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Facts
The assessee declared Long Term Capital Gain (LTCG) on sale of shares. The AO treated LTCG as bogus and made addition, but allowed purchase cost. The CIT(A) deleted the entire addition. However, the PCIT initiated proceedings under Section 263, holding that the entire sale consideration should be taxed and purchase cost was not allowable.
Held
The Tribunal held that the PCIT's order under Section 263 was unsustainable in law. The doctrine of merger applies, and once the CIT(A) deleted the addition, the assessment order merged with the appellate order, rendering Section 263 inapplicable. The PCIT acknowledged the deletion but proceeded with revision, which was contrary to judicial discipline.
Key Issues
Whether the PCIT was justified in invoking Section 263 jurisdiction when the CIT(A) had already deleted the addition, and the assessment order had merged with the appellate order.
Sections Cited
263, 143(3), 68, 115BBE(2), 250
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Income Tax Appellate Tribunal, “ B ” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI MAKARAND V. MAHADEOKAR
आयकर अपीलीय अिधकरण, अहमदाबाद "ायपीठ “बी“, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “ B ” BENCH, AHMEDABAD सु"ी सुिच"ा का"ले, "ाियक सद" एवं "ी मकरंद वसंत महादेवकर, लेखा सद" के सम"। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं / Year : 2015-16 Shri Rajendra J. Keshwani The Pr.CIT बनाम/ (HUF) Central Circle v/s. 44, Asopalav Bungalows Ahmedabad Nr.Mukthidham Jain Temple Thaltej – 380 054 (Gujarat) "थायी लेखा सं./PAN: AAEHK 1973 J अपीलाथ%/ (Appellant) &' यथ%/ (Respondent) ….. Assessee by : Shri M.K. Patel, Advocate Revenue by : Shri V. Nandakumar, CIT-DR सुनवाई की तारीख/Date of Hearing : 12/02/2025 घोषणा की तारीख /Date of Pronouncement: 18/02/2025 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM:
This appeal has been filed by the assessee against the order passed by the Principal Commissioner of Income Tax (Central), Ahmedabad (hereinafter referred to as “PCIT”) under Section 263 of the Income Tax Act, 1961(hereinafter referred to as “the Act”), dated 22-03-2021, for the Assessment Year (AY) 2015-16, revising the assessment order passed under Section 143(3) dated 20-11-2017 by the Dy. Commissioner of Income Tax, Central Circle – 1(1), Ahmedabad (hereinafter referred to as “AO”). Shri Rajendra J. Keshwani (HUF) Asst. Year : 2015-16 2 Facts of the Case:
2. The assessee had filed its return of income declaring Long Term Capital Gain (LTCG) of Rs.1,29,20,843/- on the sale of 53,000 shares of Kappac Pharma Ltd., which were purchased off-market through Shaswat Stockbrokers Pvt. Ltd. The case was selected for scrutiny, and assessment was completed under Section 143(3) of the Act, wherein the AO treated the LTCG as bogus and made an addition under Section 68 of the Act, but allowed the deduction of purchase cost of Rs.11,68,371/-. Subsequently, the CIT(A)-11, Ahmedabad, vide order dated 22-01-2021, deleted the entire addition made by the AO, holding that the transactions were duly supported by documentary evidence and that no material existed to treat them as bogus. Despite this, the PCIT initiated proceedings under Section 263 of the Act and passed an order on 22-03-2021, holding that the entire sale consideration (and not just LTCG) should have been taxed under Section 68 of the Act, and no deduction for purchase cost was allowable in view of Section 115BBE(2) of the Act. The assessee objected to the revision proceedings, pointing out that since the CIT(A) had already deleted the addition before the PCIT passed the revisionary order, the original assessment order had merged with the CIT(A)'s order, and hence, Section 263 of the Act, could not be invoked. The PCIT, however, ignored this submission.
Aggrieved by the order of the PCIT, the assessee is in appeal before us with following grounds of appeal:
1. The learned CIT has erred in law and on facts in passing the order u/s.263 of the Act treating the assessment order u/s.143(3) of the Act for A.Y.2015/2106 passed by the DCIT Central Circle 1(1) Ahmedabad [A] on 20/11/2017 as erroneous and prejudicial to the revenue inasmuch as deduction given by the AO for cost of purchase of shares while making the addition on account of bogus LTCG on Shri Rajendra J. Keshwani (HUF) Asst. Year : 2015-16 3 ground that the cost of purchase is not allowable u/s. 115BBE(2) of the Act. In other words, the learned CIT in the impugned order taken the view that entire sales consideration on sale of shares is required to be taxed u/s 68 of the Act instead of amount of LTCG as shown by the appellant and as done by the AO. The learned CIT having not properly considered/appreciated the submission of the appellant filed before him, the impugned order u/s.263 of the Act requires to be quashed as bad in law and without jurisdiction.
The learned CIT has erred in law and on facts in failing to consider the fact that the appellant having furnished the complete details/evidences in support of the LTCG earned and after considering such material/evidences and cross enquires, the AO had come to a definite conclusion and a particular view was taken, the mere fact that the learned CIT was of a different view, it cannot be a basis for action for revision of the assessment order. The impugned order of revision u/s.263 of the Act is thus wholly justified and bad in law.
3. The learned CIT further erred in failing to consider the fact that the direction given by him in the order passed u/s 263 of the Act is to enhance the amount of addition already made by the AO which has been deleted by the learned CIT(A) -11 Ahmedabad vide his appellate order dated 22/01/2021 i.e. before passing of the order u/s. 263 of the Act and therefore when the addition itself has not been survived by virtue of the appellate order, the direction given in the order passed u/s 263 of the Act to enhance the addition already made is bad in law and thus order u/s 263 of the Act requires to be quashed. The appellant craves leave to add, amend, modify, alter or delete all or any of the above grounds as well as to raise additional grounds at the time of hearing of the appeal.
During the course of hearing before us, the Authorized Representative (AR) of the assessee submitted that the purchase cost of the shares has already been explained by the assessee during the assessment proceedings and after considering the same the AO passed the order dated 20.11-2017. The AR further submitted that the CIT(A) passed the order u/s 250 of the Act, on 22-01-2021, deleting the addition made by the AO vide his order passed u/s. 143(3) of the Act. The AR argued that the assessment order dated 20-11-2017 had merged with the CIT(A)’s order dated 22-01-2021, and since the addition itself had been deleted, there was no surviving basis for revision under Shri Rajendra J. Keshwani (HUF) Asst. Year : 2015-16 Section 263 of the Act. The AR pointed out that even though para 6.1 of the PCIT’s order acknowledges that the CIT(A) had already deleted the addition, the PCIT still proceeded with revisionary jurisdiction, which is legally untenable. The AR also stated that the AO had taken a possible and legally sustainable view while making the addition and allowed the purchase cost and since the CIT(A) had already set aside the addition, there was no prejudice to revenue, making Section 263 inapplicable.
The Departmental Representative (DR) relied on the order of the PCIT, acknowledging that the CIT(A)'s order was passed before the PCIT’s order, but still defended the invocation of Section 263 of the Act, on the ground that the AO had erroneously allowed purchase cost as deduction.
We have carefully considered the rival contentions and perused the records. The principal issue for consideration is whether the PCIT was justified in invoking revisionary jurisdiction under Section 263 of the Act, despite the fact that the order of the AO had already merged with the appellate order of the CIT(A). It is undisputed that the assessment order under Section 143(3) of the Act was passed on 20-11-2017, wherein the AO had treated the LTCG on the sale of shares as bogus and made an addition under Section 68 but allowed the deduction for the purchase cost of Rs.11,68,371/-. The CIT(A)-11, Ahmedabad, vide order dated 22-01-2021, deleted the entire addition after considering the submissions and evidences furnished by the assessee. Despite this, the PCIT initiated proceedings, by issuing show cause notice on 15-02-2021, under Section 263 of the Act and passed an order on 22-03-2021 holding that the entire sale consideration, and not just LTCG, ought to have been taxed under Section 68 of the Act and that Shri Rajendra J. Keshwani (HUF) Asst. Year : 2015-16 no deduction for purchase cost was allowable in view of Section 115BBE(2) of the Act. The assessee had duly objected to the revision proceedings, pointing out that the assessment order had already merged with the appellate order and thus, there was no surviving basis for revision under Section 263 of the Act. However, the PCIT disregarded this submission and proceeded with the revisionary order directing the AO to disallow the deduction of purchase cost of Rs.11,68,371/- under Section 115BBE(2) of the Act.
6.1. In our considered view, the revisionary order passed by the PCIT is unsustainable in law. The doctrine of merger is well established and has been upheld by various judicial pronouncements which categorically held that once an assessment order is adjudicated upon by the first appellate authority, it merges with the appellate order and cannot be revised under Section 263 of the Act. Further, it is pertinent to note that the PCIT himself acknowledged in para 6.1 of his order that the CIT(A) had already deleted the addition, yet he proceeded with the revisionary order, which is contrary to judicial discipline. Section 263 of the Act can be invoked only when the order of the AO is both erroneous and prejudicial to the interests of revenue.
6.2. In the present case, once the CIT(A) deleted the addition, there remained no prejudice to revenue, making the revisionary order redundant. It is also settled law that if an AO has taken a plausible view based on facts and circumstances, the PCIT cannot invoke Section 263 of the Act merely because he holds a different view. The PCIT’s action has also resulted in unnecessary litigation for the assessee despite the fact that the issue was already adjudicated in favour of the assessee. Shri Rajendra J. Keshwani (HUF) Asst. Year : 2015-16 6.3. It is also pertinent to note that this bench has dismissed the appeal of the Revenue against the order of the CIT(A), who had deleted the addition made by the AO after duly considering the evidences and confirming the genuineness of both the purchase and sale of shares. This further reinforces the fact that the issue has attained finality in favour of the assessee, and the invocation of jurisdiction under Section 263 of the Act by the PCIT was unwarranted.
6.4. In light of the foregoing, we hold that the order passed by the PCIT under Section 263 of the Act is without jurisdiction and is accordingly quashed.