2022 (11) TMI 76 - AT - Income Tax

Revision u/s 263 by CIT - wrong Computation of LTCG - under-assessment of the income - Assessee submitted letter assessee correcting income under the head long term capital gain from sale of investment - CIT observed that Ld. AO has considered the request of the assessee based on the letter submitted by it which ought to have been done only through filing of a revised return and not by way of a letter - assessee submitted that no claim of any new deduction except for this correction in the indexed cost for acquisition of shares by exercising the option u/s. 55(2)(b) of the Act which was initially based on the historical cost of acquisition of FY 1975-76 - HELD THAT - When the correction in the computation of LTCG on sale of shares was brought to the knowledge of the Ld. AO by exercising the option available u/s. 55(2)(b) of the Act, he took cognizance of this corrective facts, for which all the relevant corroborative documentary evidences were placed on record. Thus, by considering the details and documents, Ld. AO accepted the correction made by the assessee in the LTCG, reported by the assessee which was lesser by an amount when compared with the original return and completed the assessment. We observe that in the course of proceedings u/s 263 of the Act before the Ld. PCIT, assessee had furnished the relevant details and explained the issue raised through the show cause notice by the Ld. PCIT, supporting its contentions by various decisions. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts. Looking at the second limb as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue, one has to understand what is prejudicial to the interest of the revenue. The Hon ble Supreme Court in the case of Malabar Industries 2000 (2) TMI 10 - SUPREME COURT held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the AO. Their Lordships held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. The issue in the present case is purely on facts which is verifiable from the records of the assessee. Audited financial statements i.e. Balance Sheet of KLMCL, valuation report for FMV of the shares of KLMCL sold and the revised computation of LTCG by exercising the option available u/s. 55(2)(b) of the Act, reveals the correct state of affairs in respect of the issue raised in the impugned revisionary proceedings for which both, ld. PCIT and the ld. CIT, DR could not bring any material on record to controvert the verifiable factual position. Accordingly, on the issue raised by the Ld. PCIT in the revisionary proceedings, no action u/s 263 of the Act is justifiable which in our considered view cannot be sustained under the facts and circumstances of the present case and judicial precedents dealt herein above. We, therefore, quash the impugned order u/s 263 of the Act and allow the grounds raised by the assessee.

Summary

Issues Involved:
1. Jurisdiction of Ld. Pr. CIT under section 263 of the Income-tax Act, 1961.
2. Correctness of reducing long term capital gain by Rs.15,09,157 in the assessment proceedings.
3. Compliance with provisions of section 55(2)(b) of the Act.
4. Application of judicial precedents in determining the correctness of the assessment order.

Issue 1: Jurisdiction of Ld. Pr. CIT under section 263 of the Income-tax Act, 1961:
The appeal challenged the order of Ld. Pr. CIT invoking revisionary proceedings under section 263 of the Act. The Ld. Pr. CIT found the assessment to be erroneous and prejudicial to the interest of revenue due to a reduction of long term capital gain by Rs.15,09,157 in the assessment proceedings. The Ld. Pr. CIT relied on the judgment of the Hon'ble Supreme Court in Goetz India Ltd. Vs. CIT (2006) to argue that such corrections should have been made through a revised return, not a letter. The Ld. Pr. CIT set aside the assessment order, directing the Ld. AO to reframe the assessment after giving the assessee an opportunity to be heard.

Issue 2: Correctness of reducing long term capital gain by Rs.15,09,157 in the assessment proceedings:
The assessee corrected the long term capital gain amount in the assessment proceedings by exercising the option under section 55(2)(b) of the Act. This correction was based on obtaining the audited Balance Sheet of Komerrah Limestone Mining Co. Ltd. (KLMCL) as at 31.03.1981, which was not available earlier. The correction led to a higher indexed cost of acquisition and a reduced long term capital gain. The Ld. AO accepted this correction after verifying the relevant documents and completed the assessment accordingly.

Issue 3: Compliance with provisions of section 55(2)(b) of the Act:
The assessee exercised the option under section 55(2)(b) of the Act to determine the fair market value (FMV) of shares sold based on the available audited financial statement of KLMCL. The valuation report obtained from a Chartered Accountant supported this exercise of option, resulting in the correction of long term capital gain. The Ld. AO accepted this correction after considering all relevant details and documents submitted by the assessee during the assessment proceedings.

Issue 4: Application of judicial precedents in determining the correctness of the assessment order:
The Tribunal analyzed the legal principles established by the Hon'ble Supreme Court in the case of Malabar Industries Ltd. vs. CIT [2000] regarding the conditions for invoking revisional jurisdiction under section 263 of the Act. The Tribunal noted that the order of the AO must be erroneous and prejudicial to the interest of revenue for such jurisdiction to be exercised. In this case, the Tribunal found that the actions of the AO were not prejudicial to the interest of revenue, as the corrections made by the assessee were based on verifiable facts and compliance with the law.

In conclusion, the Tribunal quashed the order under section 263 of the Act, allowing the appeal of the assessee based on the factual correctness of the corrections made in the assessment proceedings and the absence of prejudice to the revenue's interest.