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Income Tax Appellate Tribunal, VIRTUAL COURT
Before: SHRI S. RIFAUR RAHMAN, HONBLE & SHRI AMARJIT SINGH, HONBLESmt Aruna Gulab Chandra Gupta v. Shri Prakash Jotwani
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Principal Commissioner of Income Tax, Mumbai -17 [hereinafter in short “Ld. Pr.CIT”] dated 28.01.2021 for the A.Y.2013-14.
Brief facts of the case are, Ld. Pr.CIT while verifying the assessment records observed that Assessing Officer has erred in adding only long term (A.Y: 2013-14) Smt Aruna Gulab Chandra Gupta capital gain on sale of penny stock and not the whole sale proceeds considering the fact that the transaction was not genuine. Accordingly, he issued show cause notice u/s. 263 of the Act dated 12.03.2020 to the assessee. In response assessee filed written submissions dated 19.03.2020, relevant submissions are as under: - “1. The AO has verified each and every aspect of the case and has consciously issued a notice and not decided to tax the gain and not the total consideration. Thus there is no element of error in the assessment order and cannot be revised. Further there is no prejudice in the order as only gain can be treated as having been acquired. The cost of purchase of shares was paid by Cheque and the same has been rightly allowed.
2. To revise the assessment order there should be an error and the same should be prejudicial. In this case both elements are missing and hence the CIT has not power to revise such an order.
3. Further the CIT cannot play a substitute role. It cannot better worsen the assessment order. It's role comes when the order has been passed without conducting an enquiry. In this case an extensive enquiry was done by the AO and then took a decision to tax the gain. There was no error in his action. The CIT cannot substitute its own finding in place of the AO. Thus even in this ground the CIT action to revise the order is not justified and needs to be dropped.
4. In view of the above I submit that the proposed action be dropped.
Reliance is place on Bombay High Court decision in case of Gabriel India Ltd. where the high court held that when an enquiry has been held by the AO, right or wrong, the CIT has not power to revise the order under section 263.”
After considering the submissions of the assessee, Ld. Pr.CIT observed that assessee had sold penny stock scrips of Suabhi Chemicals & Investments Ltd and received sale proceeds of ₹.1,42,41,000/ and (A.Y: 2013-14) Smt Aruna Gulab Chandra Gupta declared huge exempt long term capital gain. He observed that based on the information received from DGIT (Investigation), Kolkata and the Assessing Officer has brought out the modus operandi of stock price manipulation and accommodation entry transactions in the penny stocks. Ld. Pr.CIT observed that Assessing Officer instead of treating the entire transactions as non-genuine and thereby bringing to tax the entire sale proceeds, the Assessing Officer held the transaction to be a long term capital gain and brought only capital gains portion to tax, in this regard, Ld. Pr.CIT relied on ITAT Mumbai and Delhi Bench’s, and observed that the courts have correctly delinked the two transactions i.e., “purchase” and “sale” in the transactions of colorable device. Accordingly, he set aside the order passed u/s. 143(3) of the Act by invoking Explanation 2 to section 263(1) of the Act, he directed the Assessing Officer to frame the assessment denovo by following the observations in 263 order and after providing adequate opportunity of being heard to the assessee.
Aggrieved assessee is in appeal before us by raising following grounds in her appeal: - “On the facts and in the circumstances of case and in law:
1. The Learned Pr. CIT erred in passing an order u/s 263 by holding that the 143 (3) assessment made by the A.O was erroneous and prejudicial to the interest of the revenue.
(A.Y: 2013-14) Smt Aruna Gulab Chandra Gupta 2. The Learned Pr. CIT has erred in cancelling the assessment order passed u/s 143 (3) of the Act and further directing to frame fresh assessment after detailed inquiries and verification of the nature of transaction entered into by the Appellant with Shreenath commercial & finance Ltd during the subject year.
3. The Learned Pr. CIT erred in not appreciating the fact that the Learned A.O had passed the assessment order u/s 143 (3) of the Act, after verifying, examining and critically & legally analysing all the details and facts of the Appellant case. Thus, the act of the Learned Pr. CIT of considering the assessment order as erroneous and prejudicial to the interest of the revenue is nothing but substituting his opinion to the AOs opinion on the same sets of facts and material leading to unlawful revision of a lawfully concluded assessment u/s 143 (3) of the Act.
4. The Learned Pr. CIT has erred in directing the A.O to treat the entire sale proceeds as income of sale of share instead of capital gain earned under the long-term capital gain and directing the A.O to add the sum of Rs 1,42,41,000/- in place of Rs 1,21,55,7457/- added by the A.O, which appeal is still pending before CIT (A).
5. The Appellant craves leave to add alter or amend the ground of appeal at or before the hearing of the appellant.”
5. At the time of hearing, Ld. AR of the assessee brought to our notice that Assessing Officer has made detailed investigation while framing the assessment and the Assessing Officer has elaborately discussed the issue of share transaction in his Assessment Order and completed the assessment by making the addition only on long term capital gain claimed by the assessee which is one of the view of the Assessing Officer whereas the Ld. Pr.CIT invoked the Explanation 2 to section 263(1) of the Act with the view that Assessing Officer has not made any investigation or verification whereas in the record it clearly shows that Assessing Officer has verified the issue under consideration in detail, it is not the case of (A.Y: 2013-14) Smt Aruna Gulab Chandra Gupta the Ld. Pr.CIT that Assessing Officer has not made any verification or investigation. Therefore, the Ld. Pr.CIT cannot impose his own view on the Assessing Officer and Ld. Pr.CIT has not brought on record how this issue is prejudicial to the interest of the Revenue and also he has not given a clear finding but rather remitted the issue back to the file of the Assessing Officer to make further enquiry, therefore, he has wrongly invoked the revisional jurisdiction u/s. 263 of the Act.
On the other hand, Ld. DR relied on the order passed by the Ld.Pr.CIT.
Considered the rival submissions and material placed on record, we observed that Assessing Officer has made detailed verification on the issue of penny stock based on the information received from DGIT (Investigation), Kolkata and Assessing Officer after due verification of the issue of manipulation in share prices he has taken one of the possible view that only long term capital gain is a suspicious transaction and accordingly, he restricted himself to disallow only long term capital gain. According to him assessee has made manipulation of share prices to make additional income in terms of long term capital gain by virtue of section 10(38) of the Act. However, Ld. Pr.CIT invoked the revisional power u/s. (A.Y: 2013-14) Smt Aruna Gulab Chandra Gupta 263 of the Act in order to direct the Assessing Officer to make further investigation to frame the whole sale proceeds of shares to be suspicious transaction instead of only long term capital gain earned by the assessee.
It is clear from the fact on record, Ld. Pr.CIT is pursuing another possible view and it is not the case of the Ld. Pr.CIT that Assessing Officer has not made any investigation or verification and he has invoked Explanation 2 to section 263(1) of the Act as per which he can invoke the above Explanation 2 to section 263(1) only when the order is passed without making enquiries or verification which should have been made. Whereas in this case the Assessing Officer has made detailed investigation and enquiries before framing the assessment, therefore Ld. Pr.CIT has wrongly invoked the revisional jurisdiction in this case.
We observed that Indore Bench of the Tribunal in the case of M/s.Ruchi J. Oil Pvt. Ltd., v. PCIT in ITA.No. 176/IND/2020 dated 25.03.2021 held as under:- “15. As regards the second issue is concerned whether the Ld. A.O has made sufficient enquiry with regard to the alleged transaction of allotment of equity shares to resident and non resident companies, we find that when the case was selected for scrutiny proceedings Ld. A.O issued notice u/s 142(1) of the Act and in para 4 of this notice specific information was called for providing complete details of share premium received at Rs.95,27,75,180/-. In reply the assessee filed necessary details on 15.6.2016 attaching Annexure-II providing details of list of share holders as on 31.3.2014 and equity shares (A.Y: 2013-14) Smt Aruna Gulab Chandra Gupta issued during the year. This reply also included specific information about the consideration received from Non Resident companies for allotment of 196000 shares including certificate of foreign remittances by Bank of Tokyo, certificate of foreign remittance by M/s Mizuho Bank Limited, copy of letter dated 11.3.2014 to HDFC Bank regarding Foreign Direct Investment (FDI), copy of Board’s resolution regarding allotment of shares to FDI and copy of certificate issued by Company Secretary regarding issue of shares at a premium to non resident which is to be given to RBI.
We further observe that Ld. A.O after receiving the above stated reply referred the matter to Transfer Pricing Officer u/s 92(CA)(1) of the Act for computing the arms length price of the international transaction entered into with Toyoto Tsusho and J Oil Mills for allotment of equity shares at a premium for total consideration of Rs.55,67,73,280/-. Ld. TPO has also examined the transaction and after perusing the records concluded that no adjustment is required to be made to the arms length price of the transaction. In other words the transaction with Non resident company were accepted at a fair market value requiring no adjustment. After receiving the order u/s 92CA(3) of the Act Ld. A.O further discussed the transaction of issuance of share capital to the two non resident companies and since Ld. TPO did not make any adjustment to the value of transaction the same was accepted by the Ld. A.O.
In view of the above facts in our understanding there was a specific enquiry from the Ld. A.O to which the specific reply along with supporting documents were submitted by the assessee during the course of scrutiny assessment proceedings itself. It can be safely concluded that the Ld. A.O had raised queries which were complied by the assessee. Considering these facts in totality, it can be safely concluded that the Assessing Officer made complete enquiry regarding share capital and share premium received from Non resident companies and also called for a report from Ld. TPO on the arms length price of this international transaction. It is a settled position of law that the powers under section 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i. e., the assessment order should be erroneous and prejudicial to the interests of the Revenue. By "erroneous" is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can (A.Y: 2013-14) Smt Aruna Gulab Chandra Gupta be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the decision of the hon'ble High Court of Bombay in the case of CIT v. Nirav Modi [2017] 390 ITR 292 (Born) ; [2016] 71 taxmann.com 272 (Born)." The Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Born) has held that: "the decision of the Income-tax Officer cannot be held to be erroneous simply because in his order he did not made an elaborate discussion in this regard ……." The Hon'ble Gujarat High Court in the case of Micro Inks Ltd. v. Pr. CIT [2018] 407 ITR 681 (Guj) ; 85 taxmann.com 310 has held that: "If the Assessing Officer has adopted a view which is a plausible one, the view would not be open to revision by the Commissioner."
Considering the facts of the case in the light of the judicial decisions discussed hereinabove and on a perusal of the facts, we have no hesitation in holding that the assessment under section 143(3) of the Act was framed after detailed enquiries cannot be considered as erroneous and prejudicial to the interests of the Revenue.
In the instant case also Ld. A.O had considered various submissions of the assessee and taken a possible view. Therefore merely because Ld. PCIT did not agree to the opinion/information of the Ld. A.O who has conducted sufficient enquiry regarding the issue raised in this show cause notice issued by Ld. PCIT, provisions of Section 263 of the Act cannot be invoked in order to substitute his own information. It has been held in several decisions (few of them have been relied by the Ld. Counsel also) that if the Ld. A.O has made enquiry to his satisfaction and it is not a case of no enquiry then Ld. PCIT cannot assume the jurisdiction u/s 263 of the Act to again investigate or approach in a particular manner. Therefore on this aspect also the assessee deserves to succeed and the impugned order u/s 263 of the Act deserves to be quashed since there was a detailed enquiry by the Ld. A.O and after thoroughly discussing the issue in the assessment order taking a permissible view within the parameters of the law, there remains no room for Ld. PCIT to assume the jurisdiction u/s 263 of the Act.”
(A.Y: 2013-14) Smt Aruna Gulab Chandra Gupta 10. Considering the above observations/discussion we have no hesitation to set aside the impugned order passed u/s. 263 of the Act since there was a detailed enquiry by the Assessing Officer on the specific transaction of alleged penny stock and after thoroughly discussing the issue in the Assessment Order, Assessing Officer taken a permissible view within the parameters of the law. Therefore, there is no justification for Ld. Pr.CIT to assume the jurisdiction u/s. 263 of the Act. Accordingly, the appeal filed by the assessee is allowed.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 24.03.2022.