Smt. Shardaben B. Patel Vs Pr. CIT (ITAT Ahmedabad)
The revisional action under Section 263 of the Act in unsustainable in law on two counts; (i) A revisional action which began with a nondescript notice and culminated in revisional order without any effective opportunity despite specific request is an order passed in blatant transgression of natural justice & (ii) The Revisional CIT made an unflinching and adverse conclusion in the league of finality (without granting any opportunity) and closed the door for the assessee before the AO while setting aside the order of AO. The enquiry or investigation set in motion in the proceedings before the AO in pursuance to the revisional order is clearly a pretense and an empty formality. The AO was effectively asked to obdurately adhere to the pre-conceived observations made in the revisional order of ex parte nature. Such directions are clearly unsustainable.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal has been filed at the instance of the assessee impugning the revisional order dated 21.03.2018 passed by the Principal Commissioner of Income Tax, Ahmedabad-5 (‘PCIT’ in short) under S. 263 of the Income Tax Act, 1961 (the Act) in connection with the assessment order passed by the AO under s.143(3) of the Act dated 24.07.2015 for AY. 20 13-14.
2. The grounds of appeal raised by the assessee read as under:
“1. The Learned Principal Commissioner of Income Tax (Pr. CIT) erred in law and in facts of the case in setting aside the assessment order u/s 143(3) dated 24.07.2015 to the file of the AO and in directing him to frame an order de-novo.
2. The Ld. Pr. CIT erred in law and on facts of the case in not providing the proper opportunity of being heard to the appellant and thus in violating the principles of natural justice, before passing the order u/s 263 of the Income Tax Act.”
3. As per the grounds of appeal, the essential grievance of the assessee is that in the facts and circumstances of the case, the Pr.CIT was not justified in exercising revisionary powers under s.263 of the Act and thereby setting aside the assessment order passed under s.143(3) of the Act with a direction to the AO to frame assessment afresh after proper examination, inquiry and verification with reference to long term capital gains of Rs.1,50,69,856/- derived by the assessee. To adjudicate the grievance of the assessee, it would be pertinent to take note of the relevant facts.
3.1 The assessee filed her return of income for AY 2013-14, declaring total income at Rs.18,22,490/-. The assessee inter alia claimed exemption under s.10(38) of the Act on account of long term capital gains of Rs.1,50,69,856/- on sales of shares. The return filed by the assessee was subjected to scrutiny assessment and assessment order was framed under s.143(3) of the Act dated 24.07.20 15 wherein the capital gains so declared by the assessee was duly accepted without any disturbance. The assessment so framed by the AO under s.143(3) of the Act was however could not met approval of the PCIT, who invoked supervisionary jurisdiction provided under s.263 of the Act and sought to modify the impugned order passed by the AO. A show cause notice dated 27.02.2018 was accordingly issued in this regard alleging the aforesaid assessment order to be erroneous and prejudicial to the interest of the Revenue. The relevant portion of the show cause notice is reproduced hereunder:
“During the course of search proceedings detection of over 500 Cr. has been made on the basis of off market purchase of shares in both the scrip KGN Industries Ltd and KGN Enterprise Ltd. wherein the sale proceeds of shares were not brought through Stock Exchange. On verification, it is noticed that the assessee has booked bogus long term capital gain by transition in the shares of M/s. KGN Enterprises to the tune of Rs. 1,50,69,856/-. At the time of assessment, this information of fraudulent transaction was on records of the AO but during the course of assessment proceedings, the AO has not verified or conducted any inquiry in respect of the share transactions in respect of the bogus claim LTCG and completed the assessment.”
3.2 As per the show cause notice reproduced above, the PCIT essentially observed that the assessee has booked bogus long term capital gains in the share of KGN Enterprise Ltd. for which requisite inquiry was not carried out by the AO while completing the assessment.
3.3 In response to the show cause notice, the assessee filed written reply which is reproduced in para 4 of the Revisional order impugned herein. The same read as under:
“4. In response to the above notice, the assessee filed written submission on 05/03/2018. In its reply the assessee has mentioned that the assessment order should not considered as erroneous and prejudicial to the interest of the revenue and consequently the same should not be set-aside u/ 263 of the Act or to be framed de-Novo after complete proper enquiries and verification. The reply given to the AO is reproduced as under-
i) It is mentioned in your captioned show cause notice that, during the course of search proceedings detection of over 500cr has been made on the basis of off market purchase of shares in both the scrip KGN industries Ltd and KGN Enterprise Ltd wherein the sale proceeds of shares were not brought through stock exchange. In response to the same, I humbly submit that it is not clear from the show cause notice as to on whom the search was carried and how my sale transaction is being finked to it. 1 therefore request you good self to supply me following details:
a. Where and in whose search was conducted?
b. Statement recorded of the concerned person during the search.
c What are the seized materials of search?
d. What is the outcome in their search case?
e. How is my transaction alleged to be not genuine?
I humbly request that till full details are provided to me, no proper opportunity of being heard is considered to be given to me which is a mandate of section 263 of the Act. Till such time I request your good self to treat my reply as an interim reply and I should be allowed to make further submissions based on details provided to me. Further, it is very crucial to note that my purchase transaction was made from a recognized broker and the sale transactions through recognized stock exchange “NSE” as against the allegation of sale not being any stock exchange as mentioned in your show cause notice.
(ii) Your attention is drawn to the provisions of section 263 of the Act which is reproduced as under:
“The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so for as it is prejudicial to the interest of the revenue, he may, after giving the assessee on opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, Including on order enhancing or modifying the assessment, or cancelling the assessment and direct a fresh assessment. “
Therefore, the pre requisite for applying the provisions of section 263 of the Act are not present in my case which is explained as under.
iii) You have mentioned in your show cause notice at para 2(i),
“On verification, it is noticed that the assessee has booked bogus long term gain by trading in the shares of M/s. KGN Enterprises to the tune of Rs.1,50,69,856/-. During the course of assessment proceedings, the AO has not verified the share transactions in respect of the bogus claim of LTCG. “
iv) I hereby, deny the observation made by you as above.
v) In this connection, I quote the questionnaire (copy enclosed) issued by the AO enclosed with notice u/s. 142(1) of the Act dated 12-06- 2015, which at question no. 7 specifically called from me as under:
“The details of demat account, purchase/sale of shares and securities account with supporting evidences.”
vi) In response to the same, I furnished the details called for vide my submission (copy enclosed) dated 08-07-2015, wherein at point no. 3-5, 1 have submitted complete details of the capital gains made by me amounting to Rs. 1,50,69,856/-. The details submitted by me vide this submission is reproduced as below:
“3. I am furnishing herewith a copy of income-tax return, computation of income, profit and loss account, balance sheet and capital account.
4. Detail of bank account held by me is as under:
