2023 (12) TMI 628 - AT - Income Tax

Revision u/s 263 - CIT noticed that AO had not properly examined the issue of suspicious sale transaction in shares and exempt LTCG claimed by the assessee - whether the AO has carried out the required examination and verification of the transaction of sale of shares, yielding long term capital gain claimed as exempt which is one of the reasons for selection of the case of the assessee for scrutiny assessment? - HELD THAT - From the factual matrix of the issue raised by the ld. PCIT, we find that he has not applied his mind to arrive at a consideration which is erroneous in so far as prejudicial to the interest of the revenue, for passing the impugned order u/s 263 of the Act. 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 PCIT, supporting its contentions by corroborative documentary evidences. It is well settled law that for invoking the provisions of section 263 both the conditions that the order must be erroneous and prejudicial to the interest of revenue, needs to be satisfied. 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 AO 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 AO 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 AO is unsustainable in law. Examination and verification of the audited financial statements i.e. Balance Sheet and Profit Loss account of the assessee, copies of contract notes, DEMAT account and order sheet entries reveal 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. In cases where there is inadequate enquiry but not lack of enquiry, again the Ld. Pr.CIT must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Ld. Pr. CIT and he is able to establish and show the error or mistake made by the AO, making the order unsustainable in law. The matter cannot be remitted for a fresh decision to the AO to conduct further enquiries without a finding that the order is erroneous, the condition or requirement which must be satisfied for exercise of jurisdiction u/s 263 of the Act. In such matters, to remand the matter/issue to the AO would imply and mean that the Ld. Pr. CIT has not examined and decided whether or not the order is erroneous but has simply directed the AO to decide the aspect/question. Assessee appeal allowed.

Summary

Issues Involved:
1. Assumption of jurisdiction by the Ld. Pr. CIT for invoking revisionary proceeding u/s. 263 of the Income-tax Act.
2. Examination of suspicious sale transaction in shares and exempt Long Term Capital Gain (LTCG) claimed by the assessee.

Summary:

Assumption of Jurisdiction by Ld. Pr. CIT:
The assessee contested the revision order passed by Ld. Pr. CIT u/s. 263 of the Income-tax Act, 1961, which challenged the original assessment order u/s. 143(3) for AY 2015-16. The Ld. Pr. CIT invoked section 263 on the grounds that the AO did not properly examine the issue of suspicious sale transactions in shares and the exempt LTCG claimed by the assessee. The Ld. Pr. CIT issued a show cause notice to the assessee, stating that the assessment was completed without verifying the genuineness of the LTCG on the sale of shares. Despite the assessee's submission of corroborative documents, the Ld. Pr. CIT concluded that the AO had accepted the LTCG claim without proper verification.

Examination of Suspicious Sale Transaction in Shares and Exempt LTCG:
The assessee provided detailed evidence, including tax audit reports, bank statements, and broker's statements, to support the LTCG claim. The AO had verified these documents during the assessment and found the transactions genuine. The Ld. Pr. CIT, however, found the AO's acceptance of the LTCG claim without detailed verification to be erroneous and prejudicial to the revenue's interest. The Tribunal noted that the AO had conducted the necessary examination and verification of the transactions, supported by documentary evidence. The Tribunal emphasized that for invoking section 263, both conditions of the order being erroneous and prejudicial to the revenue must be satisfied. The Tribunal found that the Ld. Pr. CIT did not provide sufficient evidence to prove the AO's order was erroneous or prejudicial to the revenue. The Tribunal referred to the judicial precedent set by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT, which outlines the conditions for invoking section 263.

Conclusion:
The Tribunal concluded that the Ld. Pr. CIT did not apply his mind adequately and failed to establish that the AO's order was erroneous and prejudicial to the revenue. The Tribunal quashed the revisionary order u/s. 263 of the Act, allowing the appeal of the assessee. The Tribunal emphasized that the Ld. Pr. CIT must provide clear and unambiguous findings to justify the invocation of section 263, which was not done in this case. The appeal was allowed, and the order was pronounced on 9th October, 2023.