2021 (6) TMI 752 - AT - Income Tax

Revision u/s 263 - short term capital loss from the scrips claim - HELD THAT - No exceptional circumstances in respect of the action of AO while enquiring into the issue of short term capital loss were cited by the Ld. PCIT in his impugned order or the Ld. DR. So, we presume the fact that AO was aware of the contents of the circular of CBDT regarding penny stock and thereafter had issued notice u/s. 142(1) - Thus invoking Explanation 2(c) of section 263 of the Act is not correct in the facts and circumstances of the case. PCIT has not bothered to refer to any cogent material on the basis it can be said that these three scrips in question are penny stock. The assumption of Ld. PCIT is based on surmises and conjectures and it is settled principle of law that suspicion howsoever strong cannot take the place of evidence/proof. Considering the enquiry made by AO on the issue, we presume that the AO has performed his task of an investigator on the issue of short term capital loss on the scrips in question after taking note of CBDT circular No. 287/30/2014-IT(inv.II)- Vol-III dated 16.03.2016 on penny stock and thereafter conducted the enquiry. And after perusal of the reply of the assessee to the specific queries and details called for and after perusal of the supporting materials, the AO being satisfied has accepted the claim of assessee in respect of loss on these scrips. Therefore the AO s action of accepting short term capital loss on the three (3) scrips cannot be termed as a case of no-enquiry on the part of the AO as well as discussed supra the Ld. PCIT s opinion that Explanation 2(c) u/s. 263 is attracted in this case is incorrect in the light of the facts and circumstances as aforestated - condition precedent to invoke revisional jurisdiction u/s 263 of the Act is absent - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) to invoke revisional jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Whether the Assessing Officer (AO) conducted adequate enquiry into the short-term capital loss claimed by the assessee.
3. Whether the AO's order was erroneous and prejudicial to the interest of the revenue.

Issue-wise Detailed Analysis:

1. Jurisdiction of the PCIT to Invoke Revisional Jurisdiction under Section 263:
The assessee challenged the jurisdiction of the PCIT to invoke revisional jurisdiction under Section 263 of the Income Tax Act, 1961, against the assessment order passed by the AO. The assessee argued that the PCIT erroneously invoked the jurisdiction without satisfying the condition precedent as prescribed under Section 263, rendering the order null in the eyes of law. The Tribunal examined whether the requisite jurisdiction necessary to assume revisional jurisdiction existed in this case. The Tribunal referred to the judicial precedence laid down by the Hon’ble Supreme Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC), which held that twin conditions need to be satisfied before exercising revisional jurisdiction under Section 263: the order of the AO must be erroneous and prejudicial to the interest of the revenue.

2. Adequacy of Enquiry Conducted by the AO:
The PCIT claimed that the AO failed to conduct specific enquiry and investigation into the short-term capital loss on three scrips, which were alleged to be penny stocks. The Tribunal reviewed the notices and replies exchanged between the AO and the assessee. The AO had issued a notice under Section 142(1) dated 25.11.2016, asking for detailed information regarding the short-term capital loss and investment in equity shares. The assessee provided the required details and supporting documents, which were reviewed by the AO. The Tribunal found that the AO had indeed conducted an enquiry, and the AO's satisfaction with the assessee's explanations and documents led to the acceptance of the short-term capital loss claim. Therefore, the Tribunal concluded that the AO had performed his role as an investigator and adjudicator, and the PCIT's assumption of no enquiry was erroneous.

3. Whether the AO's Order Was Erroneous and Prejudicial to the Interest of the Revenue:
The Tribunal noted that the AO had issued a detailed notice and received satisfactory replies from the assessee, which included supporting documents for the short-term capital loss claim. The Tribunal emphasized that the AO's decision to accept the assessee's claim after due enquiry cannot be termed as erroneous. Furthermore, the Tribunal highlighted that the PCIT did not provide any cogent material to substantiate that the three scrips were penny stocks. The Tribunal reiterated that suspicion, however strong, cannot replace evidence. The Tribunal found that the AO had conducted an enquiry and accepted the claim based on the evidence provided, and thus, the AO's order was not erroneous or prejudicial to the interest of the revenue.

Conclusion:
The Tribunal concluded that the condition precedent to invoke revisional jurisdiction under Section 263 was absent, as the AO's action was neither erroneous nor prejudicial to the revenue. Consequently, the Tribunal quashed the impugned order of the PCIT and allowed the appeal of the assessee.

Order Pronouncement:
The order was pronounced in the open court on 18th June, 2021.