NAVEENCHAND SUDHIR GOLECHA ,CHENNAI vs. ITO,NON-CORPORATE WARD-12(4), CHENNAI

Brief facts of the case are that the assessee is an individual engaged in investments into equity shares. The assessee has filed return of income for the assessment year 2015-16 on 28.08.2015 declaring total income of Rs.10,79,970/-. The case was taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee has derived short term capital gain from investment activity and accordingly, assessed short term capital gain u/s.111A of the Income Tax Act, 1961, and levied tax @ 15%. The case has been subsequently taken up for revision proceedings and consequently, show cause notice u/s. 263 of the Income Tax Act, 1961, was issued and called upon the assessee to explain as to why profit derived from share transactions cannot be assessed under the head ‘income from business or profession’. In the said show-cause notice, the PCIT was of the opinion that large number of transactions in shares were reported in ITMR and you have offered income under the head ‘short term capital gain’. However, while completing the assessment, the Assessing Officer has estimated short term capital gain at Rs.10 lakhs and levied tax u/s.111A of the Income Tax Act, 1961, even though the assessee had maintained books of account and got them audited u/s.44AB of the Act and hence, profit @ 8% from total turnover should have been brought to tax. Therefore, the PCIT opined that the assessment order passed by the Assessing Officer is erroneous, insofar as it is pre-judicial to the interests of the Revenue. In response, the assessee submitted that the Assessing Officer has considered very same issue of investments in shares and after considering relevant submissions has assessed profits under the head ‘short term capital gain’ in terms of section 111A and levied 15% tax.

Therefore, on the very same issue, there is no question of revision proceedings u/s.263 of the Income Tax Act, 1961.

The PCIT, after considering relevant submissions of the assessee and also taken note of certain judicial precedents held that although, the assessee has made huge transactions of purchase and sale of shares and reported said transactions as turnover from his business, the Assessing Officer has assessed surplus under the head ‘capital gains’, which resulted in erroneous order passed by the Assessing Officer, insofar as it is pre-judicial to the interests of the Revenue and thus, set aside assessment order passed by the Assessing Officer and directed the Assessing Officer to redo the assessment with a direction to examine aspect discussed in the order passed u/s.263 of the Income Tax Act, 1961.

The learned AR for the assessee submitted that the PCIT erred in assuming jurisdiction u/s.263 of the Act, and set aside assessment order without appreciating fact that the Assessing Officer has considered very same issue and has taken one possible view and thus, on the very same issue, the PCIT cannot take different view on the guise of insufficient inquiry or inadequate inquiry.

The learned DR, on the other hand, supporting order of the PCIT submitted that the assessment order passed by the Assessing Officer is erroneous, insofar as it is pre-judicial to the interests of the Revenue, because although, the assessee has reported purchase and sale transactions in shares as his business turnover, but the Assessing Officer has determined income and assessed under the head ‘short term capital gain’ which resulted in prejudicial to the interests of the Revenue and thus, the PCIT has rightly set aside assessment order in exercise of powers u/s. 263 of the Act and their order should be upheld.

We have heard both the parties, perused material available on record and gone through orders of the authorities below. The PCIT has assumed jurisdiction to revise assessment order u/s.263 of the Act on the issue of profit derived from purchase and sale of shares. According to the PCIT, when the assessee has reported purchase and sale of shares as business transactions, the Assessing Officer ought to have assessed profits under the head ‘income from business’, but not under the head ‘capital gains’. Except this, there is no other reason for the PCIT to term the assessment order passed by the Assessing Officer as erroneous, insofar as it is pre- judicial to the interests of the Revenue.

In light of above factual background, if you examine reasons given by the PCIT, we find there is no merit in reasons given by the PCIT to term the assessment order as erroneous, insofar as it is pre-judicial to the interests of the Revenue, because very same issue of profits derived from share transactions was subject matter of 143(3) assessment proceedings before the Assessing Officer, where the Assessing Officer has discussed the issue in the assessment order dated 15.12.2017 and after considering relevant details filed by the assessee, assessed profits under the head ‘short term capital gain’ and further determined profit derived for the year at Rs.10 lakhs and levied 15% tax in terms of section 111A of the Income Tax Act, 1961. In our considered view, when the Assessing Officer has taken one possible view, after considering relevant materials, then there is no scope for the PCIT to assume jurisdiction u/s.263 of the Act and set aside the assessment order, because the PCIT can assume jurisdiction in a case, where there is lack of inquiry, however, the PCIT cannot set aside the assessment order for inadequate inquiry. In this case, it is abundantly clear that the Assessing Officer has verified the issue and taken one possible view.

In the result, appeal filed by the assessee is allowed.