2023 (8) TMI 1502 - AT - Income Tax

Revision u/s 263 - Bogus LTCG - AO has failed to take any logical action on the issue of long term capital gain on sale of shares and accordingly assessment framed was held to be erroneous insofar as prejudicial to the interest of the revenue - HELD THAT - Indisputably the assessee has purchased and sold equity shares which were held to penny stock. This is also undisputed that the case of the assessee was selected for scrutiny for this reason only and the AO after calling for necessary information /evidences from the assessee and examining the same such as purchase bill, bank statement evidencing the payment for share purchase, copy of balance sheet, contract notes qua selling 1400 equity shares mentioning the consideration and copy of bank statement reflecting payment received. AO accepted the contentions of the assessee after examination of the above evidences and also after calling for reply from the stock broker by issuing letter u/s 133(6) which was duly furnished by the broker and the AO accordingly framed the assessment accepting the claim of the assessee u/s 10(38). In our opinion, the PCIT cannot exercise the revisionary jurisdiction to set aside the assessment where the AO has conducted enquiries and taken a plausible view accepting the contentions of the assessee. The case of the assessee is squarely covered by the decision of Kaushalya Dealers Pvt. Ltd 2023 (5) TMI 365 - CALCUTTA HIGH COURT and M/s PG Commercial Pvt. Ltd. 2023 (2) TMI 1330 - CALCUTTA HIGH COURT . We also observe from the perusal of the order passed u/s 263 that the jurisdiction was exercised by the PCIT upon receipt of proposal from the AO to the effect the capital gain has been accepted by the AO and thereafter the ld. PCIT invoked the jurisdiction which is against the ratio laid down in the case of PCIT vs. M/s Sinhotia Metals and Minerals Pvt. Ltd 2022 (1) TMI 1297 - CALCUTTA HIGH COURT On this score also , the jurisdiction of the PCIT is not sustainable. We also note that the PCIT has relied on CBDT s circular that the AO should have disallowed long term capital gain and has not applied his mind as to how the assessment order is erroneous and prejudicial to the interest of the revenue in order to justify the exercise the revisionary powers u/s 263 of the Act. Decided in favour of assessee.

Summary

Issues:
- Validity of exercise of jurisdiction u/s 263 of the Income Tax Act by the Principal Commissioner of Income Tax-10, Kolkata.
- Assessment of long term capital gain on sale of shares and the subsequent revisionary order u/s 263 of the Act.
- Whether the AO conducted sufficient enquiries and took a plausible view before the revisionary order was passed.

Analysis:

Issue 1: Validity of exercise of jurisdiction u/s 263
The Appellate Tribunal considered the appeals against the orders of the Principal Commissioner of Income Tax-10, Kolkata under section 263 of the Income Tax Act for the assessment year 2014-15. The only issue raised by the assessee was regarding the jurisdiction exercised by the PCIT in passing the revisionary order. The PCIT set aside the assessment framed by the AO and directed reassessment based on the claim of long term capital gain on the sale of shares. The Tribunal held that the PCIT cannot exercise revisionary jurisdiction if the AO has conducted enquiries and taken a plausible view. The Tribunal referred to relevant case laws, including decisions of the Calcutta High Court and Delhi High Court, to support its conclusion. It was observed that the PCIT did not conduct any independent investigation and merely relied on a circular, which was deemed insufficient. Therefore, the Tribunal quashed the revisionary order as the jurisdiction was invalidly exercised.

Issue 2: Assessment of long term capital gain on sale of shares
The facts revealed that the assessee had purchased and sold equity shares considered as penny stocks. The AO had conducted necessary enquiries, verified documents, and accepted the genuineness of the transactions after receiving confirmation from stock brokers. The PCIT initiated revisionary proceedings based on the proposal from the AO, which was found to be against the established legal principles. The Tribunal emphasized that the PCIT should have conducted an independent enquiry if he believed the AO's assessment was inadequate. The Tribunal held that the AO had appropriately examined the issue, and the PCIT's intervention was unwarranted. Therefore, the Tribunal concluded that the assessment order was not erroneous and prejudicial to the interest of revenue, as claimed by the PCIT.

Issue 3: AO's enquiry and plausible view
The Tribunal highlighted that the AO had diligently examined the documents and evidences provided by the assessee, including purchase bills, bank statements, and contract notes. The AO also sought confirmation from stock brokers, which further validated the transactions. The Tribunal reiterated that the PCIT's reliance on a circular without conducting an independent enquiry was insufficient to justify revisionary powers. The Tribunal emphasized that the PCIT should have undertaken a thorough investigation before setting aside the assessment order. The Tribunal cited relevant case laws to support its conclusion that the PCIT's jurisdiction was invalidly exercised due to the lack of independent enquiry and reliance on inadequate grounds.

In conclusion, the Appellate Tribunal allowed the appeals of the different assessees, quashing the revisionary order passed by the PCIT and emphasizing the importance of conducting thorough enquiries before exercising revisionary powers under section 263 of the Income Tax Act.