2022 (11) TMI 523 - AT - Income Tax

ITAT quashes PCIT's order under section 263, finding AO's assessment not erroneous.

The Income Tax Appellate Tribunal (ITAT) quashed the Principal Commissioner of Income Tax's (PCIT) order under section 263, ruling that the Assessing ... Condonation of delay - Revisionary powers under section 263 - Error apparent and prejudicial to the interest of revenue - Precedential value and finality of tribunal orders - Sham/penny stock allegations in relation to bogus long term capital gainsCondonation of delay - One day delay in filing the appeal was condoned - HELD THAT: - Registry pointed out a one day delay caused by payment of appeal fee under an incorrect head on the day of initial deposit and correction the next day. The assessee explained the inadvertent mistake and produced the challan; Revenue raised no objection. The Tribunal found no prejudice to Revenue from condonation of the single day delay and exercised discretion to condone the delay. [Paras 3]Delay of one day is condoned.Revisionary powers under section 263 - Error apparent and prejudicial to the interest of revenue - Sham/penny stock allegations in relation to bogus long term capital gains - Whether the Principal CIT validly exercised powers under section 263 to cancel the assessment order dated 27.11.2017 for A.Y. 2013 14 - HELD THAT: - The PCIT set aside the AO's assessment on the view that the AO failed to make necessary enquiries and applied incorrect law in the light of broader investigations into bogus LTCG in penny stocks. The Tribunal examined the material before the AO: the AO's reasons for reopening, the office note (obtained under RTI), enquiries made from the broker under section 133(6), demat and broker records, contract notes, bank entries showing receipts by cheque (no cash), cross checks with the AO in Delhi who had examined the assessee's parents, and judicial authorities relied upon by the assessee. The Tribunal found that the AO had considered the allegation of a penny stock scam, called for and obtained brokerage confirmation, verified sale prices from public BSE data, examined the amalgamation order and related documents, and recorded an express reservation to reopen if adverse material emerged. The PCIT's order proceeded mainly on conjecture and reliance on an ITAT order in another taxpayer's case; that ITAT order was distinguishable on facts (different broker and recorded statements) and was not a settled, final precedent as it had itself been the subject of further proceedings and settlement under a scheme. The Tribunal held that mere general information about a widespread scam, or suspicions arising therefrom, without specific material connecting the assessee to manipulation, did not make the AO's order erroneous and prejudicial. On the facts, the twin conditions for valid exercise of section 263 were not met and the revisionary order proceeded on presumptions and surmises. [Paras 20, 22]The revisionary order passed by the Principal CIT u/s 263 is quashed and the assessment order of 27.11.2017 is restored.Precedential value and finality of tribunal orders - Revisionary powers under section 263 - Whether reliance on the ITAT Delhi Bench order dated 08.01.2019 (Anip Rastogi) justified setting aside the AO's order under section 263 - HELD THAT: - PCIT relied on the ITAT (Delhi) order in Anip Rastogi to treat CCL International transactions as bogus. The Tribunal examined that order and found it factually distinguishable (different broker and statements implicating that broker) and not finally determinative since the taxpayer had filed rectification proceedings and later settled under a scheme; thus the Anip Rastogi order did not furnish a conclusive precedent against the assessee. The Tribunal emphasised that a revisionary action under section 263 must be founded on material that was available to or ought to have been considered by the AO, and that reliance on a subsequently rendered, non final, and factually different tribunal order cannot, by itself, convert a reasoned assessment into one that is erroneous and prejudicial. [Paras 9, 11, 20]The ITAT Delhi order of 08.01.2019 could not be treated as a binding or decisive precedent to justify cancellation of the AO's order in the assessee's case.Final Conclusion: The Tribunal condoned the one day delay in filing the appeal and, on merits, quashed the Principal CIT's revisionary order under section 263. The Tribunal held that the AO had made relevant enquiries and considered material before holding the LTCG claim genuine; the PCIT's cancellation rested on conjecture and on a distinguishable, non final tribunal order and thus did not satisfy the twin conditions for valid exercise of section 263. The assessee's appeal is allowed. Issues Involved:1. Validity of the order passed by the PCIT under section 263 of the Income Tax Act.2. Whether the assessment order passed by the AO under section 143(3) read with section 147 was erroneous and prejudicial to the interests of the revenue.3. Examination of the genuineness of the long-term capital gain (LTCG) from the sale of shares of CCL International Ltd.4. Adequacy of the enquiries conducted by the AO during the assessment proceedings.5. Relevance of the ITAT Delhi Bench decision dated 08.01.2019 in the context of the present case.Detailed Analysis:1. Validity of the order passed by the PCIT under section 263:The ITAT considered the PCIT's order under section 263, which set aside the AO's assessment order. The PCIT's decision was based on the premise that the AO failed to make necessary enquiries and that the assessment order was erroneous and prejudicial to the interests of the revenue. The ITAT examined whether the PCIT's invocation of section 263 was justified and concluded that the PCIT's order was based on mere suspicions and conjectures without substantive evidence.2. Whether the assessment order passed by the AO was erroneous and prejudicial to the interests of the revenue:The ITAT scrutinized the assessment order passed by the AO and considered whether it was erroneous and prejudicial to the interests of the revenue. The AO had made detailed enquiries, including verifying the transactions related to the sale of shares of CCL International Ltd., examining the broker's records, and corroborating the sale prices with the stock exchange data. The ITAT found that the AO's order was neither erroneous nor prejudicial to the interests of the revenue, as all necessary verifications were made.3. Examination of the genuineness of the long-term capital gain (LTCG) from the sale of shares of CCL International Ltd.:The ITAT examined the genuineness of the LTCG claimed by the assessee from the sale of shares of CCL International Ltd. The AO had verified the transactions, including the purchase and sale of shares through the broker, the demat account statements, and the bank statements reflecting the sale proceeds. The ITAT found that the transactions were genuine and supported by documentary evidence, and there was no basis to treat the LTCG as bogus.4. Adequacy of the enquiries conducted by the AO during the assessment proceedings:The ITAT assessed the adequacy of the enquiries conducted by the AO. The AO had issued notices, recorded the assessee's statements, and obtained information from the broker and the stock exchange. The AO also considered the report from the Directorate of Investigation and cross-verified the transactions with the records of the assessee's parents. The ITAT concluded that the AO had conducted thorough and adequate enquiries before passing the assessment order.5. Relevance of the ITAT Delhi Bench decision dated 08.01.2019:The PCIT's order under section 263 relied on the ITAT Delhi Bench decision dated 08.01.2019 in the case of Shri Anip Rastogi and Smt. Anju Rastogi. The ITAT noted that this decision was not available to the AO at the time of passing the assessment order. Moreover, the facts of the present case were distinguishable from those in the ITAT Delhi Bench decision. The ITAT emphasized that the AO's order should be based on the records available at the time of assessment and not on subsequent decisions.Conclusion:The ITAT quashed the PCIT's order under section 263, holding that the AO's assessment order was neither erroneous nor prejudicial to the interests of the revenue. The ITAT found that the AO had conducted adequate enquiries and verified the genuineness of the LTCG claimed by the assessee. The reliance on the ITAT Delhi Bench decision was deemed irrelevant as it was not available at the time of the assessment and the facts were distinguishable. The appeal of the assessee was allowed.