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Facts
The assessee, M/s. Pioneer Independent Trust, filed its return of income which was selected for complete scrutiny. The Assessing Officer (AO) accepted the return after issuing notices and reviewing the submitted details. However, the Principal Commissioner of Income Tax (PCIT) initiated proceedings under Section 263, alleging the AO's order was erroneous and prejudicial to the revenue's interest.
Held
The Tribunal observed that the AO had conducted detailed inquiries and verified documents regarding long-term capital gains on mutual fund units, as per Section 55(2)(ac) of the Act. The PCIT's conclusion that the AO failed to make proper inquiries was not supported by evidence on record. Therefore, the revisional order passed by the PCIT was found to be incorrect.
Key Issues
Whether the PCIT's order under Section 263, revising the assessment order based on alleged lack of inquiry by the AO, was justified.
Sections Cited
263, 143(3), 142(1), 55(2)(ac), 143(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI, VICE – & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the revisional order of the Ld.PCIT dated 31/03/2025 passed u/s. 263 of the Act and raised the following grounds: “
1. That the Order dated 31/03/2025 passed u/s 263 of the Income-tax Act, 1961 ('the Act') vide DIN & Order No: ITBA/REV/F/REV5/2024-25/1075340915(1), (the impugned Order’) is liable to be set aside for being contrary to the provisions of law and the facts of the case.
2. That the Respondent has erred in revising the assessment order passed by the Assessment Unit as the said assessment order is not erroneous in so far as it is Page 2 of prejudicial to the interests of the Revenue and that, therefore, the order of revision passed by the Respondent under Section 263 of the Act is devoid of jurisdiction and thus bad in law and on facts.
3. That the impugned Order is unjust, arbitrary, and based on surmises and circumvents the precise submissions of the Appellant.
4. That the observation recorded by the Respondent in the impugned order that "the Assessing Officer also failed to call for any details on the issue and accepted the computation of Long-Term Capital Gain submitted by the assessee without making necessary enquiries or verifying the issue required as per law" is contrary to the material on record, and thus, the very invocation of Section 263 of the Act is without jurisdiction and, on this ground alone, the impugned order is liable to be set aside.
5. That, moreover, the inferences drawn and findings arrived at basis the aforesaid erroneous observation are unsustainable in law and on facts, and therefore the same ought to be rejected in limine.
6. That, without prejudice to the above and in any event, the impugned Order failing to bring out any finding to the effect of any error in the Assessment Order, ought to have appreciated that if the Assessment Order is not erroneous in the first place, even the meeting of all the conditions in Explanation 2 to Section 263(1) does not suffice for invoking the provisions of Section 263 of the Act.
That the impugned Order erroneously sets aside the assessment order dated 26/09/2022, passed by the Assessing Officer, resorting to the provisions of Explanation 2 to Section 263(1) of the Act, directing the Assessing Officer to revise and make fresh assessment with regard to long term capital gain amounting to Rs.31,08,49,786/-.
8. That the impugned Order fails to appreciate that the direction to the Assessing Officer to make a fresh assessment is contrary to the settled position in law and is, in any event, a repetitive exercise and hence academic insofar as the Assessing Officer had already sought and verified full and complete details of the long-term capital gain amounting to Rs.31,08,49,786/-, during the course of the assessment proceedings.
Page 3 of That the Order dated 26-09-2022 passed u/s. 143(3) of the Act is right in law and on facts and thus cannot be termed erroneous when the cost of acquisition for computing long term capital gain on transfer of units of equity-oriented funds is as per Section 55(2)(ac) of the Act and, therefore, the very assumption of jurisdiction by the Respondent under Section 263 is bad in law and on facts.
10. That, without prejudice to the above and in any event, by specifically directing the Assessing Officer to revise the assessment order in terms of the Respondent's directions, the Respondent has committed an error by exceeding the jurisdiction vested in it in terms of Section 263.
11. That the impugned order passed by the Respondent is otherwise bad and inoperative in law.
12. All the grounds are without prejudice to each other. The Appellant craves leave to add, modify, or withdraw any of the above grounds of appeal
.”
2. The brief facts of the case are that the assessee is a trust and filed their return of income on 23/12/2020. The case was selected for complete scrutiny to examine the issue deductions from “Income from Other Sources”. Notices u/s. 143(2) as well as u/s. 142(1) were issued and the assessee also filed the details called for by the AO and the AO after considering the various records produced before him, had accepted the return of income filed by the assessee.
3. Thereafter the Ld.PCIT issued notice u/s. 263 of the Act and alleged that the order passed by the AO u/s. 143(3) is an erroneous one insofar as it is prejudicial to the interest of the revenue. The Ld.PCIT was of the view that the AO without making any addition to the long term capital gains on the sale of units of mutual fund had accepted the income returned by the assessee and therefore concluded that the AO had made the order without making enquiries or verifying the issues. The assessee filed their reply to the said notice issued by the Ld.PCIT on 06/03/2025 in which the assessee had quoted the section 55(2)(ac) of the Act and submitted that the order of the AO is in accordance with the said provision and therefore the said order requires no revision u/s. 263 of the Act. The assessee also furnished a Page 4 of statement showing the arrival of the book gain in respect of the redeemed units of the equity oriented mutual funds. The assessee had also furnished the computation of capital gain in accordance with the provision of section 55(2)(ac) of the Act. Apart from the statement, the assessee had also filed the copies of the capital gain statements furnished by the respective mutual funds. The assessee, therefore submitted that the Nil amount of long term capital gain shown in the computation is in accordance with the provisions of the Act and therefore the order of the AO could not be termed as erroneous or as prejudicial to the interest of the revenue. The assessee submitted the said reply through online and also got the e-proceedings acknowledgment.
The Ld.PCIT without considering the statements and the documents furnished by the assessee in support of their case that there is no long term capital gains involved as per section 55(2)(ac) of the Act had observed that the AO had failed to call for any details on the issue and accepted the computation of long term capital gains without making necessary enquiries or verifying the issue as required by law, had set aside the assessment order and directed the AO to revise the assessment order dated 26/09/2022 after conducting necessary enquiries and verifications while computing the long term capital gains.
As against the said order, the assessee is in appeal before this Tribunal.
At the time of hearing, the Ld.AR submitted that the order of the AO dated 26/09/2022 is not an erroneous one. The Ld.AR further submitted that during the assessment proceedings, the AO had issued several notices and sought for the details about the long term capital gains and the assessee also filed the details and documents and the AO after considering the said details and documents, had accepted the return of income filed by the assessee and therefore the finding of the Ld.PCIT that no proper enquiry or verification was done by the AO is factually not correct. The Ld.AR also filed a paper book enclosing the various notices issued by the AO and the Page 5 of replies filed by the assessee to the said notices and submitted that the assessment order has been passed after conducting a detailed enquiry and therefore the order u/s. 263 is not warranted.
7. The Ld.DR submitted that the assessment order does not indicate any enquiry conducted by the AO and therefore the Ld.PCIT had correctly made the revision order u/s. 263 of the Act.
We have heard the arguments of both sides and perused the materials available on record.
The reason for the revision order u/s. 263 by the Ld.PCIT is on the premise that the AO had not considered the computation of income under the long term capital gains in respect of the units of the equity oriented mutual funds redeemed during the previous year. In order to appreciate the said findings of the Ld.PCIT, we have perused the notice issued u/s. 142(1) on 22/07/2022 in which in Q.No. 56, the AO had sought for the complete details of the short term capital gain / loss and long term capital gain / loss scriptwise or datewise. The assessee filed their reply dated 08/08/2022, and gave the details in respect of the said Q.No. 56 vide his reply in S.No. 45. The assessee also enclosed the details of the long term capital gains / short term capital gains by way of annexure – 16 of the submissions. Similarly, the AO in Q.No. 34 had sought for the reconciliation statements which was also filed by the assessee by way of annexure – 11. We have also perused the annexure – 11 which shows the reconciliation statements between total receipt and income side of the Income and Expenditure account and the computation of income in which the assessee had shown the long term capital gain on sale of units of mutual fund with a remark that the sale consideration was lower than the cost of acquisition u/s. 55(2)(ac) of the Act. The assessee also by way of annexure – 16, had furnished the details of the short term capital gain / loss and long term capital gain / loss scriptwise or datewise in which the long term capital gain on the redemption of units of equity oriented mutual fund has been given. The said details
Page 6 of were furnished through online and an acknowledgement dated 08/08/2022 was also made available in the paper book.
The AO had again issued a notice u/s. 142(1) of the Act on 16/09/2022. In the said notice, the AO had sought for the explanation and the supporting evidences for the reduction of the long term capital gain on the sale of units of mutual funds of Rs. 31,08,49,786/-which was not offered for taxation. Again the assessee filed a reply on 17/09/2022 and gave the explanation sought for by the AO in Q.No. 3 of the notice issued by him. The assessee also explained that on redemption of the units of the equity oriented mutual funds, the full value of consideration was lower than the rate as on 31/01/2018. Therefore there is no income available to tax under the Act. Again the assessee had enclosed the annexure – 16 in which the working of the capital gain was provided along with the earlier reply dated 08/08/2022. The assessee also relied on the details given in the ITR/V Schedule T-112A. This reply along with the documents were also furnished by the assessee through online on 17/09/2022. The assessing officer after considering the said submissions, as well as the various documents furnished by the assessee, had accepted the Nil capital gain reported by the assessee as per the provision 55(2)(ac) of the Act. From the above said facts, we found that the AO had conducted a detailed enquiry and also verified the documents as well as the statements in respect of the issue of long term capital gains on the redemption of the units of equity oriented mutual funds.
The Ld.PCIT had not pointed out the circumstances through which he has come to the conclusion that the AO had not made enquiries and also not verified the issue of long term capital gains. Except an allegation, the Ld.PCIT had not pointed out any specific instances of mistake committed by the AO while passing the order u/s. 143(3) of the Act. After going through the questions raised by the AO in the notices issued u/s. 142(1) of the Act as well as the replies filed by the assessee, along with the detailed statements, we do not find any error in the order of the AO. Even though the order u/s. 143(3) had not extracted the notices and the replies filed by Page 7 of the assessee, the Ld.PCIT would have got all the details before him while taking up the case for revision u/s. 263 of the Act. In fact, in the reply to the show cause notice issued by the Ld.PCIT, the assessee had furnished the reply along with the various statements and explained how the order of the AO is in order. The Ld.PCIT had not mentioned anything about the annexures filed by the assessee along with the reply to the show cause notice. Therefore, we are of the view that the Ld.PCIT had not looked into the matter in detail and if the Ld.PCIT had gone through the entire records, he could have satisfied that the assessment order u/s. 143(3) is in order. When the order is not an erroneous one, it cannot be concluded that the same is prejudicial to the interest of the revenue. In such circumstances, the revisional order passed u/s. 263 of the Act by setting aside the order of the AO dated 26/09/2022 is not correct and therefore we are setting aside the said order of the Ld.PCIT and restore the order of the AO.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 02nd March, 2026.