The Allahabad High Court has dismissed an income tax appeal, stating that no significant legal issue comes up when perversity in order cannot be identified.
The Allahabad High Court rejected an Income Tax Appeal, stating that there was no evidence of error in the order and no significant legal question was raised. The Court reviewed an Appeal under Section 260A of the Income Tax Act, 1961, concerning a decision made by the Income Tax Appellate Tribunal. This decision had allowed the appeal from the respondent-assessee against an order from the Principal Commissioner of Income Tax under Section 263 for the Assessment Year 2017-18. The division-bench, led by Chief Justice Arun Bhansalia and Justice Vikas Budhwar, noted that the appellants’ counsel could not demonstrate any error, and the case did not present any substantial legal question as claimed by the appellants’ counsel.
Advocate Gaurav Mahajan represented the Appellant, while Advocate Ashish Bansal represented the Respondent. The Respondent-Assessee was involved in trading shares and securities, filing a return for AY 2017-18 on September 18, 2017, reporting an income of Rs.1,83,99,800. The case was chosen for scrutiny through Computer-assisted Scrutiny Selection (CASS) due to a high claim of dividend income exemption and a significant rise in unsecured loans that year. During the assessment, the Assessing Officer issued notices under Section 142(1) of the Act, along with a detailed questionnaire, to investigate the issues, requiring the assessee to provide clarifications and justifications. The assessee complied and submitted the necessary details and supporting documents.
The AO reviewed the details and supporting documents and concluded that out of the total income of Rs.8,93,38,723/- from dividends on shares and mutual funds, Rs.8,89,01,128/- came from mutual funds. This amount is exempt under Section 10 (35) of the Act and does not fall under Section 115 BBDA. The significant rise in unsecured loans was due to increased loans from the firm’s partner. As a result, the AO did not find any negative implications for the assessee regarding the issues raised in CASS, accepted the reported income, and issued the assessment order on 17.12.2019 under Section 143(3) of the Act. The PCIT later reviewed the case and deemed the assessment order erroneous and harmful to revenue interests. Consequently, the PCIT used powers under Section 263 of the Act to notify the assessee, who then submitted a response. The assessment order was set aside, directing the AO to investigate the specified issues and issue a new order after properly hearing the assessee. Dissatisfied, the assessee appealed to the Tribunal. The Tribunal found that the AO had not misrepresented facts or misapplied the law. It determined that the order was not erroneous and therefore not harmful to revenue interests, allowing the appeal and canceling the contested order.
Counsel for the Appellant argued that the Tribunal was wrong to overturn the contested order because the PCIT noted that the assessment order was made without necessary inquiries or verifications. This situation falls under Explanation 2 of Section 263 (1) of the Act, leading to significant legal questions raised by the Tribunal’s decision. The Appellant’s Counsel pointed out that the Tribunal did not consider the Act’s provisions, as it was clear that the necessary inquiries regarding the dividend income claim were not conducted by the assessee. Additionally, while some documents were submitted to the PCIT, they were not present in the assessment record, indicating they were either not submitted during the assessment or not acknowledged by the AO. Thus, the Tribunal’s order raises important legal questions.
On the other hand, Counsel for the Respondent stated that under Section 143(3) of the Act, a detailed questionnaire was issued to the assessee, and the issues raised were examined and verified. The respondent provided clarifications and documents, leading to a clear finding by the AO. Therefore, the Tribunal correctly set aside the exercise of jurisdiction under Section 263, as the claim that the order was made without inquiries or verification does not present any substantial legal question. The Court concluded that the Appellant’s Counsel could not demonstrate any errors in the order.
The Tribunal carefully reviewed the records and determined that the reasons given by the PCIT, based on Explanation 2 to Section 263 regarding the AO’s failure to conduct inquiries or verification, were unfounded and not supported by the evidence. The Tribunal allowed the appeal, stating that the PCIT’s order was made without proper authority. The appellants’ counsel could not demonstrate any errors in this decision. Therefore, the Court concluded that the case did not present any significant legal questions as claimed by the appellants’ counsel. The appeal was dismissed.
Cause Title: The Pr Commissioner of Income Tax, Aaykar Bhawab, Noidan and another vs. M/S Sampark Management Consultancy LLP (2024:AHC:188411-DB)
