2022 (1) TMI 347 - AT - Income Tax

Tribunal sides with assessee, rejects tax authority's Section 263 challenge.

Kamal Vyas Versus PCIT-17, Mumbai

The Tribunal ruled in favor of the assessee, setting aside the Principal Commissioner of Income Tax's invocation of Section 263. The Tribunal found that ... Revision u/s 263 by CIT - Addition u/s 68 - Applicability of section 115BBE for set off of claim - HELD THAT:- Undoubtedly the amended provisions of section 263 provide that the Ld.CIT is within his powers assume the jurisdiction, if the AO’s order is passed without making enquiries or verification, which should have been made. In this connection, it is clear that the said explanation will come to the aid of the Ld.CIT, if he can point out what enquiry was required, which has not been done by the AO. Here, we note that all the necessary enquiries have been done by the AO. Ld.CIT has himself made certain enquiries and the details were provided to him. It is not the case of Ld.CIT that any defect was noted in this connection. Hence, the direction given by the Ld.CIT in this case is simply to make further roving enquiries, which is totally unsustainable in law. The case laws referred above duly support this proposition. As noted that the alternate submission of the assessee that even if the AO reassess the income pursuant to direction under section 263 and as the amount involved is assessed under section 68, only effect will be that the income offered under business income would now be assessed under section 68 as income from other sources. It has been submitted that after set off of other losses the assessed income of the assessee would be the same as in the original assessment order. Hence, it is plea that when there is no change in income assessed the order of AO cannot be said to be prejudicial to the interest of revenue. The Ld.CIT has tried to respond to the submission by observing that as per section 115BBE income tax shall be collected at that of 60%, when the total income of the assessee includes such as the one here i.e under section 68 et cetera and that no deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the assessee in computing as income referred here. Now, the assessment year under consideration is assessment year 2015-16, the CBDT circular referred by counsel of the assessee clearly provides that the amendment brought in by financial year 2016 in this regard is inserted with from 01.04.2017 and assessee is entitled to claim set off against income determined under section 115BBE of the Act till the AY 2016-17. Hence, even if the section referred by the Ld.CIT is invoked the assessee will still be eligible for the set off as referred above and the income would be the same as assessed by the AO in the original assessment. This proposition is neither rebutted by Ld.CIT nor by the revenue before us. It is a settled law that after the exercise of revisionary jurisdiction the income assessed remains the same, it cannot be said that the order of the AO is prejudicial to the interest of revenue. Hence, Ld.CIT’s jurisdiction will not be valid. Hence, invocation of section 263 jurisdiction by the Ld.CIT is also not sustainable on this count also. - Decided in favour of assessee. Issues Involved:1. Legality of the Principal Commissioner of Income Tax (PCIT) invoking Section 263.2. Whether the original assessment order was erroneous and prejudicial to the interest of revenue.3. Adequacy of inquiries and verification conducted by the Assessing Officer (AO).4. Application of Section 115BBE and its implications on the assessment.Detailed Analysis:1. Legality of the Principal Commissioner of Income Tax (PCIT) invoking Section 263:The assessee contested the PCIT's invocation of Section 263, arguing that the original assessment order was neither erroneous nor prejudicial to the interest of the revenue. The PCIT invoked Section 263 on the grounds that the AO failed to add the sale proceeds of Rs. 1,10,53,808/- from the sale of shares of M/s Maa Jagadamba Trade Links Ltd. and M/s Moryo Industries Ltd., which were deemed dubious transactions. The PCIT held that the AO did not make necessary inquiries and verifications, rendering the assessment order erroneous and prejudicial to the revenue.2. Whether the original assessment order was erroneous and prejudicial to the interest of revenue:The PCIT argued that the AO's failure to investigate the dubious nature of the share transactions and the modus operandi of stock price manipulation made the assessment order erroneous and prejudicial to the revenue. The PCIT cited Explanation 2 to Section 263, which deems an order erroneous if it is passed without making necessary inquiries or verifications.3. Adequacy of inquiries and verification conducted by the Assessing Officer (AO):The assessee provided detailed submissions, asserting that the AO had made thorough inquiries during the original assessment. The AO had issued notices requiring detailed information about the share transactions, proof of purchase, payment details, and other relevant documents. The assessee argued that all necessary details were provided, and the AO had duly examined them before passing the assessment order. The assessee also highlighted that the investigation department's findings were available to the AO at the time of the original assessment.The PCIT, however, contended that the AO did not properly examine the genuineness of the transactions under Section 68 and failed to apply his mind to the facts and circumstances of the case. The PCIT directed the AO to conduct further inquiries and reassess the income de novo.4. Application of Section 115BBE and its implications on the assessment:The PCIT referred to Section 115BBE, which mandates a tax rate of 60% on income referred to in Section 68, among others, with additional surcharges and penalties, bringing the effective tax rate to 83.25%. The PCIT argued that the entire sale proceeds should be brought to tax under Section 68, and the AO should also investigate the source of charges paid to entry operators.The assessee countered that the income from the alleged penny stocks was offered as business income and taxed at the normal rate. The assessee argued that even if the income was reassessed under Section 68, the assessed income would remain the same due to set-offs against other business losses. The assessee referred to CBDT Circular No. 11/2019, clarifying that set-offs were permissible for assessment years prior to 2017-18.Judgment:The Tribunal found that the AO had made adequate inquiries and verifications during the original assessment. The PCIT's direction for further inquiries was deemed unsustainable as the PCIT failed to specify what additional inquiries were required. The Tribunal noted that the assessee had provided all necessary details, and the AO had applied his mind to the facts of the case.The Tribunal also accepted the assessee's argument regarding the application of Section 115BBE and the CBDT Circular, concluding that the assessed income would remain unchanged even if reassessed under Section 68. Therefore, the original assessment order was not prejudicial to the interest of the revenue.Conclusion:The Tribunal set aside the PCIT's order invoking Section 263, ruling in favor of the assessee. The appeal was allowed, and the original assessment order was upheld.