S K MODI, HUF,AHMEDABAD vs. THE PR. CIT, AHMEDABAD-3, AHMEDABAD

That on facts, and in law, the Learned PCIT has grievously erred in exercising juri iction u/s 263 of the Act on the same issue for which the assessment was re-opened u/s 147 of the Act, and after considering the submissions and evidences filed, no addition was made in the re-opened assessment.

That on facts, and in law, the Learned PCIT has grievously erred in holding that short term capital gain of Rs.62,49,278/- declared by the appellant was required to be added u/s 68 of the Act and taxed u/s 115BBE of the Act.

The relevant facts in brief are that the Assessee in the present case is Hindu Undivided Family. The assessment under Section 147 read with Section 144B of the Act was framed on the Assessee for the Assessment Year 2017-2018 vide Assessment Order, dated 27/04/2023. Subsequently, vide Order dated 27/03/2026, passed under Section 263 of the Act the aforesaid Assessment Order was set- aside by the Learned PCIT and the Assessing Officer was directed to pass fresh assessment order. By way of the present appeal the Assessee has challenged the aforesaid Order passed by the Learned PCIT under section 263 of the Act on the grounds reproduced in Paragraph 2 above.

When the appeal was taken up for hearing Learned Authorized Representative for the Assessee placed on record decision of Ahmedabad Bench in case of Shama Ajay Patel Vs. The CIT (IT& TP), Ahmedabad: ITA No. 132/AHD/2023, Assessment Year 2017-2018, Dated 26/04/2024) and submitted that the aforesaid decision squarely applied to the facts of the case. It was submitted that the exercise of power under Section 263 of the Act by the Learned PCIT was bad in law since the Assessing Officer had initiated reassessment proceedings taking into consideration the share trading transactions undertaken by the Assessee in alleged penny-stock script (i.e, Kushal Tradelink/Kushal Limited). It was submitted that during the course of hearing specific query was raised by the Assessing Officer in relation to the aforesaid share trading transactions and in response to the same the Assessee has filed relevant submissions/details and the supporting documents. After examining the same, the Assessing Officer had passed the Assessment Order accepting the returned income filed by the Assessee. It was vehemently contended that the Learned PCIT had erred in observing that Assessing Officer had failed to carry out any enquiry/investigation in relation to the aforesaid issue.

Per Contra Learned Departmental Representative supported the order passed by the Learned PCIT and placed heavy reliance on the Paragraph 15 and 16 of the impugned order which reads as under:

In view of above discussion, it is found that the assessment order passed by the A.O. u/s 147 r.w.s.144B of the Act dated 27/04/2023 is erroneous and prejudicial to the interest of the revenue on the ground that the accommodation entries in the form of bogus short term capital gain shown by the assessee was required to be added by the A.O. as unexplained income u/s. 68/69A of the ACT read with Section 115BBE of the Act and taxed @ 60% u/s. 115BBE.

By virtue of the powers vested in me u/s. 263 of the IT Act, the order for AY 2017-18 u/ s. 147 r.w.s.144B of the Act dated 27/04/2023 is hereby set-aside on the issues discussed above and direct the Assessing Officer to pass a fresh assessment order and treat entire sale proceeds from above referred scripts discussed herein above as unexplained receipts and provisions of Section 115BBE would be applicable. The AO is also directed to make addition as assessee has failed to prove sources of such investments. The assessee will be at liberty to adduce the relevant evidence/material before the Assessing Officer at the time of de novo assessment in consequence to this order and the Assessing Officer shall allow the assessee adequate opportunity of being heard and to make relevant submissions.” (Emphasis Supplied)

Having considered the rival submissions and on perusal of record we find merit in the contention advanced by Learned Authorized Representative for the Assessee. Perusal of the Assessment Order shows that the Assessing Officer had initiated re-assessment proceedings after receiving specific information relating to utilization of share trading transactions in alleged penny-stock script for introducing unaccounted income in the books of accounts as exempt long term capital gains. Vide notice, dated 18/01/2023 and 01/03/2023, issued by the Assessing Officer specific query was raised upon the Assessee in this regard. We note that the Assessee had filed reply on 09/03/2023 providing relevant details, supporting documents and submission claiming that the share trading transactions undertaken by the Assessee were genuine and supported by the documentary evidence. The Assessing Officer had failed to appreciate that the Assessee had earned short term capital gains income which was offered to tax; the share trading transaction were undertaken through stock exchange and purchase/sale transactions were verifiable and genuine. On perusal of page number 3.2 to 3.26 of the Assessment Order, we find that the Assessing Officer had taken into consideration the submission/document furnished by the Assessee and had accepted the return income by the Assessee. We note that the Assessee had furnished contract notes, brokerage/Ledger and bank account statement. On verification of the aforesaid documents/detail the Assessing Officer concluded that the Assessee has not earned long term capital gains and had offered to tax short term capital gains of INR.62,49,277/- during the relevant previous year. Therefore, we are of the view that in the facts and circumstances of the present case it cannot be said that the Assessing Officer had failed to carry out necessary enquiry/verification. To the contrary we are of the view that the Assessing Officer had taken a plausible view. We note in the case of Shama Ajay Patel Vs. The CIT(IT & TP) (Supra), relied upon by the Learned Authorised representative for the Assessee during the course of hearing, the Coordinate Bench of the Tribunal had set-aside the order passed under Section 263 of the Act taking note of identical facts and circumstances. The relevant extract of the aforesaid decision of the Tribunal read as under:

We have also considered the reply of the assessee, and we are of the view that the Assessing Officer was palpably right in accepting the transactions as genuine considering the fact that the trading in shares of M/s Kushal Limited was not the only transaction of the assessee, but was one of the many transactions entered into by the assessee while trading in shares of various companies - that too through an established broker i.e. M/s. IIFL Securities, and 6 sourced through her NRE account. We see no reason to doubt the genuineness of the transactions as explained by the assessee, nor has the ld. CIT (IT & TP) pointed out any such reason. We have also noted that the assessee has given a detailed explanation and description of the company M/s. Kushal Limited regarding the value of its shares at which sold being justified. The said description of the company was given to the Assessing Officer and also to the ld. CIT (IT & TP), and is placed before us at paper-book page Nos. 45-51. The brief gist of the same is as under……………………….

The Ld. CIT(IT & TP) has pointed out no fallacy in the justification of price of shares of M/s Kushal Limited by the assessee. The assessee, thereforehaving justified the value of shares of M/s. Kushal Limited, having The Ab demonstrated the shares to have been traded during the regular course of trading in shares through genuine sources and through an established broker, The Assessing Officer, we hold, had taken a plausible view in accepting the transactions of trading in shares of M/s. Kushal Limited as genuine. The Id. CIT (IT & TP) having not pointed out any reason for doubting the explanation of the assessee, we are not in agreement with the ld. CIT (IT & TP) that the Assessing Officer had not made adequate inquiries on this issue. The finding of the Id. CIT (IT & TP), therefore, that the order passed by the Assessing Officer was erroneous is, we hold, not sustainable. The order passed u/s 263 of the Act is, therefore, directed to be set aside.

In effect, the appeal of the assessee is allowed”