GIRIGANGA INVESTMENTS PVT. LTD.,MUMBAI vs. DCIT , CC- 5 (3), MUMBAI

3. For the sake of reference we are referring grounds of appeal for A.Y. 2013-14. Similar grounds are raised for A.Y. 2014-15 except for change in amount being Rs. 15,28,95,750/-.

1. That on the facts and circumstances of the case, the order passed by the Commissioner of Income Tax (Appeals) (hereinafter as CIT(Appeals) under section 250(6) of the Income Tax Act 1961 (hereinafter as ‘the Act’) dated 21.9.2018 and the additions made therein by the CIT(Appeals) are illegal bad in law and without jurisdiction.

2. That on the facts and circumstances of the case, the order passed by the CIT(Appeals) has erred on facts and in law in making addition on an issue which was not part of the order in appeal before him. The CIT(Appeals) has failed to appreciate that addition on a new issue of long term capital gain

2 M/s. Giriganga Investments Pvt. Ltd.

(herein as ‘LTCG’) amounting to Rs. 43,21,38,796/- could not be made in an appeal against rectification order passed by the Assessing Officer (hereinafter as ‘Assessing Officer’) under section 154 of the Act, when the said issue was not even part of the rectification order.

4. That on the facts and circumstances of the case, the CIT (Appeals) has erred on facts and in law in making disallowance of claim u/s 10(38) of the Act without appreciating that such disallowance was beyond the jurisdiction of the AO while exercising rectification jurisdiction u/s 154 of the Act and therefore, the power of enhancement of the CIT (Appeals) cannot be exercised in respect of the said issue.

5. That on the facts and circumstances of the case, the CIT (Appeals) has failed to appreciate that the claim of LTCG u/s 10(38) was examined by the AO while passing the order u/s 143(3) and that the order appealed against, i.e., rectification order dated 15.11.2017 passed by the AO, was only on limited issue of computing book profit u/s 115JB of the Act.

8. That, without prejudice, on the facts and circumstances of the case, the CIT (Appeals) has erred on facts and in law disallowing the claim of LTCG u/s 10(38) of the Act.

9. That, in view of the facts and circumstances of the case, CIT (Appeals) has erred on facts and in law in not affording a reasonable opportunity of hearing to the Appellant.

same cannot be justified by any material on record and against the principle of natural of justice.

In this case return of income was filed on 29.9.2013 showing total loss of Rs. 8,31,99,290/-. Assessment was completed under section 143(3) on 23.3.2016 assessing the total income at nil. An order under section 154 was passed dated 15.11.2017. Thereafter the Assessing Officer passed an order under section 154 of the I.T. Act dated 15.11.2017. In the said order the Assessing Officer held as under :

“On the perusal of the records, it has been found that, the assessee has shown Capital Gain on sale of shares and claimed exempt u/s 10(38) of the LT. Act. However, income by way of L.T.C.G. of a company shall be taken into account in computing the book profit & income tax payable u/s 115JB, which has not been done. Since it is a mistake apparent from records a notice u/s.154 of the Act was issued to the assessee on 26.10.2017 proposing to rectify the mistake. Neither any compliance what so ever was made by the assessee in response to the notice nor any submission was made on behalf of the assessee. Therefore, it is understandable that the assessee had nothing to say against the proposed rectification. Since it is a mistake apparent from records the same is rectified u/s.154 of the I.T.Act 1961 and revised the total income as under.- Total income as per order u/s. 143(3) (Under Normal Provision) Rs. Nil/- Computation under special provision of section 115JB (MAT):

Net Profit as per PL Account Rs. 91,71,184/- Less; Dividend income Rs. 92,97,849/- Add: LTCG exempt u/s 10(38) Rs. 32,71,85,724/- Balance Book Profit deemed to be total income Rs. 32,70,59,059 /- Rounded off Rs 32,70,59,060/- Revised accordingly. Charge interest u/s 234A, 234B and 234C accordingly. Computation of tax, surcharge, and interest is shown in ITNS150A, which forms part of this order. Issue Demand Notice, and Challan.”

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6. Against the above order assessee filed appeal before learned CIT(A). Learned CIT(A) noted that the assessee has e-filed on 20.12.2017. He noted that when the appeal was taken up the assessee vide letter dated 2.4.2018 has stated as under :-

Sub: Withdrawal of appeal for AY 2013-14 Ref: Acknowledgement no.33939977120121 7 dated 20-12-2017 With reference to aforesaid appeal, we seek your permission and leave to withdraw the above appeal, as necessary relief was granted by Assessing Officer, and therefore the appeal has became infructuous.

7. Pursuant to the above learned CIT(A) held that in view of the fact that the appellant has accepted the order under section 154 made by the Assessing Officer the grounds of appeal is dismissed. Thereafter learned CIT(A) proceeded to examine the other aspects and passed an order as under :

Vide letter dated 6.4.18 details were called on 16.4.18. Vide letter dated 18.4.18 details were called, inter alia, details of capital gains, purchases and sales -date wise- item, quantity, amounts in Rupees, ledger accounts of purchases and sales, bank statements showing the payments in respect of purchases and sales, and computation of income/audited accounts. This was called by 7.5.18. Since this was not furnished, another notice was issued on 25.7.18. Part details were filed on 24.8.18. Ledger accounts, date wise purchase and sales, and bank statements were not filed. A gross summary of purchases and sales and capital gains was only filed. From the copy of audited accounts filed/details called for from the appellant group of companies for which similar issue is involved in similar appeals against order u/s 154, the following facts were noted

Name of the Ahmednagar Investment Giriganga Investments EDC appellant Pvt. Ltd. Pvt. Ltd. Securities Pvt. Ltd. AY 2013-14 2014-15 2013-14 2014-15 2013-14 Revenues from operations a) Sales 16069875 14959470 157748298 6302595 17121241 b)Dividend 10022612 0 9297849 0 18389234 c) Interest from 0 0 303282 0 0 FDR d)Capital Gain 211565969 432138796 327185724 153129834 953565925

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Total 237658456 447098266 494535153 159432429 989076400 Expenses b) Depreciation 402480 402480 327822 311431 0 expenses c) Other 226498 226496 20439159 62024 602195 administrative expenses Total 229467851 447405554 485363969 159666516 970915692 Profit before 8190605 (-)307,288 9171184 (-)234088 18160708 tax Returned income 14972 15700 7706 0 24263

Business income (-)211550997 (-)432123096 (-)327178018 (-)153360565 (-)953541662

LTCG 211565969 432138796 327185724 153129834 953565925 4.2. From the above table, it is noted that the appellant has claimed losses on account of trading in cloth and other expenses almost equivalent to the capital gain shown for the year. From the details called, it is noted that the appellant has shown purchase of cloth from sister concerns and shown sales of cloth also to sister concerns creating and claiming huge losses. The appellant was again asked to furnish details of the losses and to file details of date wise purchases, sales, ledger accounts and bank statements showing the transaction and also the purchase and sales invoices. Despite opportunities, this was not furnished. The appellant was asked to show cause vide order sheet noting dated 24-08-2018 as to why this loss claimed in the Profit & Loss a/c should not be disallowed as bogus losses to that extent, the income be enhanced? No reply nor any details were filed till date. 4.3. It is also noted that while in the computation of income, the appellant had not claimed the capital gain as exempt, in the assessment proceedings, it was claimed that the capital gains had arisen on account of sale of shares which is exempt u/s. 10(38) of the I.T. Act. The details of capital gains was claimed to be as follows ;

No.of shares Amount (Rs.) Share of ICICI Bank Ltd. Cost of share 420506 17241415 Sales of shares 420506 344427139 Long term capital gain 327185724 4.4. Vide letter dated 06-09-2018, the appellant was issued a letter as follows:

"Please refer to the above. Various details were called in the appellate proceedings and a show cause for enhancement was informed vide order sheet entry dated 24.08.18. No reply or details are filed. Further, no evidence to support

6 M/s. Giriganga Investments Pvt. Ltd. the purchase and sale of shares is filed such as brokers note, ledger account, evidence of securities transaction tax paid, if any, on sale, demat account, bank statement showing payment and receipt. Thus, the claim of exemption u/s 10(38) made in assessment proceedings is not substantiated. To file immediately." 4.5. The same has not been furnished till date. The business loss claimed on trading in cloth is clearly bogus. There is no opening or closing stock of cloth. Purchases of Rs.46,45,96,988/- is claimed against which sales is only Rs. 15,77,48,298/- during the year. The purchases and sales is shown only with sister concerns. The purchases appear as sundry creditors. There is a claim of legal & professional expenses shown as Rs.2,00,20,936/- for which no details are available or filed. Thus the business loss claimed of Rs. 327178018/-is clearly fictitious and bogus. The same is disallowed.”

9. We have heard both the parties and perused the records. Firstly we note that the assessee has filed an appeal before learned CIT(A) against the order under section 154 of the I.T. Act wherein book profit deemed to be total income was computed Rs. 32,70,59,059/-. This was on the ground that the assessee has shown capital gain on shares which was not taken into account in book profit under section 115JB of the Act. The assessee before learned CIT(A) submitted that the assessee wishes to withdraw the appeal as necessary relief was granted by the Assessing Officer. Learned CIT(A) without making inquiry in this regard as to whether so called relief was granted when the issue was pending before learned CIT(A) himself or what was the said order held that the assessee has accepted the order passed under section 154 of the Act by the Assessing Officer, hence the appeal is dismissed. This observation of learned CIT(A) is totally wrong. It is not at all the case that the assessee has accepted the order under section 154 rather it is the case that the Assessing Officer himself has granted relief to the assessee against an order which was passed under section 154 of the Act. Hence, if the appeal was pending before learned CIT(A) how can such an order be passed has not been enquired by learned CIT(A). As a matter of facts learned CIT(A) is not aware of the subject matter of such an order by the Assessing Officer. Hence, it is clear that learned CIT(A) has passed a cryptic, non-speaking, non-reasoned order without application of 7 M/s. Giriganga Investments Pvt. Ltd.

mind. Hence, in the interest of justice the same is remitted to the file of learned CIT(A) to examine the issue afresh and pass an appropriate order.

10. Thereafter we note that learned CIT(A) has sought to enhance and consider an issue which is not clear as to whether the said is emanating out of the order under section 154 of the Act which was in appeal before learned CIT(A). Moreover this so called enhancement order has been passed without assessee responding to learned CIT(A)’s query. Hence, we deem this aspect also fit to be remitted to the file of learned CIT(A). Learned CIT(A) is directed to give an opportunity of being heard to the assessee and pass a speaking order in this regard. Our above order applies mutatis mutandis in A.Y. 2014-15.

Order pronounced in the open court on 18.04.2022.