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Income Tax Appellate Tribunal, DELHI ‘H’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI KUL BHARAT
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the ld. Pr. CIT(A), Delhi – 10 dated 22.03.2021 pertaining to A.Y. 2015-16.
2. The sum and substance of the grievance of the assessee is that the PCIT erred in assuming jurisdiction under section 263 of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] and further erred in treating the assessment order dated 13.11.2017 framed under section 143(3) of the Act as erroneous and prejudicial to the interest of the revenue.
The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules.
4. The bone of contention is the allegation of the PCIT that while framing the assessment order, the Assessing Officer has not enquired about the transaction entered into by the assessee, which resulted in capital gains and it was claimed as exempt u/s 10(38) of the Act, thereby making the assessment order not only erroneous but also prejudicial to the interest of the Revenue.
5. The PCIT served the following notice assuming jurisdiction u/s 263 of the Act:
“M/s/Mr/Ms
Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the INCOME TAX ACT, 1961 - Assessment Year 2015- 16.
In this regard, a hearing in the matter is.fixed on 29/01/2021 at 03:15 PM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov. in You have e-filed return of income for Assessment Year 2015-16 showing total income of Rs. 17,73,493/- from salary, rent, commodity transaction and interest. The case was selected for “compete scrutiny” and one of the reasons of scrutiny was “Penny Stock - Tab in ITS”. Scrutiny was completed u/s. 143(3) of Income Tax Act on 13/11/2017 by ITO, Ward 48(4), New Delhi, accepting returned income of Rs. 17,73,493/-.
3. Review of assessment was conducted in this case. In the review, it is found that the assessment order passed u/s 143(3) of the Act by the Assessing Officer for the A.Y. 2015-16, dated 13.11.2017 is erroneous in so far as it is prejudicial to the interest of revenue.
In the return, you have shown sale of shares of CCL International Ltd. On examination of the assessment records and details furnished, it has been observed that, one of the issues of scrutiny was “Penny Stock - Tab in ITS”. It is seen from the submissions made during the assessment proceedings that you have claimed Short Term Capital Gain of Rs.7,26,000/- on sale of 2000 shares at Rs. 418/- each which were purchased at Rs.55/- per share. The price of the shares jumped by more than 600% (approx.) in a short span of period of nine months.
Holding period is also less and intention is to make quick money from purchase and sale of large number of shares over a relatively shorter period of time. This is a clear case of Penny Stock. The reason for scrutiny was “Suspicious Sale Transaction in Shares” and the AO had failed to verify the same and did not conduct any enquiry. No justification was provided regarding such sudden rise in the value of share. Apparently market forces were not the dominating factors behind the rise in value of share.
Therefore, it is found that assessment order passed by the A.O. in your case u/s. 143(3) of the IT Act, dated 13.11.2017 is erroneous in so far as it is prejudicial to the interest of revenue.
In view of the above facts, you are requested to show cause as to why the assessment order dated 13.11.2017 passed u/s 143(3) by the ITO, Ward 48(4) may not be set aside being erroneous and prejudicial to the interest of revenue. Failure on part of Assessing Officer in making property enquiry and verification which was required to do in your case has rendered the assessment order erroneous in so far as it is prejudicial to the interest of revenue. Hence, the order passed by the A.O. requires to set aside.
You are hereby given the opportunity of being heard and show cause as to why the impugned order be not enhanced/modified or set-aside for fresh assessment u/s 263 of the I.T Act 1961. The case is fixed for hearing on 29.01.2021 at 03:15 PM.”
A perusal of the aforementioned notice shows that the PCIT has alleged that the assessee has shown sale of shares of CCL International Ltd. on which the assessee has claimed short term capital gain of Rs. 7.26 lakhs wherein the price of shares jumped by more than 600% [approx.] in a short span of period of nine months.
We find that the notice u/s 142(1) of the Act dated 05.09.2017 was issued and served upon the assessee to which, on 22.09.2017, the assessee filed a detailed reply submitting copy of return of income, copy of computation of income, copy of bank statement of Corporation Bank alongwith TDS details as per Form No. 26AS.
8. Second notice dated 11.10.2017 was issued alongwith the following questionnaire :
“REQUREMENT LIST
Provide the following information & documents:-
1. Statement indicating the narrations of debit & credit entries of Rs. 2 lakh & more appearing in your bank accounts.
2. Copy of D-mat accounts. 3. Copy of statement accounts Of accounts of concerned brokers. 4. Copy of profit & loss accounts & balance sheet alongwith all the annexures relating to the business of which you have shown the income in your I.T.R under the head " income from business" 5. Script vise detail regarding purchases & sales of shares according to which the short term & long terms capital gains have been computed & shown in your ITR. 6. Copy of rent agreement in connection with the income shown under the head " Income from House Property" 7. Statement of Affairs as on 31.03.2014 & 31.03.2015. 8. Note on house hold drawings”
The said was replied by the assessee vide letter dated 17.10.2017 as under:
“The assessee has received your notice dated 11.10.2017 ii/s 142(1) for the above assessment year fixing the case for today.
We have been directed to submit some of the following details as required 1 .Copy of Bank statement showing the debit and credit entries more than Rs.2 lakhs 2.Copy of Demat Account as on 30.03.2015 3 .Copy of contracts in respect of sale of shares of the brokers
4. The assessee is doing the commodity transactions and the profit earned and shown under Business Income. The detail statement is attached with the copies of accounts of the parties with whom transaction have been done
5. Scrip wise details regarding purchase and sale of shares on which short term and long term capital gains have been received is attached.
6. Copy of the rent Agreement
7. Statement of affairs as on 31.03.2014 and 31.03.2015
The assessee family is a small family and the house hold expenses are taken care by the assessee and by Rahul Mittal HUF appx Rs. 3.00 to 3.25 lakhs per year excluding telephone paid by the company in which assessee is a director, electricity expenses and child education which are paid by cheque.”
Alongwith reply, the assessee furnished copy of bank statement of Corporation Bank and Demat Statement with Religare Securities Ltd. The details of short term and long term capital gains on shares were furnished as under:
Sale Proceeds of 2000 CCL International Ltd Shares 836000 Less: Purchase cost of 2000 shares 110000
726000 SHORT TERM CAPITAL GAIN LONG TERM CAPITAL GAIN A. Sale Proceeds of 200 shares of Reliance India.Ltd 221657 Less: Purchase cost 2000 219657 B. Sale Proceeds of 700 shares of Intec Capital Ltd 73848 Less: Purchase cost 7000 66484 LONG TERM CAPITAL GAIN 286141
The statement of Affairs as on 31.03.2014 was also furnished, which is as under:
4975066 Fixed Assets 25% share in Shop No.254 GIP NOIDA 1640512 Plot at Model Town Rudrapur Uttrakand 1756700 Other assets SHARES Swastik Solvent Products
(India) Limited-Unquoted 494000
Shares-Quoted 315370
Advance agst shares- Geonka Business and Finance Ltd 50000 Trisha Media Ltd ' 50000 CCL, International Ltd 110000
Balance with S B A/c Corporation 54384 Bank G K II, New Delhi 15000 Cash in Hand 4975066
12. After perusing the aforementioned details, the Assessing Officer further made enquiries by issuing notice dated 25.102017 and requiring the assessee to furnish the following details:
S.No Name of Share Date of Quantity Amount Sale 1.) CCL International Ltd. 07/08/14 2,000 8,36,000 2.) Reliance Industries Ltd. 06/06/14 2,21,657 200 3.) Intec Capital Ltd. 10/12/14 700 73,848
The requisite details were furnished by the assessee as under:
“The above case is fixed for today.
We have been directed to submit the following details as required
(a) The copy of purchase bill in respect of purchase of 2000 shares of CCL International Ltd is enclosed which was appearing in Demat account enclosed .
(b) Regarding the purchase of shares- Reliance Industries Ltd and Intec Capital Ltd, it is submitted that these were very old shares and are appearing in Demat account on 31.03.2013 and 31.03.2014 also, both copies are enclosed. It is also brought to your notice that Intec Capital Ltd shares were in physical form which was transferred to Demat account as evident from the enclosed statements. Since the holding of these shares are more than one year, Long Term Capital Gain had accrued on sale .
Regarding the seven debit entries appearing in Corporation Bank in the year under assessment, it is submitted that the asseessee had taken loans during the year which was refunded back as per these entries. We are enclosing herewith five confirmation / copy of account duly conformed with PAN in respect of these entries mentioned .
We hope that you will find the above in order.” Thanking you, Yours Faithfully
Chartered accountants
DESCRIPTION QUANTITY RATE AMOUNT 2000 Being the cost of 55.00 110000.00 2000 (Two Thousand only) Equity Share of M/s CCL Inter. Sold to you Total Rs. 110000.00 One Lac Ten Thousand Only
We, Inova Commotrade Private Limited having registered office at 7, Ganesh Chandra Avenue, 4th Floor, No. 4A, Kolkata - 700013 do hereby confirm having sold 2000 shares of CCL International Ltd. to Rahul Mittal having address M-147, 1st Floor, GK-1 l,New Delhi-110048 against total consideration of Rs. 110000/- (One Lac Ten Thousand Only) @ 55/-per share.
The amount of Rs, 100000/- has been received by cheque & rest amount in cash.
After satisfying himself, the Assessing Officer completed the assessment proceedings u/s 143(3) of the Act vide order dated 13.11.2017.
As mentioned elsewhere, the PCIT, at Para 13 of his order at Page 41 observed that the assessee has entered into a transaction which resulted into capital gains of Rs. 7.26 lakhs, which was claimed as exempt u/s 10(38) of the Act.
This very allegation of the PCIT is factually incorrect as the assessee has not claimed any exemption u/s 10(38) of the Act for Rs. 7.26 lakhs but the same was returned as short term capital gains as is evident from the revised computation of income exhibited at Page 18 of the Paper Book.
Considering the facts of the case in totality, we are of the considered view that the Assessing Officer had made specific enquiries during the assessment proceedings to which specific reply was furnished by the assessee alongwith supporting documentary evidences and all such evidences were duly examined and considered by the Assessing Officer before completing the assessment proceedings u/s 143(3) of the Act.
In our considered view, the power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry as held by the Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 Taxmann.com 272 (Bombay).
The Hon'ble Bombay High Court in the case of Gabriel India Ltd 203 ITR 108 has held as under:
“The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, "erroneous judgment" means "one rendered according to course and practice of court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles".
From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statuteon an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income- tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Incometax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realized or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power.
It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority.
The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Incometax Officer to re-examine the matter. That, in our opinion, is not permissible. Hence the provisions of section 263 of the Act were not applicable to the instant case and, therefore, the commissioner was not justified in setting aside the assessment order.”
We find that the Hon'ble Delhi High Court in the case of CIT Vs Sunbeam Auto reported in 332 ITR 167 has held that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Whether there was application of mind before allowing the expenditure in question has to be seen. If there was any inquiry, even inadequate, that would not by itself give occasion to the CIT to pass orders under section 263 of the Act, merely because he has different opinion in the matter.
The Hon'ble Delhi High Court in the case of Anil Kumar Sharma 335 ITR 83 has held that there is a distinction between “lack of enquiry” and “inadequate enquiry” If there was any enquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass orders u/s 263 of the Act.
Considering the facts of the case in hand, in totality, in light of the judicial decisions discussed hereinabove, we set aside the assessment order of the PCIT dated 22.03.2021 and restore that of the Assessing Officer dated 13.11.2017 framed u/s 143(3) of the Act.
In the result, the appeal of the assessee in is allowed.
The order is pronounced in the open court on 21.11.2022.