2019 (1) TMI 1011 - AT - Income Tax

Revision u/s 263 - bogus purchase and sales of shares - ground for revision is that the AO did not make any addition towards commission paid for arranging bogus capital gains - Held that - It is worthwhile to note here that firstly no record or document is referred to by the PCIT to establish that the assessee had made any cash payment towards commission and secondly, a perusal of the assessment order reveals that the AO has made addition of the entire purchase value plus sale value totaling to ₹ 2,53,91,809/- to the total income of the assessee. It cannot be said that the AO has paid deaf ear to the aspect of commission which according to the PCIT, might have been paid by the assessee for arranging bogus capital gains. In such circumstances, for want of any whisper of commission payment in the assessment order, the said order may at the most be termed as erroneous, but it cannot be prejudicial to the interest of revenue particularly when the AO has added entire purchase value and sale value of shares declared to the income of the assessee as mentioned in assessment order. Unless both the conditions of assessment order being erroneous as well as prejudicial to the interest of Revenue are satisfied, PCIT was not justified to revise the said order u/s. 263 of the Act as held in several decisions cited by the assessee. No justification to sustain the impugned order. This order will not be an exemplar for other cases having different set of facts and will not be prejudicial to any other proceedings in the case of this assessee. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction of Principal Commissioner of Income Tax (PCIT) under section 263 of the IT Act, 1961.
2. Examination of long-term capital gains on sale of shares by Assessing Officer (AO).
3. Addition of alleged commission in the assessment order.
4. Justification of revising the assessment order by PCIT.
5. Consideration of evidence and documents by PCIT.

Jurisdiction of Principal Commissioner of Income Tax (PCIT) under section 263 of the IT Act, 1961:
The appeal was filed against the order of the PCIT under section 263 of the IT Act for the assessment year 2014-15. The grounds of appeal challenged the legality and jurisdiction of the notice issued under section 263, contending that it was based on suspicion and conjecture. The appellant argued that detailed replies were not considered by the PCIT, and the jurisdiction under section 263 was wrongly assumed. The appellant further contended that the PCIT erred in invoking jurisdiction on issues beyond the limited scrutiny conducted during the regular assessment proceedings under section 143(3).

Examination of long-term capital gains on sale of shares by Assessing Officer (AO):
During the assessment proceedings, the AO observed long-term capital gains declared by the assessee on the sale of shares. The AO examined the details of purchase and sale of shares, including the profit and loss accounts of the companies involved. Relying on certain case laws, the AO concluded that the capital gains were fictitious and added the amount to the assessee's income. The appellant argued that all transactions were done through recognized stock exchanges and banking channels, with no cash transactions or payment of commission to brokers. The AO's assessment order was challenged as not being erroneous or prejudicial to revenue.

Addition of alleged commission in the assessment order:
The PCIT set aside the assessment order, citing failure by the AO to add any commission payment related to the alleged bogus capital gains. The PCIT contended that in such cases, commission payments are usually involved, and the AO erred in not making any addition for unexplained commission. However, the tribunal noted that the AO had added the entire purchase and sale value of shares to the assessee's income, totaling to a significant amount. The tribunal found no justification for revising the assessment order based on the absence of commission payment records and the substantial additions made by the AO.

Justification of revising the assessment order by PCIT:
The tribunal analyzed whether the PCIT was justified in revising the assessment order under section 263. It emphasized the requirement to establish that the order sought to be revised was both erroneous and prejudicial to revenue. The tribunal noted that the PCIT's revision was solely based on the absence of commission addition by the AO. However, since the AO had already added substantial amounts to the income, the tribunal found no justification for revising the order under section 263.

Consideration of evidence and documents by PCIT:
The tribunal highlighted that the PCIT's revision was not supported by any evidence of cash payment towards commission by the assessee. It concluded that the AO's assessment order, though possibly erroneous, was not prejudicial to revenue as significant amounts were already added. The tribunal emphasized the necessity for both conditions of error and prejudice to be met for justifying a revision under section 263. The appeal of the assessee was allowed, and the impugned order was not sustained.

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