2025 (7) TMI 1574 - AT - Income Tax

Revision u/s 263 - LTCG - case of the assessee was reopened to verify the veracity of the aforesaid transaction of trading in INDINFO scrip and genuineness of the long term capital gains claimed by the assessee. HELD THAT - Explanation 2 to section 263 of the Act has been inserted vide Finance Act 2015 w.e.f. 1.6.2015 and hence the said explanation cannot be applied retrospectively in this case for the assessment year 2013-14. As per the said Explanation 2 the order can be deemed to be erroneous and prejudicial to the interest of the Revenue if in the opinion of ld.Pr.CIT/Commissioner the order is passed without making any inquiry or verification which should have been made. Such opinion in our view may not be a mere pretense of the CIT without giving any reasoning or basis for the same. Such an opinion of the CIT that the assessment order has been passed without making inquiry inquiry/verification which should have been made must be based on the reasoning and findings arrived at by the CIT after examination of records and after considering the submissions and explanations furnished by the assessee. The assessee having furnished the detailed reply and demonstrating that the AO had made adequate verification and inquiries on this issue the ld.Pr.CIT under the circumstances was supposed to discuss the same consider the reply of the assessee and to point out what further inquiry was required to be made by the AO which has not be made by him and what were the defects or infirmities in the explanation given by the assessee which require further inquiries and verifications by the AO. All these ingredients which are required for the exercise of revision jurisdiction u/s 263 of the Act are missing in this case. Therefore the impugned order passed by the CIT u/s 263 of the Act is a result of invalid jurisdiction exercised by the CIT u/s 263 of the Act and hence not sustainable and the same is accordingly quashed. Assessee appeal allowed.

Summary

ISSUES:

Whether the order passed under section 143(3) of the Income Tax Act, 1961 was erroneous and prejudicial to the interest of the Revenue within the meaning of section 263 of the Act.Whether Explanation 2 to section 263, inserted by the Finance Act, 2015 w.e.f. 1.6.2015, is applicable retrospectively to assessment year 2013-14.Whether the revisional authority (Pr. CIT) properly exercised jurisdiction under section 263 by setting aside the assessment order without making or causing to be made necessary inquiries or verifications.Whether the Assessing Officer made adequate inquiries and verifications regarding the genuineness of long term capital gains claimed on trading in a penny stock scrip.

RULINGS / HOLDINGS:

The revisional authority's order under section 263 was held to be not sustainable as it was passed without making or causing to be made any inquiry or verification, which should have been made, and without pointing out any defect, lacuna, or infirmity in the details and evidences furnished by the assessee during reassessment proceedings.Explanation 2 to section 263 of the Act, inserted w.e.f. 1.6.2015, cannot be applied retrospectively to the assessment year 2013-14.The Assessing Officer had made adequate inquiries and verifications on the issue of bogus long term capital gains, as demonstrated by the voluminous details and documents furnished by the assessee, which were duly examined and accepted in the reassessment order.The opinion of the revisional authority that the assessment order was erroneous and prejudicial to the interest of the Revenue must be based on reasoned findings after examination of records and considering the assessee's submissions; mere ipse dixit without such basis is not sufficient.The impugned revision order under section 263 was quashed as an invalid exercise of jurisdiction.

RATIONALE:

The revisional jurisdiction under section 263 of the Income Tax Act, 1961, allows the Commissioner to call for and examine the record of any proceeding and revise an order if it is found to be erroneous and prejudicial to the interest of the Revenue, but only after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as deemed necessary.Explanation 2 to section 263 states that an order shall be deemed erroneous and prejudicial if passed without making inquiries or verification which should have been made; however, this explanation applies prospectively only and cannot be applied retrospectively to assessment years prior to 1.6.2015.The revisional authority must provide reasoned findings and specify the defects or infirmities in the assessment order or in the information furnished by the assessee to justify interference under section 263.The reassessment was conducted on the same issue with detailed examination of documents such as share certificates, bank statements, demat account statements, contract notes, and ledger accounts, which demonstrated the genuineness of the claimed long term capital gains.The absence of any pointed defect or infirmity in the reassessment order or in the evidence furnished negates the basis for revision under section 263.