Case Law Details
Kusum Gupta Vs PCIT (ITAT Kolkata)
ITAT Kolkata held that PCIT cannot exercise the revisionary jurisdiction to set aside the assessment where the AO has conducted enquiries and taken a plausible view accepting the contentions of the assessee.
Facts- The only issue raised by the assessee is against the invalid exercise of jurisdiction u/s 263 of the Act by the PCIT thereby passing revisionary order u/s 263 of the Act and setting aside the assessment framed by the AO u/s 143(3) of the Act dated 27.07.2016.
Conclusion- Held that in our opinion, the PCIT cannot exercise the revisionary jurisdiction to set aside the assessment where the AO has conducted enquiries and taken a plausible view accepting the contentions of the assessee.
We also observe from the perusal of the order passed u/s 263 of the Act that the jurisdiction was exercised by the PCIT upon receipt of proposal from the AO to the effect the capital gain has been accepted by the AO and thereafter the ld. PCIT invoked the jurisdiction which is against the ratio laid down by the Hon’ble Jurisdictional High Court in the case of PCIT vs. M/s Sinhotia Metals and Minerals Pvt. Ltd. (supra). On this score also , the jurisdiction of the PCIT is not sustainable. We also note that the PCIT has relied on CBDT’s circular that the AO should have disallowed long term capital gain and has not applied his mind as to how the assessment order is erroneous and prejudicial to the interest of the revenue in order to justify the exercise the revisionary powers u/s 263 of the Act. In our opinion where the PCIT was of the view that AO has not conducted enquiry to came to the conclusion on the issue, then the ld PCIT is duty bound to make an enquiry and reach a conclusion that order is erroneous and prejudicial to the interest of the revenue.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
These are the appeals preferred by the different assessees against the separate orders of the Ld. Principal Commissioner of Income Tax-10, Kolkata (hereinafter referred to as the Ld. PCIT”] passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act) dated 12.12.2018 for the AY 2014-15. First we will adjudicate in ITA No. 234/Kol/2019 for AY 2014-15.
2. The only issue raised by the assessee is against the invalid exercise of jurisdiction u/s 263 of the Act by the PCIT thereby passing revisionary order u/s 263 of the Act and setting aside the assessment framed by the AO u/s 143(3) of the Act dated 27.07.2016.
3. Facts in brief are that the assessee filed return of income on 12.03.2015 declaring total income of Rs. 2,51,810/- which was processed u/s 143(1) of the Act and thereafter the case of the assessee was selected for scrutiny under CASS for suspicious long term capital gain on sale of shares and consequently assessment u/s 143(3) of the Act was framed vide order dated 27.07.2016 accepting the returned income. Subsequently the Ld. PCIT received a proposal from the AO for review of assessment order under revisionary jurisdiction and the ld. PCIT upon perusal of the said proposal observed that the AO has failed to take any logical action on the issue of long term capital gain on sale of shares and accordingly assessment framed was held to be erroneous insofar as prejudicial to the interest of the revenue. A show cause notice u/s 263 of the Act was issued on 9.11.2018 which was duly replied by the assessee. In the said notice, the PCIT has raised the issue of sale of shares of Kailash Auto Finance Ltd. and claim of long term capital gain u/s 10(38) of the Act. The ld PCIT also referred to the investigation undertaken by DDIT, Kolkata regarding accommodation entries in the form of Long term capital gain. In para 4 of the show cause notice PCIT noted that the investigation by DDIT has revealed a syndicate of entry operators who use to launder involving on the large scale manipulation and rigging of the stock prices of shares certain registered companies on the floor of registered stock exchange in order to provide accommodation entries in the form of exempt bogus long term capital gain in lieu of unaccounted cash and share sold by the assessee on the said penny stock. Thereafter the ld. PCIT called upon the assessee to show cause as to why the assessment framed should not be revised on account of failure of the AO to assess the said income from sale of equity shares. Finally after taking into account of the contentions and written submissions of the assessee dated 6.12.2018, the PCIT revised the assessment by observing that it is the fit case to add entire sale consideration of bogus penny stock shares amounting to Rs. 5,58,860/- as unexplained cash credit and the unexplained expenditure on account of commission payment to the tune of Rs. 27,443/- u/s 69C of the Act by revising the assessment and directing the AO to reassess the income.
4. The Ld. Counsel for the assessee vehemently submitted before us that the assumption of jurisdiction u/s 263 of the Act and passing of a consequent revisionary order u/s 263 of the Act by the ld PCIT is bad in law and nullity for three reasons. One that the case of the assessee was selected for scrutiny under CASS for the reason that of suspicious long term capital gain on sale of equity shares consequent to receipt of information from the investigation wing during the course of assessment proceedings, the AO called for from the assessee various documents such as bills, instruments of sale of shares, copy of bank statement, balance sheet, copy of demat account , contract notes etc which were duly filed before the AO. The brief background of the case is that are that the assessee purchased equity shares of Panchsul Marketing Ltd. at Rs. 1/-.Thereafter the said company was merged with Kailash Auto Finance Ltd. and and assessee got shares in lieu of shares held in the amalgamating company. Subsequently the equity shares of the amalgamated company were sold by the assessee for a consideration of Rs. 5,49,758/- and the same was duly received in the bank account of the assessee. The AO after verifying the transactions with share brokers by issuing notice u/s 133(6) of the Act and upon receiving the confirmation from the brokers accepted the transactions as genuine and no addition was made in the assessment order framed u/s 143(3) of the Act dated 27.07.2016. Now the PCIT has exercised jurisdiction to set aside the assessment order in which the AO has already examined the said issue and has taken a possible view on the issue which is proposed by the PCIT in the order passed u/s 263 of the Act. The Ld. Counsel for the assessee prayed that the jurisdiction u/s 263 of the Act is not available to the ld. PCIT where after having considered evidences/documents on record and the reply of the assessee, the AO has taken a plausible view. The Ld. A.R in defense of his arguments relied on the decision of the Hon’ble Calcutta High Court in the case of PCIT vs. Kaushalya Dealers Pvt. Ltd. in ITAT/72/2022, IA No. GA/1/2022 dated 24.11.2022 and PCIT vs. M/s PG Commercial Pvt. Ltd. in ITAT/136/2022 IA No. GA/2/2022 dated 8.2.2023. The second plea taken by the Ld. Counsel for the assessee is that the jurisdiction u/s 263 of the Act has wrongly been assumed on the ground that it was initiated on the proposal moved by the AO. The Ld. A.R in defense of arguments relied on the decision of Hon’ble Jurisdictional High Court in the case of PCIT vs. M/s Sinhotia Metals and Minerals Pvt. Ltd. in ITAT/104/2019 dated 7.1.2022. The Ld. Counsel for the assessee ,while arguing this third plea, submitted that the PCIT has not applied his mind or done any investigation/enquiries to ascertain the error in the assessment order and merely referred to the CBDT circular to hold that the AO should have disallowed a long term capital gain on sale of penny stocks. Where the PCIT was of the view that AO has not conducted any enquiry, he himself is duty bound to conduct an enquiry to reach a conclusion as to how the assessment is erroneous and prejudicial to the interest of the revenue. The Ld. A.R relied on the decision of Hon’ble Delhi High Court in the case of ITO vs. D G Housing Projects Ltd. in 343 ITR 329 (Del). The Ld. Counsel finally prayed that in view of aforesaid decisions, the jurisdiction assumed u/s 263 of the Act is invalid and so is the order passed u/s 263 of the Act which may kindly be quashed.
5. The Ld. D.R on the other hand relied heavily on the order of PCIT by submitting that it was found during the investigation by DDIT, Kolkata that entry operators , share brokers, money launderers were acting in organized manner and were manipulating the shares of some companies which are penny stock on the Bombay stock exchange in order to give accommodation to beneficiaries in lieu of unaccounted cash. The Ld. D.R therefore prayed that the grounds raised by the assessee may kindly be dismissed. Besides the ld DR argued that by the exercise of jurisdiction u/s 263 of the Act ,the assessee is not prejudiced in any manner as he would be afforded sufficient opportunity in the set aside proceedings.
6. After hearing the rival contentions and perusing the material on record, we find that indisputably the assessee has purchased and sold equity shares which were held to penny stock. This is also undisputed that the case of the assessee was selected for scrutiny for this reason only and the AO after calling for necessary information /evidences from the assessee and examining the same such as purchase bill, bank statement evidencing the payment for share purchase, copy of balance sheet of M/s Panchsul Marketing Ltd. which is merged with Kailash Auto Finance Ltd. , contract notes qua selling 1400 equity shares mentioning the consideration at Rs. 5,49,750/-and copy of bank statement reflecting payment received. The AO accepted the contentions of the assessee after examination of the above evidences and also after calling for reply from the stock broker by issuing letter u/s 133(6) of the Act which was duly furnished by the broker and the AO accordingly framed the assessment accepting the claim of the assessee u/s 10(38) of the Act. In our opinion, the PCIT cannot exercise the revisionary jurisdiction to set aside the assessment where the AO has conducted enquiries and taken a plausible view accepting the contentions of the assessee. The case of the assessee is squarely covered by the decision of Hon’ble Calcutta High Court in the case of Kaushalya Dealers Pvt. Ltd. (supra) and M/s PG Commercial Pvt. Ltd. (supra) . We also note that in former decision of Calcutta High Court in the case of PCIT vs. Kaushalya Dealers Pvt. Ltd. has been upheld by the subsequent decision of the Hon’ble High Court i.e PCIT Vs M/S P.G. Commercials Pvt Ltd. (supra). We also observe from the perusal of the order passed u/s 263 of the Act that the jurisdiction was exercised by the PCIT upon receipt of proposal from the AO to the effect the capital gain has been accepted by the AO and thereafter the ld. PCIT invoked the jurisdiction which is against the ratio laid down by the Hon’ble Jurisdictional High Court in the case of PCIT vs. M/s Sinhotia Metals and Minerals Pvt. Ltd. (supra). On this score also , the jurisdiction of the PCIT is not sustainable. We also note that the PCIT has relied on CBDT’s circular that the AO should have disallowed long term capital gain and has not applied his mind as to how the assessment order is erroneous and prejudicial to the interest of the revenue in order to justify the exercise the revisionary powers u/s 263 of the Act. In our opinion where the PCIT was of the view that AO has not conducted enquiry to came to the conclusion on the issue, then the ld PCIT is duty bound to make an enquiry and reach a conclusion that order is erroneous and prejudicial to the interest of the revenue. The case of the assessee is squarely covered by the decision of Hon’ble Delhi High Court in the case of D G Housing Projects Ltd. (Supra). Considering the ratio laid down in the above decisions, we are inclined to hold that the revisionary jurisdiction has been exercised by the PCIT invalidly and accordingly we quash the same and the appeal of the assessee is allowed.
ITA No. 235/Kol/2019 for AY 2014-15
7. Issue raised in this appeal is identical to one as decided by us in ITA No. 234/Kol/2019, therefore our decision in ITA NO. 234/Kol/2019 would, mutatis mutandis, apply to this appeal as well. Consequently the appeal of the assessee is allowed.
8. In the result, both the appeals of the different assessees are allowed.
Order is pronounced in the open court on 22nd August, 2023
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