Portion 263 must not be exercised at instance of assessing officer

PCIT Vs Reeta Lakhmani (Calcutta Higher Court docket)
The situation of PCIT vs. Reeta Lakhmani, listened to by the Calcutta Significant Court docket, is a major authorized precedent involving the interpretation of Segment 263 of the Income Tax Act, 1961. This situation addresses the procedural and substantive elements of the training of jurisdiction by the Principal Commissioner of Cash flow Tax (PCIT). The judgment, delivered on a series of appeals, scrutinizes the validity of the PCIT’s steps and the genuineness of transactions less than the Profits Tax Act.
The appeals were being submitted by the earnings less than Section 260A of the Money Tax Act, challenging the orders of the Money Tax Appellate Tribunal (ITAT) for a variety of evaluation many years. The principal competition was irrespective of whether the assessee, Reeta Lakhmani, engaged in doubtful share transactions to account for undisclosed profits beneath the guise of Lengthy Phrase Funds Acquire (LTCG) and hence assert exemption under Part 10(38) of the Act.
Queries of Regulation
The profits raised 3 considerable thoughts of regulation:
1. Genuineness of Transactions: Irrespective of whether the Tribunal erred in regulation by not recognizing that the assessee unsuccessful to substantiate the genuineness of the transactions.
2. Character of Transactions: Regardless of whether the Tribunal erred in law by enabling the assessee’s claim of exemption underneath Portion 10(38) with out holding that the transactions were being adventures in the character of trade and therefore taxable as business enterprise earnings.
3. Documentary Proof and Carry out: Irrespective of whether the Tribunal neglected the documentary evidence and the conduct of the assessee in light-weight of the provisions of Part 68.
Arguments and Results
Genuineness of Transactions: The profits argued that the assessee could not build the genuineness of the transactions. Even so, the Tribunal granted relief to the assessee, emphasizing that the initiation of proceedings under Segment 263 by the PCIT was based on a proposal by the examining officer, which is not in accordance with legislation. The Tribunal noted that the PCIT will have to independently utilize its brain and file good reasons to fulfill the twin circumstances for exercising electricity underneath Section 263.
Mother nature of Transactions: The profits contended that the transactions involving shares of Baviscon Vincom Pvt. Ltd., which afterwards amalgamated with Unno Industries Ltd., were adventures in the character of trade. The Tribunal, nonetheless, concentrated on procedural lapses by the PCIT and did not obtain considerable merit in reclassifying the transactions as small business earnings with out good proof.
Documentary Evidence and Carry out: The Tribunal noticed that the PCIT unsuccessful to independently evaluate the proof and merely acted on the assessing officer’s proposal. This procedural flaw led to the Tribunal location aside the PCIT’s purchase underneath Segment 263.
Precedent and Comparative Examination
The circumstance attracts parallels with Principal Commissioner of Earnings Tax, Durgapur vs. M/s. Sinforte Pvt. Ltd., wherever the court docket dismissed the attraction on related grounds. The court highlighted that jurisdiction underneath Area 263 must not be exercised at the instance of the evaluating officer. This precedent reinforced the Tribunal’s conclusion to set aside the PCIT’s get in Reeta Lakhmani’s circumstance.
Summary
The Calcutta Significant Court’s judgment in PCIT vs. Reeta Lakhmani reaffirms the worth of procedural correctness and impartial software of thoughts by the PCIT even though working out powers less than Segment 263 of the Profits Tax Act. The case underscores the requirement for the profits authorities to substantiate their promises with strong evidence and adhere to because of approach. By dismissing the revenue’s appeal, the courtroom emphasised that procedural lapses and lack of significant thoughts of law are unable to kind the foundation for reassessment underneath Area 263. This judgment serves as a important reference for long run situations involving equivalent troubles of jurisdiction and procedural propriety in tax matters.
Comprehensive Text OF THE JUDGMENT/Order OF CALCUTTA Superior Courtroom
We have listened to learned counsel appearing for the respective get-togethers. We have perused the affidavit submitted in help of the petition and identified enough result in has been shown for condonation of delay.
Appropriately, the software is authorized and the hold off in submitting the attractiveness is condoned.
These appeals have been filed by the revenue under Segment 260A of the Profits Tax Act, 1961 (the Act) hard the orders handed by the Money Tax Appellate Tribunal in several evaluation yrs. The particulars of the enchantment figures, case selection ahead of the realized Tribunal and the evaluation year underneath consideration are established out in a tabulated form hereunder :

Sl. No.
ITAT No.
Date of purchase
Evaluation yr

1.
ITAT 129/2022
13.11.2020
2014-2015

2.
ITAT 127/2022
13.11.2020
2014-2015

3.
ITAT 128/2022
13.11.2020
2014-2015

4.
ITAT 130/2022
13.11.2020
2014-2015

5.
ITAT 131/2022
13.11.2020
2014-2015

6.
ITAT 132/2022
13.11.2020
2014-2015

7.
ITAT 133/2022
13.11.2020
2014-2015

Since the situation involved in all these conditions are identical they have been taken together and are disposed of by this frequent judgment and order. For the sake of convenience and with the consent of the realized Advocates for the parties ITAT /129/2022 is taken as the guide circumstance. The income has raised the pursuing sizeable issues of regulation for thought:
“i] Irrespective of whether the discovered Tribunal has erred in law and failed to recognize that the assessee could not substantiate the genuineness of the transaction to verify that it experienced not in doubtful share transaction meant to account for undisclosed money in the garb of Very long Phrase Cash Attain [LTGC] to assert exemption less than area 10[38] of the Act ?
ii] Irrespective of whether the uncovered Tribunal has erred in regulation though allowing the assessee’s attraction of claim of exemption less than segment 10[38] without having keeping that the formal transaction of obtain and sale of shares of penny stock corporations particularly Baviscon Vincom Pvt. Ltd. later amalgamated with Unno Industries Ltd. was adventure in mother nature of trade, thus exact same was to be taxed as small business revenue ?
iii] No matter whether the figured out Tribunal has erred in legislation in overlooking the documentary evidence in depth and in gentle of conduct of the assessee and other encompassing circumstances in get to see no matter if the assessee is liable to the provisions of area 68 or not?”
We have read Mr. Tilak Mitra, learned standing Counsel for appellant/profits and Mr. Pranit Bag, figured out Advocate assisted by Mr. S. Mukhopadhyay, discovered Advocate for the respondent.
The competition advanced ahead of us by the revenue is that the assessee could not set up the genuineness of the transactions to show that it experienced not indulged in any dubious share transactions intended to account for undisclosed money underneath the garb of very long time period money from (LTCG) to declare exemption beneath Part 10 (38) of the Act.
On likely by the order passed by the figured out Tribunal we discover that the figured out Tribunal had granted relief to the assessee on two grounds to begin with as to regardless of whether the exercising of jurisdiction by the Principal Commissioner of Earnings Tax below Area 263 was justified and in accordance with regulation.
This component was considered by the acquired Tribunal and right after heading by means of the facts of the situation it was observed that the initiation of the proceedings underneath Segment 263 of the Act was dependent on a proposal offered by the examining officer and not at the behest of the PCIT. It may be true that the PCIT might have information and facts from the evaluation file or through other sources. However whilst doing exercises powers beneath Portion 263 of the Act the PCIT has to bear in intellect the twin ailments are to be conjointly fulfilled. As a result, before training of electric power below Area 263 it is the PCIT who has to utilize its intellect to the challenge and thereafter report causes as to how the twin conditions are contented and then difficulty a demonstrate-bring about detect to the assessee. In the scenarios on hand there is nothing on record to demonstrate that these types of an physical exercise was performed by the PCIT. Therefore, acquired Tribunal right after noting several conclusions on the issue rendered by the Coordinate Benches of the Tribunal experienced authorized the assessee’s attractiveness and established aside the buy passed by the PCIT less than Portion 263 of the Act. Thereafter, the discovered Tribunal has proceeded to examine the deserves of the subject and granted aid. It is the submission of Mr. Mitra that so far as the merit of the conditions are worried similar problem was tested by this Courtroom in the scenario of Principal Commissioner of Earnings Tax Vs. Swati Bajaj claimed in 2022 SCC on the net website page 1572. However these types of may be the challenge, as pointed out previously the discovered Tribunal experienced granted aid to the assessee on two grounds the initially of which remaining that the exercise of energy less than Area 263 of the Act was not in accordance with regulation. As could be seen from the sizeable concerns of law recommended by the profits, the earnings has not elevated any concern on the reported getting of the Tribunal which goes to present that the income experienced reconciled with the reasoning presented by the learned Tribunal in that document. For that reason, a piecemeal obstacle to the order handed by the acquired Tribunal on a single of the grounds on which reduction was granted to the assessee is not maintainable.
In much more or fewer identical situations in the scenario of Principal Commissioner of Revenue Tax, Durgapur Vs. M/s. Sinforte Pvt. Ltd. in ITAT No.104/2019 dated 7.1.2022 the court experienced dismissed the attractiveness filed by the income on the ground that the PCIT in purchase to work out jurisdiction beneath section 263 of the Act exercised jurisdiction at the instance of the evaluating officer which is versus the provisions of the law. This selection supports the circumstance of the respondent assessee. Consequently, for the over motives, we are of the see that the buy passed by the figured out tribunal on the initially ground, specifically with regard to the correctness of the exercising of energy beneath area 263 of the Act has to be affirmed and, appropriately, the appeal submitted by the earnings is dismissed and the substantial inquiries of legislation recommended by the revenue are not needed to be resolved in the instant scenario.
For the causes established out by us above and, appropriately, the exact are still left open.