2023 (6) TMI 805 - AT - Income Tax

Revision u/s 263 - carry forward of losses on sale of shares - HELD THAT - CIT has wrongly assumed jurisdiction on wrong facts in as much as, as mentioned elsewhere, the assessee has made its intention very clear in the notes to computation of income wherein it has specifically mentioned and clarified that the assessee is not inclined to claim the carry forward of losses on sale of shares. We are of the further opinion that the ld. CIT proceeded on the premise that the assessee is a newly incorporated company which has been incorporated solely for tax evasion purposes, without realizing that the assessee is in this line of business since 2010, holding a valid tax residency certificate with a global business license issued by the assessee Financial Services Commission in Mauritius. CIT has proceeded on the assumption that the assessee is not entitled for any treaty benefit for taxation of capital gain in India. The ld. CIT has clearly ignored the fact the assessee has neither claimed nor carried forward such capital loss in its return of income filed in India. It is a settled position of law that powers u/s 263 can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Appeal under consideration, the ld. CIT called for valuation report in revisionary proceedings. However, when the valuation reports were filed by the assessee, CIT chose to set aside the entire matter back to the file of the AO without appreciating that it was incumbent upon CIT to himself examine the valuation reports and verify as to how the case of the assessee was erroneous and prejudicial to the interest of the Revenue following the ration laid down in the case of the Delhi Airport Metro Express P Ltd 2017 (9) TMI 529 - DELHI HIGH COURT We set aside the order of the ld. CIT and restore that of the Assessing Officer dated 09.12.2019 framed u/s 143(3) of the Act. Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Validity of the order framed under Section 143(3) of the Act.
3. Tax residency and treaty benefits under the India-Mauritius Tax Treaty.
4. Computation and verification of capital gains/losses.
5. Adequacy of inquiry conducted by the Assessing Officer (AO).

Comprehensive, Issue-Wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income-tax Act, 1961:
The primary issue revolves around whether the Commissioner of Income Tax (CIT) was justified in assuming jurisdiction under Section 263 of the Income-tax Act, 1961. The CIT initiated proceedings under Section 263, claiming that the AO's order was erroneous and prejudicial to the interest of the Revenue. The Tribunal found that the CIT wrongly assumed jurisdiction on incorrect facts, as the assessee had clearly stated in its computation of income that it did not intend to carry forward capital losses. The Tribunal emphasized that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the Revenue's interest, citing the Supreme Court's decision in Malabar Industrial Co. Ltd., 243 ITR 83.

2. Validity of the Order Framed under Section 143(3) of the Act:
The Tribunal examined the validity of the assessment order dated 09.12.2019, framed under Section 143(3) of the Act. The CIT claimed that the AO failed to conduct necessary inquiries and verify the assessee's claims regarding capital gains and losses. However, the Tribunal noted that the AO had indeed considered the assessee's detailed submissions and computation notes. The Tribunal concluded that the AO's order was not erroneous as it was based on the assessee's clear intention not to carry forward capital losses, and thus, the CIT's assumption of jurisdiction under Section 263 was unfounded.

3. Tax Residency and Treaty Benefits under the India-Mauritius Tax Treaty:
The CIT questioned the assessee's tax residency and the applicability of the India-Mauritius Tax Treaty, suggesting that the assessee was a conduit for tax avoidance. The Tribunal found that the assessee, a public company incorporated in Mauritius, held a valid tax residency certificate and a global business license. The Tribunal criticized the CIT's assumptions and conjectures, emphasizing that the assessee had been in business since 2010 and was entitled to treaty benefits. The Tribunal held that the CIT's observations lacked sound basis and were speculative.

4. Computation and Verification of Capital Gains/Losses:
The CIT argued that the AO did not verify the valuation of shares and the computation of capital gains/losses. The Tribunal noted that the assessee had provided detailed notes on the computation of income, including the basis for capital gains/losses. The Tribunal found that the AO had considered these details and that the CIT's direction to re-examine the valuation was unnecessary. The Tribunal reiterated that the AO had exercised quasi-judicial power in accordance with the law, and the CIT's intervention was unwarranted.

5. Adequacy of Inquiry Conducted by the Assessing Officer (AO):
The Tribunal addressed the issue of whether the AO conducted an adequate inquiry. The CIT claimed that the AO's inquiry was insufficient, but the Tribunal distinguished between "lack of inquiry" and "inadequate inquiry." Citing various judicial precedents, the Tribunal held that where the AO has made inquiries and applied his mind, the CIT cannot invoke Section 263 merely because he has a different opinion. The Tribunal concluded that the AO's inquiry was adequate and that the CIT's order directing a re-examination was not justified.

Conclusion:
The Tribunal set aside the CIT's order under Section 263 and restored the AO's original assessment order dated 09.12.2019. The Tribunal emphasized that the CIT's assumptions were speculative and lacked a sound basis. The Tribunal reiterated that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the Revenue's interest, and in this case, the AO's order met neither criterion. The appeal of the assessee was allowed, and the order was pronounced in open court on 13.02.2023.