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2022 (11) TMI 1136 - AT - Income TaxRevision u/s 263 - penny stock transactions - short term capital loss alleging the same to be from purchase and sale of following six penny stock companies - as per CIT AO has not carried out any examination nor has conducted any enquiry relevant to the said transactions giving rise to the short term capital loss - AO examined the transactions or not? - HELD THAT - Assessee s case was selected for scrutiny for three reasons of which one was Suspicious sale transaction in shares and exempt long terms capital gains shown in return (penny stock tab in ITS) . Now referring to the notice issued 142(1) placed it is noticed that certain details were called for to which the assessee filed replies. Except for the reply given on 03/03/2017, wherein it is stated by the assessee that complete details of short term capital loss of shares scrip-wise as well as mutual fund and date-wise have been filed in the record and the assessee company has no dealing in any shares in short term capital gain or long term capital gain which are suspicious. Apart from this, there is no other detail filed by the assessee company. Also there is no enquiry specifically raised by the assessee company about the alleged penny stock companies nor there is any discussion in the body of the assessment order. One of the reasons for selection of scrutiny was suspicious transaction of dealing in penny stock companies by the assessee. Various details are available on the income tax portal for the assistance of the Assessing Officer for examining the dubious and sham transactions. Neither any effort seems to have been made by the Assessing Officer to call for the relevant details of all these so called penny stock company which have been dealt in by the assessee company nor any financial details of these companies have been called for nor has any discussion been made. Had there been any information called for by the Assessing Officer in the note sheet, the same would have been made available on record and in the absence of the same, it is presumed that no enquiry was conducted by the AO on this issue. If the assessee s case is selected for scrutiny for specific reasons, then the Assessing Officer has to put in extra efforts and make deeper enquiry on such reasons and merely taking submission by the assessee will not serve the purpose AO miserably failed to carry out any enquiry specifically referring to the transactions of short term capital loss from sale of equity shares of alleged penny stock companies referred above and to this extent, we fail to find any merit in the contention of assessee. No prejudice caused to the revenue, even if the short term capital loss is added back to the income of the assessee - No merit for the reason that carrying out the enquiry with relation to the transactions of short term capital loss will not end up only with regard to the said claim of AO during the course of examination of the sale consideration, purchases and sale, the parties who have sold such shares to the assessee may come across many other information which may be directly related to the assessee or may provide some credible information which the revenue authorities may use in case of other assessee s which can further help in collecting tax from other assessee s also. In our humble understanding, if the case is selected for scrutiny for specific reasons, then while framing the assessment order, AO needs to discuss those particular reasons and should summarize the details called with regard to the issue, the information provided by the assessee and its final finding as to whether any addition is required to be made or not. In the instant case, there were three specific reasons for which the scrutiny was carried out but there is not a whisper by the AO in the assessment order about any of the issues even the one relating to suspicious transactions in penny stock companies. We find merit in the order of the ld. Pr. CIT passed u/s 263 of the Act and dismiss all the grounds raised in this appeal of the assessee.
Issues Involved:
1. Initiation of proceedings under Section 263 of the Income Tax Act, 1961. 2. Examination of short-term capital loss from the sale of shares. 3. Legality of the Principal Commissioner of Income Tax's (Pr. CIT) order under Section 263. 4. Prejudice to the interest of revenue. Detailed Analysis: 1. Initiation of Proceedings under Section 263 of the Income Tax Act, 1961: The appeal was directed against the order of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961, for the Assessment Year 2015-16. The assessee contended that the Pr. CIT erred in initiating proceedings under Section 263 as there was no erroneous order or order prejudicial to the interest of revenue. The facts were duly considered during the assessment made under Section 143(3) of the Act. 2. Examination of Short-Term Capital Loss from the Sale of Shares: The Pr. CIT found that the issue of short-term capital loss of Rs.1,09,87,537/- from the sale of equity shares of six penny stock companies was not examined by the Assessing Officer (AO). The Pr. CIT issued a notice under Section 263, highlighting that the AO should have disallowed the loss as bogus and added back the sale proceeds of penny stocks under Section 68 of the Act. The Pr. CIT relied on investigations by the Directorate of Investigation, which identified a syndicate involved in providing bogus entries of Long-Term Capital Gains (LTCG)/Short-Term Capital Loss (STCL) through manipulation of penny stock prices. 3. Legality of the Principal Commissioner of Income Tax's (Pr. CIT) Order under Section 263: The Pr. CIT held that the AO's order was erroneous and prejudicial to the interest of revenue. The Pr. CIT relied on judgments from the Hon'ble Supreme Court and ITAT Delhi Bench, emphasizing the need for the AO to disallow the bogus loss and add back the sale proceeds of penny stocks under Section 68. The assessee argued that necessary details were filed, and there was no tax impact due to these transactions as the tax liability under Minimum Alternate Tax (MAT) was higher than the normal computation of total income. 4. Prejudice to the Interest of Revenue: The Tribunal observed that the AO failed to conduct any specific enquiry regarding the transactions of short-term capital loss from the sale of penny stock companies. The Tribunal emphasized that if a case is selected for scrutiny for specific reasons, the AO must conduct a deeper enquiry and discuss the findings in the assessment order. The Tribunal found merit in the Pr. CIT's order, stating that the AO's failure to examine the transactions rendered the assessment order erroneous and prejudicial to the interest of revenue. Conclusion: The Tribunal dismissed the assessee's appeal, upholding the Pr. CIT's order under Section 263. The Tribunal concluded that the AO's failure to conduct a proper enquiry into the short-term capital loss transactions warranted the revisionary proceedings initiated by the Pr. CIT. The appeal was dismissed, and the order pronounced on 23rd November 2022 in Kolkata.
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