2021 (4) TMI 1084 - AT - Income Tax

Revision u/s 263 by CIT - claim of assessee in respect of LTCG wherein no enquiry on the part of AO conducted - original assessment has scrutinised the assessment for AY 2014-15 since it was selected by the CASS especially for Suspicious Long Term Capital Gain on Shares (inputs from the Investigation Wing) - HELD THAT - We note that pursuant to CASS, the AO had taken note of this issue i.e. Suspicious Long Term Capital Gain on Shares (inputs from the Investigation Wing) LTCG and has called for the documents from the assessee to substantiate the genuineness of the transaction and pursuant to which the assessee had filed the documents which the AO in his assessment order has acknowledged to have verified from the share trader, which facts are evident from the perusal of the original scrutiny assessment order - So, the AO s action on the issue of accepting the claim of assessee in respect of LTCG which the Ld Pr CIT would like to rake up by passing the impugned order has already undergone enquiry by the AO; meaning the AO s action in the first round cannot be termed as a case of no enquiry on the issue of LTCG. Resultantly, the Ld. Pr. CIT cannot brand the action of AO to accept the claim of assessee in respect of LTCG as a case of no enquiry on the part of AO to term it as an erroneous order; and which finding could have facilitated him to usurp/interfere by exercising his revisional jurisdiction u/s. 263. We should bear in mind that in case if he wanted to interfere in the present case (since AO had enquired) then he (Ld. Pr. CIT) himself ought to have conducted enquiry to bring out the fallacy as to show how the enquiry conducted by the AO was erroneous. And for that the Ld. Pr. CIT while conducting enquiry is supposed to confront the assessee during the revisional proceedings with the materials which he is going to use against it and after eliciting the reply of the assessee then only could have passed the impugned order directing the AO to make the addition on LTCG. Failure to do so vitiates the impugned order directing addition of LTCG As revenue could not point out any difference in the law and facts in respect of the facts of this present case in hand as well as in the case of Ritin Lakhmani Ors 2020 (11) TMI 768 - ITAT KOLKATA then, we are bound by the judicial discipline to follow the decision of the coordinate bench of this Tribunal in the case of Ritin (supra) wherein hold that the order passed u/s 263 of the Act is bad in law. Decided in favour of assessee.

Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Legality of the Principal Commissioner of Income Tax (Pr. CIT)'s order based on a proposal from the Assessing Officer (AO).
3. Whether the AO had conducted adequate enquiry regarding the Long Term Capital Gain (LTCG) on shares.
4. Whether the Pr. CIT's order violated principles of natural justice.
5. The relevance of the Tribunal's decision in similar cases.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 263:
The assessee challenged the Pr. CIT's assumption of jurisdiction under Section 263 of the Income-tax Act, 1961, arguing that it was based on a proposal from the AO, which is not permissible. The Tribunal noted that Section 263 allows the Pr. CIT to revise an order if it is erroneous and prejudicial to the interests of revenue. However, the power must be exercised by the Pr. CIT independently and not based on a proposal from the AO.

2. Legality of the Pr. CIT's Order Based on AO's Proposal:
The Tribunal emphasized that the Pr. CIT must independently examine the records and cannot initiate proceedings under Section 263 based merely on a proposal from the AO. The Tribunal cited previous decisions, including the West Bengal National University of Juridical Science vs. CIT, which held that the AO cannot trigger the Pr. CIT's revisional jurisdiction. The Tribunal found that the Pr. CIT's order was based on the AO's proposal, making it legally untenable.

3. Adequacy of AO's Enquiry on LTCG:
The Tribunal examined whether the AO had conducted adequate enquiry regarding the LTCG on shares. The AO had scrutinized the assessment, issued notices under Section 133(6) to verify transactions, and received confirmations from third parties. The Tribunal found that the AO had indeed conducted a thorough enquiry, and thus, the Pr. CIT's claim of "no enquiry" was unfounded.

4. Violation of Principles of Natural Justice:
The Tribunal noted that the Pr. CIT's order was passed without confronting the assessee with the materials used against it, violating the principles of natural justice. The Pr. CIT should have conducted an independent enquiry and provided the assessee an opportunity to respond to any adverse material.

5. Relevance of Tribunal's Decision in Similar Cases:
The Tribunal referred to its decision in the case of Ritin Lakhmani & Ors vs. PCIT, where similar issues were involved. In that case, the Tribunal had quashed the Pr. CIT's order under Section 263, finding it to be a "cut and paste" exercise without independent application of mind. The Tribunal found the present case to be identical and followed the decision in Ritin Lakhmani, thereby quashing the Pr. CIT's order.

Conclusion:
The Tribunal concluded that the Pr. CIT's order under Section 263 was bad in law for lack of jurisdiction and on merits. The AO had conducted adequate enquiry, and the Pr. CIT's order was based on general allegations without specific adverse material against the assessee. The Tribunal quashed the Pr. CIT's order and allowed the assessee's appeal.

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