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2024 (5) TMI 1028 - HC - Income TaxRevision u/s 263 - addition u/s 68 - bogus claim of exemption of Long Term Capital Gain by sale of shares of penny stock - HELD THAT - On perusal of the order passed by the PCIT u/s 263 no doubt it is true that PCIT states that he has perused the proposal of the AO not stopping you that the PCIT holds that prima facie it appears that the AO has failed to take a logical action on the information available with him and, therefore, the impugned assessment was prima facie erroneous in so far as it was prejudicial to the interest of the revenue. After coming to such conclusion by himself, the PCIT issued show cause notice. The operative portion of the show cause notice has been extracted in the order u/s 263 which shows that the PCIT has applied its mind and came to the prima facie conclusion that the assessing officer should have treated the entire credit as bogus and added back the same u/s 263 of the Act rejecting the claim for exemption u/s 10 (38). Therefore, it is not a case where the PCIT solely proceeded based on the report of the assessing officer but on perusal of the report has examined the facts. PCIT has examined the entire assessment records and thereafter discussed the above transaction and in Annexure A to the order under Section 263 a flow chart has been given which shows how some transaction was bogus transaction dealing with penny stock shares. In the case relating to Sinhotia Metals and Minerals Pvt. Ltd. . 2022 (1) TMI 1297 - CALCUTTA HIGH COURT the facts were entirely different. In the said case the PCIT directed the Joint Commissioner of Income Tax to submit a proposal and to exercise jurisdiction under Section 263 of the Act which was faulted. Therefore, the decision in the case of Sinhotia Metals and Minerals Pvt. Ltd. (supra) cannot be applied to the facts and circumstances of the case. Thus, we find that Tribunal committed a manifest error in allowing the assessee s appeal and setting aside the order passed under Section 263 of the Act. Order passed by the PCIT is restored.
Issues Involved:
1. Quashing of the order u/s 263 of the Income Tax Act, 1961. 2. Proper enquiry by the Assessing Officer regarding bogus claim of exemption of Long Term Capital Gain (LTCG). 3. Justification of the Tribunal's decision to ignore the report of the Investigation Wing. 4. Manipulation of share price of M/s. Kailash Auto Finance Ltd. 5. Consideration of binding precedents by the Tribunal. Summary: 1. Quashing of the order u/s 263 of the Income Tax Act, 1961: The Tribunal set aside the order passed by the Principal Commissioner of Income Tax (PCIT) u/s 263, stating that the PCIT invoked jurisdiction solely based on a proposal from the Assessing Officer. The Tribunal relied on the decision in Principal Commissioner of Income-tax Vs. Sinhotia Metals and Minerals Pvt. Ltd., (2023) 455 ITR 736. 2. Proper enquiry by the Assessing Officer regarding bogus claim of exemption of LTCG: The assessment was completed u/s 143(3) accepting the return filed by the assessee. The Tribunal noted that the transaction regarding the sale of shares was confirmed by the details filed by the assessee, and no discrepancy was found. However, the Court highlighted that the Assessing Officer failed to conduct a proper enquiry as required, ignoring the investigation report which indicated sham transactions to generate LTCG. 3. Justification of the Tribunal's decision to ignore the report of the Investigation Wing: The Court emphasized that the Tribunal ignored the facts brought on record in the revision order u/s 263, which established manipulation of share prices to generate fictitious LTCG. The Tribunal's decision was deemed perverse as it failed to consider the manipulative practices adopted by stock brokers and entry operators. 4. Manipulation of share price of M/s. Kailash Auto Finance Ltd.: The Court noted that the assessee dealt with penny stocks, including shares of Kailash Auto, which were under adverse notice by the department. The PCIT had examined the facts and concluded that the Assessing Officer should have treated the entire credit as bogus and added it back u/s 263, rejecting the claim for exemption u/s 10(38). 5. Consideration of binding precedents by the Tribunal: The Tribunal failed to consider binding precedents such as Pr. CIT Vs. Swati Bajaj, Pr. CIT Vs. Hill Queen Investment (P) Ltd., and Pr. CIT Vs. Smt. Usha Modi. The Court found that the Tribunal committed a manifest error in allowing the assessee's appeal and setting aside the order passed u/s 263. Conclusion: The appeal was allowed, the order passed by the Tribunal was set aside, and the order passed by the PCIT dated 12.12.2018 was restored. The connected application [GA/1/2024] was closed.
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