2023 (6) TMI 836 - AT - Income Tax

Revision u/s 263 - Bogus LTCG - CIT alleges failure of AO to investigate/verify details filed in respect of suspicious transactions on shares rendering the assessment so made to be erroneous in so far as it is prejudicial to the interest of the revenue - HELD THAT - One cannot possibly say that the Assessing Officer had sleepwalked on the issues involved. Noticeably, the Pr.CIT himself has not entered into any minimal inquiry on the issues himself, if so considered expedient and there is not even prima facie demonstration of fallacy in the action of the AO which rendered the order erroneous and which also simultaneously caused prejudice to the revenue. Merely because the expectations of the Revisional Commissioner are purportedly not met, it should not, in our opinion, necessarily trigger revisional action u/s 263 of the Act in every case. Allegations in the revisional order are not justified and there is no systematic effort on the part of the Pr.CIT to support the allegations. A reference made on behalf of the Revenue in the case of Sudha Eashwar 2020 (1) TMI 771 - ITAT CHENNAI is governed by its own set of facts. The applicability of Section 263 was not the subject matter of controversy therein. The shares were transacted through the intermediaries / Stock Brokers duly registered with the SEBI. The Pr.CIT has given undue considerations to the so called abnormal increase in the price by wrongly invoking the principles of preponderance of probabilities. It is trite that the degree or standard of proof required to establish a fact cannot be defined precisely. The drastic increase or decrease in the price of large number of shares in a given year is an ordinary phenomenon in the stock market where price discovery happens depending on host of uncertain factors both internal and external. SEBI is the watchdog for any manipulative actions in the stock market. The assessee has entered into meager transactions of sale of mere 15000 shares held by it and no adverse SEBI report is available implicating the assessee for any concerted or manipulative action which may give rise to any kind of suspicion of any fictions gains. The order of co-ordinate Bench does not tend to remove the fetters placed on the scope of Section 263 under consideration in the present case. Some inadequacy will not render each and every order erroneous on the touchstone of Section 263 where the extent of inquiry has been questioned by the Revisional Commissioner. The issue requires to be looked in the context and setting of facts in each case. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Pr.CIT was justified in invoking Section 263 of the Income Tax Act, 1961.
2. Adequacy of inquiry by the Assessing Officer (AO) regarding Long Term Capital Gains (LTCG) on shares.
3. Examination of introduction of capital and receipt of gift by the assessee.

Summary:

1. Justification of invoking Section 263:
The Pr.CIT invoked Section 263, deeming the AO's order dated 14.03.2016 for AY 2014-15 as "erroneous in so far as prejudicial to the interest of the revenue." The assessee challenged this revisional order, arguing that the AO had conducted adequate inquiries and that the Pr.CIT's action was based on generic observations without substantive error.

2. Adequacy of Inquiry by AO regarding LTCG:
The Pr.CIT alleged that the AO failed to properly investigate suspicious transactions related to LTCG on shares. The assessee contended that all necessary documents, including proof of acquisition, share certificates, dematerialization request forms, and contract notes, were provided to the AO. The AO, after considering these documents, found no reason for further inquiry. The Tribunal noted that the AO's conclusion was plausible and that the Pr.CIT's dissatisfaction with the extent of the inquiry did not justify invoking Section 263.

3. Examination of Introduction of Capital and Receipt of Gift:
The Pr.CIT did not initially question the introduction of capital and receipt of a gift in the show cause notice. The assessee argued that the introduction of capital primarily comprised LTCG and that the gift from the brother was exempt under Section 56(2). The Tribunal observed that the AO had raised specific queries and received satisfactory responses, thus fulfilling the inquiry requirements. The Pr.CIT's lack of further inquiry into these issues did not warrant revisional action.

Conclusion:
The Tribunal found no perceptible error in the AO's actions and concluded that the Pr.CIT's revisional order lacked a systematic effort to support the allegations. The Tribunal set aside the Pr.CIT's order under Section 263 and restored the AO's original assessment order. The appeal of the assessee was allowed.