2022 (9) TMI 759 - AT - Income Tax

Revision u/s 263 by CIT - appellant had made a claim for bogus capital gains from the penny stock script - Assessment u/s 153A - contention of assessee that no incriminating material was found as result of search and seizure action - When can assessment order be termed as an erroneous ? - HELD THAT - During the course of hearing of appeal before us, AR could not demonstrate that no incriminating material was unearthed as result of search and seizure action relating to the transaction of purchase and sale of penny stock script of M/s. S.V. Electricals Ltd.. The contention that no incriminating material was found as result of search and seizure action is not based on any material or evidence. An assessment order passed after obtaining the approval with the Joint/ACIT is also an assessment order, which is very much amenable to the jurisdiction u/s 263 - It is not the case of the appellant that AO had examined the issue of exemption of capital gains from purchase and sale of penny stock script of M/s. S.V. Electricals Ltd. as to the genuineness of claim. It is settled position of law that when the AO was expected to make an enquiry of a particular item of income of the claim for allowance of expenditure and if he does not make any enquiry as expected that would have certainly ground to interfere the order of assessment in exercise the power of revision u/s 263 as such assessment order is erroneous and prejudicial to the interests of the Revenue. AO should have made enquiry into the genuineness of the claim of exemption of capital gains in respect of purchase and sale of penny stock script of M/s. S.V. Electricals Ltd. in the light of the information received by him from the Investigation Wing of the Department, even if the information is received subsequent to original assessment order. As evident from the statement recorded by the AO about the share transactions undertaken by the assessee. It is settled position of law that the failure on the part of the AO to enquire into the claim of exemption, render the assessment order erroneous and prejudicial to the interests of the Revenue. PCIT has rightly exercised the power of revision u/s 263 - Decided against assessee.

Issues involved:
1. Revisional jurisdiction u/s 263 of the Income Tax Act, 1961
2. Examination of claim for exemption of bogus capital gains
3. Assessment order passed after search and seizure action

Issue 1: Revisional jurisdiction u/s 263 of the Income Tax Act, 1961
The appellant challenged the validity of the revision order passed under section 263, arguing that the Principal Commissioner of Income Tax (PCIT) lacked jurisdiction to revise the assessment order. The appellant contended that the PCIT had no authority to exercise revisional power when the Assessing Officer had already examined the issue after obtaining approval from the Joint/Additional Commissioner of Income Tax. However, the PCIT found that the Assessing Officer had not examined the claim for exemption of bogus capital gains from the penny stock script of M/s. S.V. Electricals Ltd. The PCIT issued a show-cause notice and ultimately set aside the assessment order for fresh assessment. The appellant disputed this decision, asserting that no incriminating material was found during the search and seizure action related to the alleged share transaction. The PCIT rejected these contentions, leading to the appeal.

Issue 2: Examination of claim for exemption of bogus capital gains
The PCIT determined that the assessment order was erroneous and prejudicial to the revenue's interests due to the Assessing Officer's failure to investigate the claim for exemption of bogus capital gains from the penny stock script of M/s. S.V. Electricals Ltd. The appellant argued that since no incriminating material was discovered during the search and seizure action, the Assessing Officer had no jurisdiction to inquire into the genuineness of the transaction. However, the CIT-DR contended that a statement recorded from the appellant during the search and seizure proceedings revealed his involvement in the bogus claim for capital gains exemption. The failure of the Assessing Officer to examine this issue rendered the assessment order erroneous. The Tribunal upheld the PCIT's decision, emphasizing that the Assessing Officer should have investigated the genuineness of the claim for exemption of capital gains, especially in light of information received from the Investigation Wing of the Department.

Issue 3: Assessment order passed after search and seizure action
The Tribunal analyzed the facts of the case and legal precedents regarding the power of revision conferred on the Commissioner of Income Tax under section 263 of the Act. It was established that an assessment order can be revised if it is found to be erroneous and prejudicial to the revenue's interests. The Tribunal noted that the Assessing Officer's failure to inquire into the claim of exemption of capital gains from the purchase and sale of the penny stock script of M/s. S.V. Electricals Ltd. rendered the assessment order erroneous. The Tribunal upheld the PCIT's decision to set aside the assessment order for fresh assessment, concluding that the revisional jurisdiction was validly exercised. Consequently, the appellant's grounds of appeal were dismissed, and the appeal was rejected.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by the parties, and the Tribunal's decision based on legal principles and factual considerations.

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