2021 (12) TMI 804 - AT - Income Tax

Revision u/s 263 by CIT - Income from other source in respect of profit and loss account under the caption profit and loss account in share trading of the assessee company was not properly verified by the AO - HELD THAT - CIT has not commented on the nature of the business and the offer of the assessee of the rental income as the business income and totally ignored the assessee s submission before the Assessing officer at the time of assessment proceedings u/s 143(3). CIT cannot say that there was inadequate enquiry or no enquiry at all. The decision of the Hon ble Apex Court SHREE MANJUNATHESWARE PACKING PRODUCTS AND CAMPHOR WORKS 1997 (12) TMI 4 - SUPREME COURT relied by the Pr. CIT is not applicable in the present case. CIT while passing the order under Section 263 of the Act has not shown any new material or has not come to the conclusion that there is escapement of income during the assessment proceedings. The order passed by the Pr. CIT in capacity of Section 263 is merely a second opinion and does not fall in the category of prejudicial to the interest of Revenue. In the present case the AO has taken cognizance of all the material provided by the Assessee during the Assessment Proceedings and after verifying the same has passed just and proper order. Thus, the Pr. CIT s observation that no inquiry/insufficient enquiry made by AO, is incorrect and does not sustain. Thus, merely having a different opinion upon the treatment of any receipt cannot be the reason of invocation of section 263. Thus the appeal of the assessee is allowed.

Summary

Issues:
1. Validity of notice u/s 263 based on audit objections
2. Treatment of share trading loss and receipt of DG set/AC charges
3. Proper inquiry conducted by the Assessing Officer during assessment proceedings

Issue 1: Validity of notice u/s 263 based on audit objections
The appeal was filed against an order passed by the Principal CIT under section 263 of the Income Tax Act for the Assessment Year 2012-13. The appellant contended that the notice under section 263 was not justified as it was based on two specific audit objections raised by the Audit Party. The appellant argued that the notice should have been issued under sections 147 or 154 instead. However, the tribunal dismissed this ground, stating that there was no correlation between the audit objection and the notice issued under section 263. The tribunal found no evidence to suggest that the audit objection was dropped later on, upholding the Principal CIT's decision to issue the notice u/s 263.

Issue 2: Treatment of share trading loss and receipt of DG set/AC charges
The Principal CIT observed that the share trading loss shown by the assessee was capital in nature and should be adjusted with capital gains, not other heads of income. The CIT also noted that the income from rent and allied services should have been taxed separately under the appropriate sections of the Income Tax Act. The tribunal found that the Assessing Officer had conducted a proper inquiry during the assessment proceedings regarding share trading loss and receipt of DG set/AC charges. The tribunal concluded that the Principal CIT's decision to invoke section 263 was merely a second opinion and did not demonstrate any new material or income escapement during the assessment proceedings. Therefore, the tribunal allowed the appeal of the assessee on this issue.

Issue 3: Proper inquiry conducted by the Assessing Officer during assessment proceedings
The tribunal examined whether the Assessing Officer had conducted a sufficient inquiry during the assessment proceedings. It was found that the Assessing Officer had raised specific queries and the assessee had provided detailed responses regarding share transactions and other income sources. The tribunal noted that the Assessing Officer had taken cognizance of the evidence provided by the assessee and had made just and proper decisions based on the information available. The tribunal concluded that the Principal CIT's assertion of inadequate or no inquiry by the Assessing Officer was incorrect, and the order passed under section 263 was merely a difference in opinion rather than being prejudicial to the interest of revenue. As a result, the tribunal allowed the appeal of the assessee on this issue as well.

In conclusion, the tribunal allowed the appeal of the assessee, finding that the notice u/s 263 was valid, and the Assessing Officer had conducted proper inquiries during the assessment proceedings regarding the share trading loss and receipt of DG set/AC charges. The tribunal determined that the Principal CIT's decision to invoke section 263 was not based on any new material or income escapement, but rather a difference in opinion, leading to the allowance of the appeal.