2020 (12) TMI 1240 - AT - Income Tax

Revision u/s 263 - addition u/s 68 - Bogus LTCG - AO failed to identify the purpose for which the assessee s return was selected for scrutiny and thereafter the AO has not taken into consideration the investigation report about penny stock and especially the price variation of scrip thus the AO failed to conduct proper investigation on the claim of LTCG and thus there was non-application of mind by AO, resulting in passing an erroneous assessment order as well as caused prejudice to the interest of Revenue - HELD THAT - We find from queries raised by AO and replies given by the assessee on the issue of LTCG on sale of shares which we have discussed in detail which is not being repeated for the sake of brevity and to avoid repetition, we find that AO has conducted enquiry based on investigation report and after having collected all the information and having gone through the documents and having carried out cross-verification from broker and seller of scrip, the AO issued another letter dated 26.12.2017 in respect of the LTCG claim of the assessee, wherein question regarding price variation of ₹ 15/- to ₹ 565/- per share of M/s KPL question number 8 and the investigation report question number 10 was asked, the AO being satisfied with the replies, have taken a plausible view which is in line with the views expressed by various Hon ble High Courts and this Tribunal. AO s view which was taken by him, after enquiry as discussed supra cannot be termed as unsustainable view in the eyes of law and since AO s view is plausible view it could not have been interfered by Ld. Pr. CIT as held by Hon ble Supreme Court in Malabar Industries Ltd. 2000 (2) TMI 10 - SUPREME COURT - since the Ld. Pr. CIT failed to show/demonstrate that the order of the AO was erroneous in respect of accepting the claim of LTCG, we find that the condition precedent necessary to invoke the revisional jurisdiction to u/s 263 of the Act is absent and, therefore, we are inclined to allow the appeal of the assessee

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Erroneous and prejudicial nature of the Assessing Officer's order.
3. Adequacy of enquiry conducted by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961:
The primary grievance of the assessee is that the Principal Commissioner of Income Tax (Pr. CIT) lacked jurisdiction to invoke Section 263 of the Act. The assessee argued that the Pr. CIT did not satisfy the essential condition precedent for invoking jurisdiction under Section 263, which requires the assessment order to be both erroneous and prejudicial to the interest of the revenue. The assessee contended that the Pr. CIT's actions were null and void as the conditions for invoking Section 263 were not met.

2. Erroneous and prejudicial nature of the Assessing Officer's order:
The Pr. CIT held that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue. The Pr. CIT noted that the AO failed to utilize evidence from the Investigation Wing regarding the manipulation of shares of M/s. Kapaac Pharma Ltd. (KPL) to generate bogus long-term capital gains (LTCG). The Pr. CIT argued that the AO completed the assessment without proper application of mind and without appreciating the facts, thus making the assessment order erroneous and prejudicial to the revenue.

3. Adequacy of enquiry conducted by the Assessing Officer:
The assessee countered that the AO conducted adequate and proper enquiries before completing the assessment. The AO had issued various statutory notices and received detailed replies from the assessee, including financial statements, bank statements, purchase invoices, share certificates, and contract notes. The AO also issued notices under Section 133(6) to the registered broker and the seller of the shares. The assessee argued that the AO had conducted a thorough investigation and that the Pr. CIT's claim of inadequate enquiry was unfounded.

Judgment Analysis:

Jurisdiction under Section 263:
The Tribunal referred to the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, which established that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the interest of the revenue. The Tribunal noted that the AO had conducted a detailed enquiry and that the Pr. CIT failed to demonstrate that the AO's order was erroneous. Therefore, the condition precedent for invoking Section 263 was absent.

Erroneous and prejudicial nature of the AO's order:
The Tribunal found that the AO had correctly identified the reason for scrutiny and conducted a thorough investigation based on the Investigation Wing's report. The AO issued statutory notices, received detailed replies from the assessee, and conducted cross-verifications with the broker and seller. The Tribunal held that the AO's order was not erroneous and that the Pr. CIT failed to show how the AO's order caused prejudice to the revenue.

Adequacy of enquiry conducted by the AO:
The Tribunal concluded that the AO had conducted a proper and adequate enquiry into the assessee's claim of LTCG. The AO raised specific questions regarding the price variation of KPL shares and the Investigation Wing's report, and received satisfactory replies from the assessee. The Tribunal held that the AO's view was a plausible one and could not be interfered with by the Pr. CIT.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the Pr. CIT's order under Section 263. The Tribunal held that the Pr. CIT failed to demonstrate that the AO's order was erroneous and prejudicial to the interest of the revenue. The Tribunal emphasized that the AO had conducted a thorough enquiry and that his view was a plausible one, which could not be interfered with by the Pr. CIT. The appeal was allowed, and the order was pronounced in the open court on 3rd December, 2020.