REKHABEN JITENDRAKUMAR JAIN,AHURA NAGAR SOCIETY vs. PCIT, AAYAKAR BHAVAN

Brief facts of the case are that the ld.Pr.CIT noted from the assessment records that the case of the assessee was reopened under section 147 of the Act. The reassessment order was passed on 23.3.2022 by the AO, assessing the income of the assessee at Rs.9,03,830/-. The ld.Pr.CIT noted that assesses had traded in the scrip INDINFO with the trade value of Rs.1,08,44,623/- and claimed exempted LTCG of Rs.96,42,734/- from share trading and the same was allowed by the department. In the search action conducted on 13.01.2016 u/s.132(1) of the Act by the Directorate of Investigation Patna in the case of Penny Stock Indian Infotech & Software Ltd, (INDINFO) which is a BSE listed company, it was found that share of the said company had been rigged in synchronized way to provide accommodation entry of bogus long term capital gain to various beneficiaries. The ld.Pr.CIT observed that Indian Infotech & Software limited (INDINFO) was a Shell Company, having no financial credentials and has already been established as penny scrip by the Investigation Directorate of Income tax Department on the basis of findings/documents unearthed during the course of Investigation. The ld.Pr.CIT further observed that the said scrip INDINFO was used by the assessee to introduce his unaccounted income, and that the transactions carried through the said scrip were in the nature mere accommodation entries in the form of bogus long term capital gains (LTCG) which was claimed tax exempt under section 10(38) of the Act.

Aggrieved by the said order of the ld.Pr.CIT, the assessee has come up in appeal before us, pleading that the ld.Pr.CIT has wrongly exercised his jurisdiction under section 263 of the Act in setting aside the assessment order dated 23.3.2022 for de novo assessment.

We have heard rival contentions and gone through the record. At the outset, the ld.counsel for the assessee has invited our attention 4 to the reasons recorded for reopening the assessment by the AO in this case. A perusal of the reasons recorded would show that the assessment in this case was reopened on the same issue with the observation that the assessee had claimed long term capital gain on sale of shares/scrips of INDINFO; that as per the information available with the AO, the said scrip, in which the assessee had traded, was a penny stock, which was used by the brokers/entry providers to provide accommodation entries to the subscribers so as to convert their unexplained cash into long term capital gains. The AO noted that the assessee was also beneficiary of the trading in the said penny stock, as the assessee had traded in the said scrips with the value of Rs.1,08,44,623/- and had claimed long term capital gain of Rs.96,42,734/-. Therefore, the case of the assessee was reopened to verify the veracity of the aforesaid transaction of trading in INDINFO scrip and genuineness of the long term capital gains claimed by the assessee.

The ld.counsel for the assessee, thereafter, carried us through the voluminous details filed in the paper book to show that the AO had made adequate inquiries and called for information and documents relating to the trading in the aforesaid scrip of INDINFO; that the assessee had duly furnished all the requisite details and documents to prove that the claim of the assessee was bona fide and the same was not result of accommodation entries. The ld.counsel for the assessee, in this respect, has relied on page no.41 of the paper book, whereby the assessee had not only made objections against the reopening of the assessment, but also had furnished all the factual details and documents to the AO to prove the genuineness of the transaction. The ld.counsel for the assessee has further invited our attention to page no.49 of the PB to show that the assessee had

The ld.counsel for the assessee has further invited our attention to page no.51 of the PB, whereby, the assessee had objected to show cause notice dated 5.2.2022 issued by the AO/NFAC proposing variation into the income of the assessee by rejecting the claim of long term capital gains. The assessee vide its reply dated 24.2.2022 had strongly objected to proposed variation and submitted factual details as well as submissions to the AO. The AO, thereafter, considering the details, documents and submissions of the assessee, did not propose 6 any variation in the income in the assessment order passed under section 147 of the Act and accepted the returned income of the assessee. However, a perusal of the impugned revision order passed by the ld.Pr.CIT under section 263 of the Act reveals that, the ld.Pr.CIT has not discussed a word in the impugned order, about the various details and evidences and explanations furnished by the assessee before the AO. The ld.Pr.CIT, without pointing out any defect, lacunae or infirmity in the documents and explanation furnished by the assessee during the re-assessment proceedings, which was reopened on the same issue, has simply held that the AO has not made proper inquiries and verifications before passing the impugned assessment order. The above action of the ld.Pr.CIT, in holding, the assessment order as erroneous and prejudicial to the interest of Revenue, without pointing out any error or infirmity, defect or lacuna, in the voluminous details and evidences furnished by the assessee before the AO, cannot be held to be justified.

In the case on hand, the ld.Pr.CIT has not made any such inquiry for concluding that the AO had not made adequate verification/inquiry. The assessee having demonstrated before the ld.Pr.CIT that the AO had made adequate inquiries and verifications on the same issue, a duty was cast upon the ld.Pr.CIT to point out any defect or infirmity in the information and details furnished by the assessee, and to further point out, as to why the ld.Commissioner was not satisfied with the details and evidences furnished by the assessee. The Explanation 2 to section 263 of the Act has been inserted vide Finance Act, 2015 w.e.f. 1.6.2015, and hence, the said explanation cannot be applied retrospectively in this case for the assessment year 2013-14. Moreover, as per the said Explanation 2, the order can be deemed to be erroneous and prejudicial to the interest of the Revenue, if in the opinion of ld.Pr.CIT/Commissioner the order is passed without making any inquiry or verification, which should have been made. Such opinion, in our view may not be a mere pretense of the ld.Pr.CIT without giving any reasoning or basis for the same. Such an opinion of the ld.Pr.CIT that the assessment order has been passed without making inquiry inquiry/verification which should have been 8 made, must be based on the reasoning and findings arrived at by the ld.Pr.CIT after examination of records, and after considering the submissions and explanations, furnished by the assessee. The assessee having furnished the detailed reply and demonstrating that the AO had made adequate verification and inquiries on this issue, the ld.Pr.CIT, under the circumstances, was supposed to discuss the same, consider the reply of the assessee, and to point out what further inquiry was required to be made by the AO, which has not be made by him and what were the defects or infirmities in the explanation given by the assessee, which require further inquiries and verifications by the AO. All these ingredients, which are required for the exercise of revision jurisdiction under section 263 of the Act, are missing in this case. Therefore, the impugned order passed by the ld.Pr.CIT under section 263 of the Act, is a result of invalid jurisdiction exercised by the ld.Pr.CIT under section 263 of the Act, and hence, not sustainable and the same is, accordingly, quashed.

In the result, the appeal of the assessee stands allowed.