While explaining the scope and limitations of the revisional power of the PCIT under Section 263 of the Income-tax Act, the New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that an assessment order cannot be deemed “erroneous” merely because the Principal Commissioner of Income Tax (PCIT) holds a different view from the Assessing Officer (AO). If the AO has considered the materials and explanations on record and has taken one of the possible views, the PCIT cannot invoke Section 263 to substitute their own view.

The ITAT emphasised that the PCIT’s conclusion that an order is erroneous and prejudicial to the interest of the Revenue must be based on materials available on the record. If there is no such material, the initiation of revision proceedings is illegal and without justification. The PCIT cannot set aside an assessment merely to conduct another investigation without a foundational basis.

While passing a revision order under Section 263, the PCIT must record reasons in support of the conclusion that the AO’s order is erroneous and how it is prejudicial to the interest of the Revenue, and an order that fails to indicate such reasons is not valid, clarified ITAT, while asserting that the PCIT does not have the jurisdiction under Section 263 to direct the AO to initiate penalty proceedings if the AO did not do so at the time of assessment. The satisfaction for initiating a penalty is that of the AO, not the PCIT in revision proceedings.

The Division Bench comprising Mahavir Singh (Vice President) and Manish Agarwal (Accountant Member) observed that the details filed by the appellant, including the ISIN codes for the funds (e.g., Axis Dynamic Equity Fund), clearly indicated that they were equity-oriented funds held for more than one year. The Bench noted that these details were filed before the AO during the original assessment, and the AO, after examining them, formed an opinion that they were equity-oriented funds. This was one of the possible opinions, and the PCIT had not provided any finding or observation as to how these funds were not equity-oriented.

As far as the issue of Annual Letting Value (ALV) is concerned, the Bench found that the property was sold on 25th March 2019, and the capital gains were offered to tax in the assessment year 2019-20. Therefore, there was no question of declaring ALV in the assessment year 2020-21. As regards the Apartment No. 20, Hirst Court, London, is concerned, the Bench emphasised that the property was used exclusively for professional purposes and income from the London office had been declared. Since the property was used for commercial purposes, no ALV could be attributed to it.

As far as property at Golf Links, New Delhi, is concerned, the Bench accepted the evidence showing the property was demolished and under reconstruction during the relevant assessment year. Thus, it concluded that there was no question of any ALV for that year.

Briefly, the appellant, Mukul Rohatgi, a designated Senior Advocate, had approached the ITAT challenging a revision order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income-tax Act, for the assessment year 2020-21. The original assessment of the appellant was completed by the Assessing Officer (AO) under Section 143(3) read with Section 144B. However, the PCIT, upon examining the records, issued a notice under Section 263, deeming the assessment order to be erroneous and prejudicial to the interest of the Revenue on three primary grounds: the taxability of certain funds, the computation of Annual Letting Value (ALV) for various properties, and the non-initiation of penalty proceedings.

Case Relied On:

Malabar Industrial Co. Ltd. vs. CIT – [(2000) 243 ITR 83 (Supreme Court)]

Appearances:

Senior Advocate Sachit Jolly and Advocate Mansha Aanad, for the Appellant/ Taxpayer

CIT-DR Jitender Singh, for the Respondent/ Revenue