PRATAP SINGH RATHI,GHAZIABAD vs. PR. CIT (CENTRAL), KANPUR

“1. That having regard to facts & circumstances of the case, Ld. Pr.CIT has erred in law and on facts in assuming jurisdiction u/s 263 of Income Tax Act, 1961 and has erred in holding the assessment order dated 31-12- 2018 as erroneous as well as prejudicial to the interest of revenue within the meaning of section 263 read with clause (a) of explanation-2 there under and that too by recording incorrect facts and findings and in violation of principles of natural justice.

2. That having regard to facts & circumstances of the case, Ld. Pr.CIT has erred in law and on facts in setting aside the order passed by the assessing officer u/s 143(3) dated 31-12-2018 with direction to pass fresh order after conducting proper enquiries and investigations etc. into the claim of the assessee and that too by recording incorrect facts and findings and without observing the principles of natural justice and more particularly when all the details/information/evidences were available on the record at the time of assessment proceedings.

3. That having regard to facts & circumstances of the case, Ld. Pr.CIT has erred in law and on facts in passing the impugned order u/s 263 and that too without providing the opportunity of being heard and in violation of principles of natural justice.

4. That having regard to facts & circumstances of the case, Ld. Pr.CIT has erred in law and on facts in observing that there is non-application of mind on the part of assessing officer in as much the necessary verification of facts/enquiries which should have been made, have not been made. 5. That having regard to facts & circumstances of the case, Ld. Pr.CIT has erred in law and on facts in observing that the assessing officer had not raised any query on the issues which mandated selection of the case. 6. In any view of the matter and in any case, order passed under section 263 is bad in law and against the facts and circumstances of the case & is barred by limitation. 7. That the appellant craves the leave to add, amend, modify, delete any of the grounds of appeal

before or at the time of hearing and all the above grounds are without prejudice to each other.”

5. Learned Authorized Representative for appellant/assessee submitted that during the impugned assessment year, assessee has sold 70,000 shares of M/s CCL International Ltd for a total consideration of Rs. 1,73,58,259/- which were purchased by him on 29.04.2013 for a consideration of Rs. 21,70,000/-, however, only Rs. 20,00,000/- has been claimed as cost of acquisition and therefore, the long term capital gain of Rs. 1,53,58,259/- claimed by assessee as an exempt income u/s 10(38). These facts along with all relevant documentary evidences were comprehensively enquired and examined by Ld. AO during the course of assessment proceedings and thereafter, a view was taken him. Therefore, the assessment order cannot be said to be erroneous and prejudicial to the interest of revenue. These facts are evident from the following evidences:

PB 1-3 is the copy of acknowledgment of return of assessee along with computation of income showing the exemption claimed by assessee u/s 10(38) on account LTCG on sale of shares of Rs. 1,53,58,259/- PB 3A-3B is the copy of questionnaire dated 09.10.2018 issued by Ld. AO wherein specific questions were raised in respect of the exemption claimed by assessee during the year. PB 4-81 is the copy of reply filed by assessee before Ld. AO dated 07.12.2018 duly explaining that exemption claimed by assessee u/s 10(38) was on account of sale of equity share of a listed company held by assessee for more than 12 months and on sale of such shares STT was duly paid and therefore, assessee was eligible to claim the said deduction. Further, the following evidences were also filed by assessee before Ld. AO: PB 69-78 is the copy of contract notes issued by M/s Destimoney Securities Pvt. Ltd. for sale of share of M/s CCL International Ltd. during the impugned year. It further shows the trading code of assessee, order no., order time, trade no., trade time, Security/contract description, sell quantity, gross rate/trade price per unit, brokerage per unit, net rate per unit and net total etc. It also shows that STT, service charges, SEBI Turnover Fee and stamp duty has also been duly paid by assessee on the said sale of shares. It also shows the registered office address, corporate office address, CIN, contact details of the compliance officer and contact details of the broker, M/s Destimoney Securities Pvt. Ltd. PB 79-81 is the copy of D-MAT account of assessee for the relevant year which shows the fact the assessee has sold his holding of 70,000 share of M/s CCL International Ltd. during the impugned year. It also shows the DP ID, client ID of assessee and contact details of the broker, M/s Destimoney Securities Pvt. Ltd. It also shows that assessee is a regular investor and has investment in various other equity securities. 4 PB 77-78 is the copy of transaction ledger of assessee in the books of the broker namely, M/s Destimoney Securities Pvt. Ltd. which shows the transaction of sale made by assessee and further, the consideration was transferred to assessee through proper banking channel after deduction of due charges. PB 8-10 is the copy of bank statement of assessee of relevant year showing the consideration of sale of shares has been received by assessee through proper banking channel.

PB 82-83 is the copy submission made by assessee before Ld. AO on 10.12.2018 submitting the bill issued by M/s Blossom Dealcom Pvt. Ltd for sale of 70,000 share of M/s CCL International Ltd. at the rate of Rs. 31 per share to assessee on 29.04.2013. It further shows the complete address along with contact details and PAN No of M/s Blossom Dealcom Pvt. Ltd. PB 98-100 is the submissions made by assessee before Ld. AO on 16.12.2018 submitting the copy of bank statement of assessee for the AY 2013-14 which shows that the payment made by assessee for purchase of 70,000 shares of M/s. CCL International Ltd. of Rs. 20,00,000/- was made through proper banking channel. PB 101-102 is the copy of DMAT account of assessee for AY 2014-15 showing that the 70,000 share purchased by assessee from M/s Blossom Dealcom Pvt. Ltd. were credited/dematerialized to the DMAT account of assessee on 31.03.2014. It also shows the ISIN, security type of the scrip i.e., M/s CCL International Ltd, DP ID and Client ID of assessee and complete address, contact details of the broker, M/s Destimoney Securities Pvt. Ltd. PB 84-97 is the copy of decision in the case of Mukta Gupta, dated 26.11.2018 filed by assessee before Ld. AO wherein the same scrip i.e., M/s CCL International was involved and Hon'ble tribunal held the same to be genuine and allowed the claim u/s 10(38). 5.1 Above evidences, before Ld. AO were duly verified before assessment. Thus, the order passed u/s 263 is without any basis, material or evidences and deserves to be quashed.

5.2 The notice under Section 263 has been issued by Ld. PCIT on the basis of audit objection which is evident from the letter of Ld. AO dated 08.03.2021, the same observed as under:

PB 168-172 is the copy of audit objections raised by Ld. ACIT/JCIT(Audit) raising objection is respect of action of Ld. AO in allowing the exemption claimed by assessee u/s 10(38) and further, directing Ld. AO to take remedial actions immediately while considering the fact that action u/s 263 shall be barred by 31.03.2021. PB 104-105 is the copy of the letter dated 08.03.2021 sent by Ld. AO to assessee seeking assessee's reply on the above mentioned audit objection. PB 106-132 is the copy of reply filed by assessee on 16.03.2021 in response to the Ld. AO's letter dated 08.03.2021 submitting that each and every evidence relevant to the claim of exemption u/s 10(38) was filed before Ld. AO. Further assessee also placed reliance on the decision of Hon'ble ITAT Delhi bench in the case of Reeshu Goyal, dated 07.10.2019 wherein the same scrip i.e., M/s CCL International was involved and Hon'ble tribunal held the same to be genuine transaction. PB 133-137 is the copy of notice u/s 263 dated 22.03.2021 issued by Ld. PCIT on the same grounds which were raised in the audit objections. From above, it is amply clear that the Ld. PCIT has followed the audit objection rather than applying his own mind, which is not permissible in law and therefore, impugned revisionary order deserves to be quashed in view of the following judicial decisions: I) CIT vs. Sohana Woollen Mills, (2008) 296 ITR 0238, High Court of Punjab & Haryana. 2) Sh. Ajay Grover vs. ITO., dated 23.11.2022 (Del) 3) Dharmendra Kumar Bansal vs. CIT, (2014) 101 DTR 377/(2015) 152 ITD 406. ITAT Jaipur Bench. 4) Shantai Exim Ltd. vs. CIT, (2016) 136 ITD 0313, ITAT Ahmadabad Bench.

5) Rajiv Arora vs. CIT, (2011) 131 ITD 0058, ITAT Jaipur Bench. 6) Paramjit Singh vs. PCIT, (2016) 48 CCH 0199, ITAT Chandigarh Bench. 7) M/s Refex Industries Ltd. vs. DCIT, date of order 09.09.2014, ΙΤΑT Chennai Bench. 8) Sartaj Singh vs. PCIT, (2016) 48 ITR (Trib.) 0604/ (2016) 179 TTJ 0017, ITAT Amritsar Bench. 9) Jaswinder Singh vs. CIT, (2012) 150 TTJ 0033, ITAT Chandigarh Bench. 10) Vikarm Kaswan vs. CIT, (2016) 47 ITR (Trib.) 0322/ 46 CCH 0561, ITAT Chandigarh Bench. 11) Sunil Gavaskar vs. ITO, (2016) 47 ITR (Trib.) 0243/(2016) 134 DTR 0113, ITAT Bombay Bench. 5.3 A comprehensive reply was filed by assessee before Ld. PCIT to show that order passed by Ld. AO was neither erroneous nor prejudicial to the interest of revenue and therefore, jurisdiction under Section 263 could not have been assumed. In this regard, following submissions were made:

PB 133-137 is the copy of notice u/s 263 dated 22.03.2021 issued by Ld. PCIT on the same grounds which were raised in the audit objections. PB 138-167 is the copy of reply filed by assessee before Ld. PCIT that each and every evidence relevant to the claim of exemption u/s 10(38) was filed before Ld. AO and after due verification of the same and claim of the assessee was accepted. Further reliance was also placed on the decision of Hon'ble ITAT Delhi bench in the case of Reeshu Goyal, dated 07.10.2019 and also in the case of Mukta Gupta, dated 26.11.2018 wherein the same scrip i.e., M/s CCL International was involved and Hon'ble tribunal held the same to be genuine transaction. Therefore, view taken by Ld. AO was a plausible view and thus, the order of Ld. AO cannot be said to be erroneous or prejudicial to the interest of revenue. 5.4 Reliance is also placed on the following judicial decisions: i) Malabar Industrial Co. Ltd. vs. CIT, (2000) 243 ITR 83(SC). ii) Housing Projects Ltd, 74 DTR 153, High Court of Delhi. iii) DIT vs. Jyoti Foundation, 357 ITR 388, High Court of Delhi. iv) CIT vs. Sunbeam Auto Ltd., (2011) 332 ITR 167, High Court of Delhi. 5.5 Further, reliance is also placed on the following decisions given by various Income Tax Appellate Tribunals wherein the claim u/s 10(38) involving the same scrip i.e., CCL International Ltd. was allowed by holding the scrip as a genuine scrip and not a penny stock. a) Reeshu Goyal vs. ITO, dated 07.10.2019, ITAT Delhi Bench. b) Mukta Gupta vs. ITO, ITA No. 2766/Del/2018 dated 26.11.2018, ITAT Delhi Bench. c) Mool Chand Jagwayan vs. ITO, ITA No. 2381/Kol/2018 dated 07.06.2019, ITAT Kolkata Bench. d) Sh. Achal Gupta vs. ITO, ITA No. 501/Lkw/2019 dated 16.12.2020, ITAT Lucknow Bench.

5.6 The view taken by the Ld. AO was a plausible view which was also taken by various judicial bodies and therefore, the order of Ld. AO cannot be held as erroneous and thus, jurisdiction u/s 263 cannot be assumed in view of the following judicial decision:

CIT vs. Max India Ltd., 268 ITR 128, High Court of Punjab & Haryana.

5.7 Further, reliance was also placed on the decision of Hon'ble ITAT Chandigarh Bench in the case of Sh. Trivikram Singh Toor vs. PCIT in dated 21.09.2022 wherein the facts were identical with the the p facts of the case of assessee and it was held by the Hon'ble Bench that jurisdiction u/s 263 cannot be assumed by Ld. PCIT on the basis of suspicion that scrip, M/s CCL International Ltd., which is the scrip in the present case as well, is a penny stock without any concrete evidences suggesting the same. Reliance was also placed on the following judicial decisions:

 Shri Tapas Kumar Mallick vs. ACIT, ITAT No. 8142/DEL/2018 dated 19.03.2021, ITAT Delhi Bench.  Narendra Aggarwal vs. PCIT, ITAT No.456/DEL/2021 dated 04.04.2022, ITAT Delhi Bench. Adverse observation of Ld. PCIT are met as under:

5.8 Ld. PCIT in para 7.1 at page 9-10 of the revisionary order has mentioned that enquiry report of Investigation Wing, Kolkata was available with the Ld. AO at the time of making assessment which was not considered by Ld. AO while framing the impugned assessment. Ld. PCIT has neither brought anything on record to show whether the said report was actually available with Ld. AO at the time of assessment nor it was specified as to whether there was anything against the assessee in the said report according to be which order of Ld. AO could be held to be erroneous and prejudicial to the interest of revenue. Therefore, the action under Section 263 of the Act is taken only on the basis of surmises and conjectures which is not permissible in law. Said report, at best can be a basis of suspicion and it was held by Hon'ble ITAT Chandigarh Bench in the case of Sh. Trivikram Singh Toor (supra) that the jurisdiction u/s 263 cannot be assumed on the basis of suspicion and thus, nothing adverse can be read from this observation of Ld. PCIT.

5.9 Ld. PCIT in para 7.2 at page 10-11 of the revisionary order has mentioned that assessee claimed to have purchased 70,000 shares of M/s CCL International Ltd. @ Rs. 31 per share amounting to Rs. 21,70,000/-, however, payment of only Rs. 20,00,000/- has been shown to be made by assessee through banking channel and I.d. AO has not verified whether balance payment of Rs. 1,70,000/- was made or not.

5.10 In reply, it is respectfully submitted that the balance amount has not even claimed by assessee as part of the cost of acquisition. Assessee has claimed cost of acquisition of Rs. 20,00,000/- only from the sale consideration which has also been explained by us in our submissions made here and above. Therefore, when the balance payment has not even claimed by assessee as cost then in such a case, there is no question of any verification on this account and thus, this observation of Ld. PCIT also deserves to be ignored.

5.11 Ld. PCIT in para 7.2 at page 10-11 of the revisionary order has mentioned that there was huge gap between the alleged purchase of share on 29.04.2013 and payment of purchase consideration on 24.03.2014 and thus, doubted the credibility of the purchase.

5.12 In reply, it is respectfully submitted that the payment terms are decided by the mutual understanding of the parties and there is no prohibition in law for making payment at later point of time. Further, it is common business phenomenon of effecting the purchase at credit and making payment at later point of time as per the availability of funds and therefore, nothing adverse could be read from this observation of Ld. PCIT as well.

5.13 Ld. PCIT in para 7.2 at page 11 has mentioned that Ld. AO has failed to verify the status of the company M/s Blossom Dealcom Pvt. Ltd. which was struck off at the time of assessment and confront the same to assessee.

5.14 In reply, it is respectfully submitted that the status of the said company has no bearing on the case of assessee as the said company is neither related to nor in control of assessee. The purchase of shares were affected back in AY 2014-15 and thereafter, if the said company has been struck off even then nothing adverse could be read against the assessee as the transaction has already been matured. Thus, there was no requirement on the part of the Ld. AO to make any such verification. In any case, it further strengthens the case of assessee as it proves that at the time of the purchase the said company was in existence and thus establishes the identity of the seller.

8. Hon’ble High Court of Delhi in titled as “PCIT-12 Vs. Ms. Reeshu Goel held as under:

“6. In the impugned order the Tribunal has held that no enquiry had been conducted and the assessee's broker had not even been examined by the authorities below before passing the impugned orders. The ITAT also held that the scrips of M/s CCL International Ltd. were freely traded at the Bombay Stock Exchange between the years 2011 and 2014 and the assessee had purchased the shares in 2011 and sold the same in 2012. The ITAT also found that the revenue from the operation of M/s CCL International Ltd. from March, 2010 to March, 2012 was between Rs.55.25 crores to Rs.79 crores and the share price during the period 2010 to 2014 had increased from Rs.50 per share to Rs.609 per share.

7. This Court is of the view that there is no perversity in any of the findings given by the Tribunal.

9. Accordingly, the present appeal is dismissed.”

9. A Co-ordinate Bench of the ITAT, Delhi in in the case of Sarika Bindal Vs. ITO, New Delhi has held as under:

“8. We have carefully considered the rival submissions and perused the material available on record. The case law cited have also been taken into account. As pointed out on behalf of the assessee, the transaction of existence of purchase and sale of CCL Ltd. giving rise to LTCG claimed to be exempt under section 10(38) of the Act is fully corroborated by the documentary evidences. The shares have been credited in the demat 13 account and transferred out of demat account at the time of sale. Both purchase and sale transactions are carried out through banking channel and by transfer of shares. The prima facie bona fides of existence of transaction executed cannot thus be doubted. It is not the case of the revenue that the capital gain arising to Assessee in not in the nature of LTCG. The case of revenue is that such transactions is an accommodation entry and thus sham. The abnormal increase in prices of share has led to suspicion on bonafides of transaction and was treated as accommodation entry of sham nature. 8.1 The Hon’ble Delhi High Court in the case of Karuna Garg as well as Krishna Devi has held that an astronomical increase in the share price of a company in itself is not a justifiable ground for holding the LTCG to be an accommodation entry. 8.2 As pointed out on behalf of the assessee large number of decisions pronounced by Co-ordinate benches holds the field in favour of the assessee in respect of same scrip of ‘CCL International Ltd.’. 8.3 Significantly, the Assessing Officer in another case namely ‘Parth Yadav’ has framed the reassessment order without making any additions on account of LTCG derived from sale of CCL Ltd. Shares despite reopening the assessment on such ground. Thus, the Revenue itself, in other case, broadly accepted the view point canvassed. 8.4 On the substratum of the company financials, the assessee has also demonstrated that CCL Ltd. is engaged in substantial business with significant turnover and fixed assets base. 8.5 In such backdrop, we are of the view that the addition is not justified based on conjecture and surmise and the assessee is discharged primary onus which lay upon it. The Revenue, on the other hand, could not dislodge the perception that apparent is not real. 8.6 In the light of factual matrix and case laws available on record, we see potency in the plea of the assessee that such capital gains arising on sale of shares cannot be regarded as sham profit and consequently, additions under s. 69A of the Act is not justified. The Assessing Officer has not provided anything on record to justify additions under section 69C of the Act either. The modus operandi spelt by itself is not a adequate ground to impeach the transactions. The judgment in Udit Kalra relied upon by revenue was rendered in the facts of that case and is quite distinguishable. In that case, the financial resources of the company [Kappac Pharma Ltd.] was quite meager and incurring consistent losses 14 as opposed to the facts of the present case. Also, there was specific information that assessee was beneficiary of accommodation entry. Such facts led to adverse conclusion in that case in the setting of facts of that case. 8.7 In the light of delineations, we set aside the order of CIT(A) and direct the AO to delete the additions in question.