Loading judgment…
Facts
The assessee filed a return of income which was accepted without scrutiny. Later, information about a Long Term Capital Gain (LTCG) transaction from Lifeline Securities Ltd. of Rs. 48,54,326/- arose, which the AO believed to be not genuine and required reopening of assessment under Section 147.
Held
The tribunal held that the Commissioner erred in invoking Section 263 because the scope of the assessment order could not be unilaterally enlarged. Furthermore, the reopening notice under Section 148 was issued after the prescribed date. The tribunal also noted that the Commissioner relied on material not provided to the assessee.
Key Issues
Whether the Commissioner was justified in invoking Section 263 to revise an assessment order, particularly when the original reassessment itself might have been time-barred and the Commissioner relied on external material.
Sections Cited
147, 143(3), 263, 148, 10(38), 143(1), 144B, 132, 142(1), 151(1), 144A, 120, 129
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI MANOJ KUMAR AGGARWAL
Assessee by : ShriSudhir Sehgal, Advocate Revenue by :Smt. Kusum Bansal, CIT DR Date of Hearing :26.03.2025 Date of Pronouncement :14.05.2025 HYBRID HEARING ORDER PER RAJ PAL YADAV, VP The present appeal is directed at the instance of assessee against the order of the ld. Commissioner of Income Tax [in short ‘the CIT’] dated 23.02.2024 passed under Section 263 of the Income Tax Act, 1961 in assessment year 2015-16.
2. The assessee has taken five grounds of appeal but her grievance revolves around a single issue namely, ld. CIT has A.Y.2015-16 2 erred in taking cognizance under Section 263 of the Income Tax Act and thereby setting aside the assessment order dated 23.03.2022 passed under Section 147 read with Section 143(3) of the Income Tax Act. The ld. CIT has further erred in directing the AO to frame a denovo assessment.
The brief facts of the case are that assessee has filed her return of income electronically declaring total income of Rs.3,62,510/-. This return was accepted by the Department and no scrutiny assessment under Section 143(3) was framed. The AO got an information that assessee has undertaken a transaction of sale and purchase in the scrips of Lifeline Securities Ltd. which has generated Long Term Capital Gain of Rs.48,54,326/-. The AO has recorded the reasons that this claim of Long Term Capital Gain is not genuine, hence, assessment is required to be reopened. The copy of the approval which contains brief note from the AO exhibiting the reasons for re-opening is placed on page No. 11 to 13 of the Paper Book. We deem it appropriate to take A.Y.2015-16 3 note of the reasons for re-opening from page No. 12 to 13, which read as under :
“A s per ITD database, the assessee e-filed his return of income for the assessment year 2015-16 declaring an income of Rs. 3,62,510/-. No scrutiny assessee u/s 143(3) has taken place in the case of the assessee for the relevant year.
2. In the case of the assessee, information was received from Deputy Director of Income Tax (Inv.), Rohtak through insight portal that that a search action was conducted u/s 132 of the Income Tax Act in the case of Kundu Group on 25.02.2021. Kundu group was involved in claiming of non genuine tax exempt LTCG in penny stock companies. It was revealed from a careful examination of the information that the claim of non genuine LTCG was made through investment in Lifeline securities limitedin order to evade income tax. During the search and post search investigation it was found that the assessee and his family members have taken long term capital gain (LTCG), exempt u/s 10(38) of the Income Tax Act, 1961, in F.Y. 2012-13, 2013-14, 2014-15 and 2015-16 through investment in shares of INDUSIND Bank. However, the assessee have claimed exempt LTCG in the ITR only during F.Y. 2012-13 and F.Y. 2013-14. During the search proceedings contact notes for purchase of shares during financial year 2009-10 by assessee and his family members were found and seized. As per the contact notes, the shares have been shown as purchased by the family members in financial year 2009-10 through broker Lifeline Securities Limited. However, on the date mentioned in the contact note, neither shares were purchased on the exchange in the name of these family members nor the share broker Lifeline Securities Limited had the shares in its de-mat account on that date. It means the contact notes have been forged and are also bogus contract notes. The value of share of Smt. Sandhya Goel for the assessment year 2015-16 is Rs. 48,54,326/- as per the information received in this office.
3. The information was carefully perused and it was noted that the assessee had entered into sale/purchase transaction of Rs. 48,54,326/- in the scrip of Lifeline Securities Limited during the F.Y. 2014-15. The copy of return of income for the A.Y. 2015-16 was carefully perused and it was noted that the assessee had filed a taxable income of Rs. 3,62,510/- only which also substantiates the fact that the assessee has not entered into a genuine transactions.
4. The information available was carefully studied and it was found that the assessee had entered into sale/purchase transaction of Rs. 48,54,326/- in the scrip of Lifeline Securities Limited during the F.Y. 2014-15. It is relevant to mention here that in the case of assessee, "the sell trade quantity is higher than buy trade quantiy." Accordingly, owing to the fact that the assessee had filed a taxable income of Rs. 3,62,510/- only which is not commensurable to A.Y.2015-16 4 entering into such huge transactions, it substantiates the fact that the assessee has notentered into a genuine transaction. Therefore, the undersigned has reasons to believe that the nature and source of such share transaction amounting to Rs. 48,54,326/- as mentioned above remains unexplained.
Thus, after independent analysis of the information available on record with respect of the above stated facts, I have reasons to believe that income to the tune of Rs. 48,54,326/- chargeable to Income Tax has escaped the ambit of taxation and has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961. In the present case, the undersigned has information as well as sufficient reasons to believe that income for the A.Y. 2015-16 has escaped assessment. In view of the above facts, I have reasons to believe that income 48,54,326/-has escaped assessment for A.Y. 2015-16. 6. The assessee e-filed her return of income for the assessment year 2015-16 but no scrutiny has taken place in the case of the assessee for the relevant year which was processed u/s 143(1) of the Income Tax Act, 1961. As per the provisions of clause (b) of Explanation 2 to the section 147 of the Income tax Act, 1961, are applicable to facts of this case which is reproduced as under :- "where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return" Considering the factual matrix, statutory provisions and legal principles, the undersigned has reason to believe that there is escapement of income to the tune of more than Rs. One lakh chargeable to tax for the A.Y. 2015-16 and therefore it is a fit case for initiation of proceedings in terms of section 147 of the Income tax Act, 1961 and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 of the income Tax Act, .1961 has been obtained separately from the Principal Commissioner of Income Tax as per the provisions of Section 151(1) of the Income Tax Act, 1961.”
4. The AO thereafter issued notices under Section 143(2) as well as 142(1) of the Income Tax Act. He passed the assessment order on 23.03.2022 and accepted the claim of A.Y.2015-16 5 the assessee. In other words, the AO did not make any addition.
5. The ld. Commissioner perused the assessment record and formed an opinion that assessment order is erroneous which has caused prejudice to the interests of the Revenue, hence it deserves to be revised. Accordingly, he issued a Show Cause Notice under Section 263 of the Income Tax Act.
The copy of the Show Cause Notice is placed on page No. 52 to 54. We deem it appropriate to take note of this Show Cause Notice which read as under :
Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961-Assessment Year 2015-16. In this regard, a hearing in the matter is fixed on 22/01/2024 at 11:00 AM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in Sub :- Show Cause Notice u/s 263 of the Income-tax Act, 1961, for A.Y. 2015-16- regarding -
1. Kindly refer to the Assessment order for AY 2015-16 passed on 23.03.2022 in your case u/s 147 of the Income Tax Act'.
2. Upon examination of the above assessment order and assessment records for A.Y. 2015-16, the following points have been noticed:- Return of income for A.Y. 2015-16 was filed by you declaring total income of Rs. 3,62,510/-. Subsequently, notice u/s 148 of the Act was issued to you. In response to notice issued dated 31.03.2021 u/s 148 of the Income Tax Act, 1961, return was filed by you on 26.4.2021 declaring income of A.Y.2015-16 6 Rs.3,62,510/-. Assessment was completed by NaAC u/s 147 r.w.s 144B of the Income Tax Act on 23.03.2022 by accepting the returned income. On perusal of the assessment records, it is noticed that the case was reopened u/s 148 on the basis of information received from the DDIT- Rohtak, that you had claimed bogus LTCG exemption u/s 10(38) of the Act for F.Y. 2015-16 on sale of shares of INDUSIND Bank amounting to Rs.48,54,326/-. As per information received on Insight Portal, a search was conducted u/s 132 of the Income Tax Act, 1961, in the case of Kundu Group on 25.02.2021. Kundu group was involved in claiming non genuine tax-exempt LTCG in penny stock companies. The claim of non genuine LTCG was made through investment in Lifeline Securities Limited in order to evade Income Tax. During search proceedings, contract notes for purchase of shares during F.Y. 2009-10 by you and your family members were found and seized. As per the contact notes, the shares have been shown as purchased by you and your family members in F.Y. 2009-10 through broker Lifeline Securities Limited. However, on the date mentioned in the contract notes, neither shares were purchased on the Exchange in your name or in name of your family members nor the share broker Lifeline Securities Limited had these shares in its Demat account on that date. Thus it was found that the contact notes had been forged and were bogus contract notes. In other words, the purchase of shares by you was not genuine. However, the AO has completed the assessment by accepting the returned income without bringing on record any document from which it was verified that the shares of INDUSIND Bank had been genuinely purchased by you through stock exchange, or that you had actually made any payment for purchase of these shares to the broker concern. In the absence of requisite inquiry as mentioned above, the AO erred in not treating the amount of Rs. 48,54,326/- as your income from unexplained sources. The assessment was completed without making inquiries or verification which should have been made under the facts and circumstances of the case. Further, the assessment order has been passed allowing relief without inquiring into the claim which was called for in view of the information received from the DDIT-Rohtak consequent to search conducted u/s 132 of the Income Tax Act, 1961, in the case of Kundu Group on 25.02.2021.
3. Accordingly, I propose to hold the said assessment order to be erroneous, insofar as it is prejudicial to the interests of revenue in terms of Section 263 of the A.Y.2015-16 7 Income Tax Act, 1961, especially clauses (a) and (b) of Explanation 2 to Sec 263 of the Income-tax Act, 1961.
As per provision of Sec. 263 of the Income Tax Act, you are hereby given an opportunity to file your reply/objections, if any, to the proposed action before the undersigned by 22.01.2024 on which date your case stands fixed for hearing at 11:00 A.M. in the office of the Pr. Commissioner of Income Tax, Room No. 105, First Floor, Aayakar Bhawan, Sector-02, Panchkula-134112. The reply along with supporting documentary evidence may be filed on the e-filing portal of the department or sent through e-mail to panchkula.pcit@incometax.gov.in in downloadable word file . In addition to it, it should be sent by post to O/o Pr. Commissioner of Income Tax, Room No. 105, First Floor, Aayakar Bhawan, Sector-02, Panchkula-134112, which shall be duly considered before taking final decision in the matter.”
The ld. CIT after going through the record and hearing the assessee, set aside the assessment order for framing it afresh. The ld. Counsel for the assessee while impugning the order of the CIT contended that 31.03.2021 was the last date for issuance of notice under Section 148 for re-opening assessment year 2015-16. In the latest decision, Hon'ble Supreme Court has held that after 31.03.2021, assessment year 2015-16 cannot be reopened. The assessee has purchased 8770 shares of Indusind Bank in March 2008 i.e. Financial Year 2007-08. It has sold these shares during the accounting period relevant to assessment year 2014-15 and earned Long Term Capital Gain of Rs.35,58,175/- which was claimed as exempt. In the reasons for re-opening, AO has not alleged that investment of the assessee in the shares of A.Y.2015-16 8 Indusind Bank was not genuine and therefore, capital gain earned on this transaction is an escaped income. The AO was of the view that Long Term Capital Gain of Rs.48,54,326/- earned on sale of Lifeline Securities Ltd. is not genuine hence, it is an escaped income required to be assessed in the hands of the assessee. The AO accepted the stand of the assessee in the assessment order. The ld. Commissioner could find an error in the order of the AO which has caused prejudice to the interests of Revenue but cannot change the colour of the litigation or enlarge the scope of the issues. In other words, the Department cannot reopen the assessment on account of escaped income of the assessee for sale of shares of Indusind Bank. If it cannot reopen, how the Commissioner under Section 263 enlarge the scope of earlier assessment order wherein this issue was not considered by the AO as of escaped income. In support of his contention, he relied upon 17 judgements and the last in the list is of Hon'ble jurisdictional High Court in the case of PCIT Vs M/s V-Con Integrated Solutions Pvt. Ltd. This judgement has been delivered on 12.09.2024 and copy of this judgement has A.Y.2015-16 9 been placed on the record. The ld. Counsel for the assessee has also placed on record copy of the following decisions :
PARTICULARS S. NO.
Exotic Relators and Developers vs. PCIT as reported in (2024) 71 CCH 0299 Chd-Trib.
PCIT vs. SPML Infra Ltd. as reported in [2024] 164 taxmann.com 505 (SC) 3. PCIT vs. Pramod Kumar Tekriwal as reported in [2023] 154 taxmann.com 142 (SC) 4. PCIT vs. Clix Finance India (P.) Ltd. as reported in [2024] 160 taxmann.com 357 (Delhi) 5. Pawan Kumar vs. ITO as reported in [2022] 142 taxmann.com 13 (Chandigarh - Trib.) 6. PCIT vs. SHUKLA DAIRY PVT. LTD. as reported in 457 ITR 145 (Guj HC) 7. PCIT vs. Vardhman Industries Ltd. as reported in 017] 88 taxmann.com 606 (Punjab & Haryana) 8. PCIT vs. ShivshahiPunarvasan Prakalp Ltd. as reported in [2023] 155 taxmann.com 408 (Bombay) 9. Mahesh Reddy vs. PCIT as reported in [2024] 167 taxmann.com 297 (Bangalore - Trib.) 10. Shri Sunny Jain (Deceased) through Legal Heir Smt. Monika Jain vs. The ITO in vide order dated 04.08.2022 11. judgment of Hon'ble Supreme Court in the case of ParasbenKasturchand Kochar as reported in 130 taxmann.com 177 (SC)
6.1 On the other hand, ld. CIT DR contended that if reasons are being perused, then it would reveal that in paragraph No. 2 of the reasons, AO has made a mention of shares of Indusind Bank also. Therefore, non-examination of this investment could be construed as an error on the part of the AO which has been corrected by the CIT while exercising the powers under Section 263 of the Act.
We have duly considered the rival contentions and gone through the record carefully. Before we embark upon an enquiry on the facts and issues agitated before us to find out A.Y.2015-16 10 whether the action u/s 263 of the Act, deserves to be taken against the assessee or not, it is pertinent to take note of this section. It reads as under:-
“263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
[Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income Tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the A.Y.2015-16 11 Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) “record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this A.Y.2015-16 12 section is stayed by an order or injunction of any court shall be excluded.”
A bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show-cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular
order of the Assessing Officer. At this stage the opportunity A.Y.2015-16 13 to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh
order.
A perusal of sub-clause
(c) of the above would contemplate that if any order, which is subject matter for revision under section 263 is challenged in appeal, then, on the items which are subject matter of appeal, no power under section 263 could be exercised by the ld. Commissioner. We may elaborate further, for example- an assessment order was passed, it contains five issues, which were challenged before the ld. CIT(A), but ld. Assessing Officer failed to look into few issues, which may arise from the record, then inspite of the assessment order being challenged before the ld. CIT(A), the ld. Commissioner would have jurisdiction on such items, which are not subject matter of appeal in that assessment order. A.Y.2015-16 14
At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of A.Y.2015-16 15 mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law.
(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.
(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. A.Y.2015-16 16
(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
In the light of above, if we examine the facts of present case, then it would reveal that AO did not reopen the assessment on account of escapement of income on sale of shares of Indusind Bank. In sub-para (4) of the reasons extracted supra, the AO has categorically recorded that assessee has made investment in the scrips of Lifeline Securities Ltd. which are sold during the year and such investment is not genuine. The AO has accepted the claim of the assessee. The ld. CIT did not find error in the order of the AO for accepting the claim of the assessee qua sale of shares of Lifeline Securities Ltd. The grievance of the Commissioner is that AO ought to have examined the issue whether Long Term Capital Gain earned on the shares of Indusind Bank was genuine or not ? We are of the view that A.Y.2015-16 17 scope of the assessment order cannot be enlarged unilaterally while exercising the powers under Section 263. The ld. Commissioner could only examine whether AO has committed an error in enquiring the issue for which the assessment was reopened. The Show Cause Notice under Section 263 is dated 08.01.2024. After 01.04.2021, even the assessment cannot be reopened again, then how such an issue can be examined in a proceeding under Section 263.
We have perused the order of the ld. Commissioner wherein he has made reference to Sr.No. 843 to 849 of the list of beneficiaries and then observed that as per the statement of Directors/Authorized Signatories of Lifeline Securities Pvt. Ltd., assessee made financial beneficiaries of the transaction. This observation was neither the part of 148 notice nor 263 notice. It is not ascertainable from where this material was referred by the CIT and how it can be used against the assessee when it was not provided to her. Thus, we are of the view that ld. Commissioner has erred in exercising the powers under Section 263 of the Act. A.Y.2015-16 18 Accordingly, we quash the impugned order passed under Section 263 of the Act and allow the appeal of the assessee.
In the result, appeal of the assessee is allowed.