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Issues Involved:
1. Validity of the order passed under Section 263 of the IT Act, 1961. 2. Assumption of jurisdiction by the CIT under Section 263. 3. Sustainability of the order under Section 263. Detailed Analysis: 1. Validity of the order passed under Section 263 of the IT Act, 1961: The appeals were directed against the orders of the CIT, Patiala, dated 13th October 2004. The primary issue was the validity of the CIT's order under Section 263 of the IT Act, 1961. The assessees contended that the CIT erred in passing the order and that the assumption of jurisdiction was bad in law. The CIT had issued notices for initiation of proceedings under Section 263, arguing that the AO's assessments were prejudicial to the interest of the Revenue. The CIT's scrutiny revealed that the AO had accepted the returned income without making independent inquiries into the genuineness of the transactions involving long-term capital gains from the sale of shares. The CIT observed that the AO relied on affidavits and statements from share brokers without further verification, leading to an erroneous and prejudicial order. 2. Assumption of jurisdiction by the CIT under Section 263: The assessees argued that the CIT's assumption of jurisdiction under Section 263 was not justified. They claimed that the AO had conducted detailed inquiries and verified all necessary documents before completing the assessments. The AO had accepted the long-term capital gains and allowed exemptions under Section 54F of the IT Act after thorough verification. The CIT, however, believed that the AO failed to appreciate the facts and did not conduct independent inquiries, thus making the order prejudicial to the Revenue. The CIT's reliance on the DDIT (Inv) report, which suggested that the transactions were dubious, was contested by the assessees, who argued that the AO had already verified the transactions and found them genuine. 3. Sustainability of the order under Section 263: The Tribunal analyzed whether the CIT's order under Section 263 was sustainable. It was noted that the AO had reopened the assessments based on the DDIT (Inv) report and made detailed inquiries before accepting the returned income. The AO had verified documents, recorded statements, and examined affidavits from share brokers, concluding that the transactions were genuine. The Tribunal found that the CIT's order was based on assumptions and did not provide concrete evidence of how the AO's order was erroneous or prejudicial to the Revenue. The Tribunal emphasized that an order could not be considered prejudicial to the Revenue merely because the CIT disagreed with the AO's findings. The AO had taken one of the possible views after proper verification, and the CIT's intervention under Section 263 was not justified. Conclusion: The Tribunal concluded that the CIT was not justified in exercising powers under Section 263 and setting aside the AO's assessment orders. The AO had conducted proper verification and inquiries before accepting the long-term capital gains and allowing exemptions under Section 54F. The Tribunal set aside the CIT's order, allowing the appeals filed by the assessees.
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