2020 (8) TMI 711 - AT - Income Tax

Tribunal Confirms Revision of Tax Assessment Due to Inadequate Inquiry on Share Price Hike and Capital Gains Exemption.

Zile Singh Versus Pr. CIT, Faridabad

The tribunal upheld the Pr. CIT's invocation of Section 263 of the Income Tax Act, affirming that the AO's assessment order was erroneous and prejudicial ... Revision u/s 263 - claim of exemption u/s 10(38) was allowed to the assessee without any enquiry - HELD THAT:- On careful examination of the whole issue it is apparent that the ld AO did not carry out any enquiry with respect to the long term capital gain claimed by the assessee u/s 10(38) - On careful examination of the order passed by the learned principal Commissioner of income tax, we found that, necessary enquiries were made by PCIT on the issue, therefore, on this account no fault could be found with the order u/s 263 - when no inquiries have been made by the learned assessing officer, for the reason for which the case of the assessee was selected in scrutiny, the order is erroneous and prejudicial to the interest of the revenue. This issue is squarely covered in favour of the revenue wherein identical facts and circumstances of the case the action of the PCIT in absence of revisionary order u/s 263 of the Act was upheld in POOJA GUPTA VERSUS PR. CIT, NEW DELHI [2019 (1) TMI 1630 - ITAT DELHI]. We uphold the action of the ld PCIT in holding that the order passed by the ld AO is erroneous and prejudicial to the interest of the revenue. Accordingly, all the grounds of appeal of the assessee revolving on the challenge to the order passed u/s 263 of the income tax act by the learned principal Commissioner of income tax are dismissed. Issues Involved:1. Validity of invoking Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (Pr. CIT).2. Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue.3. Adequacy of the AO's verification and inquiry regarding the assessee's claim of long-term capital gain exemption under Section 10(38).Detailed Analysis:1. Validity of Invoking Section 263 of the Income Tax Act by the Pr. CIT:The appeal was filed by the assessee against the order of the Pr. CIT, Faridabad, dated 31.07.2019, which invoked Section 263 of the Income Tax Act, 1961. The Pr. CIT held that the assessment order passed by the AO under Section 143(3) was erroneous and prejudicial to the interest of the revenue because the AO did not conduct any inquiries regarding the genuineness of the assessee’s claim of long-term capital gain exemption under Section 10(38).2. Whether the Assessment Order Passed by the AO was Erroneous and Prejudicial to the Interest of the Revenue:The Pr. CIT examined the records and noted that the assessee claimed an exemption of Rs. 54,96,796/- on long-term capital gains from the sale of shares of Fidelo Power and Infrastructure Ltd, which later merged with Yamini Investment Company Ltd. The Pr. CIT found that the AO did not verify the details of this corporate merger or the substantial increase in the share price. The Pr. CIT issued a notice under Section 263, stating that the absence of proper verification and investigation rendered the assessment order erroneous and prejudicial to the revenue.3. Adequacy of the AO's Verification and Inquiry:The assessee argued that all necessary documents and evidence regarding the sale and purchase of shares were submitted during the assessment proceedings. However, the Pr. CIT held that the AO did not conduct any meaningful inquiries or verification regarding the genuineness of the capital gains claimed as exempt. The Pr. CIT emphasized that the AO’s order was passed in a stereotype manner without examining the substantial increase in the share price and the merger details. The Pr. CIT cited several judicial precedents to support the view that an order passed without proper inquiry is erroneous and prejudicial to the revenue.Conclusion:The tribunal upheld the Pr. CIT’s order, agreeing that the AO failed to conduct necessary inquiries into the substantial increase in the share price and the merger details, which were crucial for verifying the genuineness of the capital gains claimed as exempt. The tribunal referenced a similar case, Pooja Gupta vs. Pr. CIT, where the revisionary action under Section 263 was upheld due to the AO's failure to investigate suspicious long-term capital gains. Consequently, the tribunal dismissed the assessee's appeal and upheld the Pr. CIT’s invocation of Section 263, confirming that the assessment order was indeed erroneous and prejudicial to the interest of the revenue.