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2022 (6) TMI 17 - AT - Income TaxRevision u/s 263 by CIT - treatment to gains arising from sale of impugned penny stock - transactions in penny stocks and taxability of the sale consideration under Section 68 of the Act r.w. Section 115BBE - HELD THAT - As we note that educational background of the assessee gives an impression that the assessee is well versed with the functioning of the stock market and has reasonable experience in the field. Hence, the action of assessee to treat the gains arising from sale of impugned penny stock as business income appears to be unquestionable. Noticeably, the assessee has not availed any benefit under Section 10(38) of the Act thus, facially, no prejudice appears to have caused to the Revenue. CIT has attempted to realign the nature of income from business income to capital gain without giving any reasonable basis for doing so in the revisional order. The whole objective of revisional proceedings appears to be to tax the income arising on sale of impugned shares on higher rate, i.e., 60% under Section 115BBE of the Act. Paradoxically, while on one hand the Pr.CIT seeks inquiry and verification in respect of transactions in penny stock whereas, on the other hand, the Pr.CIT has given a conclusive direction to the Assessing Officer to treat the complete sale transactions to be brought to tax under Section 68 of the Act and imposition of tax thereon at higher rate under Section 115BBE of the Act. In our mind, such approach of the Pr.CIT effectively nullifies the direction of the Assessing Officer to make proper inquiry. Once a finding of conclusive nature is given, the outcome of enquiry losses its relevance. Such action of the Pr.CIT cannot be countenanced in law. AO offered the income arising on purchase and sale of shares as business income and duly accepted by the Assessing Officer, the realignment of income proposed in a revisional proceeding is not backed by any cogent basis and is in the realm of surmises. The assessee has paid taxes at the normal rate on such income, and therefore, no prejudice can be attributed to the interest of the Revenue merely because the higher rate of tax can be charged under Section 115BBE. The judgment of Hon ble Delhi High Court in Krishna Devi Ors. 2021 (1) TMI 1008 - DELHI HIGH COURT casts doubt on such treatment arising from sale of shares. Under such circumstances, startling spike, cannot be the reason, in itself, to invoke jurisdiction under Section 263 of the Act particularly, where the gains arising from sale of shares are not covered by tax concession under Section 10(38) of the Act. The operation of Section 263 is a non starter in the absence of any prejudice show to have caused to revenue. The decision referred to on behalf of the Revenue in case of Pooja Gupta 2019 (1) TMI 1630 - ITAT DELHI is in the context of different factual matrix, i.e., the assessee therein claimed exemption from tax liability under Section 10(38) of the Act causing prejudice to the revenue. Revisional order of the Pr.CIT is set aside and quashed. - Appeal of assessee allowed.
Issues Involved:
1. Jurisdiction assumed by the Pr.CIT under Section 263 of the Income Tax Act. 2. Validity of the revisional order passed by Pr.CIT. 3. Proper inquiry and verification of share transactions by the Assessing Officer. 4. Classification and taxability of income from share transactions. Issue-wise Detailed Analysis: 1. Jurisdiction Assumed by the Pr.CIT under Section 263 of the Income Tax Act: The assessee challenged the jurisdiction of the Pr.CIT under Section 263 of the Act. The Pr.CIT issued a show cause notice alleging that the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue due to lack of proper inquiry into the sale and purchase of shares, specifically the trading of 4000 shares of M/s. Channel Nine Entertainment Ltd. The Pr.CIT directed a de novo assessment to be conducted by the Assessing Officer. 2. Validity of the Revisional Order Passed by Pr.CIT: The revisional order was challenged on the grounds that the Assessing Officer had conducted necessary inquiries and verifications, and the income from the sale of shares was declared as business income by the assessee. The Tribunal noted that the assessee had provided necessary documentation and evidence regarding the transactions, and the Assessing Officer had accepted the explanation provided by the assessee. The Tribunal found that the Pr.CIT's attempt to reclassify the income from business income to unexplained cash credit under Section 68 was not justified. 3. Proper Inquiry and Verification of Share Transactions by the Assessing Officer: The Pr.CIT contended that the Assessing Officer had not made proper inquiries into the transactions involving penny stocks and the abnormal increase in share prices. However, the Tribunal observed that the Assessing Officer had issued a detailed show cause notice and had received and considered the assessee's responses and documentation. The Tribunal concluded that the Assessing Officer had conducted appropriate inquiries and verifications. 4. Classification and Taxability of Income from Share Transactions: The assessee had declared the profit from the sale of shares as business income and paid taxes accordingly. The Pr.CIT sought to reclassify the income as unexplained cash credit under Section 68 and impose a higher tax rate under Section 115BBE. The Tribunal noted that the assessee's educational background and experience in stock trading supported the classification of the income as business income. Additionally, the Tribunal referenced the Delhi High Court judgment in PCIT vs. Smt. Krishna Devi & Ors, which stated that a quantum leap in share prices without adverse evidence does not justify reclassification under Section 68. The Tribunal found no prejudice to the Revenue as the income was already taxed at normal rates and not exempt under Section 10(38). Conclusion: The Tribunal set aside and quashed the revisional order of the Pr.CIT, concluding that the Assessing Officer had conducted due inquiries, and the reclassification of income proposed by the Pr.CIT was not backed by any cogent basis. The appeals of the assessee were allowed, and the Tribunal emphasized that the jurisdiction under Section 263 could not be invoked without showing actual prejudice to the Revenue.
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