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Facts
The assessee claimed Long Term Capital Gain (LTCG) of INR 40,59,544/- as exempt. The assessment was re-opened under Section 147 as the AO suspected the transaction was non-genuine. However, the AO accepted the assessee's claim in the re-assessment order without additions.
Held
The Tribunal held that the Pr.CIT wrongly assumed revisional jurisdiction under Section 263. The AO had made adequate enquiries, and the Pr.CIT's order was based on suspicion rather than material evidence, failing to satisfy the twin conditions of being erroneous and prejudicial to the revenue.
Key Issues
Whether the Pr.CIT's assumption of revisional jurisdiction under Section 263 was justified when the AO had made sufficient enquiries and the order was not erroneous or prejudicial to the revenue.
Sections Cited
263, 147, 144B, 148, 148(2), 10(38)
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Income Tax Appellate Tribunal, DELHI “A” BENCH: NEW DELHI
Before: SHRI PRADIP KUMAR KEDIA & SHRI VIMAL KUMAR
The captioned appeal has been filed at the instance of the assessee seeking to assail the First Appellate order dated 30.03.2024 passed by Principal Commissioner of Income Tax, Delhi-20 [“Pr. CIT”] u/s 263 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 23.03.2022 passed u/s 147 r.w.s 144B of the Act pertaining to assessment year 2015-16 was sought to be set aside for denovo assessment in terms of supervisory jurisdiction.
The assessee has raised following grounds of appeal:- 1. “That on the facts and circumstances of the case and in law, the ld. Principal Commissioner of Income Tax, Delhi-20 ['Ld. PCIT"] has erred in initiating proceedings u/s 263 of the Income Tax Act, 1961 by wrongly assuming jurisdiction u/s 263 hence the order passed by PCIT u/s 263 of the Income Tax Act, 1961 is bad in law and void- ab-initio.
2. Without prejudice to the above ground, on the facts and circumstances of the case and in law, the Ld. PCIT has erred in assuming jurisdiction and passing the revisionary order u/s 263 of the Income Tax Act, 1961 in spite of the fact that the Ld. AO has made adequate enquiries and conducted proper verification of documents which were sought from the appellant and accordingly Ld. AO took a permissible view. The order passed by the AO is neither erroneous nor prejudicial to the interest of revenue, hence the order of Ld. PCIT should be set aside.
3. That the Ld. PCIT, Delhi-20, ought to have checked that the assessment order is neither erroneous nor prejudicial to the interest of the revenue and that the Ld. PCIT can assume jurisdiction under section 263 only if the twin conditions of the assessment order being erroneous and pre-judicial to the interest of the revenue are satisfied.
The Ld. PCIT ought to have seen that while invoking power under revisionary jurisdiction as envisaged u/s 263 is not permissible under law to substitute the view of the Ld. AO by the view of the Ld. PCIT.
That on the facts and circumstances of the case, the Id. PCIT, Delhi- 20 erred in alleging the Long-Term Capital Gain (LTCG') of Rs. 40,59,544/- to be bogus and in setting aside the assessment by the Ld. AO holding the same to be erroneous so far as it was prejudicial to the interest of revenue in terms of section 263 of the Income Tax Act, 1961.
6. That the Ld. PCIT has revised the order of the Ld. AO u/s 263 merely only on the basis of the report of the investigation wing hence the revision order passed u/s 263 is illegal and bad in the eyes of law.”
As per the grounds of appeal
, the assessee has sought to challenge the jurisdiction assumed by the Pr.CIT under s. 263 of the Act and as a corollary, sought to impugn the revisional order passed by the Pr.CIT under s. 263 of the Act as ex-proprietary.
4. Briefly stated, the assessee filed his return of income for AY 2015-16 declaring total income at INR 18,22,430/-. As per the return of income, the assessee also reported exempt income arising from Long Term Capital Gain (LTCG) of INR 40,59,544/- on sale of shares of M/s. PMC Fincorp Limited (formerly known as Priti Mercantile Company Limited). The concluded assessment was however re-opened under s. 148 r.w.s. 147 of the Act on the ground that based on certain information disseminated by the AO by DIT (Inv.), Lucknow, the assessee has allegedly traded in penny stock and the name of the assessee figures in the beneficiary list of PMC Fincorp Ltd. scrip. The transaction entered into by the company were thus perceived to be non- Page | 2 genuine and alleged to facilitate introduction of unaccounted income of the assessee in the form of exempt capital gains in the books of the assessee. Based on such belief entertained, the AO alleged that the chargeable income has escaped assessment while recording reasons under s.148(2) of the Act. Pursuant to the formation of belief towards escapement of income, the AO issued notice under s. 148 of the Act at the fag end of the completion of limitation period for assumption of jurisdiction under s. 147 of the Act on 31.03.2021 to examine the issue. The re-assessment order was consequently framed under s. 147 of the Act vide order dated 23.03.2022 wherein however, the return of income was accepted by the AO without any adjustment. The stand of the assessee on LTCG claimed being exempt from taxation was accepted by the AO in the re-assessment order. The AO while framing the re-assessment order inter-alia observed that various documents, details and evidences were called for and the assessee, in turn, uploaded the requisite details, explanation and evidences in support of queries raised during the re-assessment proceedings to rebut the allegations of sham transactions. Thus after making some enquiries on the claim of LTCG in the course of re-assessment proceedings, no additions were eventually made despite express allegations on assessee company to be beneficiaries of unaccounted income purportedly received in the form of LTCG in the reasons recorded.
5. Thereafter, the Pr.CIT in exercise of revisionary powers, issued show cause notice dated 25.01.2024 under s. 263 of the Act requiring the assessee to show cause as to why the re-assessment order so framed under s. 147 r.w.s. 144B of the Act should not be modified/set aside on the ground that such order of the AO is erroneous and pre-judicial to the interest of the Revenue.
As per the show cause notice, the Pr.CIT, in essence, alleged that re-assessment order suffers from non-application of mind and was rendered without proper enquiries and verification of crucial facts required while discharging its statutory functions. The Pr.CIT alleged that the re-assessment order was passed in an stereo-typed manner without examining the genuineness of the claim of the assessee towards LTCG shown as exempt income under s. 10(38) of the Act and without conducting proper enquiry or verification which should have been made in the context of the case.
In response to the show cause notice served in the course of hearing in the revisional proceedings, the assessee vociferously contested the correctness of assumption of revisional jurisdiction and contended that specific enquiries were made by the AO on the issue for which reasons were recorded under s. 148(2) of the Act. The assessee pointed out that in the course of re-assessment proceedings, the relevant documents such as Demat account, the copy of transactions statement, details of STT paid, copy of bank statements, details of investment alongwith date of purchase and sale of calculation of capital gains etc. were furnished to the satisfaction of the AO. The statement of the account with the broker evidencing payment of STT was duly provided. It was pointed out that the case of the assessee was re-opened with a pointed purpose of examining the bonafides of the claim of exempt income and the AO has specifically recorded his affirmative satisfaction to the evidences placed and reasoning offered by the assessee. Hence, in the background of the enquiries made, one cannot say that the AO has not applied his mind and wisdom to the issues in question or has failed to take a benign view in the mater.
In the revisional proceedings, the assessee also reiterated that he has purchased shares through online platform of the stock exchange and made payments towards purchases of shares received in the Demat account. Likewise, the shares have been sold on the platform of the stock exchange and shares were transferred through clearing house and payments were in turn received on sale of shares. The purchase price and the sale price are in accord with the price quoted on the platform of the exchange. It was further pointed out that the balance sheet and Profit & Loss Account of the share of company namely M/s. PMC Fincorp Limited has been examined for the last 4 years by the AO as noted in para 9 of the assessment order. Thus, the AO has taken cognizance of the financial strength of the company while coming to the conclusion towards bonafides of the actions of the assessee.
The Pr.CIT however remarked in the revisional order that (i) the AO has failed to conduct any enquiry from the assessee as to who purchased shares at such high price while the assessee has sold such shares; (ii) the AO has not conducted enquiries requiring the assessee to explain as to how the share price increased phenomenally by 600 % per share; and (iii) the AO also did not conduct any enquiry from the assessee as to how the assessee had identified PMC Fincorp Limited shares for investment purposes. It was alleged that mere submissions of self-serving documents like Demat account, contract note, banking transactions etc. are not capable of camouflaging the bogus transactions in the nature of LTCG declared by the assessee.
The Pr.CIT thus alleged that the AO has routinely accepted the explanation filed by the assessee regarding the purchase of shares at face value without conducting any enquiry or verification on the pointed noted above. The Pr.CIT thus invoked the revisional powers vested under s. 263 of the Act r.w.Explanation-2 appended thereto and set aside the re-assessment order with direction to the AO to frame such order afresh after conducting requisite enquiries on the pertaining issue involved.
Aggrieved, the assessee is in appeal before the Tribunal. 12. The Ld. Counsel for the assessee submitted that all the documents filed to demonstrate that the transactions have been carried out on real time and all the conditions stipulated for claim of LTCG has been duly fulfilled. The purchase of shares have been credited in the Demat account and sale thereof has been transferred from the Demat account. The contract note issued by the brokers vouches for the fact that the transactions have been carried out on the platform of the exchange as per the quoted price. The Ld. Counsel also adverted to the appellate order dated 28.08.2023 passed by the Security Appellate Tribunal in the matter of M/s. PMC Fincorp Limited. The Ld. Tribunal inter-alia observed that there is nothing on record to indicate that the appellant before it were in collusion with the shareholders of the company or there was a meeting of minds. Such documents from external sources cannot thus be regarded as self-serving documents. The Ld. Counsel further submitted that the Pr.CIT has simply rejected the action of the AO without carrying even some minimal enquiry himself on the points raised. The Ld. Counsel pointed out that it is irrelevant as to who has purchased the shares as purchase and sales are carried through platform of the exchange. The assessee is not privy to such facts. The abnormal increase in the price of the shares is again not for the assessee to explain. The variation in the share prices are dependent on multiple factors resulting in a demand or supply and consequent increase or decrease in the value of shares. Likewise, there could be no easy answers to the point as to how the assessee has identified M/s. PMC Fincorp Limited for investment purpose in the age of robust social media platforms continuously suggesting investment in one scrip or the other. The assessee is only a small investor who happened to lap good profits by making investment through recognized platform in the said scrip. 12.1. To expand further, the Ld. Counsel finally submitted that it is not the objective of s. 263 of the Act to interfere with the order of the AO in each and every type of situation where the enquiry was not made in the manner expected by the Revisional Commissioner from a perfectionist point of view. It was contended that the quasi judicial action of the AO cannot be lightly struck down without showing it to be erroneous as well as prejudicial to the interest of revenue. The AO has concluded the issue having regard to the totality of facts and based on tangible material available before him and thus cannot be branded as erroneous in the name of alleged inadequacy of inquiry. 12.2. The Ld. Counsel for the assessee thus urged that the revisional order passed on wrongful assumption of jurisdiction under s. 263 of the Act requires to be quashed.
The Ld.CIT DR for the Revenue on the other hand, relied upon the revisional order and submitted that when all the allegations made in the revisional order are integrated with underlying facts, the conclusion of erroneous re-assessment order would be inescapable. The Ld.CIT DR also submitted that the Pr.CIT has merely set aside the re-assessment order for framing fresh assessment after due diligence and taking note of the relevant factual aspects. The action of Pr.CIT is thus justified in terms of Explanation-2 to s. 263 of the Act.
We have carefully considered the rival submissions on challenge to assumption of revisional jurisdiction and perused the revisional order passed by the Pr.CIT under s. 263 of the Act in this regard. While it is the case of the assessee that revisional jurisdiction exercised by the Pr.CIT is unsustainable in law, the revenue seeks to contend that impugned reassessment order has been passed without proper enquiry and thus such order is of no moment and thus rightly set aside for fresh determination of chargeable income.
Supervisory jurisdiction vested under s.263 of the Act enables the concerned Pr.CIT/CIT to review the records of any proceedings and order passed therein by the AO. It empowers the Revisional Commissioner concerned to call for and examine the records of another proceeding under the Act and if he considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue, then he may (after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary), pass such order thereon as the circumstances of the case justify, including the order enhancing or modifying the assessment or cancelling the assessment and directing afresh assessment. Thus, the revisional powers conferred on the Pr.CIT/CIT under s.263 of the Act are of wide amplitude with a view to address the revenue risks which however need to be objectively justifiable.
In the facts and circumstances of the case, the substantive issue that emerges for adjudication is whether the Pr.CIT under the umbrella of revisionary powers is entitled to upset the finality of assessment proceedings completed before the AO where the AO has allegedly committed error in passing such order without proper enquiry on the bonafides of LTCG claimed as exempt under s. 10(38) of the Act. Implicit in the question is the scope of powers of Revisional Commissioner in the event of alleged inadequacy in enquiry into various aspects of an issue. 17. On perusal of the revisional order, we notice that the Pr.CIT is essentially dis-satisfied with the degree of enquiry made in respect of the LTCG claimed by the assessee. The solitary premise to displace the completed re-assessment is inadequacy in enquiry on LTCG claimed. As vociferously pointed on behalf of the assessee, the Pr.CIT has set aside the re-assessment order primarily on the ground that the shares have been sold at abnormally high price for which necessary enquiries have not been carried out. The AO also failed to enquire into the name of the corresponding purchaser of the shares at such high price and what actuated the assessee to invest in the share of this penny stock. We are unable to see any purport in alleged inadequacy of enquiry of such points. Once the assessee has sold the shares on the platform of exchange at the quoted price, the obligation of the assessee ends unless there is any positive material in the possession of the Department to suggest that the assessee has indulged in any concerted action giving rise to unlawful profits to the assessee. The Pr.CIT, to our mind, has attempted to shift the burden on the assessee on the points where he has no control. The enquiry could have been made by the Revenue from the Exchange. No such enquiry has been made or proposed by the Pr.CIT. The Pr.CIT has made allegations cursorily without collecting any material adverse to the assessee. The Pr.CIT has merely alleged inadequacy in enquiry without any sound basis and without making even some minimal enquiry himself. No third party statement or SEBI report etc. is available adverse to the assessee to impair the bonafides of claim of the assessee. No adverse material has been brought on record to warrant a further probe as suggested in the allegation made under s. 263 of the Act. In our opinion, the view taken by the AO thus cannot be assailed solely based on suspicion & surmises.
Besides, we also find merit in the contention of the assessee that some inadequacy in the manner of inquiry cannot necessarily be a ground for invocation of powers under s. 263 of the Act. Such view has been expressed in the judgments rendered by the Hon’ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. ; ITO vs. DG Housing Projects Ltd.; Pr. CIT vs. Clix Finance India Pvt. Ltd. And Pr. CIT vs. Klaxon Trading Pvt. Ltd. etc. In the instant case, the alleged inadequacy on various points beyond the command of assessee is also devoid of any rationale.
In the light of delineation, the facts of the present case do not indicate that the twin conditions contained in s. 263 co-exists. The revisional order is thus quashed and set aside.