2014 (1) TMI 1025 - AT - Income Tax

Validity of order u/s 263 - Held that - On perusal of the assessment order in which there is no discussion regarding the issue relating to sale and purchase of shares - From the letters issued by the AO, it is clear that a detailed examination has been done by the AO regarding transactions of sale & purchase of shares entered into by the assessee - The correspondences entered into between the assessee and the AO, clearly reveals that the AO required the assessee to file various details, which were filed by the assessee - Regarding share purchased by the assessee from Prraneta Industries, the assessee has filed the proof of purchases in the shape of ledger account in the name of DPS Shares Securities Pvt. Ltd. In respect of transactions of the assessee regarding shares of Hiren Orgochem Ltd., it is pointed out to learned CIT by the assessee that 3500 shares were wrongly credited to demat account of the assessee and the said entry was reversed back - To support such contentions, assessee has submitted a copy of demat account - On this issue, learned CIT has not doubted the contention of the assessee and he has observed that adequate enquiry has not been made about the genuineness of the company as 7000 shares were purchased - These documents were produced by the assessee before the AO during the course of assessment proceedings, hence, it cannot be said that either the AO did not enquire about the issue of capital gain arising out of sale & purchase of shares or assessee did not furnish required information - The transactions are duly supported by the bills issued by the broker and are through stock exchange for which appropriate evidences were submitted. Section 263 has been invoked only for the reason that the AO did not apply his mind on these transactions - This finding of the learned CIT is against the correspondence and evidences which are placed on record by the assessee during the course of original assessment proceedings and copy of these documents are also filed before the Tribunal - Learned CIT also could not specify any discrepancy either in the rates of shares purchased and sold by the assessee or any incorrectness in the claim of the assessee regarding capital gain shown by the assessee as all the facts were again placed before him - In absence of any material to suggest that these transactions were not valid/genuine transactions, it will mere be a case of a change of opinion by the learned CIT - Mere non-discussion of the said issue by the AO in the assessment order, cannot lead to a conclusion that the AO has not applied his mind on that issue - Decided in favour of assessee.

Issues Involved:
1. Invocation of Section 263 by CIT.
2. Examination of long-term capital gain on sale of shares of Prraneta Industries Ltd.
3. Examination of short-term capital gain on sale of shares of Hiren Orgochem Ltd.
4. Alleged non-application of mind by the Assessing Officer (AO).
5. Submission of detailed evidence and documents by the assessee.
6. Validity of the assessment order and the exercise of revisionary powers by CIT.

Detailed Analysis:

1. Invocation of Section 263 by CIT:
The CIT invoked Section 263 of the IT Act, 1961, to revise the assessment order dated 27-1-2011 for the assessment year 2006-07. The CIT's main contention was that the AO did not apply his mind to the transactions involving long-term and short-term capital gains on shares, which led to an erroneous order prejudicial to the interests of the Revenue.

2. Examination of Long-Term Capital Gain on Sale of Shares of Prraneta Industries Ltd.:
The assessee claimed long-term capital gain on the sale of 26,000 shares of Prraneta Industries Ltd. (PI), purchased in cash for Rs. 35,095 on 6-4-2004 and kept in physical form. These shares were later split and credited to the demat account on 6-9-2005 and sold for Rs. 56,50,510. The CIT argued that the AO did not thoroughly examine the purchase details, dematerialization process, and the genuineness of the transactions. However, the assessee provided detailed evidence, including ledger accounts, physical share certificates, and demat account statements, proving the transactions' validity.

3. Examination of Short-Term Capital Gain on Sale of Shares of Hiren Orgochem Ltd.:
The assessee showed short-term capital gain on 7,000 shares of Hiren Orgochem Ltd., purchased on 2-5-2005 for Rs. 2,45,944 and sold on 30th/31st August 2005 for Rs. 14,28,287. The CIT noted discrepancies in the demat account, which showed 10,500 shares instead of 7,000. The assessee clarified that 3,500 shares were wrongly credited and later reversed, supported by demat account statements. The CIT directed the AO to re-examine these transactions, suspecting rapid appreciation in share value.

4. Alleged Non-Application of Mind by the Assessing Officer (AO):
The CIT's primary objection was that the AO did not apply his mind to the transactions, failing to conduct a thorough inquiry. However, the assessee demonstrated that the AO issued detailed questionnaires and notices, and the assessee provided comprehensive responses and documentation, which the AO examined before accepting the capital gain claims.

5. Submission of Detailed Evidence and Documents by the Assessee:
The assessee submitted extensive documentation during the assessment proceedings, including broker notes, demat account statements, bank statements, and share certificates. The AO's correspondence with the assessee showed that the AO conducted a detailed examination of the transactions, contrary to the CIT's claim of non-application of mind.

6. Validity of the Assessment Order and the Exercise of Revisionary Powers by CIT:
The Tribunal found that the AO conducted a thorough investigation and that the CIT's invocation of Section 263 was based on a mere change of opinion. The AO's acceptance of the assessee's claims was a possible view, and the CIT could not revise the order simply because he had a different opinion. The Tribunal cited various case laws supporting the principle that mere non-discussion in the assessment order does not imply non-application of mind by the AO.

Conclusion:
The Tribunal held that the CIT did not validly exercise the power under Section 263, as the AO had conducted a detailed examination of the transactions, and the assessee provided sufficient evidence. The order under Section 263 was canceled, and the appeal filed by the assessee was allowed. The Tribunal emphasized that a change of opinion by the CIT is not a valid ground for invoking Section 263 when the AO's view is not unsustainable in law.

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