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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ : NEW DELHI
Before: SHRI AMIT SHUKLA & DR. B.R.R. KUMAR
PER AMIT SHUKLA, JM :
Aforesaid appeals have been filed by the assessee
against the impugned orders, both dated 29.03.2021 passed
by the ld. Pr. CIT, Ghaziabad in his revisionary jurisdiction
under section 263 of the Income-tax Act, 1961 (for short
‘the Act’) for Assessment Years 2015-16 & 2016-17.
2 ITA Nos.939 & 940/Del./2021
In the grounds of appeal, the assessee has taken the
following grounds:-
“1. That on the facts and circumstances of the case and in law, the order passed by the Pr. Commissioner of Income-tax (PCIT), u/s 263 of the Income-tax Act, 1961 ('the Act'), setting aside the assessment framed u/s 143(3) of the Act as erroneous and prejudicial to the interest of the revenue is without jurisdiction, bad in law and void ab- initio.
That on the facts and circumstances of the case and in law, notice/order of ld. Pr. CIT is manifestly in violation of provisions of section 263 of Act in as much as even if for argument sake, sole allegation that loss Rs.93,23,384/- is speculation loss (though not admitting) not eligible to set off against normal income is accepted, than also taxable income, tax payable will be same due to set off against huge C/f assessed losses, and as such still there is no loss to revenue, hence order set aside is not erroneous being not prejudicial to interest of revenue.
That on the facts and circumstances of the case and In law, ld. Pro CIT completely misdirected himself in invoking provisions of S.263 because:
i) objection that loss Rs. 93,23,384/- day trading is a speculating loss is not correct being against the law & principle of consistency being admitted itself by revenue in earlier years.
ii) Alternatively notice/ order is violating the settled principle that "where the AO adopted one of the courses possible in law or where two views are possible and he has taken one view with which the Pro Commissioner does not agree, it cannot be treated that the assessment order is erroneous so as to be prejudicial to the interest of revenue unless the view taken by AO is unsustainable in law".
iii) Order is set aside hurriedly without providing proper opportunity of being heard in violation of provisions of natural justice.
4 That on the facts and circumstances of the case and in law, notice/order of ld. Pr. CIT is completely against the provisions of section 263 of Act in as much as if for argument sake even if loss Rs.93,23,384/-is held as speculation loss than also taxable income, tax payable etc. will be same and hence there is no loss to revenue, hence
3 ITA Nos.939 & 940/Del./2021
order set aside is not erroneous being not prejudicial to interest of revenue. 5 That, without prejudice to above, as admittedly it is not a case of no enquiry, hence even if it was a case of inadequate enquiries for argument sake despite detailed enquiries made by AO, than ld. Pr. CIT erred In cancelling the order to conduct enquiries instead of arriving at definite conclusion after conducting inquiries, beside S. 263 can't be invoked merely because ld. Pr. CIT desired enquiries in a specific way by the AO who passed the order after due application of mind. 6 That order of Id. Pr. CIT is non speaking, cryptic and is without any application of mind where only some observations relating to loss Rs.93,23,384/- is made basis to set aside order without any clear finding/direction only for further verification which is beyond the scope of provision.”
Since common questions of facts and law have been
raised in both the aforesaid appeals, therefore same are
being disposed off by way of consolidated order to avoid
repetition of discussion.
Facts in brief are that, the assessee was enjoying
income from salary, dealing in antique items and is in
business of shares mainly F&O segment besides day
trading. He has filed his return of income on 29.09.2015
declaring total income of Rs.59,80,000/-. Assessee’s case
was selected through CASS under “Limited” scrutiny which,
as per the notice dated 29.07.2016 u/s 143(2) mentioned
the following issues, needs to be identified for examination
:-
4 ITA Nos.939 & 940/Del./2021
(i) Interest expenses (ii) Stock valuation (iii) Income from heads of income other than business/profession mismatch (iv) Custom Duty Payment Mismatch (v) Sales Turnover Mismatch (vi) Securities Transaction
The notice under section 143(2) of the Act consisting of
the queries on the points on which the case was selected for
scrutiny was served and in response to the same, the
assessee filed all the details. Thereafter, various notices and
queries were raised from time to time vide notices dated
24.01.2017 & 15.06.2017 u/s 142 (1) of the Act. Again in
response, the assessee filed its detailed reply before the AO.
Copies of notices and replies filed by the assessee during
the course of assessment proceedings along with copy of
audited report and other details have been placed in the
paper book. After examining the entire details and detailed
scrutiny of the information as was required during the
course of hearing, the AO completed the assessment on the
returned income vide order dated 25.09.2017 passed 143 (3)
of the Act.
5 ITA Nos.939 & 940/Del./2021
Thereafter, ld. PCIT in his revisionary jurisdiction
issued a show-cause notice dated 20.03.2021 u/s 263 of
the Act mainly on the ground that, from the analysis of
trade details of shares, it is seen that majority of trades
undertaken were of the nature of speculative transaction
through day jobbing in which sale and purchase of scrips
on same day are matched without taking the delivery of the
scrips. Ld. Pr.CIT further observed in his impugned order
u/s 263 that one of the reasons for selecting the case for
scrutiny was large value sale of share which were settled
otherwise than by actual delivery or transfer of STT. Thus,
according to him, the mandate for scrutiny was to
investigate, whether assessee is indulged in speculative
transactions or not. However, as noted above, the limited
scrutiny was for security transactions and not whether it is
a business gain/loss or speculative gain/loss.
In response, the assessee submitted that total loss in
F&O segment during the relevant assessment year was
Rs.18,31,158/- and the total loss in day jobbing is
Rs.93,23,384/-. It was further submitted that the assessee
is undertaking the business of purchase and sale of shares
6 ITA Nos.939 & 940/Del./2021
and day jobbing as his regular business and also produced
account of the broker and month-wise detail of profit & loss
account of the date-wise transaction. Thus, it was
submitted that it was a business loss.
Ld. Pr.CIT however observed that the loss on day
jobbing of Rs.93,23,384/- was in the nature of speculative
loss. Assessee’s replies furnished from time to time before
the ld. Pr.CIT have been incorporated in the impugned
order. However, he rejected all the contentions raised by
the assessee and observed that assessee has not given a
reconciliation of the trades of F&O and equity segment as
per information received from the BSE which consisted of
261 transactions relating to equity and 1438 transactions
relating to F&O. Even if, losses claimed to be non-
speculative out of the equity trades, then no bifurcation of
trades which were intraday and pure speculative and other
which are non-speculative have been furnished by the
assessee. He observed that the email received from BSE
categorically stated that no trades were observed under the
said PAN under the equity derivative. He thus held that day
jobbing is nothing else but speculative loss. Accordingly, he
7 ITA Nos.939 & 940/Del./2021
directed the Assessing Officer that he should bifurcate the
transactions which were speculative or non-speculative
based on status of trade and, therefore, to this extent, AO
has not carried out any proper enquiry. After detailed
discussion, he held that AO has not applied his mind for the
facts of the case and has completed the assessment without
applying his mind and making necessary inquiries or
verification, which makes the assessment erroneous.
As regards other limb of exercising the power u/s 263,
that it is prejudicial to the interest of Revenue, Ld. PCIT
held that, assessee has wrongly filed inaccurate particulars
of share transactions which were adjusted against the
speculative loss after trading to the business loss.
Accordingly, he set aside the assessment after observing
and holding as under:-
“4.7 It is incumbent on the officer to investigate the facts stated in the return, when circumstances would make an enquiry prudent and the word “erroneous'' in section 263 includes failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein as assumed to be correct. 4.8 Reliance if also placed on the following case laws: i. Duggal & Co. vs. CIT, (1996) 220 ITR 456, 459 (Del.) ii. Shri Virendra Kumar Gupta vs. CIT in ITA 2595/D/2009 dated 21.01.2011 (ITAT) , Delhi
8 ITA Nos.939 & 940/Del./2021
It is evident from facts of the present cases, as mentioned in the foregoing paragraphs that the AO accepted the version of the assessee without making any proper independent enquiry or verification whereas it is very well settled law that mere failure to make enquiries makes an order erroneous and prejudicial to tile interest of the Revenue. Further it is not necessary for the Commissioner to make further enquiries before cancelling the assessment order of the AO. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, the AO should have made further enquiries before accepting the statements made by the assessee in the return of income. The reasons are obvious. Unlike the Civil Court which is neutral to give decision on the basis of evidence produced before it, an AO is not only an adjudicator but is also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return, when the circumstances of the cases are such as to provoke inquiry. The meaning to be given to the word ‘erroneous' in section 263 of the IT Act, 1961 emerges out of this context. The word 'erroneous' in that section includes cases where there has been a failure to make the necessary inquiries.
Thus, in view of the various pronouncements discussed in paras 4.1 to 4.8 as well in terms of section 263. of LT. Act, 1961, the Commissioner does have the power to set aside, enhance or modify or cancelling the assessment and directing a fresh assessment, if he is so satisfied in the present case. In the present case, I am satisfied that for the reasons mentioned in foregoing paras, the Assessing Officer has passed the assessment order without applying his mind and making necessary inquiries or verification which should have been made, and therefore, the order passed by the AO is not only erroneous, but also prejudicial to the interest of revenue.
In view of observations made in foregoing paragraphs, I am of the opinion that the various issues involved in this case and as mentioned in paras 3.1(i) to 3.1(v) and 3.2, require examination, and further verification so as to arrive at correct and true income of the assessee. Therefore, the assessment order passed under section 143(3) of the Act on 25.09.2017 by the Add1.CIT, Special Range, Ghaziabad is set aside with direction to pass a fresh assessment order in accordance with the provisions of the Income-tax Act, 1961 after necessary examination and verification as directed above. Needless to say, that while completing a fresh assessment, the assessee may be provided adequate opportunities.”
Before us, the ld. counsel for the assessee submitted
that first of all, here in this case, as per the documents
9 ITA Nos.939 & 940/Del./2021
available on record, the notice u/s 263 was issued only on
the basis of audit objection; that the loss claimed by the
assessee was speculative loss and capital gain was
computed without considering F&O loss. In support, he also
filed the copy of letter dated 11.10.2021 written by the
Addl.CIT, Special Range, Ghaziabad to Senior Audit Officer.
He also placed copy of the audit observations. Thus, he
submitted that action under section 263 was initiated on
the basis of audit objection and without any application of
mind; therefore, same is not sustainable in law.
Apart from that, he mentioned that issue of set off of
loss is beyond the scope of limited scrutiny for which the
case was under scrutiny and ld. Pr.CIT has enlarged the
scope in respect of security transaction to change the head
of income. He further submitted that on all the issues raised
otherwise, AO has raised specific queries and the assessee
has submitted all the replies giving entire details of shares
transactions including under F&O and day trading. Thus,
the AO has passed the order after duly applying his mind
and it cannot be a case of not carrying out under enquiry.
Ld. Pr. CIT cannot extend the scope of scrutiny by changing
10 ITA Nos.939 & 940/Del./2021
the head of income of some share dealing to apply set off
rules to recompute income.
Lastly, he submitted that even otherwise also, if loss of
Rs.93,23,384/- is ultimately held to be speculation loss
then also the declared gross as well as taxable income will
remain same, i.e. Rs.60,00,000/- and Rs.59,80,000/- for
the ASSESSMENT YEAR 2015-16 AND 2016-17
respectively. Thus, there is no loss to revenue and hence it
is not prejudicial to the interest of revenue within the scope
of S.263. The reason being, assessee has huge b/f losses
from earlier years and if amount under question is not
allowed to set off than it will be adjusted against the b/f
losses. This he demonstrated with original & alternative
computation with statement of profit/losses and their set off
and c/f losses for clarity. As per actual/accepted
computation, business loss of Rs.1,19,81,580/- was set off
against income form house property Rs.20,52,542/-,
against income from other sources Rs.5,40,403/- and
against STCG of Rs.93,88,635/- thereby balance short term
capital loss of Rs.2,91,58,924/- was set off against c/f loss
of under the same head of STCG (against available c/f STCG
11 ITA Nos.939 & 940/Del./2021
Rs.4,41,05,508/-). In case it is considered that
Rs.93,23,384/- is speculation loss, then business loss of
Rs.26,58,196/- will be set off against income form house
property Rs.20,52,542/-, against income from other sources
Rs.5,40,403/- and against STCG Rs.65,251/- thereby
balance STCG of Rs.3,84,82,308/- will be set off against c/f
loss under the same head of STCG (against applicable c/f
STCG Rs.4,41,05,508/-) so that speculative loss is c/f.
Similarly in AY 2016-17, after considering Rs.2,92,861/- as
speculation loss instead of business loss, taxable income
will remain same i.e. Rs.59,70,000/-. Therefore, in the
absence of any loss to Revenue order is not prejudicial to
revenue and section 263 is not applicable. In support, he
relieved upon the following decisions :-
(i) CIT vs. NTPC Ltd. (2017) 88 taxman.com 561 (SC) (ii) Kwality Steel Suppliers Complex (2017) 84 taxmann.com 234 (SC) (iii) Malabar Industrial Co. Ltd. (2000) 243 ITR 83 (SC)
Ld. Counsel further submitted that the assessee is
being engaged in F&O and day trading since long and in all
the earlier years, resultant profit & loss account was always
accepted as business income/loss by the department. In
support, he also filed statement of assessment proceedings
12 ITA Nos.939 & 940/Del./2021
for last four years wherein most of the assessments have
been completed u/s 143(3) of the Act. For the sake of ready
reference, the chart is reproduced as under :-
Assess- Business – Gross Day Other Total Salary + Net Remark ment Trading / F&O (as per Business business HP + Income (as Year P&L A/c) – (As per income – As Capital per ITR) P&L A/c) per ITR/ Gain + computa- Other tion sources 2011-12 -622,726,906 689,595 39,524,006 75,272,162 29,912,933 Accepted u/s 143(3) 2012-13 -5,944,124 5,179,665 702,259 19,026,805 17,806,210 Accepted u/s 143(3) 2013-14 -9,532,168 1,624,814 -1,413,614 18,013,164 17,386,912 Accepted as per return 2014-15 14,237,415 1,055,947 -35,163 18,553,242 20,495,640 Accepted u/s 143(3) 2015-16 -9,323,384 -1,831,158 90,757 -11,981,580 43,070,999 5,980,000 Accepted u/s 143(3) originally 2016-17 -292,861 -78,786,053 -200,430 -5,311,050 11,311,050 5,970,00 Accepted u/s 143(3) originally
Thus, the impugned order u/s 263 is not sustainable.
On the other hand, ld. CIT DR for the Revenue strongly
relied upon the order of the ld. Pr.CIT and submitted that
ld. Pr.CIT had carried out due verification and enquiry to
come to a conclusion that the AO had not examined the
details whether there was actual delivery of shares in the
equity segment and whether any such transaction was
speculative in nature specifically with regard to the day
trading. Ld. Pr.CIT also sought information from the BSE
which clearly shows that there was no actual delivery of
13 ITA Nos.939 & 940/Del./2021
shares; therefore, he rightly concluded that order of the AO
was erroneous. Insofar as the contention raised by the ld.
counsel for the assessee that it is not prejudicial to the
interest of the Revenue because there was no revenue loss,
he submitted that it is not necessary that there should be
revenue loss during the year. Otherwise also, ld. Pr.CIT has
dealt this issue in his order that assessee has wrongly
claimed speculation loss as business loss. Therefore, the
order was rightly set aside by the ld. Pr.CIT.
We have considered the rival contentions and also
perused the relevant findings given in the impugned orders
as well as the material placed on record. Now, it is well
settled law by the judgments of the Hon’ble Apex Court
starting from Malabar Industrial Co. Ltd. reported in 243
ITR 83 (SC) that for exercising revisionary jurisdiction u//s
263 of the Act, assessment order should not only be
erroneous but also prejudicial to the interest of the
Revenue. Both the conditions should be satisfied
simultaneously and even if one of the conditions is lacking,
then assessment order cannot be set aside. Here, in this
case, one very important fact which has been brought on
14 ITA Nos.939 & 940/Del./2021
record by the ld. counsel is that, even if the loss of
Rs.93,23,384/- is treated to be speculation loss then also
declared loss as well as taxable income will remain the same
i.e. Rs.60,00,000/- and Rs.59,80,000/- respectively for AYs
2015-16 & 2016-17. Thus, there is no loss to the Revenue.
The reason being that the assessee has huge brought
forward losses from earlier years and if the amount under
consideration is not allowed to set off then it will be
adjusted against the brought forward losses which has been
demonstrated before us by filing original and alternative
computation of income with statement of profit/losses and
their set off and carry forward losses. The said computation
has been placed on pages 64 to 79 for the AY 2015-16 and
similarly for AY 2016-17 at pages 80 to 86 of the paper
book. From the perusal of the said document, it is seen
that as per the actual computation, the business loss of
Rs.1,91,81,580/- was set off against the income of; a) house
property of Rs.20,52,542/-, b) against income from other
sources of Rs.5,40,403/-;and c) against short term capital
gain of Rs.93,88,635/-. Thus, balance short term capital
loss was Rs.2,91,58,924/- was set off against carry forward
15 ITA Nos.939 & 940/Del./2021
loss under the same head ‘short term capital gain’ against
available carried forward short term capital gain of
Rs.4,41,05,508/-. If the amount of Rs.93,23,384/- is
treated as speculation loss then business loss of
Rs.26,58,196/- will get set off against the income from
house property of Rs.20,52,542/-, against income from
other sources of Rs.5,40,403/- and against short term
capital gain of Rs.65,251/-. This will result in balance short
term capital gain of Rs.3,84,32,308/- to be set off against
carry forward loss under the same head ‘short term capital
gain’ against available carry forward short term capital gain
of Rs.4,41,05,508/-. There is no impact of any revenue loss
in this year nor in the subsequent year. Similar is the fact
in AY 2016-17 wherein if Rs.2,92,861/- is treated as
speculation loss instead of business loss, taxable income
will remain the same of Rs.59,70,000/-. This fact has not
been denied by the ld. Pr.CIT or ld. CIT DR. Thus, if there is
no loss of revenue in this year or in subsequent year nor will
it impact the taxable income, then the assessment order
cannot be held to be prejudicial to the interest of revenue
and accordingly, in view of the principle laid down by
16 ITA Nos.939 & 940/Del./2021
Hon’ble Apex Court in the case of Malabar Industrial Co.
Ltd. (supra), the assessment order cannot be set aside.
Otherwise also, it is purely a case of change of opinion
for the reason that similar nature of transaction of day
trading of shares and F&O has been held to be business
income/business loss in all the earlier years wherein
assessment has been completed u/s 143(3) of the Act.
Thus, if rule of consistency is applicable on the same facts
and circumstances in these years, then merely changing the
head of income from business to speculation, then it cannot
be held that the assessment order is erroneous and
prejudicial to the interest of revenue. More so, here in this
case, section 263 has been done only on the basis of audit
objection which was only for the purpose of verification and
which has already been examined by the AO during the
course of assessment proceedings. Accordingly, the
impugned orders u/s 263 are set aside and assessment
orders passed u/s 143(3) of the Act are restored.
In the result, both the appeals filed by the assessee are
allowed.
Order pronounced in open court on this 13th day of December, 2021.
17 ITA Nos.939 & 940/Del./2021
Sd/- sd/- (DR. B.R.R. KUMAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 13th day of December, 2021 TS