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Facts
The assessee reported a short-term capital loss from the sale of shares. The AO accepted this in the original assessment. The PCIT initiated revision proceedings, directing the AO to re-examine the issue, but the AO did not give effect to this order. Subsequently, the AO reopened the assessment and again accepted the capital loss. The PCIT again initiated revision proceedings under Section 263, which is now under challenge.
Held
The Tribunal held that for Section 263 to be invoked, the AO's order must be erroneous and prejudicial to the revenue. If the AO has conducted enquiries, applied his mind, and taken a possible view, the PCIT cannot revise the order simply because he has a different opinion.
Key Issues
Whether the revision order passed by the PCIT under Section 263 is sustainable when the AO had conducted due inquiries and accepted the assessee's claim of short-term capital loss as a possible view.
Sections Cited
263, 147, 148, 142(1)
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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: JUSTICE (RETD.) SHRI C.V. BHADANG & SHRI B.R. BASKARAN
O R D E R PER B.R. BASKARAN, A.M : The assessee has filed this appeal challenging the revision order dated 26-03-2024 passed by the Ld. Principal Commissioner of Income Tax, Mumbai-3 [Ld.PCIT] and it relates to the Assessment Year (AY.) 2015-16.
The Ld.AR submitted that the assessee is engaged in the business of making investments, trading in shares and fabric and also doing financing activities. In the course of its regular investment activities, the assessee had purchased 75,000 shares of M/s. Sulabh Engineering Services Ltd. in the month of January, 2014 from Bombay Stock Exchange. Those shares were sold on 18-12-2014 through Bombay Stock Exchange, which resulted in short term capital loss of Rs.31,46,502/-. The assessee carried forward the said loss to next year, since it could not set off the same with any other income. It so happened that the M/s Sulabh Engineering Services Ltd. was identified as one of the penny stock companies, wherein prices have been manipulated. Hence, the return of income filed by the assessee was taken up for scrutiny.
During the course of scrutiny proceedings, the AO was satisfied with genuineness of transactions of purchases and sales of shares of the above said company. Accordingly, he accepted the short term capital loss declared by the assessee in the original assessment order passed on 30-11-2017. The Ld.PCIT, however, initiated revision proceedings u/s. 263 of the Act on 28.01.2020 and passed the revision order on 05-03- 2020, wherein he directed the AO to examine the issue afresh. However, the AO did not give effect to the revision order so passed by the Ld.PCIT. The assessee had challenged the above said revision order by filing appeal before the ITAT. Since the AO has not passed any order to give effect to the revision order and since the time limit for passing any such order had expired, the Tribunal dismissed the appeal of the assessee, vide its order dated 14-09-2022 passed in ITA No.1971/Mum/2020.
Subsequently, the AO reopened the assessment by issuing notice u/s 148 of the Act on 30-03-2021 for examining the very same issue of Short Term Capital Loss claimed by the assessee on sale of shares of M/s. Sulabha Engineering. In the reopened assessment also, the AO accepted the Short Term Capital Loss declared by the assessee, after carrying out 30- 03-2022. The Ld.PCIT again initiated revision proceedings u/s. 263 of the Act against the re-assessment order passed u/s. 147 of the Act and the said revision order is being challenged in this appeal.
The Ld.AR submitted that the AO had accepted the transactions of purchase and sale of shares of M/s. Sulabh Engineering Services Ltd as genuine not only in the original assessment proceedings, but also in the re-assessment proceedings. The Ld.AR submitted that the AO has carried out necessary enquiries to ascertain the genuineness of purchase and sale of shares of the above said company during the course of re-assessment proceedings also. After satisfying himself with regard to the above said transactions only, the AO has accepted the claim of short term capital loss. In this regard, the Ld A.R invited our attention to the notice dated 09-12- 2021 issued by the AO u/s 142(1) of the Act and the replies given by the assessee with regard to the share transactions of above said company, which are placed at pages 58 to 62 of the paper book filed by the assessee. Accordingly, the Ld.AR submitted that the AO has duly examined this issue and has taken a possible view. Accordingly, he submitted that the assessment order cannot be termed as “erroneous and prejudicial to the interest of the Revenue”, if the view taken by the AO is one of the possible views. Accordingly, he contended that the impugned revision order is liable to be quashed.
The Ld.DR on the contrary, supported the order passed by the Ld.PCIT.
7. We heard the parties and perused the record. The scope of revision proceedings initiated under section 263 of the Act was examined by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. Vs. CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) : “The phrase „prejudicial to the interests of the Revenue‟ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests Revenue unless the view taken by the Income-tax Officer is unsustainable in law.” The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.”
The principles laid down by the courts are that the Ld.PCIT cannot invoke his powers of revision under section 263 if the AO has conducted enquiries and applied his mind and has taken a possible view of the matter. In such cases, merely because the Ld.PCIT has got a different opinion of the matter, the same will not entitle him to revise the order passed by the AO.
We shall now examine the facts prevailing in this case by applying above said legal principles. In the instant case, we noticed that the assessing officer has examined the issue relating to claim of short term capital loss more than one time, i.e., during original assessment proceeding and also during reassessment proceeding. We also noticed that the AO had issued notice u/s 142(1) of the Act during the course of reassessment proceedings calling for details relating to short term capital loss, referred above and the assessee has also furnished detailed reply. After considering that reply only, the AO has accepted the short term capital loss declared by the assessee. We notice that the Ld PCIT did not find any lacunae in the enquiry conducted by the AO. Hence, we are of the view that the AO has taken one of the possible views of the matter and merely because, the Ld PCIT is having a different view, the same will not entitle him to revise the assessment order passed by the AO in the reassessment proceedings, as held by the Hon’ble Supreme Court in the case of Malabar Industrial Co Ltd (supra) and the Hon’ble Bombay High Court in the case of Grasim
In the result, the appeal of the assessee is allowed.