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Income Tax Appellate Tribunal, “H” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)
Per Shamim Yahya (AM) :
The assessee has filed this appeal against the order of PCIT dated 28.1.2021 for A.Y. 2015-16.
The grounds of appeal read as under :-
1 For that the order of the Ld. Pr. CIT is arbitrary, illegal and bad in law. 2 For that the Ld Pr. C.I.T erred in invoking the provisions of section 263 on the ground that the order passed u/s 143(3) was erroneous and prejudicial to the interest of revenue. 3 For that the Ld. Pr. CIT erred in invoking the provisions of sec. 263 when the assessment order passed was not erroneous and accordingly cannot be considered as prejudicial to the interest of revenue. 4 For that the revision proceedings initiated at the instance of the proposal made before him is bad in law. 5 Even otherwise, Ld. Pr. CIT erred invoking the provisions of sec. 263 when the assessment order was passed after carrying out proper inquiries including examination of books of account and supporting bills and vouchers.
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6 For assessment proceedings-initiated u/s. 263 on the basis of information received from the investigation wing that the search was conducted by the department at M/s Maa Jagadamba Trade Links Ltd. and M/s Moryo Industries Ltd & during the relevant year assessee has sold the shares of M/s Maa Jagadamba Trade Links Ltd. and M/s Moryo Industries Ltd which were found dubious & sham transaction as these brokers were involved in providing bogus accommodation entries. The report of the investigation wing w.r.t alleged penny stocks were very well available with AO and the original assessment order was passed with the knowledge of such information and after proper inquiry thereto. Therefore, such order could not be held to be prejudicial to the interest of the revenue. Copy of AIR information is already on record before Ld. Pr. CIT as well as the Ld. AO. 7 For that the Ld. Pr. CIT should not have invoked the provisions of sec. 263 without himself examining the details and evidences but no such examination was made and no lack of enquiry was found in the order of the Ld. AO. 8 For that on the facts and circumstances the order the Ld. Pr. CIT may be set aside.
The learned PCIT in this case noted the following back ground for issuing notice under section 263 of the Act :-
The return of income for this year had been filed by the assessee, declaring income of Rs.48,09,450/-. The Assessing Officer (AO) has made assessment u/s. 143(3)of the Income Tax Act, 1961 in this case for A.Y. 2015-16 as per order dated 28/09/2017 at the returned income of Rs.48,09,450/-. During the year under consideration, the assessee had sold shares of M/s Maa Jagadamba Trade Links Ltd. and M/s Moryo Industries Ltd. for total consideration of Rs.1,10,53,808/-. Consequent to the findings during search and seizure operations conducted by the Department in this case, and the statements of brokers, operators and entry providers, the entire transactions of purchase and sale of shares of M/s Maa Jagadamba Trade Links Ltd. and M/s Moryo Industries Ltd. were found to be dubious and sham transactions as these brokers were involved in providing bogus accommodation entries.
Thus it is seen that Assessing Officer has erred in not adding the sale proceedings amounting to Rs. 1,10,53,808/- since the transactions were not genuine.
1.1 The above issue has not been considered by the AO while framing the assessment order in this case. Thus the AO has passed the assessment order without making the necessary enquiries and verification in these aspects which should have been made to ascertain the relevant facts for the purpose of deciding the issue at hand. The assessment order therefore suffers from this infirmity and the same is erroneous in so far as it is prejudicial to the interests of the revenue in the light of Explanation 2 to section 263.”
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Assessee responded to the notices by giving reply. The same was reproduced by the Ld.CIT as under:-
(A) submission 20/03/2018: "2. It is contended in the show cause notice that assessment order passed for A Y 2015-16 in this case u/s. 143(3s) of the Act dated 28.09.2017 appears to be erroneous and prejudicial to the interest of revenue in terms of explanation 2 to section 263 of the Act in view of the following facts:
"It is seen that during the year there has been a sale of shares of M/s MaaJagadambe Trade Links and M/s Moryo Industries Ltd for a consideration of Rs.1,10,53,808/-. Information is available in view of the finding for search and seizure operations conducted by the department through search/survey, statements of brokers, operators and entry providers that the nature of transaction were dubious and sham transactions as these brokers were involved in providing bogus LTCG entries. In view of the same, the transactions entered by you is to be treated as sham transaction and sale consideration has to be brought to tax u/s, 68 of the Act by treating the same as unexplained cash credits."
As pointed out by your good office in the said show cause notice, admittedly the assessee has sold shares of M/s MaaJagadambe Trade Links and M/s Moryo Industries Ltd for a consideration of Rs. 1,10,53,808/~. Pursuant to a specific inquiry by the Ld.AO under section 143(2) of the Act vide his letter dated 09.08.2017, the assessee vide his letter dated 27.09.2017 through order sheet submitted all the details including details for purchase of shares of M/s MaaJagadambe Trade Links and M/s Moryo Industries Ltd for an aggregate cost of Rs. 42,80, OOO/- respectively on 26.12.2012 and 12.05.2012. Copies of the said correspondence is enclosed herewith for your perusal. The said shares were forming part of the opening stock at the said cost in the P&L A/C of the assesses for the relevant A Y. During the relevant year the said shares were sold for a total consideration of Rs. 1.10.53.808/- and the profit arising there from was credited to the P&L A/C of the assesseeliable for tax (in the case of the assessee @ of 30%). The net profit in the P&L A/C forms part of the computation of income and due tax thereon has been paid by the assessee. AH these facts were disclosed on specific questioning by the Ld.AO during the course of assessment proceedings. In fact such details were even submitted in response to ITS information's about the said scripts called for as alleged "penny stocks". Copy of the ITS statement is enclosed herewith. 4. The above facts clearly brings on record that the point of concern in your show cause notice has been thoroughly questioned by the Ld.AO during the course of assessment proceeding and has been very well replied and explained by the assessee in such course of proceedings. All this information certainly forms part of "record". 5. In the show cause reference has been made explanation 2 to section 263 of the Act to treat to deal and order passed by the AO as erroneous and prejudicial to the interest of revenue. With reference to an analysis of the said explanation for deeming an
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order to be erroneous and prejudicial to the interest of revenue u/s. 263 of the Act in the present case, it is submitted that: a. Clause 'a' to explanation 2 refer to case wherein "the order is passed without making inquiries or verification which should have been made". However in the present case as stated above with the facts and documentary evidence, the Ld.AO has made necessary inquiry on the point of concern and has passed the order only after taking into account the findings of such inquiry. b. Clause 'b' to explanation 2 refer to case wherein"the order is passed allowing any relief without inquiring into the claim" However in the present case no relief has been allowed in the order to the assessee. Moreover all the inquiries have been conducted by the Ld.AO before making such assessment order.
c. Clause 'c' to explanation 2 refer to case wherein "the order has not been made in accordance with any order, direction or instruction issued by the board under section 119".However in the present case no such direction or instruction has been issued by the board u/s 119. d. Clause 'd' to explanation 2 refer to case wherein "the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person". However in the present case no such reference of decision of jurisdictional High Court or Supreme Court has been made w.r.t point of concern. 6. Moreover, attention of your honor is drawn to the fact that the gross profit arising from sale of the 2 scripts viz: M/s MaaJagadambe Trade Links and M/s Moryo Industries Ltd for a consideration of Rs. 1,10,53,808/- after deduction of cost of acquisition of Rs. 42,80, OOO/- has been offered to tax as business income and the assessee has not claimed same to be exempted 10(38) of the Act by way of LTCG as being point of concern in the show cause.
It may further be submitted that ail the documentary evidences w.r.t. the sale proceeds of Rs. 1,10,53.808/-being through registered share broker with SEBI on the floor of recognized stock exchange and through banking transactions has been/can be provided for to establish the identity of the payer and genuinty of the transaction as required by provisions of section 68 of the Act, referred to by your Honor in the show cause. Of course the creditworthiness of such payer is vouched by their registration with the concerned stock exchange and SEBI.
Attention of your Honor is brought to various pronounced rulings stated below: a. The Apex Court in the case of Malabar Industrial Co Ltd (supra) 243 ITR 83 held that when two possible views are available and the issue is debatable, then, initiation of revision is not permissible u/s. 263 of the Act. It appears that the AO sought clarification from the assessee about the correctness of the amount. The assessee under letter dated 26.10.2004, gave specific explanation on the issue raised by the AO and thereafter, the assessment order was passed. Only because the Commissioner thought that other view is a better view, would not enable CIT to exercise power u/s. 263 of the Act. In the light of the above the appeal was dismissed.
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b. CIT vs. Yes Sank Ltd. [Income tax Appeal no. 599 of 2015 dated: 01708/2017'(Bombay High Court)]. [Yes Bank Ltd. vs. CIT [A.Y.-2007-08 Mum. ITAT]
"During the FY.2005-06, the assessee had incurred an aggregate expenditure of Rs. 16,39,10,000/- on Initial Public Offering ("IPO") of equity shares made. The Issue closed on June 12, 2005. It has claimed a deduction u/s. 35D for Rs.3,27,82,000/- being one-fifth of the total expenses incurred. This is the second year of claim of deduction. The assessee submits that section 35D grants a deduction/amortisation in respect of expenses incurred by a company in connection with the issue, for public subscription, of shares or debentures of a company over a period of five years. Since the foregoing expenses on IPO are in connection with the issue of shares for public subscription, one fifth of the total amount thereof is eligible for deduction u/s. 35D. The AO made an inquiry while passing the assessment order. In return of income, the assessee had made the following note. Deduction of Rs.3,27,82,000/-claimed u/s. 35D of the Act. The Assessee submits that the A.O. had before passing the assessment order, called for explanation from the assessee. The same was provided by the assessee. Only because the Commissioner thought that other view is a better view, would not enable CIT to exercise power u/s. 263 of the Act. In the light of the above the appeal was dismissed",
c. In case of Commissioner of Income-tax, Shimla Vs. Greenwortd Corporation [2009] 181 Taxmann 111 (SC)/[2009J 314 ITR 81 (SC)/[2009 224 CTR 113 (SC)
"Section 263, read with section 148, of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 2000-01 - Whether an order of assessment passed by /TO can be interfered with only because another view is possible -Held, no As regards submission [C] above, learned counsel submitted that this Court gave the finding that the order of the Assessing Officer, Solan was bad but that such a question did not arise out of the appeal decided by the Income-tax Appellate Tribunal as the Tribunal had dealt with the question of jurisdiction only and hence this Court exceeded its appellate jurisdiction while holding that the order was bad on account of non-application of mind. The submission is factually incorrect. The Tribunal while accepting the appeal of the assessee held that the order had been passed by the Assessing Officer under section 263 of the Income-tax Act on the basis of the inquiry conducted by her and that the Commissioner of Income-tax could not have interfered with the said order merely because he formed a different view on scanning the record. Appellate Tribunal clearly said that the order of Assessing Officer was based on an inquiry conducted by her. This Court did not approve of this finding of the Tribunal, because the note appearing below the order of the Assessing Officer clearly shows that it is not passed on application of mind but on the interference by the Commissioner of Income-tax". d. In case of CIT Vs. Gokuldas Exports [2012] 20 taxmann.cim 491 (Karnataka)/[2011] 333 ITR 214 (Karnataka).
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"Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue -Assessment Year 1995-96 - Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to interests of revenue [In favour of assessee]. The phrase 'prejudicial to the interests of the revenue' under section 263 has to be read in conjunction with the expression 'erroneous' order by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. Section 263 of the Income-tax Act - Revision - Of orders prejudicial to interest of revenue -Assessment Year 1995-96 - If in given facts and circumstances of a case, two views are possible and one view has been adopted by Assessing Officer, then that view alone would not be sufficient to exercise powers under section 263 by Commissioner [In favour of assessee] Under section 263 the Commissioner has power to call for and examine the record of any proceedings under the Act, provided he is of the opinion that the order is erroneous one insofar as it is prejudicial to the interests of the revenue. Only thereafter notices can be issued to the assessee so as to call for his objections. If in the given facts and circumstances of the case, two views are possible and one view has been adopted by Assessing Officer then that view alone would not be sufficient to exercise the powers under section 263 by the Commissioner". In view of the above facts and legal position your Honor is requested to drop the revision proceedings u/s. 263 of the Act". (B) Submission dated 06/02/2020: "1. It is contended by your good office on the issue of the trading in alleged penny stocks that although as submitted by the assesse in the earlier submissions with evidence, the alleged transactions were specifically examined by the Ld. AO during scrutiny assessment u/s. 143(3) of the Act, additional information has been received subsequently from investigation department w.r.t. the alleged transactionsand the same was not available at the time of original assessment and hence the order is passed without proper inquiry. In this regard attention of your good office is drawn to the fact that as it is clear from the AIR information available with the Ld.AO at the time of the original assessment, the report of the investigation wing w.r.t. alleged penny stocks were very well available with him and the original assessment order was passed with the knowledge of such information and after proper inquiry thereto. Therefore such order could not be held to be prejudicial to the interest of the revenue. Copy of AIR information is enclosed herewith for your ready reference with special attention to page no 5. Without prejudice to the same a request is being made to provide us with copy of information received from investigation wing. 2. Attention of your good office is once again drawn to the fact that the income from the alleged penny stocks of Rs. 67,73,8087- has been offered by the assessee as business income liable for tax at full rate after adjusting therefrom business losses in trading of other scripts and business expenses at Rs. 13,77,7227- and has been assessed accordingly. No LTCG/STCG benefits have been availed by the assessee w.r.t, the alleged penny stocks. Thereby even if the said income is reassessed u/s. 263 of the Act, after set-off of other losses the assessed income of the assessee would be
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the same as in the original assessment order. Thereby there is no loss of revenue to call the original order prejudicial to the interest of revenue. 3. It is contended that the provision of section 68 of the Act states that where any sum is found credited in the books of the assessee maintained for any previous year and the assessee offers no explanation about the nature of source thereof or the explanation offered by him is not, in the opinion of the Assessing officer, satisfactory, the sum so credited may be charged to income tax as the Income of the assessee. 4. The Courts have held that the 'bank account' is not books accounts and provisions of section 68 will not apply to amount credited in the bank account. Further, for an amount to be treated as cash credit, there should be absence of identity, genuineness of transaction and creditworthiness of the payer/creditor. Here in this case, the shares from the Demat a/c of the assessee were sold through a reputed broker, on BSE in the on screen basis. It is a software driven sale on line Broker will put up the shares for sale and the computer will match the buyer. Sale proceeds were received under the T + 2 settlement scheme approved by the SEBI in the bank account through normal banking channels. Thus the identity, sources of funds and genuineness of transaction stands established beyond reasonable doubt leaving no scope for making any addition u/s 68." (C) Submission dated 13/02/2020: 1. We have received the copy of investigation report from the jurisdictional ACIT, referred to in and being the basis for review u/s. 263 of the Act. We would like to bring to your kind notice in this regard that:
a. The said investigation report as stated earlier along with evidence was already on record of the Ld.AO at the time of original assessment and the same was taken into account while completing the original assessment. b. It may be observed from the investigation report that the same is general in nature referring to the scripts in which LTCG activities have been carried out and the modus operandi thereto. It also includes statement of various people who have confirmed and given name of beneficiaries/intermediaries. However nowhere in the report and/or in the statements/compilation of beneficiaries/ intermediaries, name of the assessee appears. c. Also as submitted even earlier the assessee during the relevant year although as dealt in scripts which are so called "penny stocks, has not claimed benefit of LTCG/STCG and has offered profit from such scripts as business income which is taxable at normal rate of tax. 2. As required by your good office we would like to submit: a. ‘Statement of scripts traded in by the assesse during the relevant year reflecting details of opening stock, purchases, sales and closing stock along with copy of the P&L account of the assessee for trading in shares reflecting the net profit earned therefrom.’ Both these statements even were submitted during the original assessment proceedings.
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b. As submitted attention of your good office is once again drawn to the fact that the income from the alleged penny stocks of Rs. 67,73,808/-has been offered by the assessee as business income liable for tax at full rate after adjusting there from business losses in trading of other scripts and business expenses at Rs. 73,77,722/- and has been assessed accordingly. No LTCG/STCG benefits have been availed by the assessee w.r.t. the alleged penny stocks. Thereby even if the said income is reassessed u/s. 263 of the Act, after set-off of other losses the assessed income of the assessee would be the same as in the original assessment order. Thereby there is no loss of revenue to call the original order prejudicial to the interest of revenue. A copy of draft computation constructed to depict the scenario wherein the contention of the assessee is not accepted and reassessment is done u/s 143(3) r.w.s. 263 is enclosed herewith. It may be observed from the same that even in such situation there is no adverse impact on tax payable by the assessee.
Learned PCIT was not convinced with the assessee’s reply. He observed as under :-
In this case on perusal of the records, it is seen that the assessee has sold shares of M/s Maa Jagadamba Trade Links Ltd. and M/s Moryo Industries Ltd. scrips and received sale proceeds of Rs. 1,10,53,8087-. Thus assessee showed business profit after reducing expenses through this manipulated transaction. The DG(Inv.), Kolkata conducted a Search operation wherein the entire modus operandi of the manipulation of penny stock prices to evade taxes was brought out. Over a one-year period ended 30 May 2014, the stock of M/s Maa Jagadamba Trade Links Ltd has risen from just Rs 1.68 to Rs 99.10 i.e up 5799% or nearly 60 times. The number of trades, too, shot up to around 5,000-30,000 a month between March 2014 and October 2014 from just around 10-20 trades a month between May 2013 and February 2014. In the case of M/s Moryo Industries Ltd. (now known as Terrascope Ventures limited Ltd.), regulatory authority SEBI has certified that this scrip has been manipulated. A clear pattern of rigging of share price is visible. 2.2 During the assessment proceedings, the AO did not enquire into the modus operandi of stock price manipulation and accommodation entry transactions in these penny stocks. Instead of treating the entire transaction as a non genuine transaction and thereby bringing to tax the entire 'sale proceeds', the AO accepted the returned income of the assessee. It was apparent that a common pattern and an established modus operandi was discernible indicating stock price manipulation and accommodation entry transactions in these penny stocks. For the sake of clarity, the same is mentioned as under: (i) Purchase of stock at rock bottom price
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(ii) No financial credibility of the company, whose shares were purchased by the assessee.
(iii) "Bell Pattern" in share price movement, i.e. once price target is achieved the price falls back to minimum.
(iv) No rhyme or reason for sudden spurt of share price, defying the share Index or similar share price movements.
(v) Promoters of shares are also not from any established groups, in fact they are of people of no means.
(vi) Price escalation through synchronised trading within limited parties, mostly entities controlled by the entry operators.
(vii) Statement recorded during search or survey operations conducted by the Investigation Wing indicates that price of the shares were manipulated with the sole aim of providing bogus accommodation entries.”
Thereafter, learned PCIT referred to certain case laws in this regard. He further observed as under :-
“4. There is another aspect of the matter. Further, as per section 115BBE of the Act, income tax shall be calculated at 60% where the total income of assessee includes following income:
a) Income referred to in Section 68, Section 69, Section 69A, Section 69B, Section 69C or Section 69D and reflected in the return of income furnished under Section 139; or
b) Which is determined by the Assessing Officer and includes any income referred to in Section 68, Section 69, Section 69A, Section 69B, Section 69C or Section 69D, if such income is not covered under clause (a).
Such tax rate of 60% will be further increased by 25% surcharge, 6% penalty, i.e., the final tax rate comes out to be 83.25% (including cess). Provided that such 6% penalty shall not be levied when the income under Section 68, 69, etc., has been included in return of income and tax has been paid on or before the end of relevant previous year. No deduction in respect of any expenditure or allowance [or set off of any loss] shall be allowed to the assessee in computing his income referred to in clause (a) of sub-section (1) of Section 115BBE. Hence the 'sale proceeds' in its entirety need to be brought to tax u/s 68.
Also, invariably, in such transactions, as brought out in the modus operand/, there is a cost attached to getting undisclosed income converted into disclosed income i.e the charges of the 'Entry Operator'. The Assessing
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Officer is also supposed to find out this component after due application of mind and bring, it to tax as required. The AO is also supposed to enquire into the source of these 'charges 'paid.
To put it simply, the solitary argument of the assessee was that all the relevant material in this regard were produced before the Assessing Officer who did not arrive at an adverse conclusion as indicated by the relevant order of assessment. On this basis, the assessee urged the dropping of proceedings under section 263 of the Act, since in its opinion, the assessment made was not "erroneous under any stretch of imagination". It was claimed that the Assessing Officer having applied its mind and accepted the same, there was no question of it being 'prejudicial' to the interest of revenue. The submissions have been examined and found untenable as elaborated hereinafter."
After referring to certain case laws in this regard and distinguishing the case laws referred by assessee, learned PCIT concluded as under :- “7. That the assessee had converted its unaccounted income being well established, it ought to have triggered a well-deserved enquiry on the nature and source of these credits appearing in the books of account. This was not done during the course of scrutiny assessment proceedings. Even assuming the correctness of strenuous assertion of the assessee that relevant material was then made available to the Assessing Officer, circumstances show the credits ought to have been examined vis-a-vis their genuineness in light of the well-established ambit of enquiry contemplated in section 68 of the Act.
Thus, whether the documents were or were not filed before the Assessing Officer is not germane to the revision proceedings. A perusal of assessment proceedings show that while making the assessment, the Assessing Officer has failed to examine the issues properly and has not applied his mind to facts and circumstances of the case for the purpose of determining the genuineness of the claims. The Assessing Officer was duty-bound to conduct a complete enquiry and consider the application of provisions of the law, including that of section 68 of the Act, if he were to come across material that discredits or impeaches the particulars furnished. This is the view enunciated by the Hon'ble Delhi High Court in the case of Commissioner of Income Tax vs. Nova Promoters & Fin/ease (P) Ltd [2012] 18 taxmann.com 217, as also in the case of Commissioner of Income Tax vs. N.R. Portfolio (P) Ltd [2013] 29 taxmann.com 291.
Here, it is worth mentioning and taking due note of, that the provisions of section 263 are distinct from that of section 147 of the Act. The differing conditionally for the assumption of jurisdiction is ex facie apparent from a plain reading of the aforesaid sections itself. It is also worthwhile to note that Explanation 2(a) below section 263 of the Act specifies that the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the revenue if in the opinion of the Pr. Commissioner, the order was passed without making any inquiries or verification which should have been made by the Assessing Officer. The aforesaid is squarely applicable to
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the facts obtaining in this case. The aforesaid was inserted with effect from 1/4/2015. The Id. ITAT, Mumbai in Anuj Jayaendra Shah vs PCIT-35, Mumbai [201 6] reported in 67 taxmann.com 38, held as under:
"10. Now, as can be seen above, the amendment to section 263 of the Act by insertion of Explanation 2 to Section 263 is declaratory in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interest of Revenue whereby it is provided, inter-alia, that if the order is passed without making inquiries or verification by the AO which, should have been made or the order is passed allowing any relief without inquiring into the claim; the order shall be deemed to be erroneous and prejudicial to the interest of Revenue.
In this case/Assessing Officer has also failed to make further enquiry into the source and the amount of 'charges' paid to the entry operator for providing this accommodation entry. The assessment order is erroneous and prejudicial to interest of revenue even on this account. Under the circumstances delineated above, the action of the Assessing Officer with regard to taxation under section 68 and identification of the component of 'Entry Operator charges' and its taxation, without conducting the requisite enquiries, has to be regarded as erroneous in so far as it is prejudicial to the interests of the revenue, within the meaning of section 263 of the Act. Accordingly, the assessment order dated 28/09/2017 passed by the AO under section 143(3) of the Act is set aside as per provisions of Explanation 2 to section 263(1) of the Act to the Assessing Officer. He is directed to conduct the requisite enquiries to arrive at the correct conclusion as per law and frame the order of assessment de novo, keeping in mind the observations made in the foregoing paragraphs. Needless to add, adequate opportunity of being heard will be afforded to the assessee to file details and furnish his explanation.”
Against this order assessee is in appeal before us.
We have heard both the parties and perused the record. Learned counsel of the assessee submitted that the AO has made due inquiry. Ld. Counsel submitted that all the information with relationship to the assessee transactions were available with the AO. The assessee has submitted all necessary details and after examining the same the AO has passed the order. In this regard he referred to the paper book submitted before the Tribunal. He referred to the various notices issued by the Assessing Officer he submitted that the AO has duly asked information on reconciliation statement of AIR with the assessee’s books. He submitted that the information from AIR captured all assessee’s transaction. That the assessee has duly responded and gave all
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necessary details and after examining the same the AO has passed the order. In this regard he referred to the paper book page No. 17 wherein in the notice dated .09.08.2017, the AO has inter-alia required following details :-
• Submit proof of purchase of shares of MAAJTL and MORYO IND with documentary evidences. Please also state the mode of acquisition of these shares i.e., whether these shares were purchased by you through IPO or preferential allotment. • Please furnish proof of payment in respect of purchase of the said shares. • Please furnish complete address of the person from whom, the said shares were purchase by you. • If the shares have been allotted to you through preferential allotment, name and contact details of the person of MAAJTL and MORYO IND, who was known to you through whom you purchased the said shares. • Please submit the list of shares in which you have invested in three assessment years immediately prior to A.Y. 2015-16. • Submit the reason for investing in the shares of MAAJTL and MORYO IND the financial position of the company, any big news about the company or any other supporting document/evidence which supports you rationale of investing in the said company.
Learned counsel referred to further notices issued by the AO
Learned counsel of the assessee took us to page No. 19 where response was given to the AO along with all necessary details. Covering letter of the response to AO at page No. 19 & 20 reads as under :- “Sir, The assessee has received your notice u/s 142(1) dated 06.07.2017 seeking certain information, in this connection, we are submitting as follows: 1) Nature of Business Activity: Dealing in shares and securities - Derivatives. 2) Email id for correspondence is: khvyas@yahoo.com 3) Copies of: • Income Tax Return - Annexure A • Tax Audit Report - Annexure B • Balance Sheet and Profit & Loss Account - Annexure C • Computation of income - Annexure D 4) Details of bank accounts held by the assessee during the year:
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Sr. Name of Bank Branch Type of Account Number No. Account 1 HDFC Bank MUMBAI -BORIVALI Savings 01451000169331 (WEST) 2 ICICI Bank MUMBAI - BORIVALI Savings 001801014045
3 Kotak Mahindra MUMBAI -BORIVALI Savings 06650010001358 Bank 4 Uco Bank MUMBAI -BORIVALI Savings 11700100001267
Copies of bank statement is being attached as Annexure – E 5) Notice u/s 148 has been received for the AY: 2014-15, for which the assessment is in process. 6) Reconciliation Statement of 26AS is being attached as Annexure - F 7) Reconciliation of Individual Transaction Statement is being attached as Annexure – G”
Learned counsel referred to further enquire where copy of Demat accounts were required and furnished. Further it was submitted that on 27.9.2017 vide order-sheet entry the AO was given various other details relating to purchase of shares, proof of payment, detail of persons involved in Dmat statement. Referring to the details, learned counsel submitted that thorough inquiry has been done by the Assessing Officer. He submitted that following case laws are duly applicable :-
“Order cannot be said to be erroneous, if AO had adopted one of the possible views • Malabar Industrial Co. Ltd vs. CIT (109 Taxman 66(SC) • PCIT vs. Yes Bank Ltd (ITA No.599 of 20 15 (Bom-HC) • CIT vs. Greenworld Corporation (181 Taxman 111) (SC) • CIT vs. Max India Ltd 166 Taxman 188(SC)
Order cannot be revised u/s.263, if AO had made reasonable enquiries • CIT vs. Vikas Polymers (194 Taxman 57(Del-HC) • CIT vs. Development Credit Bank Ltd 196 Taxman 329 (Bom-HC) • Moil Ltd vs. CIT 8 1 taxmann.com 420 (Bom-HC)”
Learned Counsel further submitted that as noted by the Ld.CIT himself on 12.02.2020, the assessee submitted to the Ld.CIT also the statement of scrips traded in by the assessee during the relevant financial year reflecting
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details of opening stock, purchases, sales and closing stock on wrong with coy of the P& L account of the assessee for trading in shares reflecting the net profit earned therein. Further, Ld. Counsel pointed out that assessee has submitted to the Ld.CIT that this is not a case, where assessee has claimed long term capital gain on penny stock. That the entire profit has been shown as business income and offered to tax at normal rate. That even of the addition is made under section 68 and the income is reassessed pursuant to direction under section 263 after the set off of other losses assessed income of the assessee would be the same as in the original assessment order. In this regard, learned counsel referred to the CBDT Circular No. 11/2019 which was on the subject of clarification regarding non-allowability of set off losses against the deemed income under section 115BBE of the Income Tax Act, 1961 prior to assessment year 2017. In the said circular he referred to para No. 4 which reads as under :
“4. Thus keeping the legislative intent behind amendment in section 115BBE(2) vide the Finance Act, 2016 to remove any ambiguity of interpretation, the Board is of the view that since the term 'or set off of any loss' was specifically inserted only vide the Finance Act 2016, w.e.f. 01.04.2017, an assessee is entitled to claim set-off of loss against income determined under section 115BBE of the Act till the assessment year 2016- 17.”
Referring to the above learned counsel submitted that learned CIT’s reference to section 115BBE is not applicable for the assessment year and observations in this regard are also not correct, hence, he submitted that the order passed by learned CIT is not sustainable.
Per contra, learned Departmental Representative relied upon the orders of the authorities below.
Upon careful consideration, we find that the initial observation of Ld.CIT in this case that the assessee is engaged in the sale of shares of companies, which as per the enquiry of the department were found to be dubious and sham transaction. He noted that AO has not made proper enquiries and
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verification, which would have been made to ascertain the relevant facts for the purpose of deciding the issue at hand.
The Ld.CIT has noted the response to this notice by the assessee. Assessee has made elaborate submission that various details were sought by the AO and all the details were supplied. It was also pointed out that the investigation department finding were also available before the AO. After noting the elaborate submission of the assessee that the matter was duly enquired by the AO. Ld.CIT observed that it is not the issue whether the documents were filed or not. He held that AO has not applied his mind to the facts of the case and examined the provisions of section 68. As already submitted before the Ld.CIT, this is not a case of claim of bogus long term capital gain. Assessee has offered the receipt as business income, which is subject to normal rates of taxes. We note that Ld.CIT has not at all specified what more enquiry was required. When, he has noted the assessee submission that AO has made all the enquiries and all the details were supplied, the Ld.CIT is making a comment that it is not an issue as to whether documents were supplied or not and the issue is whether the AO has applied his mind to the genuineness of the claim of not. Then again at the end he hold that AO is directed to make further enquiries into the source and the amount involved, after giving proper opportunity of being heard to the assessee. We note that Ld.CIT has failed to specify what more enquiry was required in this case. This is again in contradiction to his acceptance that proper documents were submitted and AO has not applied his mind. Undoubtedly the amended provisions of section 263 provide that the Ld.CIT is within his powers assume the jurisdiction, if the AO’s order is passed without making enquiries or verification, which should have been made. In this connection, it is clear that the said explanation will come to the aid of the Ld.CIT, if he can point out what enquiry was required, which has not been done by the AO. Here, we note that all the necessary enquiries have been done by the AO. Ld.CIT has himself made certain enquiries and the details were provided to him. It is not the case of Ld.CIT that any
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defect was noted in this connection. Hence, the direction given by the Ld.CIT in this case is simply to make further roving enquiries, which is totally unsustainable in law. The case laws referred above duly support this proposition.
Moreover, it is noted that the alternate submission of the assessee that even if the AO reassess the income pursuant to direction under section 263 and as the amount involved is assessed under section 68, only effect will be that the income offered under business income would now be assessed under section 68 as income from other sources. It has been submitted that after set off of other losses the assessed income of the assessee would be the same as in the original assessment order. Hence, it is plea that when there is no change in income assessed the order of AO cannot be said to be prejudicial to the interest of revenue. The Ld.CIT has tried to respond to the submission by observing that as per section 115BBE income tax shall be collected at that of 60%, when the total income of the assessee includes such as the one here i.e under section 68 et cetera and that no deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the assessee in computing as income referred here. Now, the assessment year under consideration is assessment year 2015-16, the CBDT circular referred by counsel of the assessee clearly provides that the amendment brought in by financial year 2016 in this regard is inserted with from 01.04.2017 and assessee is entitled to claim set off against income determined under section 115BBE of the Act till the AY 2016-17. Hence, even if the section referred by the Ld.CIT is invoked the assessee will still be eligible for the set off as referred above and the income would be the same as assessed by the AO in the original assessment. This proposition is neither rebutted by Ld.CIT nor by the revenue before us. It is a settled law that after the exercise of revisionary jurisdiction the income assessed remains the same, it cannot be said that the order of the AO is prejudicial to the interest of revenue. Hence, Ld.CIT’s jurisdiction will not be
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valid. Hence, invocation of section 263 jurisdiction by the Ld.CIT is also not sustainable on this count also.
In the background of our discussions and precedents, we set aside the order passed by Ld.CIT and decide the issue in favour of the assessee.
In the result, this appeal stand allowed.
Pronounced in the open court on 07 .01.2022
Sd/- Sd/- (AMARJIT SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 07 /01/2022 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai