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Facts
The assessee's income for A.Y. 2017-18 was selected for scrutiny based on information regarding bogus long-term capital gains from penny stock transactions. A re-assessment order was passed, which was then subjected to revision proceedings under Section 263 by the Principal CIT.
Held
The Tribunal held that the re-assessment proceedings were flawed due to lack of proper inquiry and insufficient time, rendering the re-assessment order erroneous and prejudicial to the revenue's interest. Consequently, the revision order under Section 263 was found to be justified.
Key Issues
Whether the re-assessment proceedings were valid and conducted with proper inquiry, and if the PCIT was justified in invoking Section 263 powers.
Sections Cited
147, 144B, 263, 148, 143(2), 68, 10(38)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “A”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of assessee pertaining to A.Y. 2017-18 is directed against the order dated 29.03.2024 passed by Principal Commissioner of Income-tax, Pune-1 arising out of the Assessment order dated 29.03.2022 passed u/s.147 r.w.s.144B of the Income-tax Act, 1961 (in short ‘the Act).
2. Though the assessee has raised as many as eight grounds of appeal but through these grounds the assessee has assailed the revisionary order u/s.263 of the Act on two counts, firstly the assessment order passed u/s.147 r.w.s.144B of the Act itself is invalid and bad in law as it was issued on borrowed satisfaction and therefore it could not have been the subject matter of revision u/s.263 of the Act. Secondly that the ld. AO has passed the assessment order after due consideration of the facts on record adopting one of the courses available to him and therefore ld. PCIT erred in invoking the revisionary power u/s.263 of the Act and further erred in holding that the re- assessment order dated 29.03.2022 as erroneous in so far as prejudicial to the interest of the Revenue.
Brief facts of the case are that the assessee is an individual and declared income of Rs.17,07,500/- for A.Y. 2017-18 filed on 04.11.2017. Case selected for scrutiny based on the information about bogus long term capital gain addition made in the case of another assessee namely Rajendra Babulal Malu HUF and also based on the information from DDIT(Investigation), Kolkata about the bogus long term capital gain availed through a penny stock company namely Greencrest Financial Services Private Limited. Ld. AO observed that the assessee has also dealt in the very same scrip and has earned capital gain thereon. Accordingly, notice u/s.148 of the Act was issued followed by validly serving of notices u/s.143(2) of the Act. Assessee raised objections against the reopening and the same was duly dealt with by ld. AO. Assessee filed certain details and ld. AO concluded the assessment proceedings accepting the returned income. Thereafter, re-assessment records were called for by ld. PCIT. Ld. PCIT observed that the Faceless Assessing Officer has not made enquiries in its proper perspective and merely accepted the contention without any further investigation and thus noted that the re-assessment order is erroneous in sofar as prejudicial to the interest of the Revenue and a show cause notice to this effect was given to the assessee on 21.02.2024. The said show cause notice u/s.263 of the Act was replied by the assessee stating that there is no specific error or discrepancy in the assessment order. Ld. AO has adopted one of the permissible views, the issue was debatable in nature, further verification has been carried out, defective/invalid reasons recorded u/s.148, thorough investigation carried out by ld. AO and explanation given by the assessee has been accepted and that the revisionary proceedings are merely a change of opinion. Ld. PCIT however was not satisfied with these submissions and set aside the re-assessment order dated 29.03.2022 directing the AO for proper verification of facts and to re-examine the issue of transaction of sale of Equity shares by observing as follows :
“5.5 Thus, it is seen that the purchase of shares by the assessee was itself a sham transaction and therefore the whole of the transaction resulting into long term capital gain is a sham transaction. The scrip was used for providing accommodation entry. The fact has been duly confirmed by the SEBI vide its order dated 05/06/2020. This aspect of the case has not been verified by the FAO. Similar findings of the CIT(A) in the case of Shri. Rajendra B. Malu (HUF) have been upheld by the Hon'ble ITAT, Pune in appeal ITA No.1868/PUN/2018.
Failure of the FAO to examine the assessee'sclaim of Rs.56,32,272/- being long term capital gains from transactions on which Securities Transaction Tax is paid in the light of the above stated facts of the case, rendered the assessment order dated 29/03/2022 as erroneous in so far as it is prejudicial to the interests of the revenue. Therefore the assessment order passed under section 147 read with section 144B of the Act on 29/03/2022 without verification of this aspect is erroneous. Since the enquiries with regard to correctness of claim of Rs.56,32,272/- have not been made, the order passed under section 147 read with section 144B of the Act on 29/03/2022 is prejudicial to the interest of revenue. Thus, both the conditions specified under section 263 of the Act are satisfied in this case and it is a fit case to invoke provisions of the said section.
7. In view of the above, the assessment order dated 29/03/2022for the A.Y. 2017-18 is hereby set aside to the file of the Assessing Officer for proper verification of fact and to re-examine the issues considering the aspects discussed in the foregoing paragraphs and decide the issues afresh. However, before arriving at any conclusion, the Assessing Officer shall give reasonable opportunity to the assessee to adduce the evidence and information with regard to the issues involved. The Assessing Officer shall, accordingly, frame the assessment afresh.”
4. Aggrieved assessee is now in appeal before this Tribunal.
5. Ld. Counsel for the assessee vehemently argued referring to the written submissions running into 40 pages mainly contending that the re-assessment proceedings were carried out on borrowed satisfaction and the same is invalid and cannot be a subject matter of revision u/s.263 of the Act. Secondly he stated that ld. AO has taken one of the permissible view after having examined the transaction of sale of Equity shares of Greencrest Financial Services Private Limited. Reference was also made to the following documents filed in the paper book running into 201 pages Sl.No. Particulars Page Nos. 1. (a) Assessment order u/s 143(3) of the Income Tax Act 01-25 dated 15-12-2017 in the case of Mr. Rajendra Babulal Malu (HUF) for A.Y. 2015-16. (b)Order of the CIT (A) dated 03-10-2018 in the 26-45 (c) Assessment order dated 15-12-2017 in the case of 46-74 Mrs. Archana Rajendra Malu making addition in respect of the capital gains arising from the transfer of penny stock of M/s Greencrest Financial Services Ltd. (d) Order of the CIT (A) dated 03-10-2018 in the above 75-79 matter. (e) Order of the Hon'ble Tribunal dated 04-09-2023 in 80-91 the above matters.
Notice u/s 148 dated 31-03-2021. 92 3. (a) Notice dated 11-05-2021 u/s 143 (2) r.w.s 147 of the 93-96 Act issued by the Assessing Officer. (b) Letter dated 25-05-2021 filed before the Assessing 97-100 Officer in response to the above notice in the re- assessment proceedings u/s 147 objecting to re-opening of the assessment.
Reply of the Faceless Assessment Unit dated 25-02- 101-113 2022 referred to in para 3 of the assessment order dated 29-03-2022 passed u/s 147 r.w.s 144B of the Act.
Submissions dated 02-03-2022 filed by the assessee 114-127 before the Assessing Officer referred to in para 3 of the assessment order dated 29-03-2022 passed u/s 147
r.w.s 144B of the Act. 6. The judgement of the Bombay high court in the case of 128-130 Mukesh Ratila Marolia of 2007 dated 07 September 2011. 7. Order of the SEBI dated 05-06-2020 referred to in para 131-193 5.5 on page 33 of the impugned revision order u/s 263 of the Act. 8. (a) Show Cause Notice dated 21-02-2024 u/s 263 of the 194-197 Act. (b) Submissions dated 28-02-2024 filed before the 198-201 Principal Commissioner of Income Tax in response to the above notice.
6. On the other hand, ld. Departmental Representative vehemently argued supporting the order of ld. PCIT.
We have considered the rival submissions and perused the record placed before us. Assessee has challenged the revisionary proceedings u/s.263 of the Act. First ground challenging the order u/s.263 is that the re-assessment proceedings carried out in the case of assessee in itself are invalid and bad in law and issued on borrowed satisfaction. We on going through the reasons recorded by the AO for carrying out the re-assessment proceedings note that the same were based on two facts, firstly the addition made in the hands of another assessee Rajendra Babulal HUF u/s.68 of the Act for the bogus long term capital gain claimed u/s.10(38) of the Act from sale of Equity shares of Greencrest Financial Services Private Limited. Secondly, information was received from the DDIT (Investigation) Kolkata about the beneficiaries of bogus long term capital gain which involved the name of the assessee also. When these informations were received by the AO and after proper application of mind and also examining the facts of the case from its income-tax return it was found that it is a fit case for issue of notice u/s.148 of the Act. We therefore are of the considered view that reopening was not based on any borrowed satisfaction rather ld. AO has reason to believe that there is possible escapement of income in the form of bogus long term capital gain. He therefore issued notice u/s.148 of the Act and carried out the re-assessment proceedings. Therefore, the first ground raised by the assessee that the re-assessment proceedings are invalid and bad in law and could not have been a subject matter of revision u/s.263 of the Act has no merit and the same is hereby dismissed.
So far as the second issue as to whether ld. PCIT was justified in invoking section 263 of the Act and holding that the order of the AO is erroneous in so far as prejudicial to the interest of the Revenue, we find that the chronology/events which happened during the course of re-assessment proceedings indicates that after issuing of notice u/s.148 of the Act and 143(2) of the Act and after duly considering the objections raised by the assessee finally on 11.11.2021 the jurisdiction of the case was transferred to the Faceless Assessment Unit. On 06.12.2021 a letter written by the Faceless Assessing Officer was sent to the Jurisdictional Assessing Officer to upload the information and report sent by DDIT (Investigation), Kolkata on the ITBA portal. Then on 12.02.2022 FAO made a request to the ITO, Ward-1, Ichalkaranji to provide the copy of assessment order of Rajendra Babulal (HUF) and the same was uploaded on e-portal on 16.02.2022. Then on 21.02.2022 FAO asked the ITO, Ward-1, Ichalkaranji to provide a copy of CIT(A) order passed in the case of Rajendra Babulal (HUF) and it was uploaded on e-portal on 01.03.2022. On 25.02.2022 objections raised by the assessee on the re-assessment proceedings were rejected by the Faceless Assessment Unit. Certain details were filed on 02.03.022 and finally on 29.03.2022 ld. AO completed the assessment and while passing the assessment order a detailed note was given by FAO to JAO in which some of the observation relevant for the instant case are as under :
“Considering the following aspects, the present assessment is completed accepting the income returned u/s.148.
(1) The assessee has furnished all the documentary evidence in support of his submissions
(2) The SEBI has exonerated the assessee.
(3) In the present case, the assessee has asked for cross examination of the all the so-called alleged entry operators.
(4) The case is being dealt by the Faceless Assessment Unit. This unit was assigned with actionable penalties of about 150 and CASS and non CASS cases to the extent of 65. Till 31.01.2021 considerable efforts were put on disposal of penalties only, while attending to the assessment work at regular intervals. From the 1st week of Febraury, 2022 only, efforts have been put on assessment work.
(5) The time barring date is 31.03.2022 and there are directions from the higher authorities that there will no extension of time limit.
(6) Since the assessee has furnished all the information, some more efforts need to be made to disprove his claim. Then only, a speaking order on the objections of the assessee can be given.
(7) The assessee is asking for cross examination of all the persons involved. Identifying those persons, getting their PANs, providing opportunity to them through ITBA and bring the two parties at a particular time is a long procedure, which cannot be done in this fag end of the time barring date.
(8) Subsequent to that sufficient time has to be given to the assessee to respond to the reply given on the objections.
(9) After that, DAO has to be prepared and sent to risk and review unit. The, SCN+DAO has to be sent to the assessee for his response. After that also, sufficient opportunity has to be given to the assessee to respond. It is very difficult to follow the SOP given while completing the assessment in this short term available. As per the case laws, atleast four weeks time has to be given to the assessee in case of rejection of objections.
In view of the above reasons, the present assessment is completed accepting the income returned by the assessee u/s.148. The Jurisdictional Assessing Officer is requested to take suitable remedial action subsequently, in this case, if found necessary after going through facts of the case."
Now from going through the above note, it becomes crystal clear that details were filed by the assessee during the course of assessment proceedings but the assessee has also asked for cross examination of the persons involved. FAO stated that identifying those persons, getting their PAN numbers, providing opportunity to them through ITBA portal and bring the two parties at a particular time is a long procedure which cannot be done at this fag end of the time barring date. It was also observed that four weeks time has to be given to the assessee in case of rejection of objections and also it is very difficult to follow the standard operating procedure for completing the assessment in this short time available.
All these observations of the FAO clearly indicate that there was no sufficient time available with the FAO to conduct enquiry and also to give opportunity to the assessee for the cross examination request of all the persons involved. This shows that had the sufficient time available with the AO a detailed enquiry would have been carried out to reach one of the permissible view. However, due to time constraint, no proper enquiries could be conducted by the AO nor proper time was given to the assessee to respond to the outcome of such enquiry if it had been conducted. The re-assessment proceedings have been concluded just for the sake of completion before they gets time barred and necessary enquiries could not be conducted by the AO for the alleged transaction of long term capital gain u/s.10(38) of the Act. We therefore find merit in the finding of ld. PCIT observing that the re-assessment order dated 29.03.2022 is erroneous in so far as it is prejudicial to the interest of Revenue and thus has been rightly set aside so that proper re-assessment proceedings can be carried out after giving proper and reasonable opportunity to the assessee and then to decide the issue under consideration. Thus, the finding of ld. PCIT passed in the impugned order u/s.263 of the Act is confirmed and the grounds of appeal raised by the assessee are dismissed.
In the result, appeal of the assessee is dismissed. Order pronounced on this 05th day of May, 2025.