2021 (1) TMI 679 - AT - Income Tax

Tribunal quashes tax revision, AO's assessment upheld as lawful.

Smt. Usha Devi Modi Versus ITO, Ward-10 (4), Kolkata

The tribunal quashed the Principal Commissioner of Income Tax's revision order under Section 263, holding it to be bad in law. The appeal of the assessee ... Revision u/s 263 - Bogus LTCG - addition of the entire sale proceeds of the shares as income and rejection of claim of exemption made u/s 10(38) - HELD THAT:- Assessee furnished all the documents called for and after considering the same the AO accepted the claim of the assessee exemption u/s 10(38) of the Act as the profits earned from purchase and sale of transfer. Nothing adverse was found by the AO during the course of assessment proceedings. Even the ld. PCIT, except the alleged report of DIT(INV), Kolkata no fresh evidence was referred to. This report of DIT(INV), Kolkata vide Note No. 75A/12015-161257 dated 27.04.2015 is not brought on record. The PCIT similarly states that there is a report of the DIT(INV) Kolkata and hence the assessment order is erronerous. The issue is whether the assessment order so passed is erroneous insofar as it is prejudicial to the interest of revenue. This is not the case of lack of enquiry as alleged ld. PCIT. In fact enquiry was conducted by the AO after obtaining all required details. The ld. PCIT himself said that report of DIT(INV), Kolkata was not before the AO. Thus, the order passed by the AO by taking into account a document or information which is not before him and based on the enquiry and documents before him in a possible view and the assessment order and cannot be held to be erroneous insofar as it is prejudicial to the interest of the revenue. As relying on M/S GITSH TIKMANI case [2019 (9) TMI 1177 - ITAT KOLKATA] the order passed u/s 263 of the Act is bad in law. The coordinate Bench of ITAT, Kolkata in the case of Shashi Bala Bajaj [2018 (11) TMI 1823 - ITAT KOLKATA]applied to the judgment of CIT vs. Bhagwati Prasad Agarwal [2009 (4) TMI 138 - CALCUTTA HIGH COURT] and held that the long term profits and gains received on, the purchase and sale of shares of M/s Surbhi Chemicals and Investment Ltd. though the Stock Exchange is exempted from tax u/s 10(38) of the Act. Thus, the view taken by the AO is plausible view which is supported by judicial decisions on this grounds also the order u/s 263 fails. - Decided in favour of assessee. Issues Involved:1. Validity of the Principal Commissioner of Income Tax (PCIT)'s revision order under Section 263 of the Income Tax Act, 1961.2. Examination and verification of Long Term Capital Gain (LTCG) transactions by the Assessing Officer (AO).3. Applicability of Section 10(38) exemption on LTCG from penny stocks.4. Legal principles governing the exercise of revisionary jurisdiction under Section 263.Detailed Analysis:1. Validity of the Principal Commissioner of Income Tax (PCIT)'s Revision Order under Section 263 of the Income Tax Act, 1961:The PCIT issued a show cause notice proposing to revise the assessment order passed by the AO on the grounds that the assessee's LTCG from the sale of shares of M/s Surabhi Chemicals and Investments Ltd. was reported as a penny stock and the transaction was allegedly manipulated. The PCIT concluded that the AO’s order was erroneous and prejudicial to the interest of the revenue due to a lack of proper enquiry and verification of the transaction. However, the tribunal noted that the AO had indeed conducted an enquiry and obtained all necessary details before accepting the assessee's claim. The tribunal emphasized that the PCIT's revision jurisdiction under Section 263 requires the order to be both erroneous and prejudicial to the revenue, which was not established in this case.2. Examination and Verification of Long Term Capital Gain (LTCG) Transactions by the Assessing Officer (AO):The AO had called for and examined detailed documents regarding the purchase and sale of shares, including contract notes, bank statements, and evidence of payment. The AO accepted the assessee's claim for exemption under Section 10(38) after thorough verification. The tribunal found that the AO had conducted a proper enquiry, and the PCIT did not provide any fresh evidence to prove otherwise. The tribunal held that the AO’s order was based on a plausible view and was not erroneous.3. Applicability of Section 10(38) Exemption on LTCG from Penny Stocks:The assessee claimed exemption under Section 10(38) for LTCG earned from the sale of shares of M/s Surabhi Chemicals and Investments Ltd. The tribunal referred to previous judicial decisions, including those of the ITAT Kolkata and the jurisdictional High Court, which supported the genuineness of similar LTCG claims. The tribunal concluded that the AO had rightly accepted the assessee's LTCG as genuine, and the PCIT’s order was not sustainable.4. Legal Principles Governing the Exercise of Revisionary Jurisdiction under Section 263:The tribunal reiterated the principles laid down by various courts regarding the exercise of revisionary jurisdiction under Section 263. It emphasized that the PCIT must be satisfied that the order is both erroneous and prejudicial to the revenue. The tribunal referred to several judgments, including Malabar Industrial Co. Ltd., Max India Ltd., and Gabriel India Ltd., which established that mere loss of revenue or a different opinion by the PCIT does not justify revision under Section 263. The tribunal held that the AO had taken a possible view supported by judicial decisions, and the PCIT’s revision was not justified.Conclusion:The tribunal quashed the PCIT's order passed under Section 263, holding it to be bad in law. The tribunal allowed the appeal of the assessee, confirming that the AO’s assessment order was neither erroneous nor prejudicial to the interest of the revenue. The tribunal also emphasized that the AO had conducted a proper enquiry and accepted the assessee's claim based on a plausible view supported by judicial precedents.