S. 263 Revision Invalid Where AO Took Plausible View on Unlisted Share Gains as Capital Gains: Calcutta High Court

The Calcutta High Court has held that revision under Section 263 of the Income Tax Act, 1961 invalid where the Assessing Officer (AO) took a plausible view on unlisted share gains as capital gains. The Bench of Justice Rajarshi Bharadwaj and Justice Uday Kumar has observed that the Income Tax Appellate Tribunal (ITAT) was justified in setting aside the revision order passed under Section 263 of the Income Tax Act, 1961. The appellant/assessee, Russel Credit Limited, had filed its return for AY 2018–19 declaring total income of ₹36.79 crore, later revised to ₹36.18 crore. The assessment under Section 143(3) was completed at ₹39.76 crore. A key issue concerned gains of ₹12.97 crore arising from the sale of 34 unquoted preference shares of ICICI Bank Ltd., which had been purchased in June 2012 and sold in March 2018 after nearly six years. The Assessing Officer treated the surplus as Long-Term Capital Gains (LTCG), allowing set-off against brought-forward losses. Subsequently, the Principal Commissioner invoked revisional powers under Section 263, holding that the assessment order was erroneous and prejudicial to the interests of the Revenue. The PCIT alleged that the shares were in the nature of stock-in-trade, the gains should have been assessed as business income, excess set-off was allowed, and capital loss on disposal of property, plant and equipment was wrongly permitted. The ITAT “B” Bench, Kolkata, set aside the revision order, following CBDT instructions regarding classification of gains from unlisted shares. Aggrieved, the Revenue appealed before the High Court under Section 260A. The Court reiterated that for Section 263 to be validly invoked, two conditions must coexist. Firstly, the assessment order must be erroneous. Secondly, it must be prejudicial to the interests of the Revenue. Both conditions operate conjunctively. The Bench observed that the Assessing Officer had issued notice under Section 142(1), examined the Board resolution authorising acquisition of shares as investment, scrutinised purchase and sale documents, and considered capital gains computation along with reliance on CBDT Instruction dated May 2, 2016. The Court held that mere absence of elaborate reasoning in the assessment order does not amount to lack of inquiry. Relying on CIT v. Max India Ltd., the Bench reiterated that where the Assessing Officer adopts a plausible view after due inquiry, revision under Section 263 cannot be exercised merely because the Commissioner holds a different opinion. Accordingly, the Court answered the first substantial question of law in favour of the assessee. The department argued that the assessee converted stock-in-trade into capital asset shortly before sale. However, the Court noted that neither the Assessing Officer nor the Principal Commissioner recorded any finding of such conversion. Introducing a new factual plea at the appellate stage was impermissible. Relying on CIT v. Shree Manjunatheswara Packing Products & Camphor Works, the Court held that a fresh factual foundation cannot be laid at the appellate stage. Even on merits, the nearly six-year holding period and absence of repetitive transactions supported investment character. The Court affirmed the Tribunal’s view that the gains were taxable as capital gains. The Bench emphasised that classification depends on cumulative factors such as intention at the time of acquisition, period of holding, frequency of transactions, treatment in books of accounts, and overall conduct of the assessee. The shares were acquired pursuant to a Board resolution as investment and held for nearly six years. There was no regular trading pattern. The shares were valued at cost, not at lower of cost or market value — a typical trading method. The Court also relied on Electronic Corporation of Tamil Nadu Ltd. v. Dy. Commissioner of Income Tax to reiterate that substance prevails over accounting nomenclature. Further, the CBDT Instruction dated May 2, 2016 mandated that gains from transfer of unlisted shares be assessed as capital gains unless exceptional circumstances exist. No such exception was demonstrated by the Revenue. The Court thus upheld the ITAT’s decision treating the gains as Long-Term Capital Gains. The department argued that Paragraph 3(b) of CBDT Circular No. 6/2016 was overlooked. The Court clarified that the said circular primarily addresses listed shares, whereas the present case involved unlisted preference shares. Therefore, the relevant governing instruction was the CBDT Instruction dated May 2, 2016. Moreover, since the revision order under Section 263 was not based on the circular in question, the Tribunal could not be faulted for not adjudicating upon it. The High Court held that the ITAT correctly appreciated the scope of Section 263; the Assessing Officer had conducted due inquiry; and the view adopted was legally plausible and supported by CBDT instructions; the Principal Commissioner exceeded revisional jurisdiction. Case Details Case Title: PCIT Versus Russel Credit Limited Citation: JURISHOUR-71-HC-2026(Cal) Case No.: ITAT 153 OF 2025 Date: 20.02.2026 Counsel For Petitioner: Prithu Dudheria Counsel For Respondent: Nilanjana Banerjee Click Here To Read Order Read More: Drugs & Cosmetics Act: Failure to Maintain Manufacturing Records Attract Punishment: Supreme Court

S. 263 Revision Invalid Where AO Took Plausible View on Unlisted Share Gains as Capital Gains: Calcutta High Court

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