2021 (12) TMI 352 - AT - Income Tax

Revision u/s 263 by CIT - bogus loss on shares - penny stock transactions - Reliance on audit objection given by the audit party - assessee had traded in four more scrips and incurred loss and that these scrips were also part of the 84 penny stock companies investigated by Kolkata Income Tax department - HELD THAT - No error could be found on the said action and the ld. PCIT as admittedly the audit objection was part of the records of the ld. PCIT at the time of his examination. From the show-cause notice issued by the ld. PCIT and from the perusal of the orders of the ld. PCIT, we find that the ld. PCIT has independently applied his mind for invoking revision jurisdiction u/s.263 of the Act and not merely been driven by the audit objection, Hence, the legal objection raised by the ld. AR in this regard is hereby dismissed. Bogus loss on shares - Entire details of profit earned from sale of shares and loss incurred on sale of shares were indeed submitted by the assessee before the ld. AO in the course of assessment proceedings. Moreover, we find that assessee during the year had dealt with 160 scrips and out of that, it had incurred losses in respect of 45 scrips during the year which had already been tabulated hereinabove. Out of the same, the ld. PCIT had identified four scrips and had decided to treat the said loss as bogus loss in the light of findings of the DIT Investigation Kolkata and not based on his independent analysis and undoubtedly the said details were indeed filed before the ld. AO. The ld. AO in examination of the details of all the scrips had chosen to disallow loss only in respect of three scrips. As safely concluded that the ld. AO had indeed taken a possible view on the matter. PCIT merely because he has got a different view on the same set of facts cannot try to substitute his view in place of the view already taken by the ld. AO by invoking his revision jurisdiction u/s.263. No hesitation in quashing the revision order passed u/s 263 of the Act by the ld. PCIT. Accordingly, the ground raised by the assessee is allowed.

Summary

Issues Involved:
1. Justification of the Principal Commissioner of Income Tax (PCIT) in invoking revision jurisdiction under Section 263 of the Income Tax Act.

Detailed Analysis:

Issue 1: Justification of the PCIT in Invoking Revision Jurisdiction under Section 263 of the Income Tax Act

Background and Proceedings:
The appeal concerns whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking revision jurisdiction under Section 263 of the Income Tax Act for the Assessment Year 2015-16. The assessee, engaged in share trading, electronically filed a return declaring a loss of ?21,37,669/-. During the assessment, the Assessing Officer (AO) scrutinized the claimed loss from share sales, particularly from penny stocks, and disallowed a loss of ?4,26,63,518/- from three specific scrips: Cressenda Company Ltd., Pearl Electric Ltd., and Pine Animations Ltd. The assessee appealed this decision, and the appeal was pending when the PCIT invoked Section 263, focusing on four additional scrips: MKEL, Pearl Agriculture Ltd., Rajlaxmi Industries Ltd., and Sunrise Asian Ltd., alleging these were also penny stocks investigated by the Kolkata Income Tax department.

PCIT’s Observations:
The PCIT argued that the AO failed to make necessary enquiries and verifications regarding the four additional scrips, rendering the assessment order erroneous and prejudicial to the Revenue's interest. The PCIT disregarded the assessee's contention that detailed enquiries were conducted by the AO, who chose to disallow losses on three other scrips after thorough examination.

Assessee’s Defense:
The assessee contended that the AO had indeed made detailed enquiries, submitting all necessary documents, including contract notes, Demat statements, and bank statements, evidencing transactions through recognized stock exchanges. The AO had examined the partner of the assessee firm, who confirmed the transactions were based on market news and conducted through registered brokers.

Tribunal’s Analysis:
The Tribunal noted that the AO had scrutinized the details of share transactions, including both profits and losses, and had specifically disallowed losses on three scrips after detailed enquiries. The PCIT, however, did not analyze the documentary evidence provided by the assessee for the four additional scrips and merely relied on the Kolkata Investigation Wing's report. The Tribunal emphasized that if the PCIT had concerns about the AO not conducting certain enquiries, it was incumbent upon the PCIT to examine the evidence and demonstrate how the AO’s order was erroneous and prejudicial to the Revenue.

Conclusion:
The Tribunal found that the AO had taken a possible view after detailed enquiries, and the PCIT could not substitute his view merely because he had a different opinion. The Tribunal cited precedents, including the Hon’ble Jurisdictional High Court's decisions in Gabriel India Ltd. and Nirav Modi, supporting the view that the PCIT cannot invoke Section 263 merely based on a different perspective without proving the AO’s order erroneous and prejudicial to the Revenue.

Judgment:
The Tribunal quashed the revision order passed under Section 263 by the PCIT, allowing the assessee's appeal. The order was pronounced on 30/11/2021.

Summary:
The Tribunal ruled that the PCIT was not justified in invoking revision jurisdiction under Section 263 of the Income Tax Act, as the AO had conducted detailed enquiries and taken a possible view on the matter. The PCIT's reliance on the Kolkata Investigation Wing's report without analyzing the documentary evidence provided by the assessee was insufficient to prove the AO’s order erroneous and prejudicial to the Revenue. Consequently, the Tribunal quashed the revision order, allowing the assessee's appeal.