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2023 (6) TMI 760 - AT - Income TaxRevision u/s 263 - Validity of reopening of assessment - HELD THAT - As order seeking to be revised i.e the re-assessment itself is bad in law and is liable to be quashed due to various legal infirmities then any subsequent proceedings on the said illegal base order also would get automatically quashed. Hence the revision order u/s 263 of the Act deserves to be quashed on this count also. Penny stock purchases - Even on merits of revision order passed by the ld. PCIT only says that M/s Aditi Finance Pvt Ltd is a penny stock and that SOP guidelines issued by CBDT had not been followed by the ld. AO while framing the reassessment. In this regard it is pertinent to note that penny stock SOP guidelines have been issued by CBDT only in respect of listed scrips. In the instant case Aditi Finance Pvt Ltd scrip is not listed in any stock exchange. We hold that the SOP guidelines issued by CBDT cannot be made applicable for unlisted scrips. Hence the ld. PCIT had assumed revision jurisdiction on incorrect assumption of fact and incorrect application of CBDT guidelines. Hence the revision order passed u/s 263 of the Act is to be quashed on this count also. Revision order passed by the PCIT u/s 263 of the Act deserves to be quashed both on law and also on merits - Decided in favour of assessee.
Issues Involved:
1. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking revisional jurisdiction under section 263 of the Income Tax Act (the Act). 2. Validity of the reassessment proceedings under section 147 of the Act. 3. Compliance with Standard Operating Procedures (SOP) guidelines issued by the Central Board of Direct Taxes (CBDT) in dealing with penny stock cases. 4. Application of Explanation 2 to section 263 of the Act. Issue-wise Detailed Analysis: 1. Justification of Revisional Jurisdiction under Section 263: - The primary issue was whether the PCIT was justified in invoking revisional jurisdiction under section 263 of the Act. The Tribunal examined whether the PCIT had validly assumed revision jurisdiction both on law and on merits. - The assessment was originally completed under section 143(3) of the Act and later reopened under section 147. The reasons for reopening were based on the suspicion that the assessee received funds from Anunay Sales Pvt Ltd, which were not disclosed in the return of income. - During reassessment, the assessee provided detailed explanations and evidence, including bank statements and sale bills, proving the transactions were genuine. The Assessing Officer (AO) accepted these explanations and did not make any additions. - The PCIT issued a show cause notice under section 263, stating that the AO did not comply with SOP guidelines for penny stock cases and that the reassessment order was erroneous and prejudicial to the interests of the revenue. - The Tribunal found that the AO had conducted a thorough enquiry during reassessment and accepted the transactions as genuine. Hence, it was not a case of "lack of enquiry." The Tribunal held that a plausible view taken by the AO cannot be the subject matter of revision under section 263. - The Tribunal also noted that the PCIT did not invoke Explanation 2 to section 263 in the show cause notice, making its application in the revision order unsustainable. 2. Validity of Reassessment Proceedings under Section 147: - The Tribunal addressed the validity of the reassessment proceedings initiated by the AO. It was found that the reasons recorded for reopening were based on "reason to suspect" rather than "reason to believe," which is insufficient for reopening an assessment. - The Tribunal cited the case of PCIT vs Shodiman Investments (P) Ltd, where it was held that reopening based on suspicion without a live link between the material and the belief of income escapement is invalid. - The Tribunal also noted that the approval for reopening under section 151 of the Act was granted mechanically without due application of mind, as evidenced by incorrect responses in the approval proforma. 3. Compliance with SOP Guidelines for Penny Stock Cases: - The PCIT's revision order mentioned non-compliance with SOP guidelines for penny stock cases. However, the Tribunal clarified that these guidelines apply only to listed scrips, whereas Aditi & Finance Pvt Ltd was an unlisted scrip. - Therefore, the PCIT's assumption of revision jurisdiction based on incorrect application of SOP guidelines was found to be erroneous. 4. Application of Explanation 2 to Section 263: - The Tribunal highlighted that Explanation 2 to section 263 was not invoked in the show cause notice. Relying on the Gujarat High Court's decision in PCIT vs Shreeji Prints (P) Ltd, it was held that invoking Explanation 2 without prior notice and opportunity to the assessee is unsustainable. Conclusion: - The Tribunal concluded that the reassessment order dated 20.11.2018 was invalid due to various legal infirmities, including incorrect assumption of facts and mechanical approval for reopening. - Consequently, the revision order under section 263 of the Act, based on the invalid reassessment order, was also quashed. - The Tribunal allowed the appeal of the assessee, holding that the revision order passed by the PCIT was unsustainable both on law and on merits. Order Pronounced: - The appeal of the assessee was allowed, and the order was pronounced on 21/02/2023 by way of proper mentioning in the notice board.
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