The tribunal held that jurisdiction under Section 263 requires both erroneous and prejudicial conditions, which were not satisfied, thus quashing the Principal Commissioner's order.

Order

Per Dr. Arjun Lal Saini, A.M

By way of this appeal, the assessee has called into question correctness of impugned order passed by the Learned Principal Commissioner of Income Tax under section 263 of the Income tax Act, 1961, in the matter of assessment under section 147 of the Act for the assessment year 2014-15, on the following grounds:

“1. Ld. Principal CIT erred in law as well as on fact in assuming jurisdiction under 263 of the Act.

2. Ld. Principal CIT erred in law as well as on fact in holding that assessment order passed u/s 143(3) with r.w.s. 147 is erroneous and prejudicial to the interest of revenue.”

2. Succinctly, the factual panorama of the case is that assessee before us is Hindu Undivided Family. The assessee had filed original return of income on 31.07.2012, declaring total income of Rs.78,030/- for assessment year (AY) 2014-15. The assessee`s case was reopened u/s 147 of the Act on the basis of information that the assessee has made transactions in penny stock of Fist Fin Services Ltd. (scrip code 511369) during the previous year relevant to assessment year (AY) 2014-15 and claimed the LTCG income thereon as exempt u/s 10(38) of the Act. Accordingly, order u/s 147 r.w.s. 144B of the Act has been passed on 28.03.2022, determining total income at Rs.10,83,203/-, after making addition of Rs.10,05,173/-, on account of cash credit u/s 68 of the Act.

3. Later on, Learned Principal Commissioner of Income Tax, ( in brief “ld.PCIT”) exercised his jurisdiction under section 263 of the Income tax Act, 1961.On perusal of case records for the assessment year under consideration, it was observed by the learned PCIT that during the previous year, the assessee has also made transactions in another penny stock scrip “Centron Ind” and sold 4500 shares at an amount of Rs.10,67,985/- and claimed LTCG of Rs.9,57,333/- (10,67,985 – 1,10,652) claimed as exempt u/s 10(38) of the Act. Therefore, the assessing officer has to verify the genuineness of the transactions made in the penny stock scrip “Centron Ind.”. Therefore, the order passed by the assessing officer is prima facie erroneous and prejudicial to the interest of revenue within the meaning of the provisions of section 263 of the Act on his issue. Therefore, Ld.PCIT issued a show cause notice u/s 263 of the Act to the assessee to explain the transactions.

4. In response to above show cause notice, assessee submitted his reply before the ld.PCIT. The assessee explained that notice issued u/s 148 of the Act to reopen the assessment u/s 147 of the Act was itself illegal and when the order u/s 148 r.w.s. 147 of the Act, is itself illegal and bad in law then the assessment order is going to be bad in law and no addition should be made in the hands of assessee. The assessee submitted before the learned PCIT that as soon as assessee became aware about his re-opening proceedings, he immediately filed return of income u/s 148 of the Act. Before, the assessing officer, the assessee submitted relevant documents and evidences, dated 29.01.2022, explaining the total sale of securities for value of Rs.20,68,615.29/- stating that assessee was claimed total LTCG of Rs.19,38,452.29/- during the year under consideration. Along with that contract notes for purchase of 3500 shares of First Financials and 4500 shares of Centron Ind was submitted by also submitting the confirmation from the Share Broker VINIT Enterpriss that they were holding the shares on behalf of the assessee. Detailed explanation of each and every point was submitted and explained before the assessing officer at the time of re- assessment proceedings with regard to all the share transactions entered into by the assessee duri