SAMEER GULABCHAND SHAH,JAMNAGAR V. PRINCIPAL COMMISSIONER OF INCOME TAX, JAMNAGAR

ITA 12/RJT/2024

AI Insights

The case involves Sameer Gulabchand Shah, who appealed against the order of the Principal Commissioner of Income Tax, Jamnagar, which was passed under section 263 of the Income Tax Act, 1961. The PCIT had set aside the assessment order for the Assessment Year 2013-14, which had accepted the returned income, based on the grounds that the assessee had made transactions in shares of Tuni Textile, a penny stock, and claimed long-term capital gains which were exempt under section 10(38) of the Act. The Tribunal examined whether the PCIT's order was justified and found that it was based on the assessing officer's proposal without any new findings or independent verification, leading to the conclusion that the PCIT's order was erroneous and prejudicial to the interest of the revenue.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 27256 (ITAT-RAJKOT)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-10-2024
• Assessment Year: 2013-2014
• Appeal Filed On: 02-01-2024
• Other Referred Cases: CIT vs. Ganpat Ram Bishnoi, Malabar Industrial Co. Ltd. vs. CIT, Jagat Pravinbhai Sarabhai vs. PCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY PUNGLIA; ABHIMANYU SINGH YADAV
• Assessee Lawyers: SAGAR SHAH
• Keywords: Difference of opinion; Change of opinion; Question of law; Revision of order; Bogus; R3r32
• Section: 147; 142(1); 263; 68; 22

Judgement Text

" Page | 1 ITA No.12/RJT/2024 – A.Y. - 2013-14 Sameer Gulabchand Shah vs. PCIT IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER AND SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER आयकर अपील सं./ITA No.12/RJT/2024 (\u000bनधा\u000fरणवष\u000f / Assessment Year: (2013-14) (Hybrid Hearing) Sameer Gulabchand Shah 1, “Swapneel”, Opp. Gurudatatrey Temple Palace Road, Jamnagar, Gujarat 361008 Vs. Principal Commissioner of Income Tax, Jamnagar, Tranjali Building, Nr. Amber Cinema, Jamnagar- 361008 \u0013थायीलेखासं./जीआइआरसं./PAN/GIR No.: AHPPS2736K (अपीलाथ\u0019/Appellant) (\u0001\u0002यथ\u0005/Respondent) \u000bनधा\u000f\u001aरती क\u001c ओर से/Assessee by :Shri Sagar Shah, AR राज\u0013व क\u001c ओर से/Respondent by :Shri Sanjay Punglia, CIT.DR & Shri Abhimanyu Singh Yadav, Sr.DR सुनवाई क\r तार\u0010ख/Date of Hearing : 08/10/2024 घोषणा क\r तार\u0010ख/Date of Pronouncement : 18/10/2024 आदेश / O R D E R PER DR. A. L. SAINI, AM: By way of this appeal, the assessee has challenged the correctness of the order passed by the Learned Principal Commissioner of Income Tax, PCIT, [in short ‘the Ld. PCIT’], dated 03.11.2023, under section 263 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year (AY) 2013-14. 2. Although, this appeal filed by the assessee, Assessment Year 2012-13, contains multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the Assessee. We find that most of the grounds raised by the Assessee, are either academic in nature or contentious in nature. However, to meet the end of justice, we Page | 2 ITA No.12/RJT/2024 – A.Y. - 2013-14 Sameer Gulabchand Shah vs. PCIT confine ourselves to the core of the controversy and main grievances of the assessee. The main grievance of the assessee are as follows: “The order passed by the Ld. Principal Commissioner of Income Tax, Jamnagar under section 263 of the Income Tax Act dated 03.11.2023 is bad in law as well as on facts and is required to be quashed as the same is passed without satisfying the twin conditions as prescribed under the law.” 3. Succinctly, the factual panorama of the case is that assessee before us is an Individual.The assessee has e-filed return of income for assessment year(AY) 2013-14, on 12/10/2013, declaring total income of Rs.18,00,000/-. The case was reopened u/s 147 of the Income-tax Act ('the Act' for short) on the basis of information that the assessee has made transactions into shares of Tuni Textile (Scrip code: 531411) during the previous year relevant to assessment year(AY) 2013-14 and had sold shares worth Rs.77,86,600/- and claimed the long term capital gain (LTCG) thereon, as exempt u/s 10(38) of the Act. The assessment order was passed on 28/03/2022 accepting the returned income. 4. Later on, Ld. PCIT has exercised his jurisdiction u/s 263 of the Act. The ld. PCIT noticed that as per the information and investigation, the assessee has transacted into shares of TUNI TEXTILE during the financial year (FY) 2012-13 relevant to assessment year (AY) 2013-14 and has sold shares worth Rs. 77,86,600/-, which was held to be a Penny Stock and hence it was required to be added to the income of the assessee. Accordingly, a show cause notice for initiation of proceedings u/s 263 of Act,dated 18/10/2023 was issued to the assessee, which is reproduced by ld. PCIT on page No.2 to 3 of his order. 5. In response to the above, the assessee has submitted reply on 26/10/2023. The main points of reply are reproduced below: \"A kind reference is invited to subject stated herein above. I have been served with the above referred notice wherein you have asked me to submit the show cause as to why the revisionary proceedings u/s. 263 of the Act should not be initiated for making alleged addition of Rs.77,86,600/- on account of sale of shares of TUNI TEXTILE MILLS LIMITED during the FY 2012-13 in my case for the assessment order already passed u/s. 147 of the Act. Page | 3 ITA No.12/RJT/2024 – A.Y. - 2013-14 Sameer Gulabchand Shah vs. PCIT In response to the same the assessee would like to draw your kind attention towards the following facts and to elaborate the same: A. Assessment Order passed under Faceless Scheme is not Subjective as thesame was not passed by Single Jurisdictional Officer: ……………… B. National Faceless Assessment Centre has Rightly passed the final assessment order after verifying the Documents and Information submitted by the assessee: ……………… C. National Faceless Appeal Centre has deleted the addition in the case of HUF of brother of assessee having similar facts. ……………… D. Addition proposed in the present case and revisionary proceedings initiated is without having any corroborative evidence on the record against the assessee. ……………… E. Initiation of Revisionary proceedings are merely a change in opinion of Principal Commissioner of Income Tax. ……………… In light of the above submission the revisionary proceedings initiated is completely based conjecture and surmises which is required to be quashed Kindly consider the above information on your record as proper compliance and oblige.\" 6. However, ld. PCIT rejected the contention of the assessee, and held that during the assessment proceedings, the assessing officer has not verified the transactions of sale and purchase of shares. The assessee has not been able to explain the reason for making investment in the shares of penny stock companies and the reason for abnormal rise in the sale price within a short span of time. Therefore, Ld. PCIT held that the assessment order, dated 28/03/2022, passed by the Assessing Officer, u/s 147 r.w.s 144B of the Act, in the case of the assessee for the assessment year (AY) 2013-14 is erroneous, in so far, as it is prejudicial to the interest of revenue within the meaning of section 263 of the Act and therefore, ld. PCIT set- aside the assessment order and directed the Assessing Officer to pass the assessment order afresh in respect of the above issue. Page | 4 ITA No.12/RJT/2024 – A.Y. - 2013-14 Sameer Gulabchand Shah vs. PCIT 7. Aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us. 8. The ld Counsel for the assessee, argued that there is no independent view of the Ld. PCIT, as he has merely initiated the proceedings, based on the report/proposal of the assessing officer. While passing the revisionary order, no incremental records, or new findings by the Ld. PCIT have been placed on records, therefore, based on the same set of facts proceeding u/s 263 is not permitted. All the related evidence was kept on records during assessment proceedings and based upon which the assessing officer had taken a plausible view which is not permitted to be replaced with the view of the Ld. PCIT. The ld Counsel draw attention of the Bench, towards the notices issued u/s 142 of the Act, dated 10.03.2022, during the assessment proceedings, and reply made by the assessee, during the assessment proceedings, wherein the details with regards to the claim of the capital gain earned was duly asked from the assessee, and was justified by the assessing officer. The assessee has discharged his onus liability by submitting the third-party evidence i.e. contract notes, bank statements, demat account on records and that the claim is in accordance with provisions of section 10(38) of the Act. Thus, the allegation is made without considering the above inquiries made and purely based on the proposal made by the assessing officer. Hence, order of the ld. PCIT may be quashed. 9. On the other hand, the Ld. CIT-DR for the Revenue has primarily reiterated the stand taken by the Ld.PCIT, in the order passed under section 263 of the Act, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 10. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We find merit in the submissions of ld. Counsel that there is no Page | 5 ITA No.12/RJT/2024 – A.Y. - 2013-14 Sameer Gulabchand Shah vs. PCIT independent view of the Ld. PCIT, as he has merely initiated the proceedings based on the report/proposal of the assessing officer. The proposal of the assessing officer reads as follows: “Since the number of cases pending in this charge in more. Therefore, it is not humanly possible to evaluate each and every aspect of the case. Therefore, not enough time to verify all the details. This order is passed due to the limitation of time barring as the case bar by limitation on 31/3/2022” We note that in the assessee`s case, the assessment order was framed on 28.03.2022 and during the assessment proceedings, there was no any failure on the part of the assessee, to submit the relevant details and documents, from time to time, in response to notices issued by the assessing officer, u/s 142(1) of the Act. That is, there was no failure on the part of the assessee to disclose fully and truly all material facts, necessary to frame the assessment order. Despite of this, if the assessing officer, passed the order,due to paucity of time, the assessee should not be blamed, specially, when the assessee, has filed the relevant details and documents, in response to notices u/s 142(1) of the Act, from time to time, before the assessing officer. We note that it is the duty of the assessing officer to scrutiny the assessee`s case within the time frame and complete the proceedings in the stipulated time frame. Thus, we find that the issue of notice u/s 263 of the Act, by Ld. PCIT, is merely based on the report/proposal of the assessing officer, hence, there is no independent application of mind, by ld. PCIT, and the same is not permitted. 11. We further find that during the assessment proceedings, the assessing officer, issued notices, to the assessee, u/s 142(1) of the Act, and in response to these notices, the assessee submitted details and documents and explained the issue before the assessing officer, therefore, the issue raised by the ld. PCIT, in his order, u/s 263 of the Act, has been duly examined by the assessing officer.The Provision of section 263 of the Act, Page | 6 ITA No.12/RJT/2024 – A.Y. - 2013-14 Sameer Gulabchand Shah vs. PCIT nowhere allows to challenge the judicial wisdom of assessing officer or to replace his wisdom in the guise of revision unless the view taken by assessing officer, is not at all sustainable in law. Reliance is placed on the decision of the Hon'ble High Court of Rajasthan in the case of CIT vs. Ganpat Ram Bishnoi, 296 ITR 292 (Raj.) wherein the Hon'ble Court held as under: \"Jurisdiction under section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something.\" 12. The contention raised by the ld. PCIT that assessing officer has not done proper inquiry and not verified the documents is vague and without looking into the facts of the case. The action ld. PCIT,for directing the assessing officer, to pass the order in accordance with his view is not permitted and thus, the change of opinion or review of the order without bringing to prove that how the order is erroneous or prejudicial to the interest of the revenue, the proceedings-initiated u/s. 263 of the Act, is bad in law as well as on facts. Rather, all the related evidence was kept on records during assessment proceedings and based upon which the assessing officer had taken a plausible view which is not permitted to be replaced with the view of the Ld. PCIT. The Ld Counsel relied upon the judgment passed by the Apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT dated 10.02.2000 (SC).The ld Counsel for the assessee, invited the attention of the Bench to the notices issued u/s 142 of the Act, dated 10.03.2022, wherein the details with regards to the claim of the capital gain earned,was duly asked by the assessing officer, and the assessee has replied to the assessing officer, and the assessing officer, having examined the reply of the assessee, took plausible view. The assessee has discharged his onus/ liability by submitting the third-party evidence i.e. contract notes, bank statements, demat account, evidence for payment of STT, and that the claim is in Page | 7 ITA No.12/RJT/2024 – A.Y. - 2013-14 Sameer Gulabchand Shah vs. PCIT accordance with provisions of section 10(38) of the Act. Thus, the allegation is made without considering the above inquiries made by the assessing officer. 13. We find that the assessee has duly placed on records, all the third- party evidences, necessary to prove the claim made, in the return of income and discharged his onus, which are mentioned as below: (i) Contract note of the Broker M/s. Sharukh N. Tara (SEBI Registered Broker bearing reg. no. INB 010589527) evidencing the purchase of shares of Tuni Textile Mills Limited. (ii) Stock Split announcement of shares of Tuni Textile Mills Limited by BSE. (iii) Contract note of Ans Pvt. Ltd. (SEBI Registered Broker bearing reg. no. INH000012421) for sale evidencing the sale of shares of Tuni Textile Mills Limited. (iv) Source of Income from which the shares of Tuni Textile Mills Limited were purchased. (v) Bank Statements reflecting the sale proceeds received in the Bank account of the assessee. (vi) STT was paid and the claim is in accordance with provisions of section 10(38) of the Act. (vii) The assessee held the shares for 22 months which is evident through the below mentioned table. Script Name Purchase Date Sale Date Period of Holding in Months Tuni textile 04.08.10 14.06.2012 22 months Tuni textile 04.08.10 15.06.2012 22 months Tuni textile 04.08.10 25.06.2012 22 months 14. We note that Hon`ble Jurisdictional High Court of Gujarat in the case of Jagat Pravinbhai Sarabhai, [2022] 142 taxmann.com 247, held that where Assessing Officer noted that assessee had indulged in scrip of shell company and had claimed long term capital gain on sale of shares and made addition u/s 68 holding that entire transaction was bogus and in the nature of penny stock, however, since genuineness of investment in shares by assessee was substantiated by him by producing copy of transaction statement for period from 1-6-2001 to 1-10-2010 and shares were retained for more than ten years Page | 8 ITA No.12/RJT/2024 – A.Y. - 2013-14 Sameer Gulabchand Shah vs. PCIT and were sold after such long time, hence investment was not bogus therefore it cannot be treated that investment was made in penny stock. The findings of the Hon`ble Court is reproduced below: “2. As submitted by learned senior advocate Mr. M.R. Bhatt for M.R.Bhatt and Co., the appellant revenue proposes the following substantial questions of law, which according to the submission requires examination. \"Whether on the facts and circumstances of the case and in law, the decision of Appellate Tribunal is ex facie perverse because the Appellate tribunal deleted the addition of Rs.2,10,474/- made on account of bogus long term capital gain, without appreciating the entire gamut of fact that the assessee transacted in penny stock namely M/s. Devika Proteins Ltd. thus earning bogus Long term Capital Gain and claiming it to be exempt under section 10(38) of the Income-tax Act?\" 3. The assessee filed the return of income for the assessment year 2011-12 on 29-3- 2012 declaring his total income Rs. 3,11,490/-. Subsequently the assessment was reopened as information was received that assessee has indulged into script of shell company and had claimed long term capital gain on sale of shares of Devika Proteins Limited to the tune of Rs. 2,10,474/- and that the amount was claimed as exemption under section 10(38) of the Income-tax Act, 1961 (hereafter referred to as 'the Act') 3.1 The Assessing Officer made addition of the said amount. The entire transaction was treated as bogus and in the nature of penny stock. By adding Rs. 2,10,474/- under section 68 of the Act, total income was assessed at Rs. 5,21,964/-. 3.2 In appeal by the assessee before the Commissioner of Income-tax (Appeals), the issue was re-examined. According to the appellate authority the appellant assessee had furnished evidence to show that the shares were brought as genuine investment which was long back in the year 2000-01. As the shares were in the nature of old investment, they could not be treated as penny stock by any stretch of imagination. 4. The Income-tax Appellate Tribunal further examined the question in appeal preferred by the revenue and confirmed the view of the appellate authority noticing that the shares were purchased in the year 2001 and they were sold after long time in the year 2010-11. 5. The genuineness of investment in the shares by the assessee was substantiated by him by producing copy of transaction statement for the period from 1-6-2001 to 1-10- 2010. The investment was made in the year 2000-01. The shares were retained for more than ten years and were sold after such long time. These circumstances suggested that the investment was not bogus or investment made in penny stock. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short span. 6. The finding recorded by the appellate authority and confirmed by the appellate tribunal is based on material before them. They are in the realm of findings of fact. No error could be noticed in the findings and conclusion that the investment was longstanding and genuine and was not penny stock on the basis of which the capital gain was wrongly claimed. 6.1 On the facts of case, no question of law much less substantial question of law arises. 7. Resultantly, appeal is dismissed”. Page | 9 ITA No.12/RJT/2024 – A.Y. - 2013-14 Sameer Gulabchand Shah vs. PCIT 15. The order passed by Ld.PCIT is bad in law, as it is passed on facts by merely relying on concept of PREPONDERANCE OF PROBABILITY. In such a manner, every gain earned by any genuine investor will be within this scope and every gain earned can be termed as non-genuine or an accommodation entry based on the probability. The third-party evidence submitted by the assessee is termed as colorable evidence without verifying the genuineness and veracity of the evidences. Calling such genuine third-party evidences, as accommodative or not genuine, is merely the pre-determined mind set of Ld. PCIT. Thus, the ld. PCIT failed bring on record even a single reason that the order passed by the assessing officer is erroneous or prejudicial to the interest of the revenue. In order to claim exemption u/s 10(38) there is no such pre- condition given in the Act that the assessee should be a regular investor in shares. Once the conditions mentioned in the section are fulfilled, the assessee is eligible for exemption u/s 10(38) of the Act. The assessment order was passed by AO after verifying the information submitted by the assessee. The assessee had submitted all the requisite documents during the assessment proceedings which have not been considered by the PCIT and the revisionary proceedings initiated is without having any corroborative evidence on the record against the assessee. Based on these facts and circumstances, we quash the order passed by the Ld.PCIT u/s 263 of the Act. 16. In the result, the appeal filed by the assessee is allowed. Order is pronounced in the open court on 18/10/2024 Sd/- Sd/- (DINESH MOHAN SINHA) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Rajkot दनांक/ Date: 18/10/2024 Dkp Sr.P.S (Outsourcing) Page | 10 ITA No.12/RJT/2024 – A.Y. - 2013-14 Sameer Gulabchand Shah vs. PCIT Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr. CIT 5. DR/AR, ITAT, Rajkot 6. Guard File // True Copy // By order Assistant Registrar/Sr. PS/PS ITAT, Rajkot "