KLG ORCHARDS & RESORTS PVT. LTD. ,KOLKATA vs. ITO, WARD-4(4), KOLKATA

ORDER / आदेश Per Rajesh Kumar, AM:

This is the appeal preferred by the assessee against the order of the Ld. Principal Commissioner of Income Tax-2, Kolkata (hereinafter referred to as the Ld. PCIT”] passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) dated 29.05.2020 for the AY 2015-16.

Assessment Year: 2015-16 KLG Orchards & Resorts Pvt. Ltd.

Assessment Year: 2015-16 KLG Orchards & Resorts Pvt. Ltd. to prove his averment referred to the notice issued u/s 142(1) of the Act dated 14.06.2017 wherein item no. 8 the assessee was required to provide the list of the share transactions during the year in the tabular format which were duly furnished and examined by the AO and only thereafter the assessment was framed. The Ld. A.R submitted that in case of inadequate enquiry the revisionary jurisdiction u/s 263 of the Act is not available to the ld PCIT and cannot be exercised. In defense of his arguments, the ld AR relied on the decision of Hon’ble Calcutta High Court in the case of PCIT vs. Kaushalya Dealers Pvt. Ltd. in ITAT/72/2022, IA No.GA/1/2022 dated 24.11.2022 wherein the Hon’ble High Court has upheld the order of Tribunal wherein the Tribunal has held that jurisdiction u/s 263 of the Act cannot be invoked in case of detailed enquiry has been done by the AO.

Assessment Year: 2015-16 KLG Orchards & Resorts Pvt. Ltd.

Lakhmani & Ors. (supra) wherein the Hon’ble High Court has held that the exercise of revisionary jurisdiction cannot be at the proposal given by the AO but at the behest of the Ld. PCIT. The relevant part is reproduced as under:

“This aspect was considered by the learned Tribunal and after going through the facts of the case it was found that the initiation of the proceedings under Section 263 of the Act was based on a proposal given by the assessing officer and not at the behest of the PCIT. It may be true that the PCIT may have information from the assessment file or through other sources. Nevertheless while exercising powers under Section 263 of the Act the PCIT has to bear in mind the twin conditions are to be conjointly fulfilled.. Therefore, before exercise of power under Section 263 it is the PCIT who has to apply its mind to the issue and thereafter record reasons as to how the twin conditions are satisfied and then issue a show-cause notice to the assessee. In the cases on hand there is nothing on record to show that such an exercise was done by the PCIT. Therefore, learned Tribunal after noting several decisions on the subject rendered by the Coordinate Benches of the Tribunal had allowed the assessee’s appeal and set aside the order passed by the PCIT under Section 263 of the Act. Thereafter, the learned Tribunal has proceeded to examine the merits of the matter and granted relief. It is the submission of Mr. Mitra that so far as the merit of the cases are concerned similar issue was tested by this Court in the case of Principal Commissioner of Income Tax Vs. Swati Bajaj reported in 2022 SCC online page 1572. Though such may be the issue, as pointed out earlier the learned Tribunal had granted relief to the assessee on two grounds the first of which being that the exercise of power under Section 263 of the Actwas not in accordance with law. As could be seen from the substantial questions of law suggested by the revenue, the revenue has not raised any question on the said finding of the Tribunal which goes to show that the revenue had reconciled with the reasoning given by the learned Tribunal in that record. Therefore, a piecemeal challenge to the order passed by the learned Tribunal on one of the grounds on which relief was granted to the assessee is not maintainable. In more or less identical circumstances in the case of Principal Commissioner of Income Tax, Durgapur Vs. M/s. Sinforte Pvt. Ltd. in ITAT No.104/2019 dated 7.1.2022 the court had dismissed the appeal filed by the revenue on the ground that the PCIT in order to exercise jurisdiction under section 263 of the Act exercised jurisdiction at the instance of the assessing officer which is against the provisions of the law. This decision supports the case of the respondent assessee. Hence, for the above reasons, we are of the view that the order passed by the learned tribunal on the first ground, namely with regard to the correctness of the exercise of power under section 263 of the Act has to be affirmed and, accordingly, the appeal filed by the revenue is dismissed and the substantial questions of law suggested by the revenue are not required to be decided in the instant case. For the reasons set out by us above and, accordingly, the same are left open.” Considering the facts of the case in the light of the decision passed by the jurisdictional High Court, we are inclined to quash the order passed by the Ld. PCIT u/s 263 of the Act. We have also examined the notice issued u/s 142(1) and the reply of the assessee wherein the details furnished with regard to dividend earned and share transactions done during the year and is only after taken into account of this reply, the Assessment Year: 2015-16 KLG Orchards & Resorts Pvt. Ltd. assessment was framed. Therefore it is not the case of no enquiry but the AO has conducted enquiry by issuing notice u/s 142(1) and calling for the details on sale of share. Accordingly we hold that the exercise u/s 263 of the Act is invalid as it is not the case of no enquiry but a detailed or inadequate enquiry was carried out of the AO. The case of the assessee finds support from the decision of Hon’ble Calcutta High Court in the case of PCIT vs. Kaushalya Dealers Pvt. Ltd. (supra). The operative part is reproduced as under:

“We have heard Ms. Smita Das De, learned standing counsel appearing for the appellant/revenue and Mr. S.M. Surana, learned senior counsel assisted by Mr. Bhaskar Sengupta, learned advocate for the respondent/assessee. The short issue which, falls for consideration is whether the assumption of jurisdiction by the Principal Commissioner of Income Tax under Section 263 of the Act was justified. The learned Tribunal has pointed out that on four grounds the PCIT exercised power under Section 263 of the Act of which three issues have become academic and the only surviving issue was in respect of loss of penny stock. On going through the order passed by the PCIT under Section 263 of the Act dated 23rd March, 2020, we find that the allegation is that the Assessing Officer has not done proper verification. To examine the correctness of the same, we have perused the paper book filed, by the respondent/assessee from which we find the Assessing Officer at the first instance issued notice under Section 143(2) dated 17lh March, 2016. In the said notice the assessee was directed to furnish documents and details on 10 issues of which one is pertaining to-sale of shares during the financial year 201.4-15. Thereafter, notice under Section 142(1.) dated 9th March, 2017 was issued. In. response to this notice, the assessee had submitted a reply dated 26th April, 201.7 along with the details and. documents in support of the transaction in shares and such other details which were called for by the Assessing Officer. Thereafter, another notice under Section. 142(1) dated 2nd August, 2017 was issued calling for further information and particulars. This was furnished by the assessee by reply dated 10th August, 201.7. Thereafter, the assessee had submitted an explanation on14th August, 2017 in respect of allowability of the loss and also explained various queries raised by the Assessing Officer on the said issue. The copy of the explanation has been filed in the paper book and. we find it is an elaborate explanation not only on facts but also setting out various decisions of the High Courts and that of the Tribunal contending that the loss as reported by the assessee was permissible. After such elaborate discussion of the case with the assessee, the Assessing Officer has completed the assessment. Thus, the learned Tribunal rightly held that it is not a case of ‘no enquiry’ or no proper verification but a detailed enquiry had been done by the Assessing Officer. The learned Tribunal has noted the factual position as put forth by the assessee before it in paragraph 6 of the order. Thus, we are of the view that the twin conditions which are required to be fulfilled before exercising jurisdiction under Section 263 of the Act have not been fulfilled in the facts and circumstances of the case on hand. Thus, we are of the view that no interference is called for with the order passed by the learned Tribunal.

Assessment Year: 2015-16 KLG Orchards & Resorts Pvt. Ltd. In the result, the appeal filed by the revenue is dismissed and the substantial question of law is answered against the revenue. Consequently, the application for stay being IA No.GA/1/2022 stands closed.”

In view of the facts and circumstances as discussed above and decisions as extracted above , we quash the order passed u/s 263 of the Act by the Ld. PCIT and the appeal is allowed.

Order is pronounced in the open court on 4th January, 2023