Invocation of section 263 unjustified if order of AO was not erroneous

Gurbakshish Singh Batra Vs PCIT (ITAT Delhi)

Facts- Assessee is an individual and filed his ROI on 6th October, 2016 declaring the total income at Rs.44,86,160/-. The return was processed u/s 143(1) of the IT Act. Subsequently, the case of the assessee was selected for ‘limited scrutiny’.

AO, thereafter, issued notice u/s 143(2) of the Act on 03.07.2017. Subsequently, notices u/s 142(1) on 11th April, 2018 and 15th May, 2018 were also issued and served on the assessee. After considering the various submissions made by the assessee, the AO passed the order u/s 143(3) on 28.11.2018 determining the total income of the assessee at Rs.45,50,550/- by making an addition of Rs.64,386/- on account of Interest u/s 244A of the Act.

Subsequently, the ld. PCIT perused the assessment record and found that the assessee has claimed capital loss of Rs.5,76,814/- on one of the properties sold in the computation of income. Further, the market value of such property was Rs. 68,50,000 whereas the property was sold at Rs. 24,00,000/-which attracts provisions of Section 50C of the Act. The AO has not made any disallowance u/s 50C of the Act. She further noted that the assessee got possession of land on 26.11.2015, the lease deed was registered on 21.01.2016 and sold the same on 16.02.2016. The period of holding was less than 36 months and, therefore, the Capital Gain shall be treated as STCG. However, in computation, the assessee has taken it as long term capital Asset. The above facts according to her clearly show that the AO has not made proper inquiry and verification. Therefore, she initiated proceedings u/s 263 of the Income Tax Act and issued a notice u/s 263 of the IT Act asking the assessee to explain as to why the assessment should not be reframed u/s 263 of the IT Act. Rejecting the various explanations given by the assessee, the ld. PCIT passed her revisional order u/s 263 of the Act. Being aggrieved by the order of PCIT, assessee preferred appeal before Tribunal.

Conclusion- It is the settled proposition of law that for invoking the provisions of section 263 of the IT Act, the twin conditions, namely, (a) the order must be erroneous and (b) it must be prejudicial to the interest of the Revenue must be satisfied as held by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, reported in 243 ITR 83. Since we have already held that the AO has conducted proper enquiry and has taken a plausible view, therefore, the order cannot be held to be erroneous, therefore, in absence of fulfillment of twin conditions, PCIT is not justified in invoking the jurisdiction u/s 263 of the IT Act, 1961. We, therefore, quash the section 263 proceedings initiated by ld. PCIT and the grounds raised by the assessee are allowed.

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