Perversity In Order Cannot Be Pointed Out, No Substantial Question Of Law Arises: Allahabad HC Dismisses Income Tax Appeal

The Allahabad High Court dismissed an Income Tax Appeal as it observed that no perversity in the order can be pointed out and no substantial question of law arises.

The Court was considering an Appeal under Section 260A of the Income Tax Act, 1961 against order passed by by the Income Tax Appellate Tribunal whereby the appeal filed by the respondent-assessee against order passed by the Principal Commissioner of Income Tax under Section 263 of the Act pertaining to Assessment Year 2017-18 was allowed.

The division-bench of Chief Justice Arun Bhansalia and Justice Vikas Budhwar observed, "...learned counsel for the appellants failed to point out any perversity, we do not find that the facts of the present case give rise to any substantial question of law as suggested by counsel for the appellants."

The Appellant was represented by Advocate Gaurav Mahajan while the Respondent was represented by Advocate Ashish Bansal.

The Respondent-Assessee was engaged in the business of trading in shares and securities and filed its return for AY 2017-18 on 18.09.2017 declaring income of Rs.1,83,99,800/-. The case wasselected for scrutiny through Computer-assisted Scrutiny Selection (CASS) inter alia on the ground of excess claim of exemption of dividend income and large increase in unsecured loans during the year. During course of assessment proceedings, the Assessing Officer issued notice under Section 142(1) of the Act from time to time along with detailed questionnaire to examine and verify the issues requiring the assessee to clarify and justify them. The assessee complied with the same and filed necessary details along with documentary evidence.

The AO examined the details and supporting documentary evidence and inter alia came to the conclusion that out of total accrued income of Rs.8,93,38,723/- from dividend from shares andmutual funds, Rs.8,89,01,128/- was received from mutual funds which is not within the purview of Section 115 BBDA and is exempted under Section 10 (35) of the Act and large increase in unsecured loans is attributable to increase in the amount of loans obtained by the firm from its partner and consequently, the AO did not draw any adverse inference against the assessee on issues mentioned in CASS and accepted the returned income and passed the assessment order on 17.12.2019 under Section 143(3) of the Act.

The PCIT examined the case records of the assessee and found the assessment order to be erroneous and prejudicial to the interest of revenue. It therefore invoked powers under Section 263 of the Act and issued notice to the assessee to which a reply was filed. The assessment order was accordingly set-aside and the AO to conduct specific inquiry on the issues indicated and pass appropriate consequential order as per the provisions of the Act after giving due and adequate opportunity of hearing to the assessee. Aggrieved, the assessee approached the Tribunal. The Tribunal concluded that the AO has neither assumed facts incorrectly nor there is any incorrect application of law. It was of the view that the order was not erroneous and, therefore, there was no question of the order being prejudicial to the interest of revenue and consequently allowed the appeal and quashed the order impugned.

Counsel for the Appellant submitted that the Tribunal was not justified in setting aside the order impugned in as much as the PCIT has clearly observed that the assessment order was passed without making inquiries or verification which should have been made and the said situation would be covered by Explanation 2 of Section 263 (1) of the Act and consequently, the order impugned passed by the Tribunal gives rise to substantial questions law.

Counsel for the Appellant submitted that  provisions of the Act have not been considered by the Tribunal in as much as it was established on record that the requisite inquiries or verification pertaining to the claim made in relation to dividend income were not made by the assessee. Further it was submitted that certain documents were filed before the PCIT, however, the same were not found available on the assessment record which clearly showed that either the said documents were not filed during assessment proceedings or not taken into cognizance thereof or considered by the AO and, therefore, the order impugned passed by the Tribunal gives rise to substantial questions of law.

Counsel for the Respondent submitted that under Section 143(3) of the Act after issuing detailed questionnaire to the assessee and after examination and verification of the issues raised requiring respondent to clarify and justify them, which was duly responded to along with the documents and based on which a categorical finding was recorded by the AO and, therefore, the exercise of jurisdiction under Section 263 of the Act on the purported ground that the order was passed without making inquiries or verification, has rightly been set aside by the Tribunal and that the same does not give rise to any substantial question of law.

The Court concluded that peversity in order cannot be proved by the Counsel for Appellant.

"Once the Tribunal on thorough scrutiny of the record has come to the conclusion that the reasons recorded by the PCIT based on Explanation 2 to Section 263 pertaining to failure of the AO in making inquiries or verification was without any basis and contrary to the record and has allowed the appeal on finding that the order passed by the PCIT was without jurisdiction, in relation to which learned counsel for the appellants failed to point out any perversity, we do not find that the facts of the present case give rise to any substantial question of law as suggested by counsel for the appellants," the Court observed.

The Appeal was accordingly 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)

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