2022 (12) TMI 171 - AT - Income Tax

Revision u/s 263 by CIT - Claim of exempt income u/s. 10(38) - HELD THAT - As assessee has shown long term capital loss and secondly and most importantly as mentioned elsewhere the return was selected for limited scrutiny and the reasons are mentioned elsewhere and the claim of exemption is not one of the reasons for scrutiny selection of the return, therefore, this point is beyond the jurisdiction of PCIT as the AO could not have made any enquiry in respect of this issue as the same was not part of the limited scrutiny. Sale of 8 properties during the year under consideration - As categorically explained that the circle rate is not applicable on rights in the property without title as all the cost in flat in question were in the nature of booking amount for flats and the developer did not register the title in the flats of the assessee. It is also made very clear that these properties need not have been registered as they were mere rights in the property without title, and there is no designated registering authority for these at the time of sale and purchase of these properties.These facts have not been controverted by the PCIT and it is settled proposition of law that for assumption of jurisdiction u/s. 263 of the Act the impugned assessment order should not only be erroneous but also pre judicial to the interest of the revenue. The error can be of facts or of law. On the given facts discussed here in above there is no error in facts and there is no error in law also. Variation in the opening stock, opening bank balance, opening capital - View of the PCIT is erroneous in as much as vide reply dated 16.10.2017 the assessee has given a detailed explanation in respect of stock valuation, sales turnover mismatch, mismatch in income/ capital gain/ on sale of land or building, increase in capital, tax credit mismatch alongwith copies of ledger accounts which have been duly examined by the AO before framing the Assessment Order u/s. 143 (3) of the Act. Exhibit 50 to 56 of the paper book clearly show that to the specific querry of the AO specific reply was furnished by the assessee. Thus we did not find any merit in the order of the PCIT. We, therefore, set aside the same and restore that of the AO framed u/s. 143 (3) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:

1. Assumption of jurisdiction under Section 263 of the Income Tax Act.
2. Exemption claim under Section 10(38) of the Income Tax Act.
3. Sale of properties and applicability of Section 43CA.
4. Variation in opening stock, opening bank balance, and opening capital.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 263 of the Income Tax Act:

The primary grievance of the assessee was that the Principal Commissioner of Income Tax (PCIT) wrongly assumed jurisdiction under Section 263 of the Income Tax Act and erred in holding that the assessment order framed under Section 143(3) was erroneous and prejudicial to the interests of the revenue. The Tribunal noted that for an order to be revised under Section 263, it must be both erroneous and prejudicial to the revenue. The Tribunal emphasized that mere prejudice to the revenue or an erroneous view is insufficient for revision under Section 263. There must be an element of unsustainability in the order of the Assessing Officer (AO) for the PCIT to assume jurisdiction.

2. Exemption Claim under Section 10(38) of the Income Tax Act:

The PCIT raised an issue regarding the assessee's claim of exempt income under Section 10(38) on the sale of shares of a private limited company, which allegedly did not qualify for exemption as the transaction was not chargeable to Securities Transaction Tax (STT). The Tribunal found this point factually incorrect, as the assessee had shown a long-term capital loss, not an exempt income. Moreover, since the return was selected for limited scrutiny, and the exemption claim was not one of the reasons for scrutiny, the AO could not have inquired into this issue. Therefore, the PCIT's jurisdiction on this point was beyond the scope of the limited scrutiny.

3. Sale of Properties and Applicability of Section 43CA:

The PCIT observed that the assessee sold eight properties to a private company without providing registered sale deeds, raising concerns about whether the properties were sold at or above the circle rate. The Tribunal noted that the properties in question were mere rights without title, and there was no requirement for registration at the time of sale. The PCIT did not controvert these facts, and the Tribunal concluded that there was no error in facts or law regarding this issue. The Tribunal highlighted that for jurisdiction under Section 263, the assessment order must be both erroneous and prejudicial to the revenue, which was not the case here.

4. Variation in Opening Stock, Opening Bank Balance, and Opening Capital:

The PCIT contended that the AO failed to verify the genuineness and source of the opening capital and reconcile the opening stock, which were reasons for limited scrutiny. The Tribunal found this view erroneous, as the assessee had provided detailed explanations and documentary evidence regarding stock valuation, sales turnover mismatch, and other issues, which the AO had duly examined before framing the assessment order. The Tribunal referred to judicial precedents, emphasizing that the superior officer cannot supplant the AO's view merely because they would have arrived at a different conclusion.

Conclusion:

The Tribunal concluded that the PCIT did not provide sufficient grounds to justify the invocation of Section 263. The assessments made by the AO were neither erroneous nor prejudicial to the interests of the revenue. Therefore, the Tribunal set aside the order of the PCIT and restored the assessment order framed under Section 143(3) of the Income Tax Act. The appeal of the assessee was allowed.