Sec. 263 Cannot Be Used to Replace AO’s Possible View on Scrutinized LTCG Income

Kant Mishra Vs ITO (ITAT Kolkata)

PCIT Cannot Invoke Sec.263 for Mere ‘Inadequate Inquiry’ – AO Had Examined Share LTCG; Revision Order Quashed

All four assessees filed returns of income for AY 2015-16. Their cases were selected for scrutiny under CASS & assessments were completed u/s 143(3). During assessment, AOs examined all details including purchase/sale of shares & exemption u/s 10(38) on LTCG of approx. ₹36.60 lakh, & accepted the claim after calling for necessary documents.

PCIT invoked revisionary jurisdiction u/s 263, holding that:

• AO had not conducted proper inquiries,
• No supporting documents/contract notes/bank statements were seen on record,
• No third-party verification or broker verification was carried out,
• Assessment was erroneous & prejudicial to the interest of Revenue, as AO accepted LTCG exemption without adequate inquiry.

Show cause notices were issued u/s 263. Assessees replied, stating:

• All documents were filed during assessment,
• AO had specifically raised queries u/s 142(1) regarding share transactions,
• Assessees filed contract notes, purchase/sale ledgers, bank statements, books of account,
• Certified copies obtained from AO show that all documents were indeed on record,
• Therefore, this was not a case of “no inquiry”, at best “inadequate inquiry”, for which 263 cannot be invoked.
• Relied on Malabar Industrial Co. Ltd. (SC) & Max India Ltd. (SC).

ITAT Findings:

• Tribunal examined the assessment records & agreed with Assessees:
• AO called for & examined all relevant documents,
• Assessment was framed after due inquiry,
• PCIT’s allegation that no evidence was on record was factually incorrect,
• Even certified copies from AO’s office proved that all documents were available,
• If AO has taken one of the possible views, PCIT cannot substitute his view,
• Section 263 requires BOTH conditions—“erroneous” AND “prejudicial”—to coexist; here neither was satisfied.
• ITAT held that this was not a case of no inquiry, & even if PCIT felt inquiry was inadequate, 263 cannot be applied, as per settled law (Sunbeam Auto, J.L. Morison, Britannia Industries).

Conclusion: PCIT invalidly invoked section 263. Assessments u/s 143(3) were neither erroneous nor prejudicial.