CLIFTON PEARSON EXPORT & AGENCIES,KOLKATA vs. PCIT-5, KOLKATA

This is an appeal preferred by the assessee against the order of the Principal Commissioner of Income Tax -5, Kolkata [hereinafter referred to as ‘PCIT’] dated 13.03.2020 for the assessment year 2010-11.

The only issue raised by the assessee in the various grounds of appeal is against the wrong assumption of jurisdiction u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act) by the ld. PCIT thereby wrongly revising and setting aside the order passed by the AO u/s 143(3)/147 of the Act dated 18.12.2017.

Facts in brief are that the assessment in this case was framed u/s 143(3) read with Section 147 of the Act vide order dated 18.12.2017 assessing the income at Rs. 1,87,800/- as against the returned income of Rs. 27,565/-. The ld. PCIT on perusal of the assessment record came to the conclusion that the assessment so framed by the AO u/s 143(3) read with Section 147 of the Act dated 18.12.2017 was erroneous in so far as prejudicial to the interest of the revenue for the reason that the AO has failed to examine the identity, creditworthiness of the parties and genuineness of the transactions relating to share premium amounting to Rs. 86,70,000/- and accordingly Clifton Pearson Export & Agencies Ltd. issued a show cause notice u/s 263 of the Act dated 23.10.2019 calling upon the assessee to show cause as to why the assessment framed u/s 143(3) read with Section 147 of the Act should not be cancelled and revised. The said notice was not replied by the assessee. Thereafter the PCIT again issued show cause notice dated 5.12.2019 which remained uncomplied with. Again the PCIT issued notice dated 16.12.2019 which was replied by the assessee by filing written submissions submitting therein that the assessment of the assessee was reopened u/s 147 of the Act specifically in order to examine the amount of the transaction of Rs. 86,70,000/- which was stated to be accommodation entry and assessee was stated to be beneficiary of the same which according to the AO has escaped assessment. The assessee submitted before the ld PCIT that during the assessment proceedings, the assessee has filed all the details comprising of computation of total income, audited accounts, details of investment and copies of relevant sales bill of investment to M/s SS Securities aggregating to Rs. 86,70,000/- and copy of bank statements reflecting the payments received in response to notice issued u/s 142(1) of the Act dated 29.06.2017. The assessee submitted that the AO only after taking into account all these details/information and evidences accepted the genuineness of the amount received of Rs. 86,70,000/- by the assessee from sale of shares. The assessee also submitted that it has not received any share capital/premium of Rs. 86,70,000/- by filing the copies of balance sheet which testified that there was no increase any share capital or share premium from 31.03.2010 however reply of the assessee did not favour with the ld PCIT and ld PCIT revised the assessment vide order dated 13.03.2016 passed u/s 263 of the Act. Now the assessee has assailed the revisionary proceedings as well as order passed by the ld. PCIT in appeal before us.

The ld. Counsel for the assessee vehemently argued before us that the jurisdiction u/s 263 of the Act has wrongly been assumed and exercised by the ld. PCIT setting aside the assessment framed u/s 143(3) read with Section 147 of the Act dated 18.12.2017 for the reason that AO has failed to examined the identity, creditworthiness and genuineness of the transactions of share capital /share premium of Rs. 86,70,000/-. The Ld. Counsel while taking us through the reasons recorded u/s Clifton Pearson Export & Agencies Ltd. 148(2) of the Act for reopening the assessment u/s 147 of the Act specifically pointed out that the provisions of Section 147 was invoked by the AO to examine the issue of assessee being the beneficiary of accommodation entry of Rs. 86,70,000/- from bogus shell company M/s SS Securities during FY 2009-10. The Ld. A.R. submitted that the statutory notices were duly issued during the course of assessment proceedings including notice u/s 142(1) of the Act dated 29.06.2007 calling upon the assessee to furnish the details inter alia the details in respect of the sale of shares which were duly furnished before the AO and has also been mentioned by the PCIT in para 3 of the revisionary order. The Ld. A.R. submitted that, it was only after examination of all the details filed by the assessee, the assessment was framed accepting the submissions/arguments of the assessee on the transactions of Rs. 86,70,000/- . The ld. A.R also submitted that the assessee has not raised any share capital/share premium as observed by the PCIT. The ld AR referred to the reply given by the assessee in response to show cause notice issued u/s 263 of the Act that no such share capital/share premium was ever raised by the assessee from FY 2009-10 to 2019-20 which was also extracted by the ld PCIT on page 3 of the revisionary order passed by him. The Ld. Counsel argued that the ld. PCIT in stead of examining the issue himself has mainly harped on the report of DDIT(Inv), Unit-3(3), Kolkata that too without understanding the facts correctly. The ld counsel submitted that the ld. PCIT assumed the jurisdiction upon wrong appreciation of facts whereas the AO has correctly appreciated the facts and made no addition by taking a possible view in the matter. The ld counsel argued that ld. PCIT can not exercise the jurisdiction u/s 263 on the Act mere because he does not agree to the view taken by the assessee. The Ld. A.R. submitted that ,on the basis of the above facts and evidences, it is clear that the AO has examined and enquired all the issues as covered by the ld. PCIT in the order u/s 263 of the Act , therefore the assumption of jurisdiction by the PCIT u/s 263 of the Act is not validly exercised which renders the revisionary proceedings as well as the consequent order as nullity and bad in law and may kindly be quashed. The Ld. A.R. argued that in order to exercise jurisdiction u/s 263 of the Act, the order passed by the AO has to be erroneous in so far as prejudicial to the interest of revenue meaning Clifton Pearson Export & Agencies Ltd. thereby that the twin conditions, namely assessment being erroneous as well as prejudicial to the interest of revenue, have to be satisfied otherwise recourse cannot be had to the provisions of section 263 of the Act to set aside the assessment by relying on the decision of Malabar Industrial Co vs. CIT 198 ITR 611(SC). The Ld. Counsel further argued the ld PCIT can not exercise the jurisdiction u/s 263 of the Act where the AO has taken one of the two courses permissible under the law which has resulted in loss of revenue or where two views are possible and the AO has taken one possible view as in that scenario also the assessment cannot be treated as erroneous in so far as prejudicial to the interest of revenue. The AR argued that unless the view taken by the AO is not sustainable in law or not in accordance with law or contrary to the facts , the jurisdiction u/s 263 of the Act can not be resorted to. In defense of this arguments, the ld A.R relied on the decision of CIT vs. Maxx India Ltd. 295 ITR 282 (SC). The ld. Counsel also argued that where the AO has conducted the proper enquiries by calling upon the assessee to explain the particular point and the assessee has duly responded the same and furnished all the required information/details and the AO has framed the assessment after considering the same, even then the assessment order cannot be held to be erroneous in so far as prejudicial to the interest of the revenue by placing reliance on the decision in the case of CIT vs. Ratlam Coal Ash Company 56 CTR 305(MP). The Ld. Counsel submitted that the AO has called for the details/explanation from the assessee on all the issues proposed by the PCIT u/s 263 of the Act and the assessee has duly responded to all queries by filing necessary evidences/details/explanation/information, then the assessment order cannot be considered as erroneous and prejudicial to the interest of revenue merely on the ground that there is no discussion on these point in the assessment orders by relying on the decision of CIT vs. Gabriel India Ltd. (1993) 203 ITR 108(Bom). The Ld. Counsel also referred to the decision of Hon’ble Bombay High Court in the case of CIT vs. Vikas Polymers reported 341 ITR 537(Bom) wherein it has been held that there is a distinction between lack of enquiry and inadequate enquiry and it is only a case of lack of enquiry, the ld PCIT can exercise his revisionary powers under the Act The Ld. A.R. has relied on the decision of Hon’ble Delhi High Court in the case of DG Clifton Pearson Export & Agencies Ltd. Housing Projects Ltd. 343 ITR 329(Del) reiterating his arguments that the jurisdiction by PCIT could only be exercised in case lack of enquiry or no enquiry and not in case of inadequate enquiry. The ld. AR therefore prayed that the revisionary proceedings as well as the consequent order may kindly be quashed.

The ld. D.R. on the other hand heavily defended the order passed by the PCIT by submitting that no prejudice is going to be caused to the assessee by assumption of revisionary jurisdiction by PCIT as the assessee would be given sufficient opportunity to defend its case in the set aside assessment proceedings as well. The Ld. D.R also submitted that it is not necessary for PCIT to give a detailed specific show notice u/s 263 of the Act to the assessee but it would be suffice if the assessee is given the broad indication the issue which needs to be examined at the level of AO and which in no way vitiate the initiation the revisionary proceedings as the Act does not mandate the PCIT to confine itself to the contents/issues stated in the notice. The ld. D.R. submitted that what is necessary to do is that whatever items are proposed to be examined by the PCIT has been confronted to the assessee in the proceedings u/s 263 of the Act even though any of the items did not find any mention in the show cause notice. The PCIT further submitted that mostly calling for the reply of the assessee on certain issues and filing the same in the assessment folder cannot be construed that the issue has been examined by the AO. Therefore, the PCIT has rightly exercised the jurisdiction u/s 263 of the Act and in order to defend his argument the Ld. D.R relied on the decision of Hon’ble Apex Court in the case of CIT vs. Amitabh Bachchan reported in (2016) 69 taxmann.com 170 (SC).

We have heard rival contentions and perused the material on record. Undisputedly facts are that the PCIT has invoked jurisdiction u/s 263 of the Act to set aside the assessment framed u/s 143(3) read with Section 147 of the Act dated 18.12.2017 on the ground that AO has failed to examine the identity, creditworthiness and genuineness of the transactions related to share premium amounting to Rs. 86,70,000/- received by the assessee and thus the assessment so framed is rendered erroneous as well as prejudicial to the interest of the revenue. We find that PCIT has Clifton Pearson Export & Agencies Ltd. revised the assessment principally on the ground that the share premium received by the assessee of Rs. 86,70,000/- has not been examined by the AO but as a matter of fact we find from the record before us and gather from the rival contentions that there has been no such transaction done by the assessee during the year. We have also examined audited balance sheet produced by the assessee to corroborate his arguments and find that from financial year 2009-10 to financial year 2019-20 no share capital and share premium have been received by the assessee but in fact there was sale of shares to M/s SS Securities for a consideration of Rs. 86,70,000/-. We note that reopening of assessment u/s 147 of the Act is only done in order to examine the transaction of Rs. 86,70,000/- when the AO received information from DDIT(Inv), Unit-3(3), Kolkata to the effect that that assessee is beneficiary accommodation entry from M/s SS Securities during FY 2009-10 . We note that the AO has issued notice u/s 142(1) of the Act dated 29.06.2017 calling upon the assessee to furnish various details inter alia details in respect of sale of stocks etc. and the assessee duly furnished all the details inter alia computation of income , audited accounts, details of investments and copies of relevant sales bills of investment to M/s SS Securities aggregating to Rs. 86,70,000/- and bank statement evidencing the amount received. In our view, the ld. PCIT has not appreciated the facts correctly and has resorted to exercise of revisionary jurisdiction merely on the basis of DDIT(Inv) report on the incorrect assumption of facts on record. In our considered view, since the AO has examined the issue raised by the PCIT in the revisionary order during assessment proceedings and only thereafter framed the assessments u/s 143(3) r.w.s. 147 of the Act , the jurisdiction u/s 263 of the Act is not maintainable as the AO has taken a possible view or taken one of the two possible views to which the PCIT does not agree or he is of the opinion that the AO has taken one view whereas according to PCIT the second view should have been taken by the AO. We also observe from the perusal of the revisionary order passed u/s 263 of the Act that PCIT has nowhere given a concrete finding as to how the assessments framed by the AO was erroneous in so far as prejudicial to the interest of the revenue. It is settled law that in order to invoke the jurisdiction u/s 263 of the Act by the PCIT, the twin conditions i.e. the order has to be erroneous and prejudicial Clifton Pearson Export & Agencies Ltd. to the interest of the revenue, have to be satisfied. In case one of the two conditions is satisfied out of the two, even then the PCIT cannot invoke the jurisdiction u/s 263 of the Act to revise the assessment. It is also a settled law that the jurisdiction is not available to PCIT u/s 263 of the Act to revise the assessment on the issues merely because no reference or discussion has been made in the assessment order especially when the AO has called for details/explanations from the assessee on all the issues as proposed by PCIT in the order passed u/s 263 and assessee has responded the same by filing written submissions with details/evidences which are part of the assessment records. In other words, the revisionary jurisdiction is not available to the PCIT merely on the ground that AO sought reply from the assessee during assessment proceedings which furnished by the assessee with evidences and are available in the assessment records however it did not find an elaborate discussion or reference in the assessment order. Similarly the powers of revision u/s 263 of the Act cannot be exercised arbitrarily in order to make roving enquiries and initiate fresh enquiries . In our considered view , the jurisdiction u/s 263 can be exercised to revise the assessments where no enquiry at all has been conducted by the AO which is a case of lack of enquiry but not in a case where the AO has conducted an enquiry which in the opinion of PCIT is inadequate /insufficient without showing as to how the order framed by the AO after appreciating the evidences filed by the assessee is contrary to facts or not in accordance with law. The case of the assessee finds supports on all these propositions from several decisions by the Apex Courts and other juridical forums as cited before us during the course of hearing namely Malabar Industrial Co. (supra), CIT vs. Max India Ltd. (supra), CIT vs. Gabriel India Ltd. (supra). Considering the facts of the case in the light of the various judicial precedents laid down by the Apex Court and various other judicial forms on the various propositions as discussed hereinabove , we hold that the revisionary jurisdiction has not been validly exercised by the ld PCIT. Accordingly we quash the revisionary proceedings initiated u/s 263 of the Act and the consequent order passed u/s 263 of the Act. The appeal of the assessee is allowed.