2020 (11) TMI 37 - AT - Income Tax

Revision u/s 263 - assessee had claimed sec. 10(38) LTCG/LTCL claimed after transferring shares hold in M/s Kailash Auto Finance Ltd. - As per CIT said LTCG/Loss had been derived from share transactions sale-price in penny stock which rendered the assessment accepting the same as correct to be to erroneous causing prejudice to the interest of the Revenue - lack of inquiry OR erroneous enquiry - HELD THAT - It is not in dispute that the assessee had filed all the supportive detailed evidence forming part of the assessment records. PCIT is also equally fair in not treating the impugned assessment as a case of the former limbs of lack of inquiry but he holds that it is an erroneous decision on Assessing Officer s part treating the gains / loss as genuineness as causing prejudice to the interest of the Revenue. We notice in these circumstances that this tribunal s coordinate bench s decision in batch of appeals M/s Gitash Tikmani, HUF 2019 (9) TMI 1177 - ITAT KOLKATA has reversed the PCIT s similar exercises of revisional jurisdiction We adopt foregoing detailed discussion mutatis mutandis to reverse the PCIT s impugned revision order treating the regular assessment framed in the instant case as an erroneous and causing prejudice to interest of the Revenue. The said regular assessment stands restored as the necessary corollary.

Issues Involved:
1. Correctness of the Principal Commissioner of Income Tax (PCIT)'s invocation of revision jurisdiction under Section 263 of the Income Tax Act.
2. Whether the Assessing Officer's (AO) regular assessment was erroneous and prejudicial to the interest of the Revenue.
3. Examination of the legitimacy of Long-Term Capital Gains (LTCG) claimed by the assessee.

Detailed Analysis:

1. Correctness of the PCIT's Invocation of Revision Jurisdiction under Section 263:

The PCIT invoked Section 263 to revise the AO's assessment, claiming it was erroneous and prejudicial to the Revenue's interest. The PCIT's action was based on the premise that the AO failed to adequately investigate the assessee's claim of LTCG from the sale of shares in M/s Kailash Auto Finance Ltd., which was suspected to be a penny stock manipulated for generating bogus gains.

The PCIT issued a show-cause notice citing discrete inquiries by the DIT(Inv.), Kolkata, indicating that the LTCG claimed by the assessee was derived from dubious share transactions. The PCIT concluded that the AO's failure to scrutinize the claim rendered the assessment erroneous and prejudicial to the Revenue.

2. Whether the AO's Regular Assessment was Erroneous and Prejudicial to the Interest of the Revenue:

The assessee argued that all necessary details, including contract notes, demat account statements, and transaction records, were provided to the AO, who accepted the LTCG claim after due inquiry. The PCIT, however, held that the AO did not specifically investigate the transactions related to M/s Kailash Auto Finance Ltd., despite the case being selected for scrutiny based on suspicious LTCG transactions.

The PCIT referenced judicial precedents, including the Hon'ble Supreme Court's rulings, which state that an assessment order can be deemed erroneous if the AO fails to conduct necessary inquiries. The PCIT emphasized that mere non-enquiry by the AO could justify invoking Section 263, as it indicates a failure to ascertain the truth of the facts stated in the return.

3. Examination of the Legitimacy of LTCG Claimed by the Assessee:

The assessee maintained that the transactions were genuine, conducted through recognized brokers, and supported by verifiable documentation. The PCIT, however, dismissed these claims, citing the lack of specific inquiries by the AO into the transactions involving M/s Kailash Auto Finance Ltd.

The ITAT reviewed the case and noted that the assessee had indeed provided all relevant evidence during the original assessment. The tribunal referenced its own and other judicial precedents, asserting that an assessment cannot be revised under Section 263 if the AO has taken one of the possible views after due inquiry.

The tribunal concluded that the PCIT's invocation of Section 263 was not justified, as the AO had conducted adequate inquiries and accepted the LTCG claim based on substantial evidence. The tribunal reversed the PCIT's order and restored the AO's original assessment, emphasizing that suspicion alone cannot be the basis for revision under Section 263.

Conclusion:
The ITAT allowed the assessee's appeal, setting aside the PCIT's revision order and restoring the original assessment by the AO. The tribunal held that the AO's assessment was neither erroneous nor prejudicial to the interest of the Revenue, as it was based on adequate inquiries and substantial evidence provided by the assessee.

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