CIT cannot exercise Revisionary Jurisdiction to remit matter to AO without satisfying conditions u/s 263: ITAT [Read Order]

While allowing the appeal of Assessee in Poonam Bhotika versus Income Tax Officer, the Kolkata bench of the ITAT held that the Commissioner of Income Tax ( CIT ) has no power under section 263 to remit the matter to AO without finding that the order is erroneous or prejudicial to the interest of Assessee.

In instant case Assessee is an individual deriving his income from interest, director’s remuneration and dividend. Assessee for the year under consideration filed his return of income declaring nil income. Subsequently case was selected for scrutiny and the notice under section 143(3)/142(1) of the Act was served upon the assessee. Accordingly, assessment was carried out with a disallowance and framed loss in return filing.

When the matter carried to Pr.CIT and on scrutiny from the assessment order, CIT found that necessary detail for the loss in future & option were duly supplied by assessee by debiting the same in profit and loss account. But on show cause proceedings, Assessee acknowledged that said loss amount duly verified with National Stock Exchange by AO and they confirmed the loss. The audit wing of IT also satisfied with the same loss.

The Assessee also raised a submission that according to the provision under section 43(5) (d) of the Act, the transactions in future & option if carried out in recognizing stock exchange cannot be treated as speculative transactions. Therefore, the impugned loss cannot be treated as speculative loss and thus eligible for set off against income.

But CIT was not satisfied with the contention of Assessee and held that the decision of AO was erroneous and prejudicial to the interest of Revenue and without having proper enquiry before completing the assessment, AO framed the loss. Accordingly CIT directed the AO set aside on the above limited issue with the direction to pass fresh assessment order.

Against the order of CIT, Assessee preferred an appeal before this tribunal and reiterated the submissions that were made before lower authority. Assessee cited various cases of tribunal in support of his contentions and also pointed that CIT was not sure about the error in the order of AO.

The bench including N.V.Vasudevan, Judicial Member and Waseem Ahmed, Accountant Member heard the rival contentions of both the parties and perused the cases cited by them.

While checking the relevant extract of assessment order tribunal bench observed that assessment was framed after necessary verification and also noted that CIT himself was also not clear about the error which is causing prejudice to the interest of Revenue.

The tribunal raised a major observation that “provision of Section 263 of the Act does not give any power whatsoever to the Ld. CIT to remit the issue to the file of AO without finding that the order of AO is erroneous in so far as prejudicial to the interest of revenue. Therefore, the impugned order passed by Ld. Pr. CIT u/s 263 of the Act is not sustainable”.

In order to press the decision bench relied on the judgment of Delhi High Court in the case of CIT vs. Sunbeam Auto Limited and held that there is no error in the order passed by AO and accordingly revisionary proceedings initiated by Ld. PR. CIT u/s. 263 of the Act is not sustainable.