MR. SANJAYKUMAR AGARWAL,MUMBAI vs. PR. CIT-19, MUMBAI

This is an appeal by the assessee against order dated 24.03.2021 passed by learned Principal Commissioner of Income Tax (PCIT)-19, Mumbai under section 263 of the Income Tax Act, 1961 for the assessment year 2015-16.

Briefly, the facts are the assessee is an individual. For the assessment year under dispute, the assessee had filed his return of income on 28.09.2015 declaring total income of Rs. 14,40,420/-. Assessment in case of the assessee was completed under section 143(3) of the Income Tax Act, 1961, vide order dated 26.12.2017 determining the total income at Rs. 5,72,94,800/-. After the completion of the assessment as aforesaid, the assessee preferred an appeal 2 Assessment Year: 2015-16 before learned Commissioner (Appeals). When the matter stood thus, learned PCIT, in exercise of power under section 263 of the Act, called for and examined the assessment records of the assessee for the year under consideration. After examining the assessment record, learned PCIT found that the transaction relating to purchase and sale of shares of Super Space Infrastructure Ltd. (earlier known as Super Chemicals and Investment Ltd.) is a non genuine transaction and, in effect, in the nature of accommodation entries to regularize the un-explained investment/income of the assessee. He observed, while completing the assessment, the Assessing Officer (AO) has disallowed assessee’s claim of long term capital gain and treated the sale consideration of Rs. 5,51,46,245/- as income from other sources derived out of unexplained investment. However, according to learned PCIT, while doing so the AO has allowed deduction purchase cost of Rs. 9,18,750/- and did not add commission income estimated at 3% on the accommodation entry obtained towards sale of share. Thus, in the aforesaid premises, learned PCIT held the view that the assessment order is erroneous and prejudicial to the interest of the revenue. After issuing a show cause notice under section 263 of the Act and considering assessee’s submission, learned PCIT ultimately held that the AO having allowed deduction of the purchase cost and not added the commission income estimated at 3% of the sale consideration, the assessment order is erroneous and prejudicial to the interest of revenue. Accordingly, he set aside the assessment order with a direction to re-do the assessment in terms of observations made in the order passed under section 263 of the Act, 3 Assessment Year: 2015-16 after providing an opportunity of being heard to the assessee. Being aggrieved with the aforesaid order of learned PCIT, the assessee is before us.

Learned Counsel for the assessee submitted, while allowing deduction of purchase cost of the share, the AO has not committed any error as it is a plausible view. He submitted, the AO has made full enquiry in course of assessment proceedings and ultimately has treated the share transaction as non genuine and assessed the income as income from other sources. He submitted, once the view taken by the AO is a plausible view and supported by judicial precedents, the assessment order cannot be treated as erroneous and prejudicial to the interest of the revenue. Thus, he submitted, learned PCIT having erroneously invoked jurisdiction under section 263 of the Act, the order has to be quashed. In support of his contention, learned Authorized Representative relied upon the decision of the co-ordinate bench in case of Mrs. Manisha Ajay Shah vs. PCIT, dated 14.10.2020.

Learned Departmental Representative strongly relied upon of the observation of learned PCIT. He submitted, once the share transaction was found to be in the nature of accommodation entry, the purchase cost of share should have been added back.

We have considered rival submissions and perused the materials on record. Undisputedly, in course of assessment proceeding, the AO has enquired into the long term capital gain arising out of sale of shares M/s Super Space Infrastructure Ltd. and has ultimately concluded that the so called shares of the company noted above is non genuine and simply accommodation entry availed by the assessee on payment of commission. Accordingly, he has 4 Assessment Year: 2015-16 disallowed the difference between the sale consideration and the purchase cost of share. Additionally, the AO has also added back commission @ 3% of the gain offered for availing the accommodation entry. On perusal of the impugned assessment order as well as other materials on record, it is evident, in course of assessment proceedings, the AO has made detailed enquiry with regard to the share transaction and in fact has issued summons under section 131 of the Act to the assessee and has also recorded his statement on oath.

A perusal of statement recorded from the assessee would reveal that the AO has also enquired into the source of purchase, cost of acquisition of the shares. In response to the query made, the assessee had furnished the details of source of investment in shares made through cheque. Thus, it is not a case of lack of enquiry or inadequate enquiry by the AO regarding the purchase and sale of shares. Thus, it can be assumed that being satisfied with the statements/explanation of the assessee furnished at the time of assessment proceedings, the AO concluded that the source of investment in shares stood explain. In fact, the aforesaid view of the AO can be considered to be a plausible view in terms of the ratio laid down by the co-ordinate Bench in case of Mrs. Manisha Ajay Shah vs. PCIT (supra).

Therefore, merely because, the AO while disallowing the claim of long term capital gain has added the difference between the sale consideration of shares and the purchase cost as income from other sources, the assessment order cannot be considered to be erroneous. Therefore, one of the pre conditions of section 263 of the Act remains unfulfilled. That being the case, the assumption of jurisdiction under section 263 of the Act is invalid.