2019 (7) TMI 180 - AT - Income Tax

Revision u/s 263 - 'Penny Stock' addition - as per CIT AO did not enquire into the claim of short term capital loss or that the assessment order suffered from lack of enquiry - non consideration of CBDT Instruction No.287/30/2014-IT(Inv II)Vol. III - HELD THAT - On perusal of the above Instruction, it is noted that the CBDT had only informed the field officers that a button 'Penny Stock' has been added on their Individual Transaction Screen to display information related to penny stock, including the investigation report of the Kolkata Investigation Directorate. Upon being enquired as to whether the CBDT has laid down any specific guidelines for the field officers, pursuant to the above Instruction for investigation into the suspicious transactions in shares, the Ld. CIT, DR was unable to bring to our notice the so-called specific line of enquiry which the CBDT had mandated the AOs to abide by. We therefore find that very premise viz., violation of the directions contained in CBDT Instruction No.287/30/2014-IT(Inv II)Vol. III, based on which the Pr.CIT initiated the proceedings u/s 263 for alleged lack of enquiry by the AO into the appellant s claim of short term capital loss, is found to be factually untenable. On examination of the material placed before him by the appellant, the AO was satisfied that the short term capital loss was incurred by the appellant on sale of shares listed on the Bombay Stock Exchange. The appellant had filed before the AO the relevant details and also produced the time stamped contract notes issued by its broker. All the transactions were made through registered share broker at rates prevailing on the stock exchange on the relevant dates. The payment for acquisition of shares and the subsequent sale proceeds were also transacted through the appellant s regular bank account. It is noted that the listed shares were sold within a period of one year from the date of acquisition and therefore the gain/loss was short term in nature. We find that the AO had discharged his duties as an investigator as well as that of an adjudicator and applied his mind on the issue before him and taking into consideration the explanation rendered by the appellant, had taken a reasonable and plausible decision to allow the claim of short term capital loss as made by the appellant in the return of income. While passing the assessment order the AO did not follow a view which can be said to be unsustainable in law . In the circumstances therefore, the jurisdictional facts for usurping the jurisdiction, being absent, we hold that the action of Ld. Pr. CIT was without jurisdiction and all subsequent actions are 'null' in the eyes of law. We therefore quash the order impugned before us. - Decided in favour of assessee.

Summary

Issues Involved:
1. Usurpation of jurisdiction by the Pr. C.I.T. u/s 263 of the Act.
2. Whether the AO's order was erroneous and prejudicial to the interest of the Revenue due to lack of enquiry.

Issue-wise Detailed Analysis:

1. Usurpation of jurisdiction by the Pr. C.I.T. u/s 263 of the Act:
The assessee challenged the jurisdiction of the Pr. C.I.T. to invoke revisional powers under Section 263 of the Income Tax Act. The Pr. C.I.T. had interfered with the assessment order dated 07.10.2016, claiming it was erroneous and prejudicial to the Revenue due to lack of enquiry into the short term capital loss on shares. The Pr. C.I.T. issued a show cause notice and, after hearing the assessee, set aside the AO's order, directing a fresh assessment. The appellant contended that the AO had conducted sufficient enquiry and that the assumption of jurisdiction under Section 263 was legally unfounded.

2. Whether the AO's order was erroneous and prejudicial to the interest of the Revenue due to lack of enquiry:
The Tribunal examined whether the AO's order was both erroneous and prejudicial to the Revenue. According to the judicial precedent set by the Supreme Court in Malabar Industries Ltd. vs. CIT, both conditions must be satisfied for the Pr. C.I.T. to exercise revisional powers under Section 263. The Tribunal noted that the AO had conducted specific enquiries regarding the short term capital loss through notices under Section 142(1) and had received detailed responses from the assessee. The AO had examined the appellant's transactions, bank statements, contract notes, and other relevant documents, and was satisfied with the explanations provided.

The Tribunal emphasized that the AO's role is both investigative and adjudicative. If the AO fails in either role, the order can be termed erroneous. However, in this case, the AO had made due enquiries, and the alleged lack of enquiry was not substantiated by the Pr. C.I.T. The Tribunal referred to the distinction between "lack of enquiry" and "inadequate enquiry," stating that inadequate enquiry does not make an order erroneous unless the Pr. C.I.T. conducts further enquiry and demonstrates that the AO's findings were factually or legally wrong.

The Tribunal also examined the CBDT Instruction No. 287/30/2014-IT(Inv II)Vol. III dated 16.03.2016, which the Pr. C.I.T. claimed the AO had not followed. The Tribunal found that the instruction did not outline specific guidelines for the AO's enquiry into suspicious transactions and that the AO had conducted the necessary enquiries as per the instruction.

The Tribunal concluded that the AO had applied his mind and conducted a reasonable and plausible enquiry into the short term capital loss. The Pr. C.I.T.'s action of setting aside the AO's order was deemed without jurisdiction, as the AO's order was not unsustainable in law.

Conclusion:
The Tribunal quashed the Pr. C.I.T.'s order under Section 263, holding that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The appeal of the assessee was allowed.