MANISHA AJAY SHAH,MUMBAI vs. PR. CIT 30, MUMBAI

This appeal by the assessee is directed against the order of Principal Commissioner of Income Tax -30, Mumbai ( in short ‘the PCIT”) dated 07/03/2019 passed under section 263 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

The brief facts of the case as emanating from records are: The assessee filed return of income for assessment year 2015-16 on 20/07/2015 declaring her total income of Rs.16,46,420/-. The case of assessee was selected for scrutiny under CASS. During the pendency of scrutiny assessment, the assessee made declaration of Rs.32,86,815/- under Income Declaration Scheme 2016 (in short ‘IDS’) in respect of Long Term Capital Gains (LTCG) from sale of shares claimed as exempt in return of income. Thereafter, the Assessing Officer vide order dated 21/12/2017 completed the assessment accepting the income declared by the assessee without making any addition/disallowances.

Shri Purushottam Tripuri, representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of the assessee. The ld. Departmental Representative submitted that in the return of income the assessee has wrongly claimed exemption under section 10(38) of the Act on long term capital gains from sale of shares of GCM Securities Ltd. The purchase and sale of aforesaid scrip falls under the category of penny stock. Thus, in the case of bogus long term capital gains, entire sale proceeds are to be added to the total income.

We have heard the submissions made by ld. Departmental Representative and have examined the material available on record. The PCIT has invoked revisional jurisdiction under section 263 of the Act on the ground that the Assessing Officer has failed to examine the transaction of purchase and sale of shares. Another reason for invoking revisional jurisdiction by the PCIT is, that the assessee in IDS 2016 has only declared long term capital gain on penny stock, whereas, the assessee should have declared gross sale receipt of the shares. The immunity is granted to the assessee to the extent declaration is made under IDS 2016 and not against the entire transaction. The PCIT invoked revisional jurisdiction to tax the difference between gross sale price of the shares Rs.34,30,000/- and Long Term Capital Gains declared by the assessee Rs.32,86,815/-. In other words, the PCIT seeks to tax even the purchase cost of the shares i.e. Rs.1,43,185/- stating it to be a bogus purchase transaction.

After examining the documents on record we do not concur with the view of the PCIT. The assessee has demonstrated from the bank statement that the amount has been paid for purchase of shares of GCM Securities Ltd. through cheque. This is further corroborated by share application form of GCM Securities at page 22 of the Paper Book and transaction-cum-holding statement in the case of assessee issued by Stock Holding Corporation of India Ltd. at page 19 of the Paper Book. The documents furnished by the assessee clearly indicates that the shares were indeed purchased by the assessee through banking transactions. It is not the case of the Revenue that the amount paid by the assessee for purchase of shares has travelled back to the assessee in the form of cash or any other manner.

The provisions of section 263 of the Act can be invoked if, the twin conditions mandated under the section are satisfied, i.e: (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue.

In the present case, we find that the Assessing Officer has issued a questionnaire wherein specific information was sought on transaction of equity shares and working of short term capital gain/long term capital gain. The assessee furnished a detailed reply to the notice issued under section 142(1) of the Act, wherein the assessee while replying to the query on transaction of shares, informed that a declaration under IDS 2016 has been made in respect of long term capital gain arising on sale of shares to GCM Securities Ltd. Ostensibly, the Assessing Officer after examining the documents accepted the same and made no addition. Merely for the reason that the Assessing Officer has taken a plausible view after examining the records that is not acceptable to the PCIT, would not make the assessment order erroneous. In the present case twin conditions set out in section 263 are not satisfied and hence, the PCIT wrongly assumed revisional jurisdiction.

In view of our above finding, we find merit in the appeal of the assessee. The impugned order is quashed and the appeal of assessee is allowed.

In the result, appeal of the assessee is allowed.