TaxTMI 
TaxTMI 
2024 (6) TMI 151
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Id. Assessing Officer u/s. 147 r.w.s. 144B of the Act is found to be erroneous in so far as it is prejudicial to the interest of the revenue. 2 2. That the Id. Principal Commissioner of Income- tax grossly erred in treating the exempt Long-Term Capital Gain earned by the assessee appellant as bogus and failed to appreciate that the ld. Assessing Officer had passed the assessment order after appreciating all supporting documents and evidences submitted by the assessee and therefore the assessment order passed by the ld. Assessing Officer is neither erroneous nor is prejudicial to the interest of the revenue. 3 2.1. That the Id. Principal Commissioner of Income- tax grossly erred in ignoring the detailed submissions made by the assessee in response to notice u/s. 263 and in passing the impugned order on assumptions, presumptions, conjectures and surmises which is bad in law. 4 3. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing." 3. The fact as culled out from the records is that in this case the assessee has filed return of income on 26.10.2016 for the A.Y 2016-17 declaring total income at Rs. 16....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd failed to make inquiry / investigation which was required considering the detailed information received from the Investigation Wing in this case which covered various aspects such as introduction, identification of this penny stock company. detailed modus operand of obtaining of bogus LTCG, parameters for defining / identifying the penny stocks, detailed analysis of company M/s Appu Marketing Limited / Ejecta Marketing Limited, case laws in favour of revenue, action taken by SEBI in this stock etc. 6.3 The AO failed to consider this detailed information received from the Investigation Wing, Mumbai. The AO did not make any inquiry from the penny stock companies, stock exchange, brokers etc. to examine the genuineness and correctness of the claim of long term capital gain made by the assessee. The AO simply accepted reply of the assessee and documents submitted by him without making any inquiry / Investigation / verification of the same. 6.4 Further, it is noticed that the AO issued a query letter dated 17.12.2021 in this case to the assessee as under "Please refer to the scrutiny assessment proceedings u/s 143(3) / 147 of the Act in your case for the AY....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le consideration undertakings, valuations of undertakings, details of calculation of net worth of undertakings. Form 3CA report of accountant in respect of slum sale etc. From this it is clear that the AO failed to make inquiry on the issue for which the case was reopened. The AO accepted the claim of the assessee without any verification on inquiry. The AO erred in accepting the claim of the assessee as genuine ignoring the information received from the Investigation Wing. Thus, the AO failed to consider the material available on record. 7 As discussed above, the AO failed to apply his mind on the material available on record and failed to invoke the applicable provisions of law. This in turn has resulted in passing of an erroneous order by the AO in the case due to non-application of mind to relevant material, an incorrect assumption of facts and an incorrect application of mind to the law which is prejudicial to the interest of the revenue and hence liable for revision under section 263 of the Act. The Hon'ble Supreme Court in the case of Malabar Industrial Limited V/s CIT 243 ITR it has held as under- ".... An incorrect assumption of facts or an incorrect ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is reproduced as under: As per the information, during the investigation proceedings in the case of M/s Goenka Business and Finance Limited & Ejecta Marketing Ltd, it was found by the Investigation Wing that M/s Goenka Business and Finance Limited & Ejecta Marketing Ltd. Is a listed company and the entire shareholding of which is bought by the syndicate to provide accommodation entries to the beneficiaries with the help of the brokers and entry operators. It was also noticed that transactions to provide such accommodation entries are done in three steps i.e. purchase of share at nominal rate, price rigging and final sale of share. The above information have been analyzed and it has been found that the assessee has introduced his own unaccounted funds through the colour of bogus LTCG entry, by trading in the penny scrip of M/s Goenka Business and Finance Limited & Ejecta Marketing Ltd. On the basis of the information received, it is found that the assessee is one of the beneficiary and taken accommodation entry as detailed here under: S.No. Name of Scrip LTCG Transaction Amount 1. Appu Marketing Ltd./ Ejecta Marketing Ltd. (Script code-EML....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Order on 23.03.2022 u/s 147 r.w.s 144B of the Act in which it has accepted the return filed by the assessee and has held as under: The assessee has submitted concerned documents in support of his reply. After verification of the facts, the income shown in the return filed u/s 148 of the I.T Act is hereby accepted. 7. That the Principal Commissioner of Income Tax, Jaipur-1 reopened the proceedings u/s 263 of the Act vide notice dated 29.01.2024 on the finding that: "After considering the reply submitted by you, the Assessing Officer did not draw any adverse conclusion of the issue of reopening and accepted income declared by you in the ITR. However, it is observed on perusal of assessment record and case history that the Assessing Officer did not examine the issue of bogus long-term capital gain properly and failed to make inquiry/investigation which was required considering the detailed report of the Investigation Wing in the case. The bogus LTCG thus claimed was required to be added to the total income. In view of the above-mentioned facts, it appears that the assessment order passed u/s 147 r.w.s. 144B of the I.T. act 1961 in your case for A.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax than what was just, has been imposed. 10. The phrase "prejudicial to the interest of the revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue has a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when an Assessing Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Assessing Officer has taken one view with which the CIT did not agree with, it cannot be treated as an erroneous order prejudicial to the interest of the revenue because the view taken by the Assessing Officer is unsustainable in law. 11. The ld. AO has examined that issue as it is evident from the query posed and reply filed by the assessee. Since, in this case ld. AO has clearly conducted the enquiry and revenue did not pin point the error on the part of the assessing officer the order passed after due application of mind cannot be subjected to proceeding u/s. 263 of the Act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....per 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. * Hon'ble Calcutta High Court in PCIT v. Reeta Lakhmani (2022) 11 TMI 1177 has held: Revision u/s 263 - PCIT may have information from the assessment file or through other sources - correctness of the exercise of power under section 263 - contention advanced before us by the revenue is that the assessee could not establish the genuineness of the transactions to prove that it had not indulged in any dubious share transactions meant to account for undisclosed income under the garb of long term capital against (LTCG) to claim exemption under Section 10 (38) - HELD THAT:- In the cases on hand there is nothing on record to show that such an exercise was done by the PCIT. Tribunal after noting several decisions on the subject rendered by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 263 is not correct HELD THAT:- The fact that the assessee has on being asked clearly explained the nature and details of the transaction by submitting the necessary evidence and the content of the reply is also filed in the assessee's paper book and the revenue did not contradict the figure which the assessee has replied, and the figures referred in the notice of the PCIT. Thus, it is clear that the AO raised the issue, asked for the details and applied his mind while passing the assessment order. Even in the proceeding u/s. 263 the ld. PCIT did not bring anything on record that how the order of the ld. AO is erroneous and prejudicial to the interest of the revenue what material he relied - He relied on the same material on which the ld. AO has already applied his mind. In the proceeding before the ld. PCIT the assessee in his reply submitted the profit / loss derived by the assessee and the figures reported in the PCIT notice is same in the assessment order and in the reply to the assessee. On issue no. 1 the ld. PCIT noted that " The AO accepted the version of the assessee without properly examining and verifying the ITS details with transact....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is that to establish order of the AO is to be erroneous insofar as it is prejudicial to the interest of the Revenue, the PCIT has to satisfy of twin conditions simultaneously, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent, s. 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue's interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. However, every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the PCIT does not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts i.e. Balance Sheet and Profit & Loss account of the assessee, copies of contract notes, DEMAT account and order sheet entries reveal the correct state of affairs in respect of the issue raised in the impugned revisionary proceedings for which both, ld. PCIT and the ld. CIT, DR could not bring any material on record to controvert the verifiable factual position. In cases where there is inadequate enquiry but not lack of enquiry, again the Ld. Pr.CIT must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Ld. Pr. CIT and he is able to establish and show the error or mistake made by the AO, making the order unsustainable in law. The matter cannot be remitted for a fresh decision to the AO to conduct further enquiries without a finding that the order is erroneous, the condition or requirement which must be satisfied for exercise of jurisdiction u/s 263 of the Act. In such matters, to remand the matter/issue to the AO would imply and mean that the Ld. Pr. CIT has not examined and decided whether or not the order is erroneous but has simply directed the AO to decide the aspect/questio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CHENNAI] is governed by its own set of facts. The applicability of Section 263 was not the subject matter of controversy therein. The shares were transacted through the intermediaries / Stock Brokers duly registered with the SEBI. The Pr.CIT has given undue considerations to the so called abnormal increase in the price by wrongly invoking the principles of preponderance of probabilities. It is trite that the degree or standard of proof required to establish a fact cannot be defined precisely. The drastic increase or decrease in the price of large number of shares in a given year is an ordinary phenomenon in the stock market where price discovery happens depending on host of uncertain factors both internal and external. SEBI is the watchdog for any manipulative actions in the stock market. The assessee has entered into meager transactions of sale of mere 15000 shares held by it and no adverse SEBI report is available implicating the assessee for any concerted or manipulative action which may give rise to any kind of suspicion of any fictions gains. The order of co-ordinate Bench does not tend to remove the fetters placed on the scope of Section 263 under considerat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o contrary evidence has been filed by the Revenue. The suspicions and conjectures in the absence of any evidence have no relevance whatsoever. The argument that subsequently the share price rose and the fact that the assessee sold it at a lesser price on an earlier date is a suspicion which cannot be taken as an evidence that the share price was rigged. This fact in no way discredits the assessee's claim, infact it only fortifies the fact that assessee had no apparent "insider's knowledge" or clairvoyance that the share price would rise further. With hindsight most everyday rationale decisions may ultimately appear to be ill-advised actions, however none of us are clairvoyants and hence being incapable of seeing the future we act in the present. Decisions taken in the present are based on available input. What lies in the future is always an estimated guess. By accepting an estimated addition the broker cleverly evades penal consequences of Detection and discovery of client fund mismanagement. These statements of surrender by Brokers it cannot be over emphasized should be treated with utmost caution in the interests of the economic activity in the country and as a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Page No. From To 1. Copy of Show-cause notice dated 29.01.2024 A B 2. Copy of reply dated 20.02.2024 submitted before ld. PCIT in response to notice issued u/s 263 of the Act 01 16 3. Copy of notice dated 17.12.2021 issued u/s 142(1) of the Act. 16A 16C 4. Copy of letter dated 03.01.2022 filed before ld. assessing officer, NFAC in response to notice issued u/s 142(1) of the Act. 17 18 5. Copy of Bank Statement of the assessee. 19 23 6. Copy of DEMAT Account of the Assessee 24 24 7. Copy of Financial Statement of the assessee with HEM Securities Limited 25 25 8. Copy of Bill issued by Pearl Mercantiles Pvt. Ltd 26 26 9. Copy of Client Bill Report with Hem Securities Limited 27 32 10. CIT (E) v. Manna Trust (2022 (1) TMI 693- Rajasthan High Court dated 12.01.2022 33 34 11. PCIT v Kaushalya Dealers (2023 (5) TMI 365 - CALCUTTA HIGH COURT) dated 24.11.2022 35 36 12. PCIT v. Reeta Laxmani & Others 2022 (11) TMI 1177 - CALCUTTA HIGH COURT) dated 22.11.2022 37 39 13. Gaurav Purohit v. PCIT 2024 (2) TMI 336 - ITAT JODHPUR) dated 02.0....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2024(2) TMI 336- ITAT Jodhpur * Gayatri Devi vs. PCIT, Central, Jaipur 2023 (10) TMI 23- ITAT, Jaipur * Mukesh Kumar Agarwalla vs. PCIT, Guwahati 2023 (12) TMI 628- ITAT, Kolkata * Darshan Shivlal Thakkar vs. PCIT-1, Ahmedabad 2023 (8) TMI 25- ITAT Ahmedabad 8. On the other hand, ld. DR representing the Revenue has supported the order of the ld. PCIT. He submitted that it is classic case of non-application of mind and since, the ld. AO has not undertaken the verification on the issue for which the case was reopened the observation made by the ld. PCIT is in accordance with the provision of section 263 of the Act. As it is very much clear from the finding of the ld. PCIT that the ld. AO has not applied his mind on the various aspect of the issue for which the assessment was re-opened and there is no finding recorded in the order of the assessment that the ld. AO has examined the issue based on the reasons recorded and that why the order of the ld. PCIT is within the power vested u/s. 263 of the Act. 9. We have heard the rival contentions and perused the material placed on record. The brief facts as emerges from the orders of the lower authority is t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he interest of the revenue. The assessee has challenged the impugned order before us and has filed a detailed written submission and the ld. DR is also heard. The bench noted that the case of the assessee was re-opened based on information and detailed report provided by the Directorate of Income Tax (Investigation), Mumbai to verify the claim of long term capital gain shown by the assessee in the return of income. The re-assessment proceedings were conducted by the national faceless assessment center. The order of the NFAC record that reasons, issue of notice to the assessee calling for the information and recorded the reasons. Thus, it would be worth while to reproduce the finding of facts recorded in the order of the assessment herein below : "In this case the assessee has filed return of income on 26.10.2016 for the A.Y 2016-17 declaring total income at Rs. 16,40,790/- and the same was processed u/s 143(3) of the Act on 14.04.2017 at returned income. As per record it is seen that the information and detail report provided by the Directorate of Income tax (inv), Mumbai. As per the information it has been found that the assessee has introduced his own unaccounted funds t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... there is recording of the information, issue of notice u/s. 148, calling for the details based on the issue raised in the notice u/s. 148 of the Act and the clear finding is recorded in the order of the assessment. The assessment is completed as per the faceless regime insisted by the government wherein interference is done without any face and favour. Thus, the assessment is fair and reasonable. Merely the assessment unit has not made any addition the assessment cannot be considered as erroneous or prejudicial, which has been completed in accordance with the law and the ld. AO has after recording all the facet of the matter passed a reasoned order of the assessment. The ld. PCIT has not pointed any mistake or error in the order of the assessment and has not hold that the order is how prejudicial to the interest of the revenue. The ld. PCIT merely noted that the addition is required to be made is not made by the ld. AO. This contention of the PCIT cannot be considered to invoke the provision of section 263 of the Act. The assessee challenged the contentions of the PCIT exercising the power u/s. 263 of the Act stating that the issue that the ld. PCIT has raised has already been enq....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ugh the contentions of the rival parties and the order under challenge. The bench noted from the discussion so recorded above that the order of the assessment records the reasons of re-opening, called for the information from the assessee relating the issue under examination, the assessee submitted the details called for and upon examination of the details so placed on record the ld. AO has given his finding as to the income returned by the assessee. Thus, the order of the assessment is passed as per the four corner of the provisions of the law and the ld. PCIT in her order did not placed on record a single reasons pointing out the error in the order of the assessment. She merely noted that based on the report of the Investigation Mumbai addition is required to be made has not been made. This alone observation cannot make the order of the assessment hit by the provision of section of 263 of the Act because it failed on test of order of the assessment being erroneous and prejudicial to the interest of the revenue. Since this twin condition is not satisfied the view taken by the ld. AO is not erroneous or prejudicial and thus, we are of the considered view that the issues which are a....