2023 (4) TMI 25 - AT - Income Tax

Tribunal rejects PCIT's jurisdiction challenge, rules in favor of assessee on LTCG transactions.

Shri. Mukesh Agarwal Versus Pr. Commissioner of Income-tax, Central -1, Chennai

The Tribunal held that the assessment order was not erroneous or prejudicial to revenue interests. It found the AO had conducted an inquiry into LTCG ... Revision u/s 263 - long term capital gains declared by the assessee u/s. 10(38) - PCIT came to the conclusion that although the assessment has been re-opened for specific purpose of examination on information received from Income-tax Department, Kolkata, but the AO simply completed reassessment by accepting explanation furnished by the assessee without carrying out required enquiries - HELD THAT:- PCIT, it is abundantly clear that the sole basis for the PCIT to invoke his jurisdiction is information received from Income-tax Department, Kolkata on the survey conducted in case of M/s. Onkar Supply Pvt Ltd and statement recorded from Shri. Ashok Kumar Kayan, a broker acted as an entry operator in providing accommodation entries of long term capital gains. Since, the issue is a subject matter of re-assessment proceedings from the Assessing Officer, it can be safely concluded that the AO has verified the issue in light of relevant facts under right perspective of law and concluded that long term capital gains declared by the assessee is genuine and thus, we are of the considered view that there is no scope for the PCIT to set aside the assessment order u/s. 263. No doubt in case where there is complete lack of enquiries, the PCIT is having powers to set aside the assessment order. However, in a case where there is an enquiry, even if said enquiry is inadequate there is scope for the PCIT to step into revise the assessment order. On perusal of facts available on record, at best it can be said that it is not a case of lack of enquiry, but may be case of inadequate enquiry. Therefore, the powers exercised by the PCIT u/s. 263 of the Act is not in accordance with law. Report of investigation wing is not sacrosanct, but what is necessary to decide the issue is whether said transactions are genuine or not, is independent enquiry in light of available materials. In this case, the evidences filed by the assessee before the AO during the re-assessment proceedings clearly shows that long term capital gains declared u/s. 10(38) is nothing to do with survey conducted in the case of M/s. Onkar Supply Pvt Ltd and statement recorded from Shri Ashok Kumar Kayan. Therefore, we are of the considered view that capital gains declared by the assessee from sale of certain shares cannot be considered as bogus only on the basis of report of Income-tax Department. Thus order passed by the AO is neither erroneous nor prejudicial to the interests of the revenue, on the issue of long term capital gains declared u/s. 10(38) - Decided in favour of assessee. Issues Involved:1. Whether the assessment order was erroneous and prejudicial to the interests of the revenue.2. The validity of the Principal Commissioner of Income Tax (PCIT) invoking jurisdiction under Section 263 of the Income-tax Act, 1961.3. The adequacy of the Assessing Officer's (AO) inquiry into the genuineness of long-term capital gains (LTCG) transactions.4. The distinction between lack of inquiry and inadequate inquiry by the AO.Detailed Analysis:1. Whether the assessment order was erroneous and prejudicial to the interests of the revenue:The PCIT argued that the assessment order was erroneous and prejudicial to the interests of the revenue because it failed to adequately verify the genuineness of the LTCG transactions. The PCIT cited information from the Income-tax Department, Kolkata, and a sworn statement from Ashok Kumar Kayan, an entry operator, indicating that the assessee was a beneficiary of bogus LTCG transactions. The PCIT concluded that the AO did not make the necessary inquiries or verifications, rendering the assessment order erroneous and prejudicial to the interests of the revenue.2. The validity of the PCIT invoking jurisdiction under Section 263 of the Income-tax Act, 1961:The PCIT invoked jurisdiction under Section 263, arguing that the AO's assessment order was erroneous and prejudicial to the interests of the revenue due to inadequate inquiry into the LTCG transactions. The PCIT referenced several judicial precedents, including Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax, which stated that an order passed without applying the principles of natural justice or without application of mind would satisfy the requirement of being erroneous. The PCIT also cited Explanation 2 to Section 263, which allows revision if the order is passed without making inquiries or verification that should have been made.3. The adequacy of the AO's inquiry into the genuineness of LTCG transactions:The PCIT argued that the AO did not conduct a proper inquiry into the LTCG transactions, despite having information and evidence suggesting that the transactions were bogus. The PCIT noted that the AO failed to verify the genuineness of the transactions with M/s. Dhanlabh Merchandise Ltd, which merged with M/s. Bakra Prathistan Ltd, and did not consider the sworn deposition of Ashok Kumar Kayan, who admitted to providing accommodation entries. The PCIT concluded that the AO's failure to make relevant inquiries rendered the assessment order erroneous and prejudicial to the interests of the revenue.4. The distinction between lack of inquiry and inadequate inquiry by the AO:The assessee's counsel argued that the AO had conducted an inquiry and that the PCIT was merely substituting his view for that of the AO. The counsel cited the decision of the Hon'ble Delhi High Court in PCIT vs Laxman Industrial Resources Ltd, which held that the AO could not conclude that transactions were bogus based solely on a report from the Investigation Wing without conducting necessary inquiries. The Tribunal agreed with the assessee's counsel, noting that the AO had examined the LTCG transactions in light of the information received and the evidence provided by the assessee. The Tribunal concluded that the AO had conducted an inquiry, even if it was inadequate, and therefore, the PCIT's invocation of jurisdiction under Section 263 was not justified.Conclusion:The Tribunal found that the assessment order passed by the AO was neither erroneous nor prejudicial to the interests of the revenue. The AO had conducted an inquiry into the LTCG transactions, and the PCIT's jurisdiction under Section 263 was not justified. The Tribunal quashed the order passed by the PCIT under Section 263 and allowed the appeal filed by the assessee.