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2023 (12) TMI 267 - AT - Income TaxRevision u/s 263 - as per CIT AO has not verified transaction of sale / purchase of shares offered to tax as Income from Capital Gain, disallowance of expenditure relatable to exempt income u/s. 14A of the Act r.w.r.8D of the Income Tax Rules, 1962 and deduction claimed u/s. 35D of the Act, towards preliminary expenses - HELD THAT - Disallowance u/s. 14A of the Act r.w.r.8D of the Income Tax Rules, 1962, and deduction u/s. 35D of the Act, the Ld.Counsel for the assessee fairly agreed that the order passed by the Ld.CIT u/s. 263 of the Act, survives on these two issues and thus, we are inclined to uphold the findings of the Ld.CIT on the issue of disallowance u/s. 14A of the Act, and deduction u/s. 35D of the Act. Correct head of income - assessment of profit derived from purchase sale of shares, the assessee has declared profit under the head short term capital gains - CIT was of the opinion that profit derived from sale of shares is assessable under the head profits gains of business and profession - It is very clear that the assessee was maintaining two portfolios i.e. one for investment and another for trading and there was a clear demarcation in the books of accounts of the assessee in respect of both segments. Therefore, we are of the considered view that the assessee has rightly declared profit derived from purchase sale of shares under the head short term capital gains . But, it is only the Ld.CIT wrongly invoked his jurisdiction u/s. 263 of the Act, without pointing how why assessment order passed by the AO on the issue of profit derived from purchase sale of shares is incorrect and erroneous in so far as it is prejudicial to the interest of the Revenue. This, position is clarified by the CBDT in their Circular No.4/2007 dated 15.06.2007, where, various parameters have been prescribed for verification of share transactions and none of parameters prescribed by the Board is adversely affecting the transactions of the assessee. Board has very clearly stated that the tax payers can have two portfolios i.e. one for investment and another for trading, but there should be clearly demarcation in the books of accounts in respect of both portfolios. In this case, the assessee has filed all evidences to prove that it was having two portfolios and maintaining separate records for investment portfolios and trading portfolio. Therefore, we are of the considered view that the assessee has rightly declared short term capital gains towards profit derived from purchase sale of shares, and thus, the assumption of jurisdiction by the Ld.CIT fails on this issue. Order of the Ld.CIT u/s. 263 of the Act, is valid, in case, there is no enquiry at all. In this case, as we have already stated that it is not a case of lack of enquiry. Therefore, case law relied upon by the Ld.DR does not apply to the facts of the present case.we are of the considered view that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. CIT without appreciating the facts simply invoked his jurisdiction and set aside the assessment order passed by the AO u/s. 143(3) of the Act .
Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961. 2. Verification of transactions of sale/purchase of shares offered to tax as Income from Capital Gain. 3. Disallowance of deduction claimed under Section 35D of the Income Tax Act, 1961. 4. Condonation of delay in filing the appeal. Summary: Condonation of Delay: The Tribunal addressed the delay of 1526 days in filing the appeal, attributing it to incorrect professional advice from the assessee's CA, Mr. K.V. Srinivasan, who advised against filing an appeal against the order passed under Section 263. The Tribunal found the reasons for the delay to be bona fide and genuine, supported by affidavits from the CA and the Director of the assessee's company. Citing precedents, the Tribunal condoned the delay, emphasizing that no appeal should be dismissed on technical grounds if there is a genuine reason for the delay. Assumption of Jurisdiction under Section 263: The Commissioner of Income Tax (CIT) invoked Section 263, asserting that the assessment order was erroneous and prejudicial to the interest of the Revenue. The CIT identified issues regarding the assessment of short-term capital gains from the sale of shares, disallowance under Section 14A, and deduction under Section 35D. The Tribunal, however, found that the Assessing Officer (AO) had conducted adequate enquiries and verified the necessary details during the assessment process. It was concluded that the CIT's assumption of jurisdiction was incorrect as the case involved inadequate enquiry rather than a lack of enquiry. Verification of Transactions of Sale/Purchase of Shares: The CIT argued that the AO failed to verify the short-term capital gains declared by the assessee from the sale of shares. However, the Tribunal noted that the AO had indeed verified the transactions during the scrutiny assessment, and the assessee had provided all necessary details. The Tribunal held that the CIT erred in assuming jurisdiction under Section 263 on this issue as the AO had made adequate enquiries. Disallowance of Deduction under Section 35D: The CIT directed the AO to disallow the deduction of Rs. 2,20,000 claimed under Section 35D, arguing that the deduction was not allowable as it was the sixth year of business. The Tribunal upheld the CIT's direction on this issue, agreeing that the deduction was not permissible under the provisions of Section 35D. Disallowance under Section 14A: The CIT contended that the AO had not properly computed the disallowance under Section 14A read with Rule 8D. The Tribunal upheld the CIT's direction to the AO to verify and correctly compute the disallowance as per the provisions of the Act. Conclusion: The Tribunal quashed the CIT's order under Section 263 regarding the assessment of short-term capital gains but upheld the CIT's directions on the issues of disallowance under Section 14A and deduction under Section 35D. Consequently, the appeal against the consequential assessment order was dismissed as infructuous. The Tribunal allowed the appeal in ITA No.2298/Chny/2018 and dismissed the appeals in ITA Nos.1852/Chny/2018 and ITA No.2803/Chny/2019 as infructuous.
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