AO's Failure To Make Proper Enquiry On Bogus Claim Of LTCG By Sale Of Shares; Calcutta High Court Upholds Revision Order

The Calcutta High Court has upheld the revision order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, as the AO failed to make a proper inquiry on the bogus claim of long-term capital gain (LTCG) by the sale of shares.

The bench of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya has observed that in the order under Section 263 of the Act, which shows that the PCIT has applied its mind, it came to the prima facie conclusion that the assessing officer should have treated the entire credit as bogus and added back the same under Section 263 of the Act, rejecting the claim for exemption under Section 10(38) of the Income Tax Act. Therefore, PCIT has not solely proceeded based on the report of the assessing officer, but on perusal of the report, it has examined the facts.

The appellant/department has challenged the order of the Tribunal in quashing the order under Section 263 of the Income Tax Act, 1961. The Tribunal allowed the assessee's appeal and set aside the order passed by the Principal Commissioner of Income Tax (PCIT) passed under Section 263 for the assessment year 2014–15. The only ground on which the Tribunal has set aside the order passed under Section 263 is that the PCIT invoked his jurisdiction solely based upon a proposal received from the Assessing Officer.

The PCIT observed that the assessing officer has failed to take a logical action on the information available with him and, therefore, the assessment was prima facie erroneous in so far as it was prejudicial to the interest of the revenue. The PCIT issued a show cause notice.

The assessee contended that it is not a case where the PCIT solely proceeded based on the report of the assessing officer, but on perusal of the report, the facts were examined. After taking note of the written submission filed by the assessee on December 6, 2018, the PCIT has examined the entire assessment records and flow chart, which show how some transactions were bogus dealing with penny stock shares.

The court noted that the PCIT has applied its mind and came to the prima facie conclusion that the assessing officer should have treated the entire credit as bogus and added back the same under Section 263, rejecting the claim for exemption under Section 10(38).

The court quashed the order passed by the Tribunal and restored the order passed by the PCIT.

Counsel For Appellant: Vipul Kundalia

Counsel For Respondent: S.M. Surana

Case Title: Principal Commissioner Of Income Tax-9, Kolkata Vs. Bina Gupta

Case No.: IA NO: GA/1/2024

Click Here To Read The Order