:

The assessee challenged the jurisdiction of the Ld. PCIT to invoke revisional jurisdiction under section 263 of the Income Tax Act, 1961, against the assessment order passed by the AO dated 21.12.2016. The assessee argued that the Ld. PCIT erroneously invoked jurisdiction under section 263 without satisfying the condition precedent stipulated under the Act, rendering the impugned order null in the eyes of law.

The Tribunal referred to the judicial precedent set by the Hon'ble Supreme Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83 (SC), which mandates that twin conditions must be satisfied before exercising revisional jurisdiction under section 263: the order of the AO must be erroneous and prejudicial to the interest of the Revenue. The Tribunal elaborated that an order is erroneous if it is based on incorrect facts, incorrect application of law, violates the principles of natural justice, is passed without application of mind, or if the AO has not investigated the issue before him.

The Tribunal noted that the Ld. PCIT failed to demonstrate that the AO's order was unsustainable in law or that the AO did not perform his duty as an investigator and adjudicator. Therefore, the Ld. PCIT's action was deemed to be based on erroneous assumptions and conjectures without satisfying the necessary condition precedent for invoking section 263.

2. Validity of the Assessment Order Passed by the AO Concerning the Short-term Capital Loss Claimed by the Assessee:

The Tribunal examined whether the AO had conducted a proper enquiry into the short-term capital loss claimed by the assessee on three scrips (M/s. Rutorn International Ltd., M/s. Global Infratech & Finance Ltd., and M/s. SRK Industries Ltd.), which the Ld. PCIT alleged were penny stocks.

The Tribunal noted that the AO had issued notices under section 142(1) of the Act on 05.07.2016 and 25.08.2016, asking for detailed information regarding the short-term capital loss, including documentary evidence such as demat accounts, contract notes, and ledger accounts of share brokers. The assessee responded with the required details and supporting documents, which the AO reviewed before passing the assessment order.

The Tribunal observed that the AO's actions were in line with the CBDT Circular No. 6/2016 dated 29th February 2016, and that the AO had satisfied himself with the evidence provided by the assessee. The Tribunal emphasized that the AO's acceptance of the assessee's claim of business loss from the sale of the three scrips was based on a thorough enquiry and was not a case of no-enquiry or inadequate enquiry.

The Tribunal concluded that the Ld. PCIT's assumption that the AO did not conduct a proper enquiry was incorrect. The AO had discharged his duties appropriately, and the assessment order could not be deemed erroneous or prejudicial to the Revenue. Consequently, the Ld. PCIT's invocation of section 263 was without jurisdiction and the impugned order was nullified.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the Ld. PCIT had invoked revisional jurisdiction under section 263 without satisfying the necessary condition precedent, and the AO had conducted a proper enquiry into the short-term capital loss claimed by the assessee. The impugned order of the Ld. PCIT was declared null and void.