2024 (12) TMI 907 - AT - Income Tax

Revision u/s 263 - Bogus LTCG - allowance of claim of exempt income by the assessee u/s 10(38) on long term capital gains earned on the sale of shares of LHSL which as per the information available with the Department, were allegedly penny stock - HELD THAT - AO has, during the assessment proceedings raised every possible query on the information available in the insight portal and the assessee did respond to the same. DR before us was unable to point out, which query remained to be answered by the assessee or which inquiry was not conducted by the AO, with respect to the information in the insight portal with the AO. Considering the same, it is highly strange that the ld.Pr.CIT still goes on holding that the AO had not conducted proper inquiries. Considering the voluminous inquiries conducted by the AO, as noted above by us, the onus was on the ld.Pr.CIT to point out the specific inquiry which the AO had not conducted and which resulted therefor in the assessment order being erroneous, causing prejudice to the Revenue for a valid exercise of jurisdiction under section 263 of the Act. Thus, we hold that the impugned order passed by the ld.Pr.CIT u/s 263 of the Act is without any finding of error in the order of the AO and is therefore not sustainable in law. As in the present case brought out in the order of the PCIT do not demonstrate the concrete steps which the AO as per him failed to take considering the report of investigation before him. An order has to be a speaking and well-reasoned order bringing out clearly the basis for arriving at any findings. This is a basic rule/ principle of natural justice. There is no scope of any assumptions/ presumptions/reading between the lines, which can be left for the discretion of the appellate authorities. In the present case, as noted above by us, the Ld.PCIT except for stating that the AO has not conducted full inquiry on the issue, has not pointed out what remained to be considered and inquired into by him considering the information on the insight portal and considering the investigation and inquiry on the issue conducted during reassessment proceedings. PCIT seems to have left it for the appellate authorities to derive the same. Such orders are not sustainable. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Legality of the order under Section 263 of the Income Tax Act, 1961.
2. Justification for invoking revisionary powers by the Principal Commissioner of Income Tax (Pr.CIT).
3. Adequacy of the inquiry conducted by the Assessing Officer (AO) regarding the Long Term Capital Gains (LTCG) on sale of shares of Looks Health Services Ltd. (LHSL).
4. Assessment of whether the order passed by the AO was erroneous and prejudicial to the interest of the Revenue.

Issue-wise Detailed Analysis:

1. Legality of the Order under Section 263:

The appeal was filed against the order passed by the Pr.CIT under Section 263 of the Income Tax Act, 1961, which pertains to the revision of orders considered erroneous and prejudicial to the interest of the Revenue. The Pr.CIT held that the AO's acceptance of the LTCG on the sale of shares of LHSL as genuine and exempt under Section 10(38) was erroneous. However, the Tribunal found that the Pr.CIT failed to provide specific findings of error in the AO's order, relying instead on general observations without extracting information from the records of the reassessment proceedings.

2. Justification for Invoking Revisionary Powers:

The Pr.CIT invoked revisionary powers based on information that the shares of LHSL were considered penny stocks and bogus. Despite this, the Tribunal noted that the Pr.CIT did not clarify the contents of the insight portal or summarize the information, leaving it unclear what the AO failed to verify. The Tribunal concluded that the Pr.CIT's exercise of power under Section 263 was a misuse, as there was no clear finding of error in the AO's order.

3. Adequacy of Inquiry Conducted by the AO:

The Tribunal examined whether the AO conducted adequate inquiries during the assessment proceedings. It was found that the AO had raised multiple queries regarding the information on the insight portal, to which the assessee duly responded. The assessee provided detailed explanations and evidence about the purchase and sale of shares, including the lock-in period, payment through banking channels, and compliance with SEBI regulations. The Tribunal highlighted that the Pr.CIT did not specify any inquiry that the AO failed to conduct, rendering the revision under Section 263 unjustified.

4. Assessment of AO's Order as Erroneous and Prejudicial:

The Tribunal assessed whether the AO's order was indeed erroneous and prejudicial to the interest of the Revenue. It was determined that the Pr.CIT's order lacked specific findings or evidence of any error by the AO. The Tribunal emphasized that an order must be well-reasoned and clearly articulate the basis for findings. The Pr.CIT's reliance on general statements without demonstrating concrete steps that the AO failed to take led to the conclusion that the order was not sustainable. Consequently, the Tribunal set aside the Pr.CIT's order, allowing the appeal filed by the assessee.

In conclusion, the Tribunal found that the Pr.CIT's order under Section 263 was not sustainable due to the absence of specific findings of error in the AO's order, inadequate justification for invoking revisionary powers, and the comprehensive inquiries conducted by the AO during the assessment proceedings. The appeal was allowed in favor of the assessee.