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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMAR, VICE-SHRI SIDDHARTHA NAUTIYAL
PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-
This appeal by the assessee is directed against the order dated 12.03.2024 passed by the Learned Principal Commissioner of Income Tax, Ahmedabad–1 (hereinafter referred to as “Ld. PCIT”), under section 263 of the Income-tax Act, 1961 (“the Act”), for the Assessment Year 2016–17.
The assessee has raised the following grounds of appeal:
1. That, Ld. PCIT Ahmedabad, Ward (5)(3)(2) erred in assuming jurisdiction under Section 263 of the Act and in setting aside order dated 16/03/2022 passed by the Assessing Officer in the case of assessee even when none of the jurisdictional conditions requisite for invoking section 263 were grossly missing.
2. The Ld. PCIT erred in holding that the AO has not verified the issue of accommodation entry in the form of exempt Long Term Capital Gain u/s 10 (38) of the Act, amounting to Rs.25,98,752/- in a penny stock scrip Toyam Industries Ltd., even when complete verification of the transaction was done by the Assessing Officer which is evident from the Assessment Order itself.
3. The Id. PCIT erred in holding that the order passed by the AO is erroneous and prejudicial to the interest of the revenue.
4. The Id. PCIT erred in concluding that, Toyam Industries Ltd. is paper entity with no genuine business activity and its scrip is nothing but penny stock which has been used to provide bogus profit/loss to the beneficiaries. Conclusion of Ld. PCIT is based on surmises and conjectures and therefore, cannot take the place of proof.
5. That the appellant craves the right to add, delete, amend any of the grounds of appeal either before or at the time of hearing of appeal
Brief facts of the case are that the assessee is an individual and for the year under consideration i.e. A.Y. 2016-17, the assessee had filed her return of income declaring total income of Rs.22,37,120/-, which was processed u/s 143(1) of the Act. Thereafter, the case was reopened u/s 147 of the Act by issuance of notice u/s 148 dated 30.03.2021. During reassessment proceedings, the assessee was served with notices u/s 143(2) and 142(1) of the Act, in response to which, the assessee submitted detailed replies along with supporting documents and evidences. After considering the same, the Assessing Officer completed the assessment vide order dated 16.03.2022, accepting the returned income without drawing any adverse inference.
Subsequently, the Ld. PCIT issued a notice under section 263 of the Act, proposing to revise the assessment on the ground that the order dated 16.03.2022 passed by the Assessing Officer was erroneous in so far as it was prejudicial to the interests of the Revenue. Accordingly, the Ld. PCIT set aside the said assessment order.
Being aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us.
6. The Ld. Counsel for the assessee before us submitted a detailed written submission in support of her claim, along with supporting documentary evidence, which were also furnished before the Assessing Officer during the course of assessment proceedings, as under:
a. That, the increase in the quantity of sold stock as compared to purchased stock is attributable to the sub-division [stock-splitting) of shares in the ratio of 01: 10 such that the equity share having face value of Rs. 10/- each got divided into value of Rs. 1/- each share as on 22.09.2015. b. That, the assessee had purchased 20000 shares of M/s Ojas Asset Reconstruction Company [old name] on 01.04.2014 and made payment in consideration thereof to the tune of Rs. 2,00,000/- on 05.06.2014 by banking channel, which is evident from bank statement of assessee. Thereafter, on 07.10.2015, as per Minutes of the company dated 22.09.2015, the said company re-classified its capital by carrying out sub-division [stock-split] of equity shares of face value of Rs. 10/- each into Rs. 1/ each. In this manner, the stock of assessee got raised from 20000 shares to 200000 shares. c. That, during the year under consideration, the assessee sold out 98501 shares out of 200000 shares and thus, balance of 101499 shares was left in the closing stock. d. That, later on, the said company i.e. M/s Ojas Asset Reconstruction Company Limited had changed its name to "Toyam Industries Ltd." vide Board Resolution dated 1212.2016. e. That, the Capital Gain claimed by assessee is duly supported by every possible documentary evidence such as:- i. Purchase Invoices evidencing purchase of shares; ii. Sales Invoices evidencing sale of shares; iii. Copy of Demat Account evidencing actual delivery of shares into the Demat account of assessee; iv. Bank Statement evidencing payment of purchase consideration from the bank account of assessee; v. Bank Statement evidencing receipt of sale consideration into the bank account of assessee; vi. Contract Note evidencing purchase of stock through registered broker i.e. M/s Kamalakshi Finance Corporation Ltd. vii. Copy of Income Tax Return; viii. Computation of Income; ix. P&L Account of Shares; x. Capital Account; and xi. Balance Sheet. xii. Copy of Board Resolution, Minutes of Meeting, Newspaper publication etc. evidencing change of name of company from M/s Ojas Asset Reconstruction Company Ltd. to M/s Toyam Industries Ltd.
We have carefully considered the rival submissions and perused the materials available on record.
The reasons recorded on 31.01.2022 by the Assessing Officer for the reopening of assessment u/s 148 of the Act are as under:-
“2. Brief details of Information collected/ received by the AO: In this case, information was reflected on Insight Portal. On verification of the information, it is noticed that the assessee has received claimed bogus LTCG/STCG amounting to Rs. 25,98,752/- in the penny stock Toyam Industries Ltd wherein sale trade quantity is greater than buy quantity for the year under consideration.
3. Basis of forming reasons to believe and details of escapement of income:
On perusal of the details and information, it is very clear that the assessee has received claimed bogus LTCG/STCG amounting to Rs. 25,98,752/- in the penny stock Toyam Industries Ltd. wherein sale trade quantity is greater than buy quantity for the year under consideration. In view of the above facts, I have reason to believe that income of Rs. 25,98,752/- has escaped assessment within the meaning of section 147 of the Act. Therefore it is a fit case for reopening of the assessment by invoking the provision of section 147 of the I.T. Act 1961. Accordingly, it is fit case for issuing notice u/s. 148 of the I.T. Act.”
The Ld. PCIT, in the show-cause notice dated 14.02.2024, held that the reasons recorded for reopening were related to the claim of bogus LTCG/STCG, and since the addition was not made, there was an audit objection; therefore, the amounts needed to be added back to the total income. The Ld. PCIT further held that since the above issues were not verified while finalizing the assessment, the assessment order passed was erroneous and prejudicial to the interest of the Revenue.
We find that the assessee has replied vide letter dated 26.02.2022 about the scrip and the details of purchase and sale. During the year, the assessee sold 98501 shares out of 2,00,000 shares and the balance 101,499 shares are reflected in the balance sheet as closing balance. The assessee has paid an amount of Rs.2 lakhs by cheque No. 252709 on 30.05.2014. The Assessing Officer has issued notices to the assessee during the assessment proceedings and called for entire details and also enquired into in detail regarding the sale, purchase, closing stock and profits earned and also the minutes of the meetings for stock split. Thus, the Assessing Officer had made due enquiries and after diligently examined what is required to be done and then accepted the profits returned by the assessee.
Further, we find that the operative part of the Ld. PCIT’s order u/s 263 of the Act which is as under:-
5. I have carefully and thoroughly gone through submission of the assessee. The assessee has submitted that her transactions are genuine and proceedings u/s 263 of the Act are not warranted. However, the fact is that scrip of Toyam Industries Ltd. (formally known as Ojas Asset Reconstruction Co. Ltd.) is identified as penny stock. Very few counter parties have picked up major shares of Toyam Industries Ltd. during the various Financial Years against which huge profits/losses were generated. Further, there are common counter parties who have purchased the shares of Toyam Industries Ltd. from various clients/These clients were pr-arranged to punch matching orders for purchase of the shares sold by the various clients. It is also found that some of the counterparties have not filed their return of income While some of the counter parties have filed their ITRs showing very petty income and are not filing ITR regularly, who have only booked losses in the capacity of exit providers. The creditworthiness of these parties to punch in such huge orders remained un-sustained and unexplained. Thus, it was concluded that Toyam Industries Ltd. is paper entity with no genuine business activity and its scrip is nothing but penny stock which has been used to provide bogus profit/loss to the beneficiaries.
In view of the above, it is evident that the assessee has earned bogus long term capital gain of Rs.25,98,752/- during the yar through manipulative trading of penny stock for claiming exemption u/s 10(38) of the Act. The Assessing Officer should have added the assessee bogus transaction as such credits u/s 68 of the Act. Therefore, the order of the A.O. is erroneous which caused loss of revenue.”
On going through the reasons recorded by the Assessing Officer, the show-cause notice issued by the Ld. PCIT and the relevant order of the Ld. PCIT, we find that the order u/s 263 has been invoked for the firmness that the Assessing Officer has not made the addition of the amounts mentioned in the reasons recorded and there was a consequential audit objection. The Ld. PCIT has not brought on record as to how the order of the Assessing Officer is erroneous so far as it is prejudicial to the interest of the revenue. The Assessing Officer has conducted due enquiries and has taken a reasonably plausible view after due diligence and enquiries.
It is well-settled that when the Assessing Officer makes due enquiries and takes a plausible view, the order cannot be held to be “erroneous” merely because the Ld. PCIT holds a different opinion. Where the Assessing Officer has made inquiries and taken one of the possible views, the assessment order cannot be treated as “erroneous” merely because the Ld. PCIT holds a different opinion. For this proposition, reliance is being placed on the judgment of Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC), wherein it was held that for valid invocation of section 263, the order must be both “erroneous” and “prejudicial to the interests of the Revenue”; if the Assessing Officer adopts one of the permissible views, the order cannot be revised. The same view was reiterated by the Hon’ble Supreme Court in CIT v. Max India Ltd. (2007) 295 ITR 282 (SC), holding that where two views are possible and the Assessing Officer has taken one, the order cannot be termed erroneous merely because the Ld. PCIT prefers another view. Similarly, the Hon’ble Bombay High Court in Gabriel India Ltd. v. CIT (1993) 203 ITR 108 (Bom) held that once the Assessing Officer has made due enquiries and taken a conscious decision, the order cannot be branded as erroneous merely because it is not elaborate or detailed in its reasoning. In the present case, the record clearly demonstrates that the Assessing Officer conducted adequate enquiry, examined all relevant aspects, and took a plausible view based on evidence; therefore, the assumption of jurisdiction under section 263 is legally untenable.
The reliance placed by the Ld. PCIT on the decision of the Hon’ble Madras High Court in CIT vs. Seshasayee Paper & Boards Ltd. [2000] 242 ITR 490 (Mad.) is misplaced and not applicable to the present case. In that case, the CIT had conducted independent enquiries, gathered fresh material, and established that the Assessing Officer’s order was erroneous. In contrast, in the present case, the Ld. PCIT has neither conducted any fresh enquiry nor brought any new material on record to show that the Assessing Officer’s view was incorrect. The issues were already examined during assessment, and the Ld. PCIT has merely formed a different opinion on the same facts. Hence, the cited decision is clearly distinguishable on facts and does not justify revision under section 263 of the Act.
It is also observed that the Ld. PCIT’s decision to invoke section 263 was largely influenced by the existence of an audit objection. However, an audit objection, being only an expression of opinion by the audit wing, cannot confer jurisdiction for revision. The Hon’ble Supreme Court in Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC) held that an audit objection constitutes mere opinion and cannot form the basis either for reopening an assessment or for revision under section 263. The same view has been reiterated by the Hon’ble Bombay High Court in CIT v. Reliance Communication Ltd. (2016) 69 taxmann.com 138 (Bom), holding that audit objections do not empower the PCIT to revise a completed assessment. Accordingly, the reliance placed by the Ld. PCIT on audit objection as a ground for revision is legally impermissible.
In view of the above, we hold that the revisional order passed by the Ld. PCIT under section 263 of the Act is unsustainable and is hereby quashed.
In the result, the appeal of the assessee is allowed.
The order is pronounced in the open Court on 14.11.2025.