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Tax Publishers Om Prakash Badaya v. Pr. CIT [ITA No. 217/Jp/2020, dt. 19-11-2020] : 2020 TaxPub(DT) 4900 (Jp-Trib) Reopening under section 263 questioning exempt capital gains based on penny stocks allegations *Facts:* Assessee returned exempted capital gains from the sale of shares of a listed company called Jackson Investment Ltd. the scrutiny assessment was completed after the assessing officer having inquired about the said exempt capital gains and its corroborating evidences. The case was reopened by the PCIT on reports that the said company called Jackson Investment Ltd. was part of the penny stocks money accommodation cases of converting black money into valid legal tender. The plea of the assessee was -- 1. The twin conditions imposed by the decision of Malabar Industrial (2000) 243 ITR 83 (SC) : 2000 TaxPub(DT) 1227 (SC) were missing in their case that the order to be opened under section 263 has to be -- (a) Prejudicial to the interests; and (b) Erroneous to the revenue. 2. Reliance of PCIT on Explanation 2 to section 263 inserted with effect from 1-6-2015 that the order is deemed to be prejudicial to the interest of the revenue and erroneous if the order was passed without inquiries being made was incorrect as the assessing officer had inquired about the exempt capital gains. 3. As held in Shri Narayana Tatu Rane [ITA Nos. 2690 & 2691/Mum/16, dated 6-5-2016] that inadequate enquiry cannot be a case under section 263. A prudential enquiry if this was missing then the explanation can be pressed into service. The amendment in discussion as to whether it is retrospective or prospective is irrelevant. Bereft the above submissions additions were sustained of the exempt capital gains under section 68 besides the accommodation entry commission sustained under section 69C. On higher appeal -- Held in favour of the assessee that the reopening under section 263 was bad and deserved to be quashed. Explanation 2 to section 263 is retrospective in nature held in -- M/s. Indus Best Hospitality & Realtors Pvt. Ltd., ITAT Mumai [ITA No. 3125/Mum/2017 dated 19-1-2018] AV Industries v. ACIT [ITA No. 3469/Mum/2010, dated 6-11-2015] Metacaps Engineering and Mahendra Constructions Co. (JV) v. CIT [ITA No. 2895/Mum/2014, dated 11-9-2017] : 2017 TaxPub(DT) 4600 (Mum-Trib) Reliance Money Infrastructure Ltd. v. PCIT [ITA No. 3259/Mum/2017, dated 6-10-2017] Shantikrupa Estate Pvt. Ltd. [ITA No. 1252/Ahd/2015, dated 9-9-2016] Amira Pure Foods Pvt. Ltd. v. PCIT [ITA No. 451/Del/2017, dated 29-11-2017] : 2017 TaxPub(DT) 5413 (Del-Trib) *Applied:* Arun Kumar Garg, HUF v. Pr. CIT in ITA No. 3391/Del/2018 : 2019 TaxPub(DT) 2089 (Del-Trib)

Tax Publishers

Om Prakash Badaya v. Pr. CIT [ITA No. 217/Jp/2020, dt. 19-11-2020] : 2020 TaxPub(DT) 4900 (Jp-Trib)

Reopening under section 263 questioning exempt capital gains based on penny stocks allegations

Facts:

Assessee returned exempted capital gains from the sale of shares of a listed company called Jackson Investment Ltd. the scrutiny assessment was completed after the assessing officer having inquired about the said exempt capital gains and its corroborating evidences. The case was reopened by the PCIT on reports that the said company called Jackson Investment Ltd. was part of the penny stocks money accommodation cases of converting black money into valid legal tender. The plea of the assessee was --

1. The twin conditions imposed by the decision of Malabar Industrial (2000) 243 ITR 83 (SC) : 2000 TaxPub(DT) 1227 (SC) were missing in their case that the order to be opened under section 263 has to be --

(a) Prejudicial to the interests; and

(b) Erroneous to the revenue.

2. Reliance of PCIT on Explanation 2 to section 263 inserted with effect from 1-6-2015 that the order is deemed to be prejudicial to the interest of the revenue and erroneous if the order was passed without inquiries being made was incorrect as the assessing officer had inquired about the exempt capital gains.

3. As held in Shri Narayana Tatu Rane [ITA Nos. 2690 & 2691/Mum/16, dated 6-5-2016] that inadequate enquiry cannot be a case under section 263. A prudential enquiry if this was missing then the explanation can be pressed into service. The amendment in discussion as to whether it is retrospective or prospective is irrelevant.

Bereft the above submissions additions were sustained of the exempt capital gains under section 68 besides the accommodation entry commission sustained under section 69C.

On higher appeal --

Held in favour of the assessee that the reopening under section 263 was bad and deserved to be quashed.

Explanation 2 to section 263 is retrospective in nature held in --

M/s. Indus Best Hospitality & Realtors Pvt. Ltd., ITAT Mumai [ITA No. 3125/Mum/2017 dated 19-1-2018]

AV Industries v. ACIT [ITA No. 3469/Mum/2010, dated 6-11-2015]

Metacaps Engineering and Mahendra Constructions Co. (JV) v. CIT [ITA No. 2895/Mum/2014, dated 11-9-2017] : 2017 TaxPub(DT) 4600 (Mum-Trib)

Reliance Money Infrastructure Ltd. v. PCIT [ITA No. 3259/Mum/2017, dated 6-10-2017]

Shantikrupa Estate Pvt. Ltd. [ITA No. 1252/Ahd/2015, dated 9-9-2016]

Amira Pure Foods Pvt. Ltd. v. PCIT [ITA No. 451/Del/2017, dated 29-11-2017] : 2017 TaxPub(DT) 5413 (Del-Trib)

Applied:

Arun Kumar Garg, HUF v. Pr. CIT in ITA No. 3391/Del/2018 : 2019 TaxPub(DT) 2089 (Del-Trib)