2022 (7) TMI 217 - AT - Income Tax

Revision u/s 263 - Error in computing MAT - as per the provisions of section 115JB in calculating the books profits, the assessee was required to take into account the long-term capital gains from sale of shares, whereas, the assessee has not done so, and had not included the profit on sale of shares in computing book profit u/s 115JB - HELD THAT - Reopening of assessment u/s 147 of the Act wherein it has been held that apart from the issue on which the assessment is reopened, the Assessing Officer can also look into other issues, as the entire assessment is open for scrutiny before the AO. However, in case of exercising of revision jurisdiction u/s 263 of the Act, the above proposition of law is not applicable as the very condition that the order of the Assessing Officer should be firstly erroneous is to be satisfied. If the order of the AO is not erroneous then the ld. PCIT cannot exercise his revision jurisdiction u/s 263 - As observed above in this case, there was no error in the assessment order, for non-examination of the issue, which the Assessing Officer was not authorised to examine. Therefore, the ld. PCIT did not have jurisdiction u/s 263 of the Act to revise/set aside the order of the Assessing Officer on some other issue. Even otherwise, the ld. counsel has demonstrated that as per the law laid down in the case of Best Trading and Agencies Ltd. 2020 (9) TMI 94 - KARNATAKA HIGH COURT benefit of indexed cost of acquisition is to taken into consideration for computing capital gains while computing book profit u/s 115JB - counsel has demonstrated that if benefit of indexed cost of acquisition is given to the assessee then the resultant figure will be long-term capital loss. Therefore, even otherwise, the order of the Assessing Officer is not prejudicial to the interest of the Revenue. Since none of conditions stipulated u/s 263 of the Act is satisfied i.e. neither the assessment order is erroneous nor prejudicial to the interest of the Revenue, therefore, order passed by the ld. PCIT u/s 263 of the Act being without jurisdiction is wrong and illegal and the same is hereby quashed. Appeal of assessee allowed.

Summary

Issues:
1. Revision jurisdiction u/s 263 of the Income Tax Act - Order set aside for de novo assessment.
2. Inclusion of long-term capital gains in computing book profit u/s 115JB of the Act.
3. Limited scrutiny assessment u/s 143(3) of the Act - Jurisdiction of Assessing Officer.
4. Benefit of indexed cost of acquisition in computing capital gains for book profit u/s 115JB.

Issue 1 - Revision Jurisdiction u/s 263:
The appeal was against the Principal Commissioner of Income Tax's order setting aside the assessment for de novo assessment under section 263 of the Income Tax Act. The assessee contested the action, arguing that the Assessing Officer's order was limited to a specific issue of expenses for earning exempt income during the scrutiny assessment u/s 143(3). The assessee contended that the PCIT's revision jurisdiction was wrongly exercised as the Assessing Officer was not authorized to examine other issues beyond the limited scrutiny scope. The case laws cited supported the argument that in cases of limited scrutiny, revision cannot be based on unexamined issues beyond the scope of scrutiny.

Issue 2 - Inclusion of Capital Gains in Book Profit:
The PCIT set aside the assessment order as the assessee did not include long-term capital gains from the sale of shares in computing book profit u/s 115JB of the Act. The assessee argued that after considering the indexed cost of acquisition, there was a resulting loss in the sale of shares, negating any capital gain. Citing relevant case laws, the assessee contended that the Assessing Officer's order was not erroneous or prejudicial to the Revenue's interest, as the inclusion of capital gains did not impact the final outcome.

Issue 3 - Limited Scrutiny Assessment:
The Assessing Officer conducted a limited scrutiny assessment u/s 143(3) focusing on expenses for earning exempt income. The PCIT's revision based on unexamined issues beyond the limited scrutiny scope was deemed unauthorized. The tribunal emphasized that the PCIT's revision jurisdiction under section 263 requires the Assessing Officer's order to be both erroneous and prejudicial to the Revenue's interest, which was not the case here due to the limited scrutiny nature of the assessment.

Issue 4 - Benefit of Indexed Cost of Acquisition:
The assessee argued that the benefit of indexed cost of acquisition should be considered while computing capital gains for book profit u/s 115JB. By applying this benefit, the resulting figure would be a long-term capital loss, indicating that the Assessing Officer's order was not prejudicial to the Revenue. Citing case law, the assessee demonstrated that the inclusion of indexed cost of acquisition is crucial in determining the actual impact on book profits.

In conclusion, the tribunal found that none of the conditions under section 263 were met, as the Assessing Officer's order was not erroneous or prejudicial to the Revenue. Therefore, the PCIT's order under section 263 was deemed without jurisdiction, wrong, and illegal, leading to the allowance of the assessee's appeal.