AJAY KUMAR,GHAZIABAD vs. PR. CIT (CENTRAL), MEERUT

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.”

3. The relevant facts giving rise to this appeal are that the assessee filed his Income Tax Return (ITR) on 14.09.2016 declaring income of Rs. 16,76,97,150/-. The case was scrutinized and consequential order accepting the returned income was passed under section 143(3) of the Act on 31.12.2018. The entire assessment order reads as under: - “Return of income for the assessment year 2016-17 was filed on 14.09.2016 declaring total income of Rs. 16,76,97,150/- and the same return was selected for compulsory Scrutiny. Consequently, notices u/s 143(2) of the Income Tax Act, 1961 was issued on 25.09.2017 and served upon the assessee and the date of compliance was fixed on 27.09.2017. Further, notice 142(1) of the Act was issued dated: 09.10.2018 and served upon the assessee to make needful compliance.

3. The assessee has shown gross agriculture income of Rs. 18,84,000/- and not expenses has been shown. From the balance sheet it is clear that the assessee has not claimed expenses in this respect. It is therefore, expenses related to agriculture income is estimated @ 30% i.e. Rs. 5,65,200/- is added to the income of the assessee. Thus net agriculture income is to be computed at Rs. 13,18,800/- instead of Rs. 18,84,000/- for the purpose of taxation. This amount is added under the head income from other sources. Addition of Rs. 5,65,200/- 4. Subject to the above remarks, the total income of the assessee is computed as under: - Total income as per return of income /system Rs. 16,76,97,150/- Add: Addition/ Disallowances on account of: (1) Addition of account of Rs. expenses on agriculture 5,65,200/- income (As discussed in Para 3) Total income Rs. 16,82,62,350/- Or say Rs. 16,82,62,350/- 5. The assessee is an individual and derives income from salary and interest income. After verification of record, assessed u/s 143(3) of the I. T. Act on total income of Rs. 16,82,62,350/-. Issue demand notice & challan accordingly. Charge interest u/s 234A/B/C of the I. T. Act, as the case may be. Give credit for prepaid taxes, if any, after due verification.”

[i] In the ITR in Form-4 filed on 14.09.2016, besides income from salaries, house property, profit from business of commission from real estate activities, income from other sources and agricultural income, exempt income amounting to Rs. 18,84,000/- from agriculture was claimed. Further, NIL income was disclosed in the relevant column of ITR [Schedule El] relating to exempt income arising out of LTCG from transactions where STT has been paid.

[ii] However, during the course of assessment proceedings, Computation of Income was filed wherein 'exempted income bearing title, 'Long Term Capital Gain u/s 13[34] of Rs.8,74,51,109/- was claimed. In response to query raised vide notice u/s 142[1] dated 14.11.2018 for justification of claim of exemption with supporting documents, a reply dated 07.12.2018 was filed stating therein that exemption was being claimed u/s 10[38] of the Income Tax Act, 1961 on LTCG arising on sale of shares of CCL International Ltd which were 4 purchased for Rs. 1,00,00,000/- in F.Y.2013-14, with copy of bank account for relevant period enclosed and sold for Rs. 9,74,51,109/- during F.Y.2015-16.

[iii] A perusal of the documents attached by the assessee along with the reply dated 07.12.2018 shows that a photocopy of letter dated 29.04.2013 from one M/s Anaam Merchants Private Limited of Kolkata giving description of 3,35,000 shares of CCL International Ltd. being sold on 29.04.2013 @Rs.31/share totaling Rs.1,03,85,000/- to one Shri Ajay Kumar, resident of D-35, Anand Vihar, Delhi, an address different from that of the assessee. However, in the copy of demat account statement issued by the DP on 15.12.2018 for the period F.Y.2013-14 shows credit of these shares on 25.03.2014 only as against the alleged date of purchase on 29.04.2013 as per alleged sale letter dated 29.04.2013 issued by the Kolkata based company. The value of transaction works out to Rs.1,03,85,000/- as against the claim of Rs.1,00,00,000/- claimed by the assessee in his reply dated 07.12.2018. Similarly, the copy of the relevant page of bank account of the assessee shows debits totaling Rs.1,00,00,000/- only and that too on 21.03.2014 and 24.03.2014 as against alleged purchase bill dated 29.04.2013. No enquiries have been made by the Assessing Officer to ascertain the fate of balance payment and to the cause of delay in the payment to the Kolkata seller especially when the alleged trade was an off-line trade. No enquiries as to the date of delivery and lodging of these shares with the DP for demat and transfer have been sought by the Assessing Officer. The source of investment into the purchase of shares has also not been queried and investigated by the Assessing Officer during the assessment proceedings. No confirmation has been sought from the seller either.

[iv] It is further noticed that the Assessing Officer has failed to take into account that CBDT had circulated a report from the Investigation Directorate, Kolkatavide letter F.No.287/30//2014-IT(Inv.-II)- Vol. III dated 16.03.2016 wherein the Investigation Directorate in its letter F.No. 75A/2015-16/257-273 dated 27.04.2015 had given details of enquiries conducted by it into the activities of providing accommodation entries in the form of LTCG in the trade of various shares and securities, to be claimed as exempted u/s 10[38] of the Income Tax Act, 1961. The investigations made by the Kolkata Investigation Directorate revealed the modus operandi and cartel of various entry operators and their connivance with share brokers to manipulate the prices of shares and providing accommodation entries of LTCG in lieu of cash and commission. In the process of investigation, statements of various share brokers, dummy directors, operators of the scrips and beneficiaries were recorded and, in such statements, admissions were made by them regarding the real nature of such capital gains and their involvement in such arrangements. The Pr. DIT[Inv.), Kolkata in this report had identified 84 scrips which were used for generating bogus LTCG by manipulative trades and prices and M/s CCL International Limited (Script Code: 531900), appearing at Sl. No.9 of the scrips listed in the said report, was one of them.

[v] As mentioned in the foregoing paragraph, the case has been selected for scrutiny as per compulsory scrutiny guidelines and more specifically, Para-1[i] of the guidelines issued by CBDT on 07.07.2017, which relate to compulsory selection of cases where addition of more than Rs. 10 Lakhs has been made in the earlier years and the same has either withstood the test of appeal or no appeal has been filed against the addition made. However, neither the Assessing Officer has queried the assessee on this issue nor the assessee has come forward on its own to offer any kind of explanation.

[vi] The assessment records also show that the assessee was required to prove the genuineness of its current liabilities amounting to Rs.9,13,98,552/- with confirmations by the Assessing Officer. However, no confirmations were filed by the assessee during the course of assessment proceedings. The Assessing Officer, too, did not press the matter further or made independent enquiries of his own especially when Rs.5,00,00,000/- had been introduced by the assessee from two persons during the year under consideration. As regards other creditors, the Assessing Officer satisfied himself with the reply of the assessee that Rs.7,00,00,000/- has been forfeited and shown in the following year i.e.. A.Y.2017-18, u/s 41[1] of the Income Tax Act, 1961. The Assessing Officer has also failed to take into account that even this assertion of the assessee was incorrect to the extent these self-admitted "forfeited" amounts totalled Rs.7,55,00,000/- as against disclosure of Rs.7,00,00,000/- claimed by the assessee. The applicability of the provisions of Section 41[1] looking to the nature of credits in the books of the assessee was also not examined by the Assessing Officer especially in the light of the provisions of Section 115BBE of the Income Tax Act, 1961. Further, if the amount was received in pursuance to a contract for transfer of any capital asset, then such forfeited amount was also taxable in the year of receipt/forfeiture u/s 56(2)(ix) of the Act, yet the AO failed to make any enquiry or verification w.r.t. the nature of transaction wherein such amounts were received nor attempted to ascertain as to which year such amounts were received or in which year such amounts were forfeited and for what reasons.

[vii] Records also show that the assessee purchased immovable property during the year for Rs.7,51,44,720/- as against the stamp duty valuation of Rs.38,41,10,000/- leading to possible invocation of the provisions of Section 56[2][vii][b][ii] of the Income Tax Act, 1961. However, neither the Assessing Officer has made any queries or conducted enquiries nor the assessee has offered any explanation as to why the difference between the two figures may not be treated as the income of the assessee for the year under consideration. [viii] Examination of record further shows that the assessee was queried about the claim of compensation of Rs. 10,25,32,500/- and why the same should not be taxed, vide notice u/s 142[1] dated 14.11.2018. In. his reply dated 07.12.2018, the assessee asserted that that the land in question was 'agricultural land and that the same was 'compulsorily acquired by the NOIDA authority. As such, in terms of Section 10/14/10[37]/provisions of RFCTLAAR Act, 2013, the receipt was exempt from tax. The Assessing Officer has merely accepted the reply of the assessee without making any independent enquiries of his own about the nature of land, its distance from the nearest municipal board and whether the contention that it was a 'compulsory' acquisition at all when the copy of title deeds clearly show that the transaction was by mutual consent of the buyer and seller involving payment of stamp duty at circle rates (which would have been waived had it been covered by RFCTLAAR Act, 2013.

[ix] The Assessing Officer has also failed to query the assessee as to whether he has made any transactions covered by ITS data, including foreign travel, credit card expenses etc. covered by AIR u/s 285BA[1] of the Income Tax Act, 1961 and the source thereof even though such information in respect of payment of credit card bills was available to him over the ITBA portal and ITS data.” …….. …….. 5.4 In the present case, as already mentioned in the show cause notice dated 22.03.2021 as cited above, it is clear that in view of the plethora of incriminating evidence both on facts and circumstances, which was available before the AO indicating that the entry of LTCG on sale of shares of CCL was in the nature of accommodation entry only, the situation definitely required some external/third parties' verification/examination on facts specific to the case of assessee, in order to reach the satisfaction about the correctness of the claim of LTCG. Having not done anything in this regard except keeping only the contract notes for sale but not for purchases, as supplied by assessee on record (which were make believe documents only in view of the Investigation Wing report) by failing to enquire into the antecedents of the persons lending to the assessee as regards their identity and capacity and into the genuineness of transactions; lack of any query or enquiry into the application of the provisions of Section 56[2][vii][b] in the transaction involving purchase of immovable property, the absence of independent enquiries or verification from Noida authority into the nature of transaction between it and the assessee and merely accepting the claim of the assessee, the order passed by the AO definitely lacks the enquiries or verifications, which should have been done on the facts and circumstances of the case, thereby the order becoming erroneous in terms of clause (a) of Explanation-2 under Section 263 of the Income Tax Act.

6. In reply to Para 3[i] of the show cause notice dated 22.03.2021 wherein it was brought to the notice of the assessee that exempt income of only Rs. 18,84,000/- from agriculture has been claimed in the ITR and that in the column relating to income arising out of LTCG from transactions where STT has been paid, NIL income has been shown, without refuting the averment, the assessee has tried to shift the issue by stating that in the Computation of Income and in the Acknowledgement, income from LTCG has been claimed as exempt. However, it remains a fact that in the Schedule El of the ITR, against Column-3 of the said schedule, relating to "Long Term Capital gains from transactions on which Securities Transaction Tax is paid', no income was offered by the assessee. This, however, failed to either evince any query by the Assessing Officer or any clarification by the assessee even when the assessee subsequent to selection of his case for scrutiny claimed such an exemption in the Computation of Income. Not only this, in the ITR, the assessee claimed exempt income under the head, 'Others, including exempt income of minor child amounting to Rs.8,74,51,109/-, about which neither any query was raised nor any explanation offered. By the failure to enquire into the claim of the assessee, the assessment order dated 31.12.2018 has been rendered erroneous in so far as it is prejudicial to the interests of the revenue in the light of Explanation-2 to Section 263 of the Income Tax Act, 1961.

8. In respect of lack of enquiry by the Assessing Officer in the matter of receipt of Rs. 10,25,32,500/- from the sale of assessee's land to Noida, the assessee has reiterated the provisions of Section 10/37] of the Income Tax Act, 1961 relating to compulsory acquisition of urban agricultural land and to CBDT circular dated 25.10.2016 issued in the light of RFCTLAAR Act without stating anything whether any independent verification was undertaken by the Assessing Officer. In fact, records clearly show that even though the land under question was located in the vicinity of a municipal board and that the transaction involved was in the nature of mutual consent instead of compulsory acquisition, the Assessing Officer has not deemed it fit to carry out any independent verification or enquiries of his own before accepting the claim of the assessee. By doing so, the assessment order passed by him has been rendered erroneous in so far as it is prejudicial to the interests of the revenue.

9. Similarly, in response to issue relating to foreign travel, credit card expenses and other information covered under AIR and the lack of enquiry by the Assessing Officer before passing assessment order on 31.12.2018 even when the case of the assessee was covered by the compulsory scrutiny norms, the assessee has merely stated that its accounts were audited and were accepted by the Assessing Officer. However, the fact remains that the Assessing Officer has neither queried the assessee nor carried out any independent verification of his own on the basis of AIR and ITS data available to him during the course of assessment proceedings. The assessee has not been enquired about the reason for selection about its case given the fact that the case was selected based on the CBDT parameter relating to acceptance or confirmation of addition of Rs.10 lakh and more in the earlier assessment year and the assessee, too, has not come forward, on his own, either during the assessment proceedings or even in these proceedings. It is this failure on the part of the Assessing Officer which has rendered the order passed by him erroneous and prejudicial to the interests of the revenue.

10.1 Before Coming to the averment of the assessee that his claim for exemption u/s 10[38] of the Income tax Act, 1961 on LTCG arising out of trades carried out by him in the shares of CCL International Limited, it needs to be noted that there was a very detailed report of the DGIT(Inv) Kolkata based on searches/survey conducted on a large number of hawala operators and entities controlled by them where they admitted to be providing entries through penny stock which also include the name of CCL International Lid penny stocks companies.

10.2 I have gone through the reply of the assessee and also the case records including the detailed investigation report of the PDIT(Inv) Kolkata along with all the supporting evidences based upon which the conclusion has been drawn in the said report about bogus accommodation entry of LTCG being provided by the hawala operators to a large number of beneficiaries spread over across India. Before discussing the merits of the validity of proceeding-initiated u/s 263 as objected by the assessee, it is necessary to appreciate the facts gathered during very detailed enquiries made by Inv. wing Kolkata and the genuineness of the conclusions drawn therefrom. Incriminating facts and findings were mentioned in the enquiry report of Inv. Wing Kolkata, which were also available before the AO at the time of making assessment. A bare reading of the report with massive supporting data and copies of statements of various entities involved in the accommodation racket at different stages and the detailed project report, would make it very clear that a racket was being run in an organized manner by the operators spread over various cities and involving various entities including penny stock companies, routing the sale purchase of shares through shell Cos controlled by various operators though a mesh of entities and also showing connivance of broking entities also. The AO neither confronted the assessee with the confessions of these entities nor carried out any independent verification with respect to them. The conclusions drawn in the report of Inv. wing were not based on mere fiction or general hypothesis but on the basis of extensive search and surveys operations done at various levels and then subsequent enquiries made to link the transaction in order to prove that the accommodation racket was being run by the operators for providing bogus LTCG to beneficiaries. The conclusion is based on sample enquiries with a large base and not merely applying the finding of one or two cases to entire 84 Scrips of penny stocks. The enquiries were related to 25 operators, 36 broking entities etc, who have admitted to be providing accommodation entries comprising of approx. 84 Scrips. Several beneficiaries have also surrendered the bogus LTCG. The modus operandi as also explained in the report of Inv wing would therefore clearly indicate that there were so many entities involved in the accommodation entry racket that it would practically be very difficult to conduct the entire trail of investigation in respect of each beneficiary separately considering the large number of entities involved in running the racket and still larger number of entities involved as beneficiaries of such racket. But the extent of enquiries conducted are enough to form an opinion that the LTCG claimed by beneficiaries were bogus unless the contrary evidence was collected and examined by the AO. The Investigation wing on further follow up with SEBI found that till date of report, trading in 26 out of 86 scrips were suspended by SEBI also, thereby supporting the conclusions drawn in the report of the Investigation Wing.

10.3 In view of the credible maternal available before the AO in the form of comprehensive report of the inv wing Kolkata as discussed above, it was incumbent upon any AD, for framing an assessment under the Income tax Act, to go through the entire material diligently and examine the same after giving due opportunity to assessee. The process of assessment under the Act is not a mechanical one but involves the quasi-judicial function wherein the AO has to first investigate on his own to the extent that a satisfaction of a prudent person can be reached on any particular issue in the facts and circumstances of the case and if not satisfied, then he has to pass a speaking order stating the reasons on judicial principles as to why a particular sum or transaction is chargeable to tax under the Act. The AO cannot close eyes to the mountain of inconsistencies and incriminating material available before him from further examination and accept the incomplete documents as gospel truth, which are nothing but only a make believe document in the background of the plethora of evidences or the circumstances to the contrary. It is seen that the assessee had claimed purchase of 335000 shares of CCL international Limited @ Rs.31/share amounting to Rs. 1,03,85,000/- from one M/s Anaam Merchants Private Limited, a Kolkata based company, through off-line trade. It has not struck the Assessing Officer that out of the total purchase consideration of Rs. 1,03,85,000/-, the assessee could file bank transactions of only Rs.1,00,00,000/-, Neither any query has been raised in respect of the balance amount of Rs.3,85,000/- nor the assessee been asked to explain the source of Rs.20,00,000/-. It has also not taken note by the Assessing Officer that there was a huge gap between the alleged purchase of shares on 29.04.2013 and the date of part-payment of purchase consideration on 21.03.2014 & 24.03.2014. This is all the more alarming given the fact that the sale bill by the Kolkata based company to a Ghaziabad resident detailing physical sale of shares is without payment of any stamp duty or details of distinctive numbers of shares being sold. No details of charging of Service Tax or registration with the Service Tax department on the said sale bill are present thereby lending little credibility to the said sale bill issued by the Kolkata based seller company. This has not prompted the Assessing Officer to undertake necessary enquiries and independent verification which he was required to do before passing the assessment order. In these proceedings too, the assessee has conveniently side-stepped the issue by stating that the balance Rs.3,85,000/- was paid in cash without delving further as to the source of such an investment, that too, to a person with whom there were no previous dealings. The Assessing Officer has also failed to verify the status of the company which had been struck-off as on the date of the assessment order and confront the assessee about the same and further that as per publicly available information, the last balance sheet filed with MCA was that of 31.03.2013 only as against alleged sale of shares by the company to the assessee on 29.04.2013. This assumes significance in the light of the facts on record that the assessee had never delved into trading or investment in stocks before this transaction and even in the year of sale, too, it has made purchases in very miniscule quantity of shares of bluechip companies of repute, which have not been sold Given these facts and circumstances, I have no doubt that the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue. This clearly shows non application of mind by the AD on the documents submitted by assessee, which were not only incomplete but suspicious from the face of it itself that too when the AO was aware of the report of the investigation wing Kolkata. Thus, the documents submitted by assessee in the background of the case would not only be merely self- serving but their authenticity was also greatly suspected in view of the contrary material and conclusion drawn in the enquiry report of the Investigation wing and available on records of the AO. The veracity of such documents needed to be further probed by independent enquiries as was already suggested in the report. Mere production of basic documents is not sufficient to accept claim of assessee without examining genuineness of the managed transaction. In Anuj Jayendra Shah Vs Pr CIT [2016] 35 Mumbai 67 Taxmann 38 Mumbai Tribunal, it was held that were Assessing officer accepted the gift received by the assessee merely on the basis of affidavit of donor without making further enquiry or verification, assessment order was erroneous and prejudicial to interest of Revenue. The AO in the instant case also, instead of making any independent verification, just accepted the claim of LTCG based on paper documents issued by hawala operators, when the sale of penny stock of CCL International Ltd was all already admitted by operators in their statements to be a part of accommodation entry only.

10.4 The other contention of the assessee in these proceedings is that the stock of CCL International Limited is not a penny stock or the company, a paper company and that orders passed by SEBI pronounce it so. In his support, the assessee has adduced a copy of order dated 06.04.2016 passed by SEBI in the case of CCL International Limited. The document filed by the assessee has been carefully examined. It is seen that the order of SEBI being relied upon by the assessee was passed by it in connection with the alleged failure by M/s CCL International Limited to view and redress complaints of investors against it through the use of SCORES [SEBI Complaints Redress System) as well as file Action Taken Reports with the regulator i.e., SEBI. The regulator did not express any view on any kind of malpractice arising out of manipulation in the price of the stock. I have gone through the reply of the assessee and also the case records including the detailed investigation report of the PDIT(Inv) Kolkata along with all the supporting evidences based upon which the conclusion has been drawn in the said report about bogus accommodation entry of LTCG being provided by the hawala operators to a large number of beneficiaries spread over across India. Given these facts, it is incorrect to state that the order dated 06.04.2016 passed by SEBI establish the credentials of the said company in any manner so far as manipulation in its stock price is concerned. Moreover, the enquiry undertaken by SEBI as quoted by assessee does not conclude that there was no manipulation of market price by persons controlling the company but more on complaints on the investors. Therefore, the conduct of directors or operators controlling the shares of CCL has to be seen in the light detailed findings given in DGIT(Inv) Kolkata report based on which share price manipulation of in many of the 84 scrips pointed out in report of DGIT(Inv) Kolkata was concluded even by the SEBI. Further, the present case is of the beneficiary and not of the person alleged to be manipulating the prices of shares and as such the SEBI report w.r.t. complaints by investors is not germane to the issue at hand.

10.5 So far as other judicial pronouncements concerning the nature of the scrip of CCL International Limited is concerned, with due deference to the decisions of Hon'ble Courts cited by the assessee, it is noticed that the same are distinguishable on facts. It is seen that in all the decisions cited, the Assessing Officer had disallowed the claim of the assessee claiming exemption u/s 10[38] on LTCG arising in the trades of CCL International Limited without making adequate enquiries. Here, the case is entirely opposite to the facts in the cited cases. Here, the Assessing Officer had evidence in hand in the form of report from Kolkata investigation Wing, which alluded that the scrip of CCL International Limited was one of the 84 scrips which was used by the conniving operators and brokers to book unlawful LTCG and claim exemption u/s 10[38] of the Income Tax Act, 1961. The facts on records show, as cited supra, that the purchase itself was not beyond the veil of suspicion with the seller, of dubious distinction and the purchase consideration of suspected origins. In spite of the same, the Assessing Officer neither made adequate enquiries with the assessee nor did he make any independent verification of his own to check the veracity of the claim of the assessee. Failure to make the necessary enquiries and take them to the logical conclusion, in itself, attracts the provisions of Explanation-2 of Section 263 of the Income Tax Act, 1961.

10.6 Even without prejudice to the distinguishable facts, the decisions cited do not help the cause of the assessee. In the case of Reeshu Goel, where the decision was rendered after the passage of assessment order in the present case, the said assessee had purchased the shares directly from the company and the entire process of applying for shares, payment of purchase consideration, allotment of shares and its dematerialization was completed within 3 months unlike in the present case where the shares were allegedly purchased from a third party, without details of distinctive numbers, who was paid partially after a gap of about a year without the available antecedents details of dematerialization. Thus, on facts alone, the case of Reeshu Goel is not applicable in the present case. Besides this, the core issue in the said case involved passage of order u/s 148/143[3] without settling the objection of the assessee which is not the case here. Similar analogy applies in respect of the decision in the case of Achal Gupta where reliance has been placed on the decision in the case of Reeshu Goel by the Hon'ble ITAT to arrive at the finding, and hence, application in the present case is of little consequence. Even otherwise, whether the purchase and shares of shares of any scrip was genuine transaction or not is entirely a different question than the question whether the said CCL scrip was a penny stock or not? Hence, the decision of ITAT holding certain transaction of purchase and sales of shares of CCL as genuine in the cited cases, was based entirely on the facts of the case brought on record in those cases, which cannot be applied ipso facto in the present case, when no enquiry or verification has been made by AO despite the report of DGIT(Inv) Kolkata on record.

10.7 As against this, there are several decisions from Hon'ble Courts, including in the case of Udit Kalra in of Delhi High Court and ITAT where claim of exemption u/s 10[38] has been rejected taking into account the abnormal rise in prices and where genuineness of sale and purchase of shares could not be established by the assessee during the assessment proceedings. Some of them are cited hereunder: [a] Sanjay Kaul v. PCIT [2020] 427 ITR 63 [Delhi] [b] Suman Poddar v. ITO [2019] 268 Taxmann 320 [SC] [c] Satish Kishore v. ITO [2019] 179 ITD 333 [Delhi) [d] Sandeep Bhargava v. ACIT [2019] 109 taxmann.com 174 [Delhi] [e] Pooja Ajmani v. ITO [2019] 177 ITD 127 [Delhi] [f] Sanjay Bimalchand Jain v. ITO [2018] 89 taxmann.com 196 [Bombay] [g] M. K. Rajeshwari v. ITO [2018] 99 taxmann.com 339 [Bangalore]

11. In the backdrop of these legal propositions, it remains a fact that the Assessing Officer has failed to take into account the factual matrix and has not conducted any kind of independent verification or enquiries of his own and has merely allowed the claim of the assessee. This lack of verification and enquiries which were required to be made leads to the invocation of Clause [a] of Explantion-2 to Section 263 of the Income Tax Act, 1961 rendering the assessment order passed by him erroneous in so far as it is prejudicial to the interests of the revenue. The arguments made by the assessee before the undersigned are that the AO after being provided the documents, he has recorded his satisfaction and hence it is not the case of lack of enquiry by the AO. It is contended that mere unexpected increase in prices of shares would not lead to conclusion that the transaction was not genuine. It has been also claimed that the assessee had submitted the documents to discharge its onus wherein nothing adverse in pointed out in them and as such the order passed by the AO is neither erroneous nor prejudicial to interest of revenue. It has been contended that any subsequent difference of opinion of CIT in the manner of satisfaction arrived by AO, even if prejudicial cannot be termed as erroneous. The assessee has relied several judicial rulings in support of this contention. All the rulings are based on provisions of the Act which existed prior to amendment wherein explanation-2 has been introduced w.e.f. 1/4/2015 deeming certain situations to be erroneous and prejudicial to interest of revenue. Hence most of the rulings cited by assessee has no application for this reason itself, as those rulings were never dealing with interpretation of Expin-2 of 263 of IT Act. Further, the present case is of lack of enquiry, which in the opinion of the Commissioner should have been made in the facts and circumstances of the case, as specifically provided under Clause (a) of expin-2 of section 263. The use of expression.... Enquiry or verification which should have been made... in clause (a) of Explanation-2 to Section 263 takes into its ambit even the cases, where though some enquiry might have been done but lacks the enquiries which should made in the opinion of Commissioner on the facts and circumstances of the case. Thus, now after amendment, enquiry which should have been made in the opinion of CIT but not actually made by the AO, would also lead to invoking the provisions of 263. Hence, the decisions cited by assessee holding Inadequate enquiry beyond the scope of 263, are not relevant now. Whether the enquiries, which should have been made, are actually made by AO or not would therefore be primarily a question of facts, more so in view of the amended Explanation-2 to Section 263. In the present case, as already mentioned above, it is clear that in view of the plethora of incriminating evidence both on facts and circumstances, which was available before the AO indicating that the entry of LTCG on sale of shares of CCL was in nature of accommodation entry only, the situation definitely required some external/third parties' verification/examination on facts specific to the case of assessee, in order to reach the satisfaction about the correctness of the claim of LTCG. Having not done anything in this regard except keeping only the contract notes for sale but not for purchases, as supplied by assessee on record (which were make belief documents only in view of the inv wing report), the order passed by the AO definitely lacks the enquiries or verifications, which should have been done on the facts and circumstances of the case, thereby the order becoming erroneous in terms of clause (a) of Expln. 2 under Section 263 of the Income Tax Act.

…..

6.1 It was also submitted that the proceeding under section 263 of the Act had been initiated on the basis of audit objection, which according to law, was not permissible. The Ld. Counsel placed audit objection dated 26.02.2021 [page 264-274 of PB] raised by the DCIT (SAP) along with audit memo dated 08.03.2021. The reply submitted by the assessee in response to the audit objection was also placed on the record. It was also brought to our notice that SEBI had conducted inquiry in the case of CCL International Ltd.; however, there was no adverse finding in this regard. It was further claimed that the notice issued under section 263 of the Act was subsequent to the notice issued by the AO in respect of audit objection. It was contended that the revision based on the audit objection was not permissible under the law. Reliance was placed on the following decisions: -  Sohana Woollen Mills, (2008) 296 ITR 0238 (P & H)  Ajay Grover, dated 23.11.2022(Del)  Bongaigaon Refinery and Petrochemicals Ltd.287 ITR 120 (Gauhati)  Narayan Tate Ranu, (2016) 47 CCH 309, ITAT Mumbai  Tapas Kumar Mallick, ITAT No. 8142/Del/2018 dated 19.03.2021 Ajay Kumar, Ghaziabad  Narendra Aggarwal, dated 04.04.2022  Uttam M Jain HUF, dated 23.11.2023  Krishna Devi, (2021) 431 ITR 361 (Del.)  Indravadan Jain HUF, ITA No. 454 of 2018 dated 12.07.2023 (Del.)

6.2 The Ld. Counsel further argued that the Ld. PCIT had neither brought anything on record to show whether the said Investigation report Kolkata Investigation Directorate of the Income Tax Dept. was actually available with the 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 the assessment order passed by the AO could be held to be erroneous and prejudicial to the interest of revenue. It was further submitted that the Hon'ble ITAT Chandigarh Bench in the case of Sh. Trivikram Singh Toor [ITA No.110/Chd/2021 order dated 21.09.2022] had held that the jurisdiction under section 263 of the Act could not be assumed on the basis of suspicion and thus, nothing adverse could be read from this observation of the Ld. PCIT. The Ld. PCIT had raised doubts on purchase bill filed by the assessee in paragraph 10.3 of the impugned order. But in view of the fact that the shares were received in the depository account of the assessee on 25.03.2014 (page 77 of PB) and even if it was assumed but not admitted that the shares were purchased on or about this date, the sale thereof in FY 2015-16 would result LTCG exempt under section 10(38) of the Act, argued the Ld. Counsel.

6.3 The Ld. Counsel further submitted that the Ld. PCIT has pointed out that the address in the bill as D-35, Anand Vihar, Delhi 110016, an address different from that of the assessee but this address in the bill was assessee’s old address, which was also available in the old/past I. T. records of the assessee (page 344 of the PB). The Ld. Counsel further contended that the identity of the purchaser was not in doubt particularly when his PAN was also mentioned on the bill (page 37 of PB). The Ld. PCIT had also mentioned that only a sum of Rs.1.00 Crore had been paid in cheque instead of Rs.1,03,85,000/-. However, the fact was explained to the AO that the balance amount was paid in cash. Such payment pertained to earlier year. Therefore, these minor objections became inconsequential. Accordingly, the Ld. Counsel prayed to quash the impugned order as void ab-initio.

7. On the other hand, the Ld. CIT-DR vehemently argued the case and prayed for dismissal of the appeal. He supported the impugned order.

9. From perusal of the assessment order, it is not discernible that whether the AO has carried out the requisite inquiries or verification which should have been made as there is no mention of the issues in the assessment order which has been examined/investigated by the AO. The show-cause notice issued by the PCIT clearly show that the AO has not carried out the requisite inquiries or verification which should have been made. As far as the issue of capital gains claimed exempt under section 10(38) of the Act is concerned, there were many decisions of the Tribunal and High Court in favour of the Revenue wherein the capital gains arisen on sale of shares of M/s. CCL International Ltd. had been held bogus and taxed accordingly. One of such case was Anip Rastogi order dated 08.01.2019. None of the document was furnished by the Ld. Counsel before us, which may demonstrate that the AO has carried out any investigation. From the assessment order, it is not evident that the AO has gone through various details, documents, etc.

Ajay Kumar, Ghaziabad furnished by the assessee during the assessment proceedings and carried out any further investigations which should have been made before arriving the conclusion that the capital gains has been genuinely claimed exempt under section 10(38) of the Act. Further, in view of contradictory decisions of Delhi Tribunal on the issue of capital gains arisen on sale of shares of M/s. CCL International Ltd., the facts of the case would have been investigated properly by the AO.

10. The Hon'ble Supreme Court, in the case of Paville Project Pvt. Ltd. in Civil Appeal No. 6126 of 2021 order dated 06.04.2023 had stated that the scheme of the Income Tax was to levy and collect tax in accordance with the provisions of the Act which was entrusted to the Revenue. If due to an erroneous order of the Income Tax Officer, the Revenue was losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The Court upon perusing the assessment order and the order passed by the Commissioner of Income Tax, relied upon Malabar Industries Company Limited v. CIT, (2000) 2 SCC 718 and held that the order passed by the Assessing Officer was erroneous as well as prejudicial to the interest of the Revenue. Thus, the Hon’ble High Court had committed a very serious error in setting aside the order passed by the Commissioner passed in exercise of powers under Section 263 of the Act. With the above observation, the Hon'ble Supreme Court allowed the appeal and set aside the impugned order passed by the Hon’ble High Court and restored the order passed by the Commissioner in exercise of powers under Section 263 of the Income Tax Act. The relevant part of the order of the Hon’ble Supreme Court in the case of Paville Project Pvt. Ltd. reads as under:

7. In the present case, the Commissioner, in exercise of the powers under Section 263 of the Income Tax Act and in exercise of the revisional jurisdiction, set aside the assessment order by specifically observing that the assessment order was erroneous as well as prejudicial to the interest of the Revenue. However, the High Court by the impugned judgment and order has set aside the order passed by the Commissioner by observing that the Commissioner wrongly invoked the powers under Section 263 of the Act. 7.1 Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd. (supra). It is true that in the said decision and on interpretation of Section 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income tax Act, the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. “What can be said to be prejudicial to the interest of the Revenue has been dealt with and considered in paragraphs 8 to 10 in the case of Malabar Industrial Co. Ltd. (supra), which are as under:- “8. The phrase “prejudicial to the interests of the Revenue” is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain [(1957) 31 ITR 872 (Cal)] , the High Court of Karnataka in CIT v. T. Narayana Pai [(1975) 98 ITR 422 (Kant)] , the High Court of Bombay in CIT v. Gabriel India Ltd. [(1993) 203 ITR 108 (Bom)] and the High Court of Gujarat in CIT v. Minalben S. Parikh [(1995) 215 ITR 81 (Guj)] treated loss of tax as prejudicial to the interests of the Revenue.

8. In view of the above and for the reasons stated above, present appeal succeeds. The impugned judgment and order passed by the High Court is hereby quashed and set aside and that the order passed by the Commissioner passed in exercise of powers under Section 263 of the Income Tax Act is hereby restored.”