BHASKAR ARVIND KUMAR HINGAD,MUMBAI vs. ASSTT CIT-24(1), MUMBAI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, VP AND SHRI ABY T. VARKEY, JM आयकर अपील सं/ I.T.A. No.692/Mum/2022 (निर्धारण वर्ा / Assessment Years: 2014-15) Bhaskar Arvind Kumar बिधम/ ACIT-24(1) Hingad 601, 6th Floor, Piramal Vs. Flat No. 1, Ratnakar Chambers, Lalbaug, Parel, Building, 26 Narayan Mumbai-400012. Dhabolkar Road, Mumbai- 400006. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AACPH2812F (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) Assessee by: Shri Vijay Mehta Revenue by: Dr. Mahesh Akhade (DR) सुनवाई की तारीख / Date of Hearing: 29/08/2022 घोषणा की तारीख /Date of Pronouncement: 21/10/2022 आदेश / O R D E R PER ABY T. VARKEY, JM: This appeal preferred by the assessee is against the order of the Ld. Principal Commissioner of Income Tax-20 [hereinafter referred to as the “PCIT”], Mumbai dated 31.03.2022 for assessment year 2014- 15 passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad 3. The learned PCIT has erred in holding that the A.O. has not made proper enquiries in respect of the issues like carry forward loss of A.Y. 2013-14, the source of purchase of shares, verification of loan creditors, mismatch of sales turnover and allowability of interest expenses. 4. The learned PCIT has erred in exceeding his jurisdiction by directing the A.O. to examine those issues/areas for which the A.O. himself had no jurisdiction to enquire or examine the issue/area while passing the order u/s. 143(3) r.w.s. 263 of the Act. 5. The learned PCIT has erred in not examining the details furnished by the assessee to the A.O. and the details furnished by the assessee to PCIT before arriving at the conclusion that the order passed by the A.O. is erroneous and prejudicial to the interest of the revenue.

(i) High Ratio of Refund (ii) Substantial Increase in Capital in a year (iii) Unsecured loan from person who has not filed return of income (iv) Low Income in comparison to loans/advances/investments in shares

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad (v) Large Value of futures (derivative) in a recognized stock exchange (vi) Gross Interest shown in Schedule OS of ITR is less than interest receipts reported in Form 26AS (vii) Mismatch in sales turnover reported in audit report and ITR

“3. It is seen from the assessment records that the Assessing Officer had completed the assessment without making verification and investigation on the following issues :-

a) The assessee has shown TDS of Rs.61,10,186/- and has claimed refund of Rs.61,10,190/-. The entire TDS amount was claimed as refund. b) The capital of Rs.26,42,40,674/- is shown in the balance sheet. The source of capital was not verified.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad c) The long term capital gain on sale of shares of Rs.1,49,18,288/- and the source of purchase of these shares were not verified. The assessee’s claim of the capital gains exempt from tax has been accepted without verification. d) The unsecured loans of Rs.8,9,47,445/- received by the assessee. e) Low income of Rs.(-) 2,16,439/- in comparison to high loans/advances/investments in shares f) Mismatch in sales turnover as reported in audit report and ITR g) Interest income of Rs.69,300/- shown under the head income from other sources, which is lesser than Gross Interest Income. . In continuation to the above notice, the Ld. Pr.CIT issued a further notice dated 22-03-2019 show causing the assessee to explain the following additional issue as well: “In continuation of my show-cause notice u/s 263 of the I.T Act dated 18.02.2019, you are requested to further furnish the details of large sales value of futures (derivatives) in which you have traded during the relevant year. Please note that although this was one of the core reasons for selecting the case for scrutiny, it can be seen from the relevant assessment records that the Assessing Officer had not asked for any specific details in this connection resulting in non-verification of this aspect of transactions.” 7. The assessee filed his replies giving explanation along with supporting documents, which are found placed at Pages 141 to 144 and 146 to 160 of the paper book. After considering the replies given the assessee, the Ld. Pr. CIT-24, Mumbai, passed an order u/s 263 of the Act on 28-03-2019 (hereinafter mentioned as ‘first 263 order’) setting aside the original assessment order passed u/s 143(3) of the Act dated

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad 24-11-2016 and directing the Assessing Officer to redo the assessment de novo on specific issues. The relevant portion of Para 7 of his order reads as follows :—

“The assessment order is, therefore, set aside on the issues which are mentioned in the show cause notice u/s, 263 of the Act, and the Assessing Officer is directed to complete the assessment afresh in the lines of the discussion above. The Assessing Officer should verify, inter alia, the assessee's claim that the income corresponding to the TDS claimed has been offered as income in the return filed. From perusal of the assessment records, it is understood that the refund had arisen due to set off of carry-forward business loss and unabsorbed depreciation from the previous years. These aspects regarding allowability and genuineness of the set-off would be required to be verified, together with source of capital of Rs.26,42,40,674/- and source of purchase of shares and assessee's claim that capital gains on sale of shares was exempt from tax. The unsecured loans also need a fresh look from the perspective of identity, creditworthiness and genuineness of the loan creditors, and so does the issue of low income in comparison to high loans/advances/ investment in shares. The Assessing Officer should also Reconcile the alleged mismatch in sales turnover as reported in ITR vis a vis Tax Audit Report. With this, we come to the last issue, viz. interest income shown as income from Other Sources being lesser than the gross interest receipts. In this case, the assessee seems to have received substantial interest income from fixed deposits which is assessable as income from Other Sources. To claim any expenditure against income from Other Sources, there has to be a direct nexus between the income and the expenditure claimed. This principle was upheld by the Apex

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad Court in the case of CIT vs. V.P. Gopinathan (248 ITR, 449). The assessee, in this case, has set off interest expenses of Rs.75,58,265/- against interest income of Rs.61,34,776/-, and the balance interest has been claimed as expenditure in the Profit & Loss Account. The Assessing Officer, in fresh assessment proceedings, should examine the allowability of such set-off in the light of the principle discussed above.”

“In this case the original return of income for AY 2014-15 was e-filed on 28.11.2014 declaring NIL income. Subsequently, assessment proceedings u/s 143(3) of the Income-tax Act, 1961 was completed on 24.11.2016 and assessed income was determined at NIL.

I. The assessee has shown TDS of Rs.61,10,186/- and the entire amount was claimed back as refund.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad II. Capital of Rs.26,42,40,674/- was shown in the Balance Sheet for the relevant year, but the quantum of increase during the year was not ascertained. III. Long Term Capital Gain of Rs.1,41,18,288/- on sale of shares was claimed as exempt by the assessee. IV. Confirmation in respect of Unsecured loans of Rs.8,99,47,445/- have to be examined from the point of view of creditworthiness, genuineness and identities of the loan creditors. V. Low income of Rs.2,16,439/- in comparison to high loans/ advances/ investments in shares, VI. Two charts showing scrip wise details of transactions in futures and options. VII. The alleged mismatch in sales turnover. VIII. The gross interest shown in schedule OS of ITR being less than the interest receipt shown.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad 6. Subject to the details submitted by the assessee and on the basis of information available, the total income of the assessee is accepted as order u/s 143(3) of the IT Act, 1961 was passed.

Total income as per order passed u/s 143(3) of Income tax Act on 24.11.2016 was NIL.

i. Non-verification of assessee’s claim that income corresponding to TDS has been offered in the ITR.

ii. Non-verification of allowability and set-off for business loss and unabsorbed depreciation brought forward from AYs 2010-11 and 2011-12.

iii. Non-verification of source of purchase of shares.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad

iv. Improper verification of unsecured loans availed by the assessee.

v. Improper verification of allowability of interest expense against interest income derived from FDs.

vi. Non-verification of mismatch of Turnover reported in ITR with Form 3CD.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad 11. Assailing the decision of the Ld. Pr. CIT, to exercise his power of revision, the Ld. AR, Sh. Vijay Mehta argued that the usurpation of jurisdiction by the Ld. Pr. CIT and consequent order passed u/s 263 of the Act was bad in law because the conditions precedent for invoking the revisionary jurisdiction were never satisfied. It was argued that, it was not a case of improper enquiry or lack of enquiry as alleged by the Ld. Pr. CIT in his impugned order. Taking us through the notices & enquiries made by the AO u/s 142(1) of the Act and the replies furnished by the assessee, in the original proceedings u/s 143(3) of the Act and the first round of proceedings conducted u/s 143(3) read with 263 of the Act, the Ld. AR contended that each of the issues enumerated above were enquired into by the AO and, therefore it was not a case that, these issues were not verified by the AO so as to empower the Ld. Pr. CIT to invoke his revisionary jurisdiction u/s 263 of the Act for alleged lack of enquiry. 12. The Ld. AR further submitted a chart explaining that the five (5) issues on which the Ld. Pr. CIT set aside the assessment order dated 31-12-2019 passed u/s 143(3) r.w.s 263 of the Act was either not the issue/s on which the case of the assessee was selected for scrutiny or that, the issue/s did not emanate from the first 263 order dated 28-03- 2019. The Ld. AR argued that the AO had completed the assessment u/s 143(3) r.w.s 263 dated 31-12-2019, after complying with the specific directions given by the ld. Pr. CIT-24, Mumbai, in his order dated 28-03-2019 and therefore the AO could not have travelled beyond the scope of the directions given by the ld. Pr. CIT in his order

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad u/s. 263 of the Act, dated 28-03-2019, while framing the assessment order u/s. 143(3) r.w.s. 263 of the Act dated 31-12-2019. He submitted that the AO had examined all the relevant documents and evidences that he was required to examine and only then had he passed the order u/s 143(3) r.w.s. 263 dated 31-12-2019. According to the Ld. AR, there was no error whatsoever in that order, which is prejudicial to the interest of the revenue, which would warrant the exercise of revisionary powers u/s 263 of the Act once again by the Ld. Pr. CIT- 24, Mumbai. He submitted that the order passed by the Assessing Officer on 31-12-2019 was a speaking order wherein, the Assessing Officer has followed the directions of the Ld. Pr. CIT. He thus urged that, the Ld. Pr. CIT vide his impugned order dated 31-03-2022, should not have again interfered with the order passed by the AO u/s 143(3) r.w.s. 263 dated 31-12-2019. The Ld. AR of the assessee also furnished an issue-wise rebuttal/s to the observations made by the Ld. Pr. CIT in the order impugned before us. 13. On the other hand, the Ld. CIT, DR appearing on behalf of the Revenue, argued that the Ld. Pr. CIT had rightly invoked his powers under Section 263 of the Act since in his opinion, the AO had not conducted the enquiries in the manner as desired by the Ld. Pr. CIT and consequent to which prejudice had been caused to the interests of the Revenue. He submitted that the AO had merely collected information & details in the course of assessment but had not verified details by an independent application of mind. Inviting our attention to Paras 5.1 and 5.2 of the impugned order dated 31-03-2022 passed u/s

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad 263 of the Act, he pointed out that the assessee had furnished new details and explanation in the course of the second revisionary proceedings to justify the issue/s raised in the second SCN dated 11- 03-2022, which were not filed before the AO and therefore, the Ld. Pr.CIT had rightly invoked his revisionary jurisdiction u/s 263 of the Act and had set aside the assessment order dated 31-12-2019 back to the AO to verify these issue/s afresh. He pointed out that the Ld. Pr. CIT did not himself record any adverse finding or give any specific direction for making additions/disallowances, but had merely set aside the assessment, requiring the AO to pass the assessment afresh after conducting proper enquiries and after giving the assessee an opportunity of being heard, and therefore no prejudice was caused to the assessee at this stage. He therefore urged that the order of the Ld. Pr. CIT dated 31-03-2022 should not be interfered with. 14. In the rejoinder, the Ld. AR submitted that, the Ld. Pr. CIT had exercised his power and jurisdiction mechanically and without proving that the AO's order was in fact erroneous as well as prejudicial to the interests of the Revenue for the reasons set out in the SCN. He contended that the Ld. Pr. CIT had considered the order to be erroneous for reasons specified in the SCN but when the assessee had placed before him his explanations, supported by requisite evidence to prove that the order was neither erroneous nor prejudicial to the interests of the Revenue, the Ld. Pr. CIT failed to record his independent finding to show that the AO's order was in fact erroneous as well as prejudicial to the interests of the Revenue. Rather, the Ld.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad Pr. CIT merely set aside the AO's order and directed him to re-examine these issues afresh. This action of the Ld. Pr. CIT, according to the Ld. AR, was unsustainable both on facts and in law. 15. Having heard both the parties, and on a careful consideration of the facts and circumstances of the case, we find that, in the case in hand, the Ld. Pr. CIT invoked jurisdiction u/s 263 of the Act principally on the broad allegation that there was failure to conduct enquiries which the facts of the case required the AO to make. According to Ld. Pr. CIT, the assessment order suffered from lack of enquiry & application of mind to the facts as also by incorrect application of applicable legal provisions to the facts of the case. As a result, in the opinion of Ld. Pr. CIT, the AO's order was erroneous and therefore liable for revision u/s 263 of the Act. The assessee has seriously contested these findings recorded by the Ld Pr. CIT. In the circumstances, therefore before adjudicating the issues arising from the impugned order, we have to first examine the scope of revisionary jurisdiction u/s 263 of the Act. For that, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in Malabar Industrial Co. Ltd. v. CIT (243 ITR 83) wherein their Lordships have held that twin conditions should be satisfied before jurisdiction u/s 263 of the Act is exercised by the Ld. CIT. The twin conditions, which need to be satisfied, are that (i) the order of the Assessing Officer must be erroneous and (ii) as a consequence of passing an erroneous order, prejudice is caused to the interests of the Revenue. In the following circumstances, the order of the AO can be held to be

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad erroneous, i.e. (i) if the Assessing Officer's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed without application of mind; or (iv) if the AO has not investigated the issue before him. It is only under these circumstances enumerated in the foregoing, that an order passed by the Assessing Officer can be termed as erroneous for the purpose of Section 263 of the Act. Coming to the second limb, the AO's erroneous order can be revised by the Ld. CIT only when it is shown that the said order is prejudicial to the interests of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an "erroneous" order passed by the Assessing Officer. The Hon'ble Supreme Court, held that for invoking powers conferred by Section 263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but the CIT must also further show that as a result of an erroneous order, some loss is caused to the interests of the Revenue. Their Lordships in the said judgment held that, every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. It was further observed that, when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the Revenue, or where two views are

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad possible and the Assessing Officer has taken one view with which the Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law. 16. We note that both in the SCN as well as in the impugned order, the Ld. Pr. CIT had observed that the AO had not conducted proper enquiry into each of the five (5) issues, which the circumstances of the case demanded. In the alleged absence of proper enquiry, the assessment order was considered by the Ld. Pr. CIT to be erroneous and prejudicial to the interests of the Revenue. It is true that, the Courts have held that an order of assessment can be considered to be erroneous, if there was lack or total absence of enquiry with regard to an issue, which has material bearing on the assessment of total income for the relevant year. However in such a case the CIT has to first demonstrate that no enquiry at all was conducted and consequent to which not only the order became erroneous but such an error also caused prejudice to the interests of the Revenue. In our considered view one also has to understand the difference between "lack of inquiry" and "inadequate inquiry" and when can it be termed as erroneous for usurpation of jurisdiction u/s 263 of the Act. For better understanding of this aspect, we can take help of the judgment of the Hon'ble jurisdictional Bombay High Court in the case of CIT Vs Gabriel India Ltd (203 ITR 108) wherein it was held as follows:

“11. 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 ITO

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad 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 ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the ITO 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 detemined by the ITO. 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 ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a 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

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.

….. 14. We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The ITO 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 ITO on being satisfied with the explanation of the assessee. Such decision of the ITO 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 ITO to re-examine the matter that, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the ITO was erroneous and prejudicial to the interests of the revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal.”

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad 17. Gainful reference may also be made to the following observations made by the Hon’ble Calcutta High Court in the case of CIT v. J.L. Morrison (India) Ltd (366 ITR 593) :- “As regard the submission on behalf of the Revenue that power under section 263 of the Act can be exercised even in a case where the issue is debatable, it was held that the case of CIT v. M.M. Khambhatwala was not applicable. The observation that the Commissioner can exercise power under section 263 of the Act even in a case were the issue is debatable was a mere passing remark which is again contrary to the view taken by the Apex Court in the case of Malabar Industrial Company Ltd. & Max India Ltd. If the Assessing Officer has taken a possible view, it cannot be said that the view taken by him is erroneous nor the order of the Assessing Officer in that case can be set aside in revision. It has to be shown unmistakably that the order of the Assessing Officer is unsustainable. Anything short of that would not clothe the CIT with jurisdiction to exercise power under section 263 of the Act. CIT v. M.M. Khambhatwala reported in 198 ITR 144; CIT v. Ralson Industries Ltd. reported in 288 ITR 322 (SC), not applicable; Malabar Industrial Co. Ltd. v. CIT reported in 243 ITR 83, relied on. (Para 72)

As regard the third question as to whether the assessment order was passed by the Assessing Officer without application of mind, it was held that the Court has to start with the presumption that the assessment order was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad mind. Without application of mind the questions raised by him in the annexure to notice under section 142 (1) of the Act could not have been formulated. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under clause (e) of section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact that the order was passed by the assessing officer after due application of mind. Meerut Roller Flour Mills Pvt. Ltd. v. CIT [ITA No. 116/Coch/2012]; CIT v. Infosys Technologies Ltd., 341 ITR 293 (Karnataka) ; S.N. Mukherjee v. Union of India AIR 1990 SC 1984; A.A. Doshi v. JCIT 256 ITR 685; Hindusthan Tin Works Ltd. v. CIT 275 ITR 43 (Del), distinguished. (Paras 90-92, 102)”

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad “12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle 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. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open. In Gabriel India Ltd.'s case (supra), law on this aspect was discussed in the following manner :

***already reproduced earlier***

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad very items, from the assessee and the assessee had furnished his explanation vide letter dated 26-9-2002. This fact is even taken note of by the Commissioner himself in Para 3 of his order dated 3-11-2004. This order also reproduces the reply of the respondent in Para 3 of the order in the following manner :

"The tools and dies have a very short life and can produce up to maximum 1 lakh permissible shorts and have to be replaced thereafter to retain the accuracy. Most of the parts manufactured are for the automobile industries which have to work on complete accuracy at high speed for a longer period. Since it is an ongoing procedure, a company had produced 10,75,000 sets whose selling rates is inclusive of the reimbursement of the dies cost. The purchase orders indicating the costing includes the reimbursement of dies cost are being produced before your honour. Since the sale rate includes the reimbursement of dies cost and to have the matching effect the cost of the dies has been claimed as a revenue expenditure." 14. This clearly shows that the Assessing Officer had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools is to be treated as revenue expenditure or not. It appears that since the Assessing Officer was satisfied with the aforesaid explanation, he accepted the same. The CIT in his impugned order even accepts this in the following words : "Assessing Officer accepted the explanation without raising any further questions, and as stated earlier, completed the assessment at the returned income." 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'.”

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad could have found that the view adopted by the AO was unsustainable in law, and declare that the AO’s order was erroneous within the meaning of Section 263 of the Act. In our opinion, once the Ld. CIT initiates the proceedings u/s 263 of the Act for specific reasons and these reasons are met by the assessee (to show the PCIT that AO had discharged both the dual role of investigator and adjudicator on the issue) then it is incumbent upon the Ld. CIT to himself independently deal with the objections and record his own satisfaction to prove that the AO's order is in fact erroneous and prejudicial to the interests of the Revenue. The Ld. CIT in such a situation cannot merely set aside the assessment order directing the AO to pass the order of assessment afresh, effectively giving the AO a second innings without having established that the initial order was erroneous as well as prejudicial to the interests of the Revenue. In this regard, it is pertinent to refer to the observations and the decision rendered by the Hon'ble Delhi High Court in the case of ITO v. D.G. Housing Projects Ltd. (343 ITR 329), which is reproduced below:

"19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not."

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad indeed erroneous and prejudicial to the interests of the Revenue and thereby necessitating his interference u/s 263 of the Act.

The first (1st) issue set out in Para 6.1 of the impugned order, 22. reads as follows:

“6.1 Now coming to the issues on which the revision proceedings were initiated. As per the assessment order of AY 2011-12, it is seen that there was assessed loss of Rs 4,35,74,816/-for the current assessment year allowed to carry forward for subsequent assessment years. However, same was not verified from the record for AY 2013-14 as to whether the same was allowed to carry forward or not. Since the details have now been submitted, the AO should verify & take appropriate action.”

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad unabsorbed depreciation inter alia including unabsorbed losses of AY 2011-12, which was available for set-off in the relevant AY 2014-15. Both these documents i.e. the return of income and the tax audit report was filed before the AO in response to the requisition issued u/s 142(1) of the Act dated 01-07-2016. Upon verifying these documents, the AO had allowed the set-off of unabsorbed losses for AY 2011-12 in the relevant AY 2014-15. He thus argued that, it cannot be said to be a case that this aspect was not at all looked into by the AO.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad and 143(3) r.w.s. 263 dated 31-12-2019 for the relevant AY 2014-15, were indeed aware of the fact that the unabsorbed losses brought forward from AY 2011-12 had not been set off by their predecessor in the income tax assessment completed u/s 143(3) for AY 2013-14 and therefore, such unabsorbed losses were available to be set off in the relevant AY 2014-15. It is further noted by us, that the assessee had furnished this assessment order dated 20-01-2016 for AY 2013-14 before the Ld. Pr. CIT in the course of the second round of revisionary proceedings u/s 263 of the Act. We observe that, the Ld. Pr. CIT was unable to disprove this clinching evidence which clearly dispelled his allegation viz., it was not verifiable from the past assessment records as to whether the assessed loss for AY 2011-12 had been set-off or was allowed to be carried forward in the preceding AY 2013-14 or not.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad is unjustified. The order of the Ld. Pr. CIT with reference to the first (1st) issue is therefore set aside.

“6.1.1 Further, with regard to source of purchase of shares and claim of exemption under capital gains, the assessee or his authorized representative had not submitted the details of source of investment in shares (Quoted & Unquoted) and bonds totaling to Rs 11,42,07,325/- made during the year under consideration. The assessee has now furnished the explanation in this respect. The Assessing Officer is directed to consider the same and take appropriate action, if any discrepancy is found.”

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad by the AO, and therefore, it was not a case of ‘lack of enquiry’, which would warrant exercise of jurisdiction u/s 263 of the Act.

“c) The long term capital gain on sale of shares of Rs.1,49,18,288 and the source of purchase of these shares was not verified. The assessee’s claim of the capital gains has been accepted without verification.” (emphasis supplied by us)

“Long Term Capital Gain on sale of shares of Rs.1,49,18,288/- and the source of purchase of these shares was not verified

During the course of assessment proceedings the AO has asked to furnish the details of the same and the assessee’s representative submitted the same along with copies of contract notes for purchase and sale of shares. The investment in shares sold has been regularly

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad shown in the balance sheet of every year which also justifies that the capital gain was in respect of sale of old investment of shares. From the details filed it can be seen that the said shares were held by the assessee for a period of atleast three to ten years (refer point no. 12 of the relevant letter enclosed). The assessing officer duly verified all the details and allowed the assessee’s claim of long term capital gain.”

“The assessment order is, therefore, set aside on the issues which are mentioned in the show cause notice u/s, 263 of the Act, and the Assessing Officer is directed to complete the assessment afresh in the lines of the discussion above. The Assessing Officer should verify, inter alia, …. source of purchase of shares and assessee's claim that capital gains on sale of shares was exempt from tax. …” (emphasis supplied by us)

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad from the above that, the Ld. Pr. CIT had not directed the AO to examine the source of the purchase of fresh shares / securities which were acquired during the relevant AY 2014-15 by the assessee. Hence, on the given facts, it is noted that this issue, i.e. the second reason set out in the impugned order, was never the subject-matter of the first revisionary order passed u/s 263 of the Act dated 28-03-2019. We therefore find ourselves in agreement with the Ld. AR that, the AO could not have legally travelled beyond the limited scope of jurisdiction vested in him u/s 143(3) r.w.s. 263 of the Act and have made enquiries on issues other than the specific issues for which directions were issued by the Ld. Pr. CIT in the first 263 order dated 28-03-2019. In our considered view, what the AO in the course of proceedings u/s 143(3) r.w.s. 263 of the Act could not have done directly, the Commissioner cannot do in an indirect manner by exercising his revisionary powers u/s 263 of the Act. Clearly, the AO was not legally competent to look into and verify the source of purchase of shares which were acquired during the relevant year in the proceedings u/s 143(3) r.w.s. 263 of the Act, because this issue was not the subject matter of the first 263 order dated 28-03-2019. Hence, the said order dated 31-12-2019 cannot be considered to be erroneous by the Ld. Pr. CIT u/s 263 on the ground of ‘lack of enquiry’ or ‘non- verification’ of such an issue. In our considered view, save and except the issues specified in the order u/s 263 dated 28-03-2019, all other issues concerning the income-tax assessment for the AY 2014-15 had become final on 24-11-2016 and therefore, this second (2nd) issue

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad being in the subject matter arising from the original assessment order dated 24-11-2016 stands time barred.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad 33. Useful reference in this regard may also be made to the decision of the Hon’ble Bombay High Court the case of CIT (Central) Vs Murli Agro Products Ltd (49 taxmann.com 172). In this case the assessment for A.Y.1998-99 was completed u/s 143(3) on 29.12.2000. Thereafter in December 2003, a search was carried out in the office premises, wherein incriminating documents & articles were seized. In the assessment order u/s 153A dated 30.03.2006 the additions were made but were deleted by the CIT (A). This resulted in the assessed income being loss. Thereafter the CIT passed an order u/s 263 on the ground that income after giving appeal effect being loss was less than 30% of the book profit and therefore the AO ought to have assessed the income u/s 115JA of the Act. The CIT was also of the opinion that the deduction allowed u/s 80HHC in the regular assessment u/s 143(3) was not in accordance with law and therefore the CIT treated the order u/s 153A/143(3) to be erroneous in so far as it was prejudicial to the interests of the Revenue. The assessee challenged the CIT’s order before the ITAT. The ITAT cancelled the said revision order on the ground that neither the computation of book profit u/s 115JA nor the deduction u/s 80HHC were the subject matter of proceedings u/s 153A and therefore the CIT could not have invoked the jurisdiction u/s 263 of the Act. On further appeal u/s 260A of the Act, the Hon’ble High Court held as follows:-

“10) Thus on a plain reading of Section 153A of the Income-tax Act, it becomes clear that on initiation of proceedings under Section 153A, it is only the assessment/reassessment proceedings that are

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad pending on the date of conducting search under Section 132 or making requisition under Section 132A of the Act stand abated and not the assessments/reassessments already finalized for those assessment years covered under Section 153A of the Act. By a circular No. 8 of 2003 dated 18-9-2003 (See 263 ITR (St) 61 at 107) the CBDT has clarified that on initiation of proceedings under Section 153A, the proceedings pending in appeal, revision or rectification proceedings against finalized assessments/reassessments would not abate. Therefore, the argument of the revenue, that on initiation of proceedings under Section 153A, the assessments/reassessments finalized for the assessment years covered under Section 153A of the Income-tax Act stand abated cannot be accepted. Similarly on annulment of assessment made under Section 153A(1) what stands revived is the pending assessment/reassessment proceedings which stood abated as per section 153A(1).

11) In the present case, as contended by Shri Mani, learned counsel for the assessee, the assessment for the assessment year 1998-99 was finalized on 29-12-2000 and search was conducted thereafter on 3-12-2003. Therefore, in the facts of the present case, initiation of proceedings under Section 153A would not affect the assessment finalized on 29-12-2000.

12) Once it is held that the assessment finalized on 29.12.2000 has attained finality, then the deduction allowed under section 80 HHC of the Income-tax Act as well as the loss computed under the assessment dated 29-12-2000 would attain finality. In such a case, the A.O. while passing the independent assessment order under Section 153A read with Section 143(3) of the I.T. Act could not have disturbed the assessment/reassessment order which has attained finality, unless

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad the materials gathered in the course of the proceedings under Section 153Aof the Income-tax Act establish that the reliefs granted under the finalized assessment/reassessment were contrary to the facts unearthed during the course of 153A proceedings.

13) In the present case, there is nothing on record to suggest that any material was unearthed during the search or during the 153A proceedings which would show that the relief under Section 80HHC was erroneous. In such a case, the A.O. while passing the assessment order under Section 153A read with Section 143(3) could not have disturbed the assessment order finalized on 29.12.2000 relating to Section 80HHC deduction and consequently the C.I.T. could not have invoked jurisdiction under Section 263 of the Act.

15) In the result, the decision of the Tribunal in quashing the order of C.I.T. passed under Section 263 of the I.T. Act cannot be faulted. Accordingly, we see no merit in the present appeal and the same is hereby dismissed with no order as to costs.”

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad 263 of the Act did not direct the AO to also verify the source of purchase of shares acquired during AY 2014-15 and therefore in the proceedings u/s 143(3) r.w.s. 263 of the Act, the AO was not competent to verify the same, why because on his own he cannot review his order which power AO is not vested with. On these facts and circumstances, applying the ratio laid down in the above judgments (supra), according to us, the AO’s order u/s 143(3) r.w.s. 263 dated 31-12-2019 cannot be considered by the Ld. Pr. CIT to be erroneous for want of enquiry into this impugned issue, which even otherwise the AO was not legally competent to undertake. Hence, the Ld. Pr. CIT’s order on this issue is also set aside.

The third (3rd) issue specified by the Ld. Pr. CIT in the 36. impugned order, which according to him, was not enquired into by the AO was as follows:-

“6.1.2 Furthermore, with regard to verification of loan from the perspective of identity, 'genuineness and credit worthiness of loan creditors, the AO had issued notice u/s 133(6)of the Act, 'herein, relevant details were called for. However, no reply was submitted, also in three cases i.e Landmark Capital Markets Pvt. Ltd., Kalpita

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad Agencies Pvt. Ltd. and Shardul Securities Pvt. Ltd., relevant bank statement of the creditor was not furnished hence the genuineness of the transaction could not be proved. The assessee has now furnished the explanation in this respect. The Assessing Officer is directed to consider the same and take appropriate action, if any discrepancy is found.”

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad AO to take a fresh look into the unsecured loans from the perspective of creditworthiness, genuineness and identities of the loan creditors.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad 39. The Ld. Pr. CIT in his impugned order, noted at Para 6.1.2, which has been extracted above, that three (3) loan creditors viz., Kalpita Agencies Pvt. Ltd., Landmark Capital Markets Pvt. Ltd. and Shardul Securities Pvt. Ltd had not replied to the notices issued u/s 133(6) of the Act and that they did not furnish their bank statements for verification as well. According to Ld. Pr. CIT, the non-examination of these three (3) loan creditors by the AO rendered the assessment order to be erroneous and prejudicial to the interests of the Revenue. The Ld. AR of the assessee however argued that these observations of the Ld. Pr. CIT was factually erroneous, by bringing to our notice the following facts / details :-

i. M/s Kalpita Agencies Pvt Ltd – The Ld. AR showed us the notice dated 02-12-2019 (Page 239 of paperbook) issued by the AO u/s 133(6) of the Act which reveals that the AO had called for the following information from the said loan creditor :-

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad It is noted by us that, the above loan creditor had filed their response under the cover of letter dated 05-12-2019 which was received by the office of the AO on 10-12-2019 (Page 240 of paper book). We thus note that, the observation of the Ld. Pr. CIT that the loan creditor did not respond to the notice issued by the AO u/s 133(6) of the Act was factually erroneous. Hence, the basis of the finding, whereby this issue was set aside and the case was sent back to the file of the AO for re-verification, is found to be on incorrect assumption of facts.

From the details furnished by the loan creditor, it is noted that, the ledger of the loan creditor affirmed that it had advanced loan of Rs.15,00,000/- from its Current Account No. : 00602000046333 held with HDFC Bank (Page 241 of paper book). The financial statements of the loan creditor showed that it had sufficient net worth in excess of Rs.1343.58 lacs (Page 242 of paper book). It is noted that the loan creditor had derived revenues of Rs.150.14 lacs and had reported profit of Rs.107.42 lacs, which worked out to net profit of 71% of the revenues (Page 243 of paper book). This loan creditor had declared total income of Rs.95.57 lacs on which it had paid taxes aggregating to Rs.30.74 lacs (Page 248 of paper book). These details, according to the ld. AR, discharged the assessee’s initial onus to substantiate the identity and creditworthiness of the loan creditor and genuineness of the transaction. Having perused the same,

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad we find merit in the contention of the assessee that the AO had indeed made enquiry into the loan advanced by M/s Kalpita Agencies Pvt Ltd and the outcome of the enquiry was sufficient enough to draw a plausible inference that this loan was genuine and therefore, it cannot be said that the view taken by the AO was unsustainable in law.

ii. M/s Landmark Capital Markets Pvt Ltd – The Ld. AR invited our attention to Page 308 of the paper book which showed that this loan creditor had emailed its reply on 06-12-2019 furnishing all relevant details as requisitioned by the AO in his email dated 05-12-2019 enclosing the requisition issued u/s 133(6) of the Act. We therefore agree with the Ld. AR that, even for this loan creditor, the Ld. Pr. CIT had wrongly observed that, it did not respond to the notice issued by the AO u/s 133(6) of the Act. Hence, the Ld. Pr. CIT’s action of setting aside this issue back to the file of the AO for fresh verification is held to be on incorrect assumption of fact.

From the ledger of the loan creditor (Page 310 of paper book), we note that the loan creditor had advanced loan of Rs.15,00,000/- from its Current Account No. : 0036232000165 held with HDFC Bank on 14-08-2013 which repaid in the same year by the assessee on 13-09-2013 along with interest of Rs.15,288/- computed at the rate of 12% on the loan. The

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad assessee is noted to have withheld tax u/s 194A of the Act of Rs.1,529/- before remitting the net interest of Rs.13,759/-. The financial statements of the loan creditor showed that it had sufficient net worth in excess of Rs.2235.39 lacs (Page 321 of paper book). It is noted that the loan creditor had derived revenues of Rs.68.05 lacs during the year. It has obtained secured loan facility from HDFC Bank and the details of the inventory shows that the business of the loan creditor was trading in blue chip listed securities. Having regard to these details, according to us, it was not a case that the AO did not make enquiry into this loan creditor and the details obtained from M/s Landmark Capital Markets Ltd was sufficient enough to draw a plausible inference that the identity and creditworthiness of the loan creditor and genuineness of the loan stood discharged. Hence, the view adopted by the AO is found to be a permissible view in law.

iii. M/s Shardul Securities Pvt Ltd – The Ld. AR invited our attention to the loan confirmation of this loan creditor which showed that the assessee had received loan from this loan creditor in earlier year/s and that the opening balance as on 01- 04-2013 was Rs.35,58,754/-. The interest for the year worked out to Rs.1,97,805/-. The assessee had repaid the entire loan along with interest (after deducting TDS) amounting to Rs.37,36,775/- on 27-03-2014. Before the Ld. Pr. CIT, it was

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad accordingly contended that the assessee had not received any fresh loan from this loan creditor during the year and therefore the provisions of Section 68 itself did not apply. Hence, there was no prejudice being caused to the interests of the Revenue, which would warrant exercise of revisionary jurisdiction u/s 263 of the Act. We note that, the Ld. Pr. CIT in the impugned order was unable to controvert these submissions of the assessee. The Ld. Pr. CIT also failed to set out the specific reasons as to why non-verification of this loan creditor rendered the assessment order to be erroneous and prejudicial to interests of the Revenue, particularly when the facts on record clearly showed that the assessee did not receive any loan from this loan creditor during the relevant year.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad to them u/s 133(6) of the Act. Moreover, it was brought to our notice that the assessee had furnished the bank statements of the loan creditors before the Ld. Pr. CIT which evidenced the source of source of loan and showed that there was no prior deposit of cash before advancement of loan. The Ld. Pr. CIT is however noted to have arbitrarily set aside these bank statements back to the AO for examination, without first himself pointing out the defect therein which warranted verification. This course of action of the Ld. Pr. CIT, according to us, was not justified.

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad M/s Shardul Securities Pvt ltd, we have already noted that, the assessee did not receive any fresh loan from this loan creditor during the year and therefore non-furnishing of bank statement by this loan creditor was of no relevance.

The fourth (4th) issue which was set aside back to the file of the 43. AO for want of enquiry by the Ld. Pr. CIT, is set out at Para 6.1.3 of his order, which read as under:

“6.1.3 Further, with regard to mismatch of sales turnover as reported in ITR vis-a-vis tax audit report, the turnover shown in the Tax audit report is Nil whereas the turnover shown in the ITR is Rs. 6,23,24,947/-. This turnover shown in the ITR includes the following:

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad 3. Profit from Share Trading (Delivery Based) - Rs. 10,86,674/- 4. Business Consultancy Fees - Rs. 4,50,00,000/- 5. Arbitrage and Jobbing Fees - Rs. 97,89,961/-

During the course of assessment proceeding, the above receipts were not enquired properly, the AO is accordingly directed to examine these receipts and verify any mismatch and take action accordingly.”

i. Profit from Share Business (F&O) - Rs. 64,29,878/-

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad ii. Profit from Share Trading (Non Delivery Based) – Rs. 18,435/- iii. Profit from Share Trading (Delivery Based) – Rs. 10,86,674/- iv. Business Consultancy Fees - Rs. 4,50,00,000/- v. Arbitrage and Jobbing Fees - Rs. 97,89,961/-

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad as per ITR with the TAR, to which the assessee vide his reply dated 26-02-2019 had submitted as follows:

“Since the assessee is engaged in the business of share and securities trading and thus GP Ratio and NP ratio are not applicable to the assessee and hence the relevant schedule in the Form 3CD was not filled. Thus the turnover shown in the audit report is NIL whereas the turnover shown in the ITR is Rs.6,23,24,947/-. This turnover shown in the ITR includes the following:

Profit from Share Business (F&O) - Rs. 64,29,878/- Profit from Share Trading (Non Delivery Based) – Rs. 18,435/- Profit from Share Trading (Delivery Based) – Rs. 10,86,674/- Business Consultancy Fees - Rs. 4,50,00,000/- Arbitrage and Jobbing Fees - Rs. 97,89,961/-

All the above details were explained to the assessing officer during the course of original assessment proceedings.”

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad supporting details & evidences was also submitted before the AO. Before us, the Ld. CIT, DR was unable to controvert the aforesaid facts, which emerge from the documents on record. Applying the principles discussed in Paras 15 to 20 above, we hold that for the reasons set out qua the fourth (4th) issue in the impugned order, the AO's order cannot be said to be erroneous and prejudicial to the interests of the Revenue.

In respect of the last (5th) issue, the Ld. Pr. CIT in his SCN dated 51. 11-03-2022 had observed that, although the assessee had furnished the details of gross interest income of Rs.61,34,776/- and the gross interest expense of Rs.75,58,265/- but, there was no explanation furnished to show that interest bearing funds were utilized for earning interest income. The Ld. Pr. CIT also indicated that the assessee had investments worth Rs.11,42,07,345/- and therefore interest expenditure attributable to these investments were capital in nature. Rejecting the explanation offered by the assessee, the Ld. Pr. CIT set aside this issue back to the file of the AO by observing as under :-

“6.1.4 With respect to the allowability of interest expenses of Rs.14,23,489/- claimed against the interest on the bank FOR, the assessee had not substantiated the interest-bearing loan taken from different parties and invested to earn interest income. It is relevant to mention here that the assessee in the computation of income has disallowed Rs. 10,05,850/- on his own. The AO is accordingly directed

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad to examine the allowability the nexus of the expenses u/s 57 of the Act and verify the claim of the balance interest expenses of Rs.4,17,639/-” 52. Before us, it was pointed out that this very issue was a subject matter of the first round of the 263 proceedings wherein the Ld. Pr. CIT had directed the AO to enquire into the allowability of the interest expenditure claimed by the assessee. It is noted that, in response to the notice u/s 142(1) of the Act issued by the AO in the proceedings u/s 143(3) r.w.s. 263 of the Act, the assessee had furnished the following explanation before the AO :- “We submit that assessee has earned savings bank interest which is shown as income from other sources for which we enclose herewith the details.

However assessee has received interest income of Rs. 61,34,776 and paid interest of Rs. 75,58,265. Thus the net interest expenses of Rs. 14,23,489 has been debited to Profit and Loss Account. The details of Interest were provided in original assessment proceedings. However we enclose the same again for your Honour's perusal. It may be noted that, in earlier years also net interest expenses (Interest paid - Interest received) have been debited to Profit and Loss Account and the same has been accepted by the department in scrutiny assessments.

We submit that assessee has earned interest from Fixed deposit and Bonds. Assessee has taken overdraft facility from SBI on the said fixed deposit, loan from brokers for margin funding and other unsecured loans from certain parties. The entire loan amounts have been utilized for the purpose of carrying on the business of trading in shares, speculation, derivative trading, currency futures and arbitrage/

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad Jobbing. Therefore the entire interest is fully allowable u/s 36(1)(iii) of the Act.” 53. Copy of the submission is found available at Pages 174 to 176 of paper book. Being satisfied with the above explanation, the AO had accepted the same in the assessment order passed u/s 143(3)/263 of the Act dated 31-12-2019. We thus find that, it was not a case where the aspect of allowability of interest expenditure was not enquired into by the AO prior to completion of the assessment. Having regard to the legal principles set out in Paras 15 to 20 above, according to us, since the assessee’s claim was allowed by the AO after conducting necessary enquiry and application of mind, the order of assessment could not have been held to be erroneous by the Ld. Pr. CIT on the ground of ‘lack of enquiry’. 54. It was further brought to our notice that, the view entertained by the AO permitting netting off interest expenditure against interest income u/s 57 of the Act was in consonance with the judicial view expressed by the Hon’ble Delhi High Court in the case of CIT Vs Sashan Power Ltd (205 Taxman 56). In the decided case it was held that, interest paid and interest received may be from two independent transactions but by their very nature they are inextricably linked and have commonality about their nature as well as character and therefore the Revenue cannot treat them differently. The Hon’ble High Court had accordingly allowed interest paid as deduction against the interest received under Section 57 of the Act. 55. The other aspect raised by the Ld. Pr. CIT was that whether any portion of interest expenditure could be said to attributable to the

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad investments held by the assessee. It is noted that, the assessee had brought to the notice of the Ld. Pr. CIT that, his own funds which were to the tune of Rs.26,42,40,674/- were sufficient to cover the cost of investments of Rs.21,78,36,951/-. Therefore, in terms of the ratio laid down by the Hon’ble Supreme Court in the case of South Indian Bank Ltd. Vs. CIT (322 CTR 465), no portion of the net interest expenditure could be said to be attributable to the investments. Rather, it is noted that the assessee had explained that, he had obtained Bank OD by placing FDs as collateral, and had further borrowed monies from brokers & unsecured creditors for the purposes of placing margin monies in the business of its share & derivatives trading. Therefore, the net interest being attributable to his business was revenue in nature. The AO had therefore rightly allowed the same in as much as the net interest was not in the capital field as alleged by Ld. Pr. CIT. 56. For the reasons set out above, we therefore hold that the order dated 31-12-2019 passed by the AO wherein no disallowance out of net interest expenditure of Rs.14,23,489/- was made, cannot also be said to be unsustainable in law. As noted above, the course adopted by the AO while passing the order u/s 143(3)/263 of the Act was one of the permissible views in law. Hence, the impugned order of the Ld. Pr. CIT on this issue is held to be unsustainable and accordingly set aside. 57. For the reasons elaborately discussed in the foregoing, we are of therefore of considered view that the assessment order dated 31-12- 2019 passed u/s 143(3) r.w.s. 263 of the Act did not suffer from lack of enquiry nor was it passed without application of mind or on incorrect

ITA No.692/Mum/2022 A.Y. 2014-15 Bhaskar Arvind Kumar Hingad assumption of facts. As noted above, the AO while passing the assessment order had discharged the dual role and has taken a plausible view in law, which cannot be said to be unsustainable in law. In the aforesaid facts and circumstances therefore, the impugned order u/s 263 of the Act dated 31-03-2022 is held to be unsustainable. Hence, we cancel the same by allowing the appeal of the assessee. 58. In the result, the appeal of the assessee stands allowed. Order pronounced in the open court on this 21/10/2022 Sd/- Sd/- (PRAMOD KUMAR) (ABY T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER Mumbai; Dated 21/10/2022 Vijay Pal Singh, (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : अपीलार्थी / The Appellant 1. 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT ववभागीय प्रवतवनवि, आयकर अपीलीय अविकरण, मुंबई / DR, ITAT, Mumbai 5. 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यावपत प्रवत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai