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Facts
The assessee filed its return of income for AY 2015-16. The case was reopened under Section 147 and the assessment order accepted the returned income. The Pr.CIT initiated revision proceedings under Section 263, alleging that the AO had not properly verified transactions related to penny stocks and derivatives, which led to underassessment.
Held
The Tribunal held that the Pr.CIT had not applied his mind to the contentions raised by the assessee and had merely reiterated the reasons for reopening. The Tribunal found that the assessee had demonstrated that profits from F&O transactions were disclosed, and no bogus losses were booked. Therefore, the revision order under Section 263 was set aside.
Key Issues
Whether the Pr.CIT correctly assumed jurisdiction under Section 263 without properly considering the assessee's submissions and the AO's findings during the assessment proceedings.
Sections Cited
147, 263, 148, 144B, 69, 142(1)
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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER
The above appeal is filed by the assessee against order passed by the ld.Pr.Commissioner of Income-1, Ahmedabad dated 16.3.2024 in exercise of revisionary power under section 263 of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] for the assessment year 2015-16.
The grounds raised in the appeal by the assessee are as under:
1) The ld.Pr.CIT erred in law as well as on fact in assuming jurisdiction u/s.263 of the Act: 2) The ld.Pr.CIT erred in law as well as on fact in passing order u/s.263 of the Act and in holding that the assessment order
As transpires from the order of the ld.Pr.CIT, the revisionary jurisdiction under section 263 of the Act was exercised by the ld.Pr.CIT on the assessment order passed in the case of the assessee for the impugned assessment year under section 147 of the Act, on noting from the record that the despite the assessee having made huge transactions of purchase and sale of equity shares and derivative trading, the AO had not verified the issue totaling in all to Rs.75,78,885/-. The ld.Pr.CIT notes that the reopening was resorted to for the same reason that the financial transactions of the assessee by way of purchase and sale of equity shares and derivative trading, amounting to Rs.75,78,885/- which was found not commensurate with the return of income filed by the assessee, had escaped assessment. But as per the ld.Pr.CIT, the AO despite information in his possession failed to verify this issue, and accordingly, he assumed jurisdiction under section 263 of the Act to revise the order of the AO.
Due reply was filed by the assessee to the Ld.PCIT during revisionary proceedings, stating that the issue was duly examined during the assessment proceedings. It was also pointed out by the assessee that the ld.Pr.CIT had found error in the order of the AO for the reason that despite information being available with the AO that the assessee had entered in to penny stock transactions and subsequently claimed set off of the profits earned thereon by way of booking bogus long-term/short term capital loss so as to accommodate unaccounted money, there was in fact no loss booked by the assessee during the impugned year at all. It was pointed out that the assessee had returned only profits on F&O transaction. That there was therefore no error in the order passed by the AO accepting the income returned by the assessee.
3 5. The ld.Pr.CIT was not convinced with the reply of the assessee, finding that despite specific reasons for reopening, the AO having not verified the transaction reported in INSIGHT portal, nor having adhered to the reasons of the reopening, this error by the AO had resulted in underassessment, and thereby short levy of taxes to the said extent. He accordingly held the order of the AO under section 147 of the Act to be erroneous and prejudicial to the interest of the Revenue, and restored the issue back to the file of the AO for the limited purpose of the AO verifying all the transactions, and accordingly take appropriate inference based on the facts of the case and decide as per law.
Before us, the arguments of the ld.counsel for the assessee against the order passed by the ld.Pr.CIT was two fold –
i) The ld.counsel for the assessee reiterated the contentions made before the ld.Pr.CIT that the issue had been duly examined during the re-assessment proceedings ;that the assessee had filed all evidences relating to the transactions, and it was abundantly clear from the same that the assessee had booked no loss to set off the profits earned from the F&O transaction ,as alleged in the information available with the AO and referred to by the Ld.PCIT; that the AO accordingly taken a plausible view on the matter by making no addition to the income of the assessee; ii) That the ld.Pr.CIT had not recorded any specific finding of error after considering the submissions filed by the assessee before him contending to the effect that the issue stood duly examined by the AO, and there was no set off
The ld.DR, however, supported the order of the ld.Pr.CIT.
We have heard rival contentions and gone through the order of the ld.Pr.CIT, as also various documents placed before us in the form of paper-book compilation. The notice issued by the ld.Pr.CIT for assuming jurisdiction to revise the order of the AO, which was placed before us at PB Page NO.1 and 2 reveals that the ld.Pr.CIT derived from the records of the assessee that the reopening assessment proceedings under section 147 of the Act had been undertaken on the assessee, on the information that the assessee had made huge transaction in penny stock scrips/equity/derivatives and subsequently claimed bogus long term capital loss to accommodate unaccounted money/income by way of reverse trade mechanism in option derivate trading.
That despite so, the AO had not properly verified or investigated the issue while completing assessment proceedings under section 147 of the Act. The ld.Pr.CIT notes that the transaction so undertaken by the assessee amounting to Rs.75,78,885/- and addition of the same ought to have been made to the income of the assessee under section 69 of the Act. The failure on the part of the AO to properly verify this issue of the assessee having accommodated unaccounted income in its books by way of entering into penny stock transactions, and setting of the profits thereof by claiming bogus long term capital loss, despite specific information in the possession of the AO had rendered the assessment order erroneous. The contents of the notice under section 263 are reproduced hereunder:
Therefore, as per the ld.Pr.CIT, the AO was in possession of the information of the assessee having accommodated its unaccounted money by entering into penny stock transaction, and subsequently claiming bogus long term capital loss against the same, which the AO had failed to verify in proceedings under section 147 of the Act.
Before us, the ld.counsel for the assessee contended that reassessment proceedings were initiated on the assessee under section 147 of the Act for the same reasons, during which, queries were raised by the AO, and due reply filed by the assessee, demonstrating that the assessee had earned only profits on F&O trading, which were done through an entity, viz. Kayan Securities P.Ltd. and no losses were booked by the assessee in any form. It was also pointed out that the assessee had paid STT to the broker. Copy of ledger account of the broker, Kayan Securities P.Ltd., from the books of the assessee, copy of contract notes for the transactions carried out, copy of the statement showing contract-wise profit/loss along with F&O derivative income ledger account from the books of 7 the company, it was pointed out, were produced before the AO. Our attention was drawn: • to the copy of reasons for reopening the case of the assessee under section 147 of the Act, placed before us at PB Page no.21 to 22, pointing out therefrom that the reopening was resorted to for the same very reason as noted by the ld.Pr.CIT that there was information in the possession of the AO that the assessee had made huge transactions in penny stock, and subsequently claimed bogus short/long term capital loss against the same to accommodate unaccounted money/income.
Our attention as drawn thereafter to the notice issued by the AO under section 142(1) of the Act during the reassessment asking the assessee to furnish details of DEMAT/ trading account held by the assessee, copy of transaction statement relating to the same, the details of STT paid by the assessee, ledger account of the assessee in the broker’s book, copy of the contract note of the transaction, and the transaction details of the equity or derivatives done by the assessee (PB Page no.31).
• Our attention as also drawn to the reply filed by the assessee placed at PB Page no.32 to 47, pointing out there from that the assessee had submitted to have no DEMAT account and the trading activity carried out of F&O transaction through Kayan Securities and paid to STT to the brokers on the transactions entered into. It was also pointed out that all necessary evidences in relation to the transactions being, the copy of the ledger account of the broker, copy of the contract notes of the transaction, and copy of the statement showing contract-wise profit earned.
8 • From the copy of the statement showing contract-wise profits placed at PB Page No.46, it was pointed out that the transaction entered into by the assessee had resulted into profits earned of Rs.75,78,885/-, and all of which had been disclosed in the P&L account of the assessee. • The ld.counsel for the assessee also pointed out that all these facts, relating to the issue having been duly examined during the re-assessment proceedings, were demonstrated to the ld.Pr.CIT also pointing out again to him that the assessee had not booked any loss, as noted in the reasons recorded in the reopening, as also in the alleged finding of the error by the ld.Pr.CIT in this regard. Our attention was drawn in this regard to a specific submission made to the ld.Pr.CIT in the letter dated 6.2.2024 as under: o “As the income from F&O transactions for Rs.75,72,4571- were already disclosed in the audited P & L A/c and regular income of the company while filling the ITR and offered for tax without any set off of alleged short-term or long-term capital loss to accommodate unaccounted money/income by way of using reverse trade mechanism in option derivative trading, there is no question of treating it an unexplained investments u/s 69 of the Act on account of under assessment of income, as proposed by your honour. In view of the above stated facts and submissions, we request you to drop the idea of reassessment proceeding and cancel/quash the notice issued u/s 263 of the Act and pass the necessary order without any modification or adverse effect.” o Our attention as also drawn to the fact pointed out to the ld.Pr.CIT that profits earned by the assessee in F&O transaction amounted to Rs.75,78,885/-, but the assessee had returned net profit of Rs.26.34 lakhs after depreciation of Rs.55.56 lakhs. The submissions in this regard placed before us at PB Page No.14 are as under: o “1, During the course of assessment proceedings u/s 147 r.w.s. 144B of the Act, the Ld. AO vide notice u/s 142(1) of the Act dated 22/12/2021 has called for the details with respect to derivative transactions, in response to the said notice, we have already placed the ledger account of F & O as well as gross and net amount of F&O transaction as per Encl-3 vide our reply filed on 10/01/2022. We resubmit the said F&O Account with transactions details here with as per ENCL-1. o 2 During the year under consideration, the Company has made net profit (PBT) of Rs.26,34,376/- after depreciation of Rs.5556530/-.The accounts of the company were audited under the Companies Act as well as Income tax Act and the audited financial statements were submitted before the Ld. A.O. during the course of assessment proceedings as well as in the previous submission dated 06/02/2024 to your good self also. The net profit at the year-end is a result of all the business transactions carried out during the year. We have not set off any carried forward losses, short term / long term capital losses as alleged by your honour Further, the Ld. A.O. has verified all transactions of F & O derivative as per reason recorded before issuing the notice u/s 148 of the Act.”
A bare perusal of the above would reveal that the assessee had sufficiently demonstrated to the ld.Pr.CIT the facts relating to the issue that the assessee had booked profits of Rs.75,78,885/- and had not claimed any set off of any loss against the same, and returned all profits to tax by disclosing the same in its P&L account; that the assessee had only set off depreciation against the same, and no loss. The assessee also demonstrated all these issues to have been brought to the notice of the AO also.
Having noted so, we find that the ld.Pr.CIT while arriving at his finding of the error of the AO has not dealt with any of the contentions made by the ld.counsel for the assessee. A bare perusal of the finding at page no3 of his order would reveal this fact. The ld.Pr.CIT has only reproduced the reasons recorded for reopening and has noted that despite specific reasons for reopening, the AO has not looked into the issue properly. He has not dealt with the contentions of the assessee clearly pointing out that the issue was examined during the assessment proceedings. He has not dealt the contentions of the assessee that the information in the possession of the AO that the assessee had booked bogus short/long term capital loss was incorrect, because the assessee has booked no such loss. In short, the ld.Pr.CIT has not applied his mind to the contentions made by the ld.counsel for the assessee and has only reiterated the basis on which 10 he assumed jurisdiction under section 263 of the Act. There is clearly no finding of the error by the ld.Pr.CIT in the order of the AO. The ld.Pr.CIT has not found any specific error in the order made by the AO .Even on merit, we have noted that the allegations of the Department of the assessee having booked unaccounted income by way of entering into transactions of bogus penny stock was incorrect, since, as demonstrated by the assessee, all the transactions were done through a stock broker by paying STT and no losses were booked against it. None of this factual contention of the assessee have been controverted nor any infirmity found by the ld.Pr.CIT. The ld.Pr.CIT has also not pointed out what further inquiry was required in the matter and what prompted further inquiry, considering the submissions made by the assessee, both before the AO and the Ld.PCIT, that the information with the department of the assessee having introduced unaccounted income by entering into penny stock transactions and booking bogus losses against it, was suitably demonstrated by the assessee to be incorrect.
In view of the same, we are in complete agreement with the ld.counsel for the assessee that there is no finding of error in the order of the AO by the ld.Pr.CIT. Therefore, the order passed under section 263 by the ld.Pr.CIT is directed to be set aside.
In the result, the appeal of the assesse is allowed.
Order pronounced in the Court on 14th February, 2025 at Ahmedabad.