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TMI Blog2024 (12) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. - Shri Anikesh Banerjee, JM And Ms Padmavathy S, AM For the Appellant : Shri Prakash Jhunjhunwala, AR For the Revenue : Ms. Rajeshwari Menon, Sr. DR ORDER PER PADMAVATHY S, AM: This appeal by the assessee is against the order of the Principal Commissioner of Income Tax, Mumbai-400020 [in short 'the PCIT'] passed under section 263 of the Income Tax Act, 1961 (the Act) dated 30.03.2024 for Assessment Year (AY) 2013-14. The assessee raised the following grounds of appeal: 1.0 On facts and circumstances of the case and in law, the revision order passed u/s 263 is bad in law since the re-assessment order passed u/s 147 itself was invalid and non-est; 2.0 On facts and circumstances of the case and in law, the Pr. CIT erred in passing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the details furnished by the assessee treated the LTCG as bogus and made addition of the net capital gain u/s 68 of the Act. The assessee is in appeal before the CIT(A) against the order of the AO. In the meantime the PCIT based on the audit objections held the order of the AO to be erroneous and prejudicial to the interest of the Revenue for the reason that the AO has instead of taxing the entire sale consideration under section 68 of the Act has made the addition after deducting the cost of purchase of shares to the tune of Rs. 33,62,400/-. The PCIT also held the order to be erroneous and prejudicial for the reason that the assessee ought to have incurred commission expense @ 3% which the AO failed to make an addition towards. The PCIT issued a show-cause notice to the assessee in this regard. The assessee submitted that the appeal against the order of the AO on the issue of LTCG being treated as unexplained under section 68 is pending before the CIT(A) and once the main issue is pending adjudication consequential issue on allowing the purchase price and commission on impugned transactions cannot be reviewed under section 263 of the Act. The assessee placed reliance in this rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer has made the addition it was but natural that commission part for providing such entries is inherent therein and the same should be considered at the time of passing the assessment order. The quantum in this regard is always seen into the range of 3% to 5% of the total transactions and the same is always paid in cash. The same has remained to be added at the time of finalising the assessment u/s. 69C to the total income, which will amount to Rs 8,87,346/- (3% of the total sale consideration of Rs. 2,95,78.213/-). Further, once the sale consideration received itself is a bogus transaction and has been added u/s 68 of the Income Tax Act, 1961 as a bogus long term capital gain, there is no question to consider the purchase price as genuine as the same is also part of the accommodation entry. The Assessing Officer has added only Rs. 2.60,46,279/- However, the bogus entry in the form of LTCG is Rs. 2.95,78,213/-. Therefore, the Assessing Officer failed to add the sum of Rs. 35,31,934/- under section 68 of the Act. Thereby, Rs. 35.31,934/- remained to be added to the total income u/s 68 of the Income-tax Act, 1861. It is also pertinent to mention here that both amounts will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. Accordingly, the ld. DR supported the order of the PCIT(A). 5. We heard the parties and perused the material on record. The assessee's case was reopened under section 147 of the Act on the basis of information obtained from DDIT (Inv.), Kolkata alleging that the LTCG transactions entered into by the assessee on sale of shares of M/s JRI Industries and Infrastructure Ltd. is bogus. The AO called on the assessee to furnish various details pertaining to the impugned transactions. The assessee furnished the relevant documents which were perused by the AO. It is relevant to take notice of the below observations of the AO in this regard. 12. As explained earlier, the assessee has acquired 2,40,000 [48,000 shares is converted into 2,40,000 preferential shares for face value Rs 2 of M/s. JRI Industries Infrastructure Limited, during financial year 2012-13 at a face value of Rs for a total cost of Rs. 33,62,400/- The assessee sold the 2,40.000 (48,000 shares is converted into 2,40,000 preferential shares for face value Rs. 2] shares during financial year 2012-13 for total consideration of Rs. 2,95,78,213/- with a resulting gain of Rs. 2,60,46,279/-, Thus, within a period of 13 mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r.w.s 144B of the I.T Act, 1961 for AY 2013-14 was passed on 31.03.2022 is 'erroneous' and 'prejudicial to the interest of the revenue in the light of the facts mentioned above.. 5. In this regard, you are hereby given an opportunity to file your written submission in this office on 20.10.2023, In case, there is no compliance till the given date, it will be presumed that you did not wish to avail this opportunity and order u/s. 263(1) of the I.T. Act, 1961 will be passed, as above. 7. The main contention of the ld. AR is that the PCIT is not correct in exercising jurisdiction under section 263 of the Act merely based on the audit observations. In this regard, we notice that the Co-ordinate Bench in the case of Grasim Industries Ltd. Vs. PCIT (2024) 158 taxmann.com 686 (Mum. Trib.) has considered a similar issue and held that - 8.2**** Hence it could be safely concluded that the revision proceedings has been invoked by the ld PCIT u/s 263 of the Act based on audit objection, which is nothing but borrowed satisfaction. Hence the said revision proceedings u/s 263 of the Act need to be construed as bad in law. Reliance in this regard has been rightly placed by the ld AR on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew has been expressed by the Hon'ble Calcutta High Court in the case of PCIT Vs. Sinhotia Metals and Minerals Pvt. Ltd. (ITA No. GA/1/2019 dated 07.01.2022) where it has been held that the PCIT cannot assume jurisdiction under section 263 at the instance of the AO / JCIT which is against the provisions of the law. We further notice that a similar view has been held by the Delhi Bench of the Tribunal in the case of Ahlcon Parenterals India Ltd. Vs. PCIT [(2024) 162 taxmann.com 759 (Del. Trib.) ] where it has been held that 10. After taking into consideration the aforesaid submissions, we find that the Hon'ble Calcutta High Court in the case of Senkotia Metals and Minerals Pvt. Ltd. (supra) has, by order dated 7th January, 2022, categorically upheld the conclusion of the Tribunal that PCIT has not exercised his jurisdiction u/s. 263 of the Act himself but only on proposal of AO. This is a question of fact which was appreciated by the Hon'ble High Court to hold that there was irregular exercise of jurisdiction u/s. 263 of the Act. The Tribunal in the case of Stewarts Lloyds of India Ltd. (supra) had thoroughly gone on the facts of the case and in that case, independently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement recorded u/s 131 of the Act, it appears that the Assessee has ever paid any commission/expenses as alleged by the PCIT for obtaining the said bogus LTCG. 5.2 Considering the aforesaid peculiar facts and circumstances in totality specifically the statement of the Assessee recorded by the AO u/s 131 of the Act as re-produced in the original assessment order dated 29.11.2017 and the fact that the main/larger issue/addition on the basis of which the Ld. PCIT has alleged that the Assessee has paid commission, is pending for adjudication before the Ld. CIT (A), we are inclined to set aside the impugned order, consequently the same is set aside. 10. From the perusal of the show cause notice, it is clear that the PCIT initiated the proceedings under section 263 of the Act based on the audit objections. Further from the observations of the AO which is extracted in the earlier part of this order (refer para 5 above) it is clear that the 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 under section 68 of the Act. The Co-ordinate Bench in the case of Shri Anil Goyal (su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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