2022 (5) TMI 39 - AT - Income Tax

Revision u/s 263 by CIT - scope of enquiry under Explanation 2(a) to section 263 - Validity of order was passed u/s 153A of the Act r.w.s. 143(3) - AO is directed to verify/examine the claim of exemption u/s. 10(38) of the Act in respect of long term capital gain from the sale of shares of Look Health Care Service Ltd - HELD THAT - After consideration of material placed on record, Ld. AO allowed claim of exemption on sale of shares of M/s Looks Health Care services Ltd. u/s 10(38) of the Act. Now on the issue that the Ld. AO passed a cryptic order and did not discuss in detail regarding assessee s claim of the allowability of exemption u/s 10(38) of the Act on sale of shares of M/s Looks Health Care services Ltd, in our view it is a well settled position of law that if from the assessment records, it is evident that the Ld. AO has made due enquiries in response to which assessee has filed detailed submissions, then even if the assessment order does not discuss all aspects in detail with regards to claim of the assessee, it cannot be held that the order is erroneous and prejudicial to the interests of the Revenue. The above proposition has been upheld in the case of CIT v. Reliance Communication 2016 (4) TMI 173 - BOMBAY HIGH COURT , Smt. Anupama Bharat Gupta 2021 (4) TMI 1000 - ITAT AHMEDABAD , Goyal Private Family Specific Trust 1987 (10) TMI 43 - ALLAHABAD HIGH COURT , CIT v. Mahendra Kumar Bansal 2000 (2) TMI 10 - SUPREME COURT . We thus find no error in the order of Ld. AO so as to justify initiation of 263 proceedings by the Ld. Pr. CIT. The Ground of appeal raised by the assessee is thus allowed.

Summary

Issues Involved:
1. Legality of the order passed under Section 263 of the Income Tax Act.
2. Consideration of submissions and evidences by the Principal Commissioner of Income Tax (PCIT).
3. Examination of the genuineness of Long Term Capital Gain (LTCG) claimed under Section 10(38).
4. Adequacy of inquiry conducted by the Assessing Officer (AO) during the assessment proceedings.

Detailed Analysis:

1. Legality of the order passed under Section 263 of the Income Tax Act:

The assessee challenged the order passed by the PCIT under Section 263, which set aside the assessment order passed under Section 153A read with Section 143(3). The PCIT held that the AO's assessment order was erroneous and prejudicial to the interest of the Revenue as the AO did not properly verify the genuineness of the LTCG claimed under Section 10(38) from the sale of shares of "Looks Health Care Services Ltd."

2. Consideration of submissions and evidences by the Principal Commissioner of Income Tax (PCIT):

The assessee argued that the PCIT did not properly consider the submissions and evidences provided, which included detailed replies and supporting documents regarding the LTCG claim. The PCIT, however, rejected these arguments, stating that the AO allowed the LTCG claim without adequately examining its genuineness and without taking any action or making any addition based on the assessee's reply.

3. Examination of the genuineness of Long Term Capital Gain (LTCG) claimed under Section 10(38):

The PCIT observed that the AO did not examine the genuineness of the LTCG claimed exempt under Section 10(38) from the sale of shares of "Looks Health Care Services Ltd." The PCIT cited the Supreme Court's decision in Malabar Industries Co. Ltd. vs. CIT, which upheld the validity of action under Section 263 when no proper inquiry was made by the AO. The PCIT also referenced Explanation 2(a) to Section 263(1), which deems an order erroneous if it is passed without making necessary inquiries or verifications.

4. Adequacy of inquiry conducted by the Assessing Officer (AO) during the assessment proceedings:

The assessee contended that the AO made detailed inquiries regarding the LTCG claim during the assessment proceedings, as evidenced by the notice dated 11-12-2018 and the detailed reply dated 12-12-2018. The AO's assessment order mentioned the notice and the inquiries made, indicating that the AO applied his mind to the issue. The Tribunal held that an inquiry made by the AO, even if considered inadequate by the PCIT, does not make the AO's order erroneous. The Tribunal cited various judgments, including CIT vs. Sunbeam Auto and Gabriel India Ltd., which distinguish between lack of inquiry and inadequate inquiry.

The Tribunal concluded that the AO made detailed inquiries and considered the submissions and evidences provided by the assessee. Therefore, the AO's order could not be deemed erroneous and prejudicial to the interest of the Revenue. The Tribunal allowed the assessee's appeal, quashing the order passed by the PCIT under Section 263.

Conclusion:

The Tribunal held that the AO made adequate inquiries regarding the LTCG claim, and the PCIT's order under Section 263 was not justified. The appeal of the assessee was allowed, and the order passed by the PCIT was quashed.