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2020 (11) TMI 768 - AT - Income TaxRevision u/s 263 - bogus LTCG - AO should have treated the LTCG earned by the assessees as bogus credit and should have added back the entire credit u/s 68 - HELD THAT - Pr. CIT has simply cut and pasted para 5 to para 5.12.3 and also para 6 from the orders he had passed u/s 263 of the Act from the order of the Pr. CIT passed u/s 263 of the Act in the case of M/s. Girish Tikmani Others. Only in para 7, the quantum of addition, or the figures of addition have varied from case to case. This shows that the same general observations and reasons have been given by the ld. Pr. CIT in all cases where he took action u/s 263 in cases where there was a claim of deduction u/s 10(38) of the Act on LTCG and where the claim was accepted by the AO. Based on this cut and paste reasoning, the ld. Pr. CIT has directed the AO to make additions u/s 68 of the entire sale consideration received by each of the assessees on the sale of shares, as well as addition u/s 69C of the Act, of an assumed commission payment u/s 69C - No evidence is brought on record except for stating generalities. SIT recommendations were cited, but these do not have any reference to these assessees. This, in our view cannot be a ground for the Pr. CIT to give specific directions to the AO to make certain additions. The assessee is not confronted by any adverse material. No reference has been made to any specific adverse material. When the assessee is not confronted with any material no amount can be directed to be added by the ld. Pr. CIT, on the basis of suspicion, or material in the public domain on the general modus operandi adopted in such cases. It is necessary for the ld. Pr. CIT to have conducted his own enquiries, collected adverse material and confronted the assessee with such adverse material, consider the replied and only after following the principles of natural justice, he could have directed the additions in question against the assessee. Additions cannot be made based on general reasoning or some supposed material in the public domain which was never brought on record. Such direction is arbitrary and has to be struck down as bad in law. AO in this case has called for details and thereafter made enquiries with the parties by issuing notices u/s 133(6) of the Act. Only on receiving replies from third parties, the AO came to a conclusion that he could not find any discrepancy in the claim of the assessee for exemption u/s 10(38) of the Act. The Pr. CIT has not pointed out as to what was the deficiency in these enquiries of the AO and as to what are the further enquiries the AO should have done. AO had taken a possible view, after making his enquiries and admittedly this view is supported by some judicial decisions. Pr. CIT has not specified as to what was the nature of enquiry that the AO has failed to do, nor he has stated the extent of enquiry that was required to be done in such cases - Case followed - M/s. Gitsh Tikmani, HUF and Others 2019 (9) TMI 1177 - ITAT KOLKATA - Decided in favour of assessee.
Issues Involved:
1. Validity of the initiation of proceedings under Section 263 of the Income Tax Act, 1961. 2. Merits of the Principal Commissioner of Income Tax’s (Pr. CIT) order under Section 263. 3. Adequacy of the Assessing Officer’s (AO) inquiries during the assessment proceedings. 4. Specificity and sufficiency of the Pr. CIT’s directions for additions under Sections 68 and 69C of the Income Tax Act. Issue-wise Detailed Analysis: 1. Validity of the initiation of proceedings under Section 263: The first issue pertains to whether the Pr. CIT invoked his powers under Section 263 at the instance of the AO. The judgment highlights that the Pr. CIT initiated proceedings based on a proposal from the AO, which is evident from paragraphs 2 and 3 of the Pr. CIT’s order. The Tribunal observed that the Pr. CIT did not independently examine the records but acted on the AO’s proposal. This action contravenes the principle that the Pr. CIT must independently examine the records before invoking Section 263. The Tribunal cited previous judgments, including M/s. Rupayan Udyog vs. Pr. CIT and The West Bengal National University of Juridical Science vs. CIT, to support the view that initiation of Section 263 proceedings based on the AO’s proposal is invalid. Consequently, the Tribunal held that the order passed under Section 263 is vitiated. 2. Merits of the Pr. CIT’s order under Section 263: The second issue concerns the merits of the Pr. CIT’s order. The Tribunal noted that the Pr. CIT’s order was largely a “cut and paste” job from previous orders, lacking specific adverse material against the assessees. The Pr. CIT’s general observations and references to the modus operandi of certain syndicates involved in providing bogus LTCG entries were not substantiated with specific evidence against the assessees. The Tribunal emphasized that additions cannot be made based on suspicion or general statements without confronting the assessees with specific adverse material and following the principles of natural justice. The Tribunal found that the Pr. CIT’s directions for additions under Sections 68 and 69C were arbitrary and not supported by specific evidence. 3. Adequacy of the AO’s inquiries during the assessment proceedings: The third issue addresses whether the AO conducted adequate inquiries during the assessment proceedings. The Tribunal observed that the AO had issued notices under Section 133(6) to third parties and received confirmations, which led the AO to accept the assessees’ claims for exemption under Section 10(38). The Pr. CIT did not specify what further inquiries the AO should have conducted. The Tribunal reiterated that an assessment cannot be deemed erroneous if the AO has taken a possible view supported by judicial decisions, even if the Pr. CIT disagrees with that view. The Tribunal concluded that the AO had conducted sufficient inquiries, and the Pr. CIT’s order failed to demonstrate any specific deficiencies in the AO’s actions. 4. Specificity and sufficiency of the Pr. CIT’s directions for additions: The fourth issue involves the specificity and sufficiency of the Pr. CIT’s directions for additions under Sections 68 and 69C. The Tribunal found that the Pr. CIT’s directions were based on generalities and lacked specific adverse material against the assessees. The Pr. CIT’s reliance on SIT recommendations and general observations about the modus operandi of certain syndicates did not provide a concrete basis for directing additions. The Tribunal emphasized that the Pr. CIT must conduct his own inquiries, collect adverse material, and confront the assessees with such material before directing additions. The Tribunal held that the Pr. CIT’s directions were arbitrary and not in accordance with the law. Conclusion: The Tribunal quashed the Pr. CIT’s orders under Section 263 in all the cases, holding that the initiation of proceedings was invalid, the Pr. CIT’s directions were arbitrary and unsupported by specific evidence, and the AO had conducted adequate inquiries. The assessees’ appeals were allowed.
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