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2024 (12) TMI 694 - AT - Income TaxRevision u/s 263 based on audit observations - as per CIT AO though held the entire transaction of sale of shares as bogus failed to make addition of the entire sale consideration and erred in allowing the cost of acquisition of shares as a deduction - HELD THAT - Details with regard to the cost of acquisition was part of examination conducted by the AO who still proceeded to bring to tax the net capital gain as addition u/s 68. The Co-ordinate Bench in the case of Shri Anil Goyal 2024 (8) TMI 1498 - ITAT MUMBAI has considered the decision of Smt. Renuka Philip 2018 (12) TMI 129 - MADRAS HIGH COURT wherein it was held that assumption or jurisdiction under section 263 of the Act on a small issue based on the larger issue is unsustainable. In assessee's case the assessee is in appeal before the CIT(A) on the addition made by the AO towards alleged bogus LTCG and the revision under section 263 of the Act is exercised by the PCIT on allowing cost of acquisition and commission pertaining to the same alleged bogus LTCG. PCIT has held that in alleged bogus transactions the commission in the range of 3% to 5% is always paid and that the AO failed to make the addition towards the same which is erroneous. In our view the said observations of the PCIT is not based on any factual finding and merely based assumptions. We hold that the order of the PCIT under section 263 is without jurisdiction and is to be quashed. Assessee appeal allowed.
Issues Involved:
1. Validity of the revision order under section 263 of the Income Tax Act, 1961. 2. Alleged erroneous and prejudicial nature of the reassessment order under section 147. 3. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under section 263 based on audit objections. 4. Pending adjudication of larger issues before the CIT(A) affecting the revision under section 263. 5. Assumptions regarding commission expenses in alleged bogus transactions. Detailed Analysis: 1. Validity of the Revision Order under Section 263: The assessee contended that the revision order passed under section 263 was invalid because the reassessment order under section 147 was itself invalid and non-est. The PCIT's revision was challenged on the grounds that the reassessment order was not erroneous nor prejudicial to the interest of the revenue. The PCIT had set aside the issues of addition under sections 68 and 69C to the Assessing Officer (AO), which the assessee claimed were already adequately addressed and investigated by the AO. 2. Alleged Erroneous and Prejudicial Nature of the Reassessment Order: The PCIT held the reassessment order to be erroneous and prejudicial to the interest of the revenue because the AO failed to tax the entire sale consideration under section 68 and did not make an addition for commission expenses allegedly incurred. The PCIT argued that the AO overlooked these aspects, thus rendering the order erroneous. However, the assessee maintained that the AO had conducted sufficient inquiry and adopted one of the two legally sustainable views, which should not be deemed erroneous. 3. Jurisdiction of the PCIT under Section 263 Based on Audit Objections: The PCIT initiated proceedings under section 263 based on audit objections without independent inquiry. The assessee argued that the PCIT's action was based on "borrowed satisfaction" from the audit party, which is not permissible. The tribunal referenced several judicial precedents, including decisions from the Hon'ble Bombay High Court and the Calcutta High Court, which held that revision proceedings based solely on audit objections are unsustainable. 4. Pending Adjudication of Larger Issues Before the CIT(A): The assessee argued that since the larger issue of alleged bogus LTCG was pending before the CIT(A), the related smaller issues, such as cost of acquisition and commission, could not be revised under section 263. The tribunal agreed, citing the principle that jurisdiction under section 263 cannot be assumed on smaller issues when the larger issue is under appeal. This view was supported by the decision of the Hon'ble Madras High Court in the case of Smt. Renuka Philip. 5. Assumptions Regarding Commission Expenses in Alleged Bogus Transactions: The PCIT assumed that a commission of 3% to 5% was paid for arranging accommodation entries, which was not factually established. The tribunal found that the PCIT's observations were based on assumptions rather than concrete evidence. The tribunal emphasized that revision under section 263 should be based on factual findings rather than presumptions. Conclusion: The tribunal concluded that the PCIT's order under section 263 was without jurisdiction and quashed it. The appeal of the assessee was allowed, as the tribunal found that the PCIT's revision was based on audit objections without independent application of mind and that the issues were already part of the pending appeal before the CIT(A). The tribunal's decision underscored the importance of independent inquiry and factual basis for revisions under section 263.
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