2022 (9) TMI 585 - AT - Income Tax

Revision u/s 263 - brought forward losses set off against current year gain - CIT was of the view that the AO has not examined the veracity of the brought forward short term capital loss which is set off against the current year s short term capital again - no details of any transaction are available in the SFT data under ITS details in 360 degree view of the assessee and the AO did not verify the exempt income claim of the assessee - HELD THAT - PCIT must have some material which would enable to form a prima facie opinion that the order passed by the AO is erroneous, insofar as it is prejudicial to the interests of the Revenue. In the present case, the PCIT has not brought out any material on record to substantiate that the brought forward losses set off against current year gain is not the right amount. PCIT in his order has stated that the sale consideration for AY 2014-15 is much lower than the cost of acquisition and that the AO has not examined the veracity of the short term capital loss and has allowed the set off of the same from current year gains. This view of the ld. PCIT, in our opinion, is not the right reason for exercising revisionary powers u/s. 263 of Act as the error envisaged by Section 263 of the Act is not one that depends on possibility as a guess work, but it should be actually an error either of fact or of law. Thus in our considered view, is not tenable since the verification of loss incurred in the years beginning AY 2009-10 is beyond the scope of scrutiny assessment of AY 2017- 18. From the perusal of facts, the security transactions have been scrutinized in the proceedings u/s.143(3) for AY 2015-16 and the revenue has accepted the losses including the brought forward losses. This supports the contention of the ld AR that since the brought forward loss has already been verified and accepted by the revenue during the assessment proceedings of AY 2015-16 the order of the AO passed for the year under consideration cannot be considered as erroneous on this ground. AO in the given case has conducted enquiry and perused the details submitted and has taken a decision to accept the brought forward loss based on explanation provided by the assessee after proper application of mind. We therefore hold that the PCIT is not justified in setting aside the order of the AO with regard to the issue of verification of brought forward losses and accordingly the impugned order of the PCIT is quashed to the limited extend of this issue. Order of the AO to be erroneous for non-verification of STT paid data before allowing the long term capital gain to be exempt - We notice that the PCIT in the order u/s 263 has noted the fact that the assessee has submitted the details of STT paid in From 10DB and hence there is no dispute with regard to the fact that the details are furnished before the AO. However, there is nothing noted in the order of the AO that he has verified the details furnished and has reconciled the long term capital gains claimed as exempt by the assessee with the amount furnished in Form 10DB. The PCIT for this specific reason has invoked the provisions of section 263 and to this extent, we are of the considered view that the action of the PCIT is justified. We therefore uphold the order of the PCIT setting aside the order of the AO to the limited extent of verification of long term capital gain claimed exempt on STT being paid. In view of the above discussion the order of the PCIT u/s. 263 is modified to the extent that order u/s.143(3) is set aside with regard to allowing the claim of exemption of long term capital gains based on payment of STT. Appeal by the assessee is partly allowed.

Summary

Issues Involved:
1. Validity of the order passed under section 263 of the Income Tax Act.
2. Examination of brought forward short-term capital losses.
3. Verification of Securities Transaction Tax (STT) paid for claiming long-term capital gains exemption.

Issue-wise Detailed Analysis:

1. Validity of the order passed under section 263 of the Income Tax Act:
The assessee challenged the order of the Principal Commissioner of Income Tax (PCIT) under section 263, asserting it was opposed to law, equity, and the facts of the case. The PCIT had ordered a revision of the assessment made by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, citing the order as erroneous and prejudicial to the interests of the Revenue. The Tribunal noted that for section 263 to be invoked, two conditions must be satisfied: the order must be erroneous, and it must be prejudicial to the interests of the Revenue. The Tribunal referenced the Bombay High Court's decision in Gabriel India Ltd., which clarified that an order cannot be deemed erroneous unless it is not in accordance with the law. The Tribunal found that the PCIT had not provided material evidence to substantiate that the brought forward losses set off against the current year's gains were incorrect. Therefore, the Tribunal concluded that the PCIT's order did not meet the conditions required under section 263 and quashed the order to the extent of the verification of brought forward losses.

2. Examination of brought forward short-term capital losses:
The PCIT had observed that the AO did not verify the veracity of the brought forward short-term capital losses set off against the current year's gains. The assessee provided detailed year-wise information of brought forward losses from AY 2009-10 to 2017-18, which was submitted to the AO during the assessment proceedings. The Tribunal noted that the AO had conducted a detailed enquiry and had applied his mind before accepting the set-off of brought forward losses. The Tribunal also observed that the verification of losses from AY 2009-10 was beyond the scope of the current assessment year (AY 2017-18). Furthermore, the losses had been scrutinized and accepted by the Revenue in the assessment proceedings for AY 2015-16. Thus, the Tribunal held that the PCIT's revisionary powers under section 263 were not justified in this context and quashed the order regarding the verification of brought forward losses.

3. Verification of Securities Transaction Tax (STT) paid for claiming long-term capital gains exemption:
The PCIT had also held the AO's order to be erroneous for not verifying the STT paid data before allowing the long-term capital gains exemption. The assessee submitted that the details of STT paid were furnished in Form 10DB and that the AO had called for and received these details during the assessment proceedings. However, the Tribunal noted that the AO's order did not explicitly state that he had verified and reconciled the long-term capital gains claimed as exempt with the amount furnished in Form 10DB. The Tribunal agreed with the PCIT that this constituted a lack of proper verification, justifying the invocation of section 263. Therefore, the Tribunal upheld the PCIT's order to the extent that the AO's order was set aside for the limited purpose of verifying the long-term capital gains claimed as exempt based on the STT paid.

Conclusion:
The Tribunal partly allowed the appeal by the assessee. It quashed the PCIT's order regarding the verification of brought forward losses but upheld the order concerning the verification of long-term capital gains exemption based on STT paid. The AO's order under section 143(3) was set aside only to the extent of verifying the long-term capital gains exemption.