2015 (10) TMI 2367 - AT - Income Tax

Revision u/s 263 - listed securities of which sales was made by Assessee has suffered security transaction tax and therefore, the provisions of section 10(38) of the IT Act is squarely applicable and the income generated from sale and purchase of securities being long term capital asset is exempted - Held that - The application of section 10(38) will warrant, only when the transaction had suffered STT. In the present case, the contention of assessee has been that transaction has not suffered any STT, we observe that ld. CIT ought to have enquired with the AO since all the material facts are very much available on assessment records. We have carefully considered the contention of ld. DR that the listed shares have to be transacted only through stock exchange. It is the businessman who will decide the mode of transaction, how it has to be done to his business exigencies. Particularly in the situation, where the shares value is not in favour of the assessee. The assessee has decided to deal directly with the counter part and closed the deal. We do not see anything contrary to any statute and the revenue has not doubted the genuineness of the transaction. Hence, the transaction is complete even without transacting through stock exchange. On perusal of the ratio laid down in case of Spectra Shares & Scrips (P) Ltd. (2013 (6) TMI 173 - ANDHRA PRADESH HIGH COURT), it is clear that the impugned order should be erroneous and prejudicial to the interests of revenue. We observe that the original assessment order was not erroneous as the material facts were already available on record of the AO. The AO has already dealt with the matters by carefully applying his mind and he has satisfied with his views. In the interest of justice, we have asked the ld. DR to verify the assessment file, whether the material facts like copy of agreements to sell and balance confirmation of the respective companies were available and considered by the AO before passing of the assessment order. It was observed that all the relevant papers were available as part of the assessment file. Hence, we conclude that ld. CIT has not enquired properly into the issue before coming to the conclusion that the assessment order was erroneous and prejudicial to the interests of revenue. Therefore, we quash the order of ld. CIT passed u/s 263 and restore the order of the AO - Decided in favour of assessee.

Summary

Issues involved:
Challenging order under section 263 of the IT Act on jurisdiction and merits.

Detailed Analysis:

Jurisdiction Issue:
The appeal was against an order passed under section 263 of the IT Act for the assessment year 2009-10. The Assessing Officer (AO) had accepted the loss returned by the assessee after completing the assessment under section 143(3) of the Act. However, the Commissioner of Income Tax (CIT) found that the assessee had claimed a long-term capital loss on the sale of listed securities without paying Security Transaction Tax (STT). The CIT considered this as a reason to revise the assessment order, as per section 10(38) of the IT Act, which exempts such income from tax if STT is paid. The CIT issued a notice to the assessee, who did not respond, leading the CIT to treat the assessment order as erroneous and prejudicial to revenue.

Merits Issue:
The assessee contended that the CIT erred in directing the AO to disallow the long-term capital loss claimed, arguing that the shares were not traded on a recognized stock exchange but through a separate agreement. The assessee provided agreements to the AO, indicating that no STT was involved. The CIT, however, insisted that listed shares should be transacted through a stock exchange and be subjected to STT. The ITAT examined the provisions of section 10(38) and relevant case laws, including the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT. The ITAT found that the CIT did not properly inquire into the issue before concluding the assessment order was erroneous and prejudicial to revenue. Upon verification, it was confirmed that all relevant documents were part of the assessment file. Consequently, the ITAT quashed the CIT's order under section 263 and reinstated the AO's order.

The ITAT's detailed analysis considered the legal provisions, case laws, and factual circumstances to determine the correctness of the CIT's decision under section 263. The judgment emphasized the importance of proper inquiry and application of mind by tax authorities before revising assessment orders to ensure fairness and adherence to legal principles.