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Facts
The assessee, an individual, filed a return declaring total income and was assessed under Section 143(3) r.w.s. 147. Additions were made regarding Long Term Capital Gains from alleged penny stock and commission paid. The CIT(A) upheld these additions.
Held
The Tribunal held that the CIT(A) erred in dismissing the assessee's appeal in a summary manner without proper adjudication or detailed reasons. The order was considered non-speaking and a contravention of statutory roles.
Key Issues
Whether the CIT(A) correctly adjudicated the appeal on merits and provided a speaking order, or if the order was a summary dismissal without application of mind.
Sections Cited
143(3), 147, 68, 69C, 148, 250, 251
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Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
PER PRABHASH SHANKAR [A.M.] :- The present appeal arising from the appellate order dated 16.10.2023is preferred by the assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 29.12.2018 as passed by the ACIT/DCIT – Circle-24(3), Mumbai for the Assessment Year [A.Y.] 2011-12. P a g e | 2 A.Y. 2011-12 Prakash Pushparaj Golcha, Mumbai
The grounds of appeal are as under:-
THAT the Commissioner of Income tax (Appeals) has erred in law as well as under the circumstances of the case in confirming the error of the Assessing Officer in issuing notice under section 148 of the Income tax Act, 1961. 2. THAT the Commissioner of Income tax (Appeals) has erred in law as well as under the circumstances of the case in passing the order u/s 250 to confirming the error of the Assessing Officer in passing assessment order u/s. 143(3) r.w.s. 147 of the Income tax Act, 1961. 3. THAT the Commissioner of Income tax (Appeals) has erred in law as well as under the circumstances of the case in accepting the addition of Rs 28,03,430/- under section 68 of the Income tax Act, 1961 made by the Assessing Officer.
THAT the Commissioner of Income tax (Appeals) has erred in law as well as under the circumstances of the case in accepting the addition of Rs. 84,103/- u/s. 69C of the Income tax Act, 1961 made by the Assessing Officer.
The brief facts of the case are that the assessee is an Individual who filed the Return of Income declaring total income of Rs. 32,41,120/- and the assessment order was u/s 143(3) r.w.s. 147 of the Act was passed making addition of Rs28,03,430/- in respect of Long Term Capital Gains disclosed by the assessee pertaining to the alleged penny stock of Global Capital Markets Limited, sold by the assessee during the year as the ld.AO treated the transaction as pre-arranged method employed to evade tax. Further addition of Rs 84,103/- was made u/s 69C of the Act, being alleged commission paid at the rate of 3% of sale consideration of Rs
P a g e | 3 A.Y. 2011-12 Prakash Pushparaj Golcha, Mumbai 28,03,430/-. The action of the AO is basically based on certain report of the Investigation wing, Kolkata on a rampant nexus of various players including brokers, exchanges, taxpayers, exit providers etc. in providing bogus entries of capital gains and business loss for reducing their tax liabilities. The ld.CIT(A) upheld both the additions and dismissed appeal of the assessee on merit as also on the question of reassessment.
Before us, the ld.DR has supported the orders of authorities below while the ld.AR has vehemently argued against the action of the ld.CIT(A) in dismissing its appeal. It is claimed that the share transaction was genuine in support of which the assessee furnished various details which were not taken into consideration by the authorities concerned. He submitted that the transactions in question were made through stock exchange market purchases and not through preferential allotments. The details of purchases had been submitted during the assessment proceedings. Sales and purchase of transactions were done through recognized stock exchange where the buyer and seller do not know each other and they transact through a broker on the Stock Exchange.The AO did not provide any statement proving that the promoters of the company had admitted that the share prices were rigged for proving bogus LTCG, nor he provided with any statement mentioning that the assessee was involved in this operation. No opportunity to cross examine the promoters,
P a g e | 4 A.Y. 2011-12 Prakash Pushparaj Golcha, Mumbai in case they have given any statement, was provided for cross examination, inspite of repeated requests. The payments were made through account payee cheques, the shares were lying in the Demat account for more than a year, the sales were made through stock exchange and the receipts were also through account payee cheques and the details pertaining to the same were already on records with the AO while passing the assessment order. The AO claimed that the Global Capital Market scrip was investigated by the Kolkata Investigation Directorate and the information is also supported with the statement of operators, share brokers and exit providers. The assessee submitted various evidences to prove the genuineness of the impugned transaction before both the lower authorities who did not take due cognizance of the same. Some of these details submitted comprised of copies of bills in respect of purchase of shares, Demat account at the time of purchase of shares, proof regarding payment by cheques by submitting the copy of bank statement, copy of ledger of the broker in the year of purchase of shares, copy of Global Report of the broker in the year of purchase, copy of sales bills of shares, copy of Demat account at the time of sale of shares. Copy of bank statement showing the payment received from share broker, copy of Global Report for the financial year 2010-11 etc.Thus, he discharged his burden to prove the genuineness of the transaction. It is submitted that once the assessee provided the documentary evidences and P a g e | 5 A.Y. 2011-12 Prakash Pushparaj Golcha, Mumbai explanation to prove the genuineness of the transaction, the onus was on the AO to prove that the evidences and explanations were not valid. Being aggrieved by the order of the Assessing Officer, the assessee preferred appeal with the Commissioner of Income Tax (Appeals) who confirmed all the additions and appeal was dismissed vide a very cryptic and non speaking order.
In a written submission made before us, the ld.AR has made detailed submissions as stated below in nutshell:
The said scrip was regularly traded on the Exchange and there was no suspicion of it being penny stock.
The AO did not allow opportunity to cross examine the person on whose statement he relied upon. Reliance placed on Andaman P a g e | 6 A.Y. 2011-12 Prakash Pushparaj Golcha, Mumbai
Payments were made through banking channels and account payee cheques.
No material relating to the assessee in Investigation report. Relied on Renu Agrawal(2023) 456 ITR 249(SC).
Shares were lying in Demat for more than a year.
Primary onus discharged by the assessee.
Reliance placed on ITA NO.4843 AND 1228/Mum/2018 Ramprasad Agrawal.
Pramod Kumar Lodha ITA No. 826/Jp/2018 Jaipur
Indravadan Jain HUF 454 ITR 2018(Bom).
Shashi Mohan Garg WP/C 7619/2019 dated 5.10.2023(Del)
Divyaben Prafulchandra Parmar in Income Tax appeal 812/2023(Guj HC)
Ziauddin Siddique ITA No 2012 of 2017 4.3.2022(Bom)
Farzad JEHANI by ITAT/Mum/2023
We have carefully considered all the relevant facts of the case, rival submissions, perused the records and the legal position emerging from the cited decisions above. It is noticed from the contents of Form no.35 and Statement of Facts as filed alongwith
P a g e | 7 A.Y. 2011-12 Prakash Pushparaj Golcha, Mumbai the appeal filed by the assessee before the ld.CIT(A),the assessee had contested reopening of the assessment as also the additions made in respect of the alleged penny stock. As far as merits of the case are concerned, the assessee furnished various evidences showing genuineness of the transaction belying the findings of the AO. Detailed submission was made as also evidences were submitted in the form of copies of Bills in respect of purchase of shares, Demat account at the time of purchase of shares, proof regarding payment by cheques by submitting the copy of bank statement where such payments are appearing, copy of ledger of broker in the year of purchase of shares, copy of Global Report of the broker in the year of purchase, copy of sales bills of shares, copy of Demat account at the time of sale of shares,copy of bank statement showing the payment received from share broker, copy of Global Report for the financial year 2010-11 and copy of ledger of broker in the year of sale of shares.
1 However, perusal of the appellate order makes it apparent that the submissions of the assessee as also the evidences furnished either before the AO or before him have not been considered and discussed at all by him in the order. He did not consider it necessary to examine the merits therein. Rather, he straightway relied on the P a g e | 8 A.Y. 2011-12 Prakash Pushparaj Golcha, Mumbai decision of hon’ble Calcutta High Court in the case of Swati Bajaj and others and dismissed the grounds of the assessee.There is nothing to show that he applied his mind on the contentions of the assessee at all.There is no discussion either in respect to the ground relating to reassessment, Capital gains or the addition made u/s 69C of the Act vis- à-vis the submissions of the assessee. Apparently, the ld. CIT(A) has failed to adjudicate on the issues with an open mind and his hurried conclusion only reflects a prejudiced and predetermined approach in brushing aside the contentions of the assessee and the evidences furnished in this non speaking appellate order.
In this regard, it would be relevant to examine the action of the ld.CIT(A) in the light of the provisions of the Act relating to powers and duties of CIT(A).A perusal of the provisions u/s 250 of the Act which pertains to the powers of Commissioner of Income Tax(Appeals) that u/s 250(6) of Act, shows that he is obliged to dispose of the appeal in writing after stating the points for determination and to then pass an order on each of the points which arose for consideration and is further obliged to state the reasons for his decision on each such points which arose for determination. He is duty bound to dispose of the appeal through a speaking order on merits, on all the points which arose for determination in the appellate proceedings, including on all the grounds
P a g e | 9 A.Y. 2011-12 Prakash Pushparaj Golcha, Mumbai of appeal. Moreover, the perusal of section 251(1)(a) and (b) of the Act and of Explanation of section 251(2) thereof shows that the CIT(A) is required to apply his mind to all the issues which arise from the impugned order. If the order of the CIT(A) on merits is a summary order, it amounts to non- application of mind. This non- application of mind is a contravention of statutory role of CIT(A) u/s 251(2) of the Act. Also, section 251(1)(a) provides that while disposing of an appeal against Assessment Order, Commissioner (Appeals) shall have the power to confirm, reduce, enhance or annul the assessment. Similarly, the section 251(1) (b) provides that in disposing of an appeal against an order imposing a penalty, CIT (A) may confirm or cancel such orders or vary it so as to either to enhance or to reduce the penalty. If the order of the Ld. CIT(A) on merits is a summary order as observed above, it amounts to non-application of mind to the possibilities of reducing/enhancing/annulling the assessment, or cancelling/varying the penalty, as the case may be. The first appellate authority cannot dismiss assessee’s appeal in a summary manner, without deciding the appeal on merits through an order in writing, stating the points of determination in the appeal, the decision thereon and the reason for the decision. It is well-settled that powers of the CIT(A) are co-terminus with powers of the AO. Reference could be made to order of hon’ble
P a g e | 10 A.Y. 2011-12 (SC) in which it was held that AAC has plenary powers in disposing of an appeal; that the scope of his power is co-terminus with that of the ITO, that he can do what the ITO can do and also direct him to do what he failed to do. We draw support from order of Hon’ble Bombay High [2016] 240 taxman 133 for the proposition that CIT(A) is required to apply his mind to all issues which arise from impugned order before him whether or not same had been raised by appellant before him and that CIT(A) is obliged to dispose of the appeal on merits. In fact, since w.e.f 1st June, 2001 the power of the CIT(A) to set aside the order of the Assessing Officer and restore it to him for passing a fresh order stands withdrawn, he cannot disregard his statutory role under these provisions.
1 In view of the discussion in foregoing paragraphs, we are of the view that the Ld. CIT(A) erred in dismissing assessee’s appeal in a summary manner, without giving detailed reasons in the order, on various grounds of appeal before him. We further hold that he erred in passing a non-speaking order on each of the points which arose for his consideration and he failed in discharging the statutory obligation to state the reasons for his decision on each such points, which arose for P a g e | 11 A.Y. 2011-12 Prakash Pushparaj Golcha, Mumbai determination in assessee’s appeal before him. Passing of a summary order amounts to contravention of statutory role of CIT(A) as prescribed u/s 250(6) and Section 251 of the Act. Therefore, we set aside the impugned order dated 16.10.2023 of Ld. CIT(A) and direct him to pass denovo order as per law, in accordance with sections 250 and 251 of the Act, for fresh disposal of appeal. Needless to state he would allow the assessee adequate opportunity of hearing in consonance with the principles of natural justice.
In the result, the appeal is allowed for statistical purposes.
Order pronounced in the open court on 07/04/2025. NARENDER KUMAR CHOUDHRY PRABHASH SHANKAR (न्याययकसदस्य /JUDICIAL MEMBER) (लेखाकारसदस्य/ACCOUNTANT MEMBER)
Place: म ुंबई/Mumbai दिनाुंक /Date 07.04.2025 Lubhna Shaikh / Steno
आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant
P a g e | 12 A.Y. 2011-12 Prakash Pushparaj Golcha, Mumbai 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file.
सत्यावपि प्रवि //// आदेशानुसार/ BY ORDER,
उि/सहायक िंजीकार (Dy./Asstt.