Case Number: ITA 811/DEL/2021
Appellant: Pushp Steel and Mining Private Limited, Delhi
Respondent: PCIT, Delhi-7
Assessment Year: 2015-16
Case Filed On: June 30, 2021
Order Type: Final Tribunal Order
Date of Order: December 22, 2021
Pronounced On: December 22, 2021
Result: The tribunal ruled in favor of the appellant, setting aside the PCIT’s order under Section 263.
This article discusses the case between Pushp Steel and Mining Private Limited and the Principal Commissioner of Income Tax (PCIT), Delhi-7, where the central issue was the validity of the PCIT’s order under Section 263 of the Income Tax Act, 1961, for the assessment year 2015-16. The tribunal’s decision, pronounced on December 22, 2021, provided significant clarification on the applicability of Section 263 proceedings in cases of limited scrutiny.
The appellant, Pushp Steel and Mining Private Limited, filed an appeal against the order of the PCIT, Delhi-7, dated March 31, 2021, for the assessment year 2015-16. The case involved the PCIT invoking Section 263 of the Income Tax Act to set aside the assessment order passed by the Assessing Officer (AO) under Section 143(3) of the Act on August 29, 2017. The PCIT contended that the AO’s order was erroneous and prejudicial to the interest of the Revenue.
The assessee, engaged in the business of mining iron ore and making steel, had filed its return of income electronically for the assessment year 2015-16, declaring a total income of Rs. 7,78,490. The case was selected for limited scrutiny under the Computer Assisted Scrutiny Selection (CASS) system, focusing on the verification of investments in unlisted equity shares made during the year.
The PCIT, upon examining the assessment records, issued a show-cause notice on May 18, 2018, to the assessee, expressing the view that the AO had not properly examined the issue of fair market value of investment as per Section 56(2)(viia) of the Act. The PCIT believed that the AO’s failure to determine the fair market value of shares rendered the assessment order erroneous and prejudicial to the Revenue’s interest.
In response, the assessee submitted detailed replies, asserting that the AO had indeed examined the issue of investments in unlisted equity shares during the course of assessment proceedings. The assessee provided evidence of the AO’s inquiries and the submissions made, including details of the investments, copies of the Memorandum of Associations of the invested companies, broker notes, bank statements, and other relevant documents.
The tribunal, comprising Shri Anil Chaturvedi (Accountant Member) and Shri K. Narasimha Chary (Judicial Member), analyzed the submissions of both parties and the material on record. The tribunal noted that the AO had conducted inquiries into the investments made by the assessee in unlisted equity shares, as evidenced by the notices issued under Sections 143(2) and 142(1) of the Act and the assessee’s responses.
The tribunal observed that the AO had considered the information and explanations provided by the assessee and had accepted the return of income without making any adjustments. The tribunal held that the AO had taken a possible view based on the inquiries conducted, and this view could not be considered erroneous or prejudicial to the Revenue’s interest.
The tribunal referred to the provisions of Section 263 of the Income Tax Act, which grants the PCIT the power to revise an order passed by the AO if it is erroneous and prejudicial to the interest of the Revenue. The tribunal emphasized that both conditions must be satisfied for the PCIT to exercise this power.
The tribunal also cited the Supreme Court’s decision in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC), which held that an order could not be termed erroneous if the AO had adopted one of the permissible views. Further, the Delhi High Court’s decision in the case of PCIT vs. Brahma Center Development Pvt. Ltd. (ITA Nos. 116 & 118/2021) reiterated that the PCIT could not expand the scope of inquiry beyond the limited scrutiny parameters.
Based on the detailed analysis, the tribunal concluded that the PCIT was not justified in invoking Section 263 of the Act to set aside the AO’s order. The tribunal noted that the AO had conducted adequate inquiries into the issue for which the case was selected for limited scrutiny, and the view taken by the AO was a possible and permissible one. Therefore, the tribunal set aside the PCIT’s order dated March 31, 2021.
In conclusion, the tribunal ruled in favor of Pushp Steel and Mining Private Limited, setting aside the PCIT’s order under Section 263. This decision underscores the importance of adhering to the principles laid down for limited scrutiny cases and highlights that the revisionary powers under Section 263 should be exercised judiciously, ensuring that both conditions of the provision are met.
This ruling provides significant guidance for taxpayers and tax authorities on the application of Section 263, emphasizing that an order cannot be considered erroneous or prejudicial to the Revenue’s interest merely because the PCIT holds a different view from the AO.
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