2023 (5) TMI 365 - HC - Income Tax

High Court dismisses revenue appeal challenging ITAT order for AY 2015-16; invalid exercise of revisionary powers

PRINCIPAL COMMISSIONER OF INCOME TAX 2, KOLKATA Versus. KAUSHALYA DEALERS PVT. LTD.

The High Court of Calcutta dismissed the revenue's appeal challenging the order of the Income Tax Appellate Tribunal for the assessment year 2015-16. The ... Revision u/s 263 - loss of penny stock - as per CIT AO has not done proper verification - Scope of no enquiry - HELD THAT:- As notice u/s 142(1) was issued. In response to this notice, the assessee had submitted a reply along with the details and documents in support of the transaction in shares and such other details which were called for by the Assessing Officer. Thereafter, another notice under Section 142(1) was issued calling for further information and particulars. This was furnished by the assessee by reply. Thereafter, the assessee had submitted an explanation in respect of allowability of the loss and also explained various queries raised by the Assessing Officer on the said issue. The copy of the explanation has been filed in the paper book and we find it is an elaborate explanation not only on facts but also setting out various decisions of the High Courts and that of the Tribunal contending that the loss as reported by the assessee was permissible. After such elaborate discussion of the case with the assessee, the Assessing Officer has completed the assessment. Thus, the learned Tribunal rightly held that it is not a case of ‘no enquiry’ or no proper verification but a detailed enquiry had been done by the Assessing Officer. The learned Tribunal has noted the factual position as put forth by the assessee before it in paragraph 6 of the order. Thus, we are of the view that the twin conditions which are required to be fulfilled before exercising jurisdiction u/s 263 of the Act have not been fulfilled in the facts and circumstances of the case on hand. Decided against revenue. Issues: Jurisdiction under Section 263 of the Income Tax Act - Validity of exercise of revisionary powers by the Principal Commissioner of Income Tax - Proper verification by the Assessing Officer - Permissibility of loss of penny stock.Analysis:The High Court of Calcutta addressed the appeal by the revenue challenging the order of the Income Tax Appellate Tribunal for the assessment year 2015-16. The substantial question of law raised was whether the Principal Commissioner of Income Tax validly exercised revisionary powers under Section 263 of the Income Tax Act, ignoring the provisions of Explanation-2 to Section 263. The Court heard arguments from both parties and focused on the jurisdictional aspect of the Principal Commissioner's actions.The Court examined whether the assumption of jurisdiction by the Principal Commissioner of Income Tax under Section 263 was justified. The Tribunal highlighted that the Principal Commissioner acted on four grounds, with three becoming academic, leaving only the issue of the loss of penny stock. Upon reviewing the order passed by the Principal Commissioner, it was found that the Assessing Officer had conducted proper verification. The Assessing Officer had issued notices, requested details, and the assessee had provided explanations and documents supporting the transactions in question.The Court observed that a detailed enquiry had been conducted by the Assessing Officer, as evidenced by the notices issued, responses provided by the assessee, and the elaborate explanation submitted. The Tribunal correctly noted that it was not a case of no enquiry or improper verification, but rather a thorough examination had taken place. Consequently, the Court concluded that the twin conditions required for exercising jurisdiction under Section 263 were not fulfilled in this case.In light of the above analysis, the Court held that no interference was warranted with the Tribunal's order. The appeal by the revenue was dismissed, and the substantial question of law was answered against the revenue. Additionally, the Court closed the application for stay.