2022 (9) TMI 358 - HC - Income Tax

Revision u/s 263 by CIT - Addition u/s 68 - Bogus LTCG - HELD THAT - We find that the Tribunal has recorded that it is true that some persons were engaged in jacking up the price of certain shares like M/s. KPL and made claim of LTCG on loss depending on the necessity of beneficiary. Having said so, the Tribunal observes that one cannot assume that everyone who claims LTCG on sale of shares of M/s. KPL has been participant in this conspiracy to make windfall gain/loss. Identical was the argument in the batch of cases which we had decided, referred above, where the entire modus operandi has been elaborately discussed.Therefore, we find that the Tribunal ought not to have interfered with the exercise of jurisdiction by the Commissioner under Section 263 of the Act. Revenue appeal allowed.

Issues Involved:
1. Appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
2. Substantial questions of law raised by the revenue regarding the correctness of the Tribunal's order under Section 263 of the Income Tax Act, 1961 for the assessment year 2015-2016.

Analysis:
1. The first issue in this case revolves around the correctness of the Income Tax Appellate Tribunal's order under Section 263 of the Income Tax Act, 1961. The revenue contended that the Tribunal erred in law and fact by relying on the wrong case law of the Apex Court and quashing the order under Section 263. The High Court emphasized that the Commissioner's power under Section 263 must be based on a proper inquiry by the assessing officer, and the Tribunal should not overlook the circumstances leading to the revision. The Court highlighted that the investigating officer's failure to conduct a thorough inquiry into the genuineness of claims for Long Term Capital Gains (LTCG) or Short Term Capital Loss (STCL) justified the Commissioner's intervention.

2. The second issue raised concerns the Tribunal's decision to quash the order under Section 263 without considering the conditions necessary for invoking the revisional jurisdiction. The High Court reiterated that the Commissioner's show cause notice should outline why the assessing officer's inquiry was inadequate or improper. The Court emphasized the importance of a reasoned order by the Commissioner, especially in cases involving complex transactions or suspected manipulative practices by stockbrokers. The High Court concluded that the Tribunal's failure to delve deep into the core issues and surrounding circumstances rendered its decision perfunctory and perverse, leading to the restoration of the Commissioner's order.

3. Another significant issue in this judgment is the Tribunal's observation regarding the manipulation of share prices and the claim of LTCG on loss depending on the beneficiary's needs. The High Court pointed out that the Tribunal's assumption that not all individuals claiming LTCG were participants in the price manipulation scheme was flawed. The Court referred to previous decisions where the modus operandi of such schemes was extensively discussed, emphasizing the need for a thorough examination of the circumstances. Ultimately, the High Court held that the Tribunal should not have interfered with the Commissioner's exercise of jurisdiction under Section 263, leading to the restoration of the Commissioner's order and a decision in favor of the revenue.

In conclusion, the High Court's detailed analysis of the issues raised by the revenue in this appeal underscores the importance of a thorough inquiry by assessing officers, reasoned orders by the Commissioner, and a comprehensive examination of surrounding circumstances in cases involving suspected manipulative practices or complex transactions. The judgment serves as a reminder of the substantive requirements for invoking revisional jurisdiction under the Income Tax Act, 1961 and highlights the significance of factual assessments and proper justifications for decisions in such matters.

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