Some inadequacy in inquiry cannot be a ground for invocation of revisionary powers under section 263 of the Act.
In a recent judgment ITAT Delhi has held that some inadequacy in the manner of inquiry cannot necessarily be a ground for invocation of revisionary powers under section 263 of the Act.
ABCAUS Case Law Citation:
4563 (2025) (05) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by Principal Commissioner of Income Tax (PCIT) u/s 263 of the Income Tax Act, 1961 (the Act) arising from the assessment order passed u/s 147 r.w.s 144B of the Act which was sought to be set aside for denovo assessment in terms of revisionary jurisdiction.
The assessee filed his return of income inter alia claiming exempt income arising from Long Term Capital Gain (LTCG) on sale of shares. The concluded assessment was however re-opened under s. 148 r.w.s. 147 of the Act on the ground that based on certain information disseminated by the DIT (Investigation)that the assessee allegedly traded in penny stock and the name of the assessee figures in the beneficiary list of PMC Fincorp Ltd. scrip. The transaction entered into by the company were thus perceived to be non-genuine and alleged to have facilitated introduction of unaccounted income of the assessee in the form of exempt capital gains in the books of the assessee.
Based on such belief entertained, the AO alleged that the chargeable income has escaped assessment while recording reasons under s.148(2) of the Act. Pursuant to the formation of belief towards escapement of income, the AO issued notice under s. 148 of the Act at the fag end of the completion of limitation period for assumption of jurisdiction under s. 147 of the Act to examine the issue.
The re-assessment order was consequently framed under s. 147 of the Act wherein however,
the return of income was accepted by the AO without any adjustment. The stand of the assessee on LTCG claimed being exempt from taxation was accepted by the AO in the re-assessment order. The AO while framing the re-assessment order inter-alia observed that various documents, details and evidences were called for and the assessee, in turn, uploaded the requisite details, explanation and evidences in support of queries raised during the re-assessment proceedings to rebut the allegations of sham transactions. Thus, after making some enquiries on the claim of LTCG in the course of re-assessment proceedings, no additions were eventually made despite express allegations on assessee company to be beneficiaries of unaccounted income purportedly received in the form of LTCG in the reasons recorded.
Thereafter, the Pr.CIT in exercise of revisionary powers, issued show cause notice under section 263 of the Act requiring the assessee to show cause as to why the re-assessment order so framed under s. 147 r.w.s. 144B of the Act should not be modified/set aside on the ground that such order of the AO was erroneous and pre-judicial to the interest of the Revenue.
As per the show cause notice, the Pr.CIT, in essence, alleged that re-assessment order suffered from non-application of mind and was rendered without proper enquiries and verification of crucial facts required while discharging its statutory functions. The Pr.CIT alleged that the re-assessment order was passed in an stereo-typed manner without examining the genuineness of the claim of the assessee towards LTCG shown as exempt income under s. 10(38) of the Act and without conducting proper enquiry or verification which should have been made in the context of the case.
The PrCIT rejected all the submissions of the assessee and remarked in the revisional order that (i) the AO had failed to conduct any enquiry from the assessee as to who purchased shares at such high price while the assessee has sold such shares; (ii) the AO had not conducted enquiries requiring the assessee to explain as to how the share price increased phenomenally by 600 % per share; and (iii) the AO also did not conduct any enquiry from the assessee as to how the assessee had identified PMC Fincorp Limited shares for investment purposes. It was alleged that mere submissions of self-serving documents like Demat account, contract note, banking transactions etc. are not capable of camouflaging the bogus transactions in the nature of LTCG declared by the assessee.
The Pr.CIT alleged that the AO had routinely accepted the explanation filed by the assessee regarding the purchase of shares at face value without conducting any enquiry or verification on the pointed noted above. The Pr.CIT thus invoked the revisional powers vested under s. 263 of the Act r.w.Explanation-2 appended thereto and set aside the re-assessment order with direction to the AO to frame such order afresh after conducting requisite enquiries on the pertaining issue involved.
The Tribunal observed that the Pr.CIT was essentially dis-satisfied with the degree of enquiry made in respect of the LTCG claimed by the assessee. The solitary premise to displace the completed re-assessment was inadequacy in enquiry on LTCG claimed.
The Tribunal further observed that he Pr.CIT had set aside the re-assessment order primarily on the ground that the shares have been sold at abnormally high price for which necessary enquiries have not been carried out. The AO also failed to enquire into the name of the corresponding purchaser of the shares at such high price and what actuated the assessee to invest in the share of this penny stock.
The Tribunal opined that there was no purport in alleged inadequacy of enquiry of such points. Once the assessee had sold the shares on the platform of exchange at the quoted price, the obligation of the assessee ended unless there is any positive material in the possession of the Department to suggest that the assessee had indulged in any concerted action giving rise to unlawful profits to the assessee.
The Tribunal opined that the Pr.CIT, had attempted to shift the burden on the assessee on the points where he had no control. The enquiry could have been made by the Revenue from the Exchange. No such enquiry had been made or proposed by the Pr.CIT. The Pr.CIT made allegations cursorily without collecting any material adverse to the assessee.
The Tribunal observed that Pr.CIT had merely alleged inadequacy in enquiry without any sound basis and without making even some minimal enquiry himself. No third party statement or SEBI report etc. was available adverse to the assessee to impair the bonafides of claim of the assessee. No adverse material has been brought on record to warrant a further probe as suggested in the allegation made under s. 263 of the Act.
The Tribunal opined that the view taken by the AO cannot be assailed solely based on suspicion & surmises.
Besides, the Tribunal also expressed agreement with the contention of the assessee that some inadequacy in the manner of inquiry cannot necessarily be a ground for invocation of powers under s. 263 of the Act. Such view has been expressed in the judgments rendered by the Hon’ble Delhi High Court. In the instant case, the alleged inadequacy on various points beyond the command of assessee was also devoid of any rationale.
Accordingly, the Tribunal quashed and set aside the revisional order.
Download Full Judgment Click Here >>
- UCO Bank Concurrent Auditor Online Empanelment for FY 2025-26
- Section 87A rebate available for short-term capital gains – ITAT
- Homebuyer entitled to possession if their name included in list of financial creditors
- GSTN Advisory to file pending returns before expiry of three years on 01.10.2025
- Insurance premium paid for partner of the firm held as allowable expenditure
