2011 (5) TMI 981 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the order u/s 263 of the Act.
2. Direction to re-adjudicate the issue of long-term capital gain and exemption u/s 10(38) of the Act.

Summary:

1. Legality of the order u/s 263 of the Act:
The assessee challenged the revision of assessment u/s 263, arguing that the assessment order passed u/s 143(3) was neither erroneous nor prejudicial to the interest of revenue. The assessee contended that the assessment was completed after proper inquiry and verification by the AO. However, the CIT found that the AO did not make proper inquiries regarding the purchase details of shares, which led to the acceptance of long-term capital gains as exempt u/s 10(38). The CIT issued a notice pointing out the lack of inquiry into the mode of payment for the shares, the period of holding, and the actual dates of transactions. The CIT concluded that the AO's failure to carry out necessary inquiries made the order erroneous and prejudicial to the interest of revenue, citing several judgments in support.

2. Direction to re-adjudicate the issue of long-term capital gain and exemption u/s 10(38) of the Act:
The CIT directed the AO to re-adjudicate the issue of long-term capital gain on the sale of shares and the claim of exemption u/s 10(38). The CIT noted that the AO did not verify crucial aspects such as the actual acquisition date of the shares, the mode of payment, and whether the shares were held in the assessee's demat account for the required period. The CIT emphasized that the AO's inquiries were inadequate and did not satisfy the requirements for computing capital gains. The Tribunal upheld the CIT's order, agreeing that the AO failed to carry out necessary inquiries, making the assessment order erroneous and prejudicial to the interest of revenue. The Tribunal dismissed the appeal filed by the assessee, affirming the CIT's direction for re-adjudication.

Conclusion:
The Tribunal upheld the CIT's order u/s 263, finding that the AO did not conduct adequate inquiries regarding the purchase and holding period of shares, leading to an erroneous and prejudicial assessment order. The appeal filed by the assessee was dismissed, and the direction to re-adjudicate the issue of long-term capital gain and exemption u/s 10(38) was affirmed.