JAYANTILAL PANACHAND SHAH,AHMEDABAD vs. THE PCIT, AHMEDABAD-1, AHMEDABAD

The above appeal has been filed by the assessee against order passed by the Ld.Pr.Commissioner of Income Tax-1, Ahmedabad [hereinafter referred to as “ld.Pr.CIT”] dated 23.3.2024 under section 263 of the Income Tax Act, 1961 ("the Act" for short) pertaining to Assessment Year 2014-15.

The assessee has raised the following in the appeal:

We have heard both the parties, and have gone through the contents of the order of the ld.Pr.CIT, as also documents and case laws referred to before us during the course of hearing.

As transpires from the order of the ld.Pr.CIT, the revisionary power was exercised by him on an order passed under section 147 of the Act. The reopening under section 147 of the Act was resorted to for the reason that the AO was in possession of information that the Long Term Capital Gain earned by the assessee during the impugned year and claimed as exempt u/s 10(38) of the Act was in relation to a scrip which was found to be a penny stock and bogus. The alleged scrip, treated as penny stock by the department, is the scrip of Looks Health Services Ltd. (“LHSL” for short), which the assessee had sold during the year and earned capital gains thereon to the tune of Rs.1,02,18,980/-, having sold the same for a value of Rs.1,07,90,400/-.No addition however was made on account of the 3 same in the order passed under section 147 of the Act. The ld.Pr.CIT found the order passed to be erroneous so as to cause prejudice to the Revenue on the same issue and accordingly passed order u/s 263 of the Act.

Having gone through the order of the ld.Pr.CIT, we have failed to find any specific finding of the error in the order of the AO, in the entire order of the ld.Pr.CIT. We find that except for very general observations made therein, there is no single finding, which is based on information and material specifically extracted from the records of the re-assessment proceedings available with the ld.Pr.CIT. In fact on hearing the contentions of the ld.counsel for the assessee, we find that the ld.CIT(A) has made no attempt at all to go through the contents of the records before him, which otherwise would have clearly revealed that there was no error in the order passed by the AO under section 147 of the Act as noted by the Ld.PCIT. The reasons for the same are elaborated as under.

As noted above, the issue on which the order passed by the AO was found to be erroneous causing prejudice to the Revenue pertained to the allowance of claim of exempt income by the assessee under section 10(38) of the Act on long term capital gains earned on the sale of shares of “LHSL” amounting to Rs.1,02,18,980/-, which as per the information available with the Department, were allegedly penny stock.

The case of the ld.Pr.CIT is that there was information available in the insight portal of the Department of the share traded by the assessee, being a bogus penny stock and despite the specific information available with the AO, he did not make complete inquiry vis-à-vis such information, and allowed the assessee’s claim of

Now what the ld.Pr.CIT has done in his order under section 263 of the Act is that in para-5, from page no.2 to 7 of his order, he has reproduced the entire contents of the information contained in the inside portal of the department. And it is all scanned version. What transpires from that information or what is gist of the information, is not mentioned in any where in his order. Despite the same, after going through it, what it appears is that, it merely showed that the Department was in possession of information that the assessee had traded in a scrip “LHSL” during the impugned year which departmental investigation had revealed to be a bogus penny stock. The portal also contains generalized findings of specialized agencies, i.e SEBI, on similar lines, with no specific reference to the particular scrip traded in by the assessee. This much and nothing more comes out from reading the contents of the insight portal in six pages of the ld.Pr.CIT’s order.

After having reproduced the contents of the information contained in the insight portal, the ld.Pr.CIT finds the assessment order passed by the AO under section 147 of the Act, to be erroneous for the following reasons:

His finding in this regard at para 7 are reproduced hereunder:

From the above, it is not clear as to what the AO has not verified. In the first place, as we have noted above, contents of the insight portal have not been clarified nor the ld.Pr.CIT had made any attempt to briefly summarise the same in his order. On the top of that, without any information about the contents of the insight portal, there is no clarity at as to what information was not verified by the AO.

It is clearly evident from the above that entire exercise by the ld.Pr.CIT is in gross misuse of his power under section 263 of the Act.

Having stated so, the ld.counsel for the assessee, during the course of hearing before us, pointed out that during the re- assessment proceedings under section 147 of the Act, every query relating to the information available on insight portal was asked to the assessee vide various notices issued, and due reply was filed of the same. He pointed out that in the various replies filed, the assessee had pointed out that - • these shares of LSHL were purchased by him in A.Y 12-13, much prior to sale in the impugned year i.e A.Y 14-15. • That the shares were acquired in Private Placement allotment under Promoters quota having one of the terms of allotment that the shares will remain in lock in period of 1 year from the date of allotment. • Payment for purchase of shares was made through banking channels and the shares were held in DEMAT form. • That out of 25,000 shares purchased only 24800 were sold. • That the shares had been purchased @ face value of Rs. 10/- and after 3 months the company had come with an IPO @ Rs.40 per share. • That the assessee because of SEBI regulations was unable to sell shares in the lock in period and did so therefore after 1 year that too on different dates. • That there was no question of rigging of price of shares as alleged by the department since they were sold as per Standard 7 Operating Procedure (SOP) and Rules framed by SEBI wherein shares were required to be sold online on live terminal by paying STT and the information of the buyer is not known to the seller. • That assessee was into the activity of trading in shares and this was not the only scrip traded in by the assessee. That the assessee had also incurred losses in this activity.

The assessee pointed out that during assessment proceedings all possible queries pertaining to the information on the portal was asked of the assessee vide notice issued u/s 142(1) of the Act and were replied to. He pointed out that all details and explanation regarding way of choosing for investment in shares –

We have gone through the contents of the submissions made by the assessee, and we find that the AO has, during the assessment proceedings raised every possible query on the information available in the insight portal and the assessee did respond to the same.

Considering the voluminous inquiries conducted by the AO, as noted above by us, the onus was on the ld.Pr.CIT to point out the specific inquiry which the AO had not conducted and which resulted therefor in the assessment order being erroneous, causing prejudice to the Revenue for a valid exercise of jurisdiction under section 263 of the Act.

The Ld.DR relied on the decision of the Hon’ble Delhi High Court in the case of PCIT vs M/s Paramount Propbuild Pvt. Ltd. ITA 247/2013 dated 19-03- 24 for the proposition that where the assessment records would reflect that the AO has not taken concrete steps to ascertain the genuineness and credit worthiness of the transactions , which merits consideration in the light of the findings that emerged from the DDIT Investigation report, the order passed by the AO was erroneous so as to cause prejudice to the Revenue.

There is no dispute with the above proposition. But the facts in the present case brought out in the order of the PCIT do not demonstrate the concrete steps which the AO as per him failed to take considering the report of investigation before him. An order has to be a speaking and well-reasoned order bringing out clearly the basis for arriving at any findings. This is a basic rule/

In the present case, as noted above by us, the Ld.PCIT except for stating that the AO has not conducted full inquiry on the issue, has not pointed out what remained to be considered and inquired into by him considering the information on the insight portal and considering the investigation and inquiry on the issue conducted during reassessment proceedings. The Ld.PCIT seems to have left it for the appellate authorities to derive the same. Such orders are not sustainable. In view of the above, the order passed by the ld.Pr.CIT is set aside. The grounds raised by the assessee are allowed accordingly.

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