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Income Tax Appellate Tribunal, KOLKATA BENCH “B”, KOLKATA
Before: SHRI SANJAY GARG & SHRI RAJESH KUMAR
O R D E R
PER RAJESH KUMAR, ACCOUNTANT MEMBER:
The present appeal has been preferred by the assessee against the revisionary order passed u/s 263 of the Act dated 29.05.2020 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the PCIT] relevant to AY 2015-16.
2. The assessee has challenged the revisionary jurisdiction exercised by Ld. PCIT u/s 263 of the Act and also the consequent order passed u/s 263 of the Act on the ground that revisionary jurisdiction as well as the consequent order is invalid and nullity as necessary conditions envisaged in section 263 of the Act have not been satisfied before invoking the revisionary jurisdiction. The fact in brief are that the assessee filed a return of income on 28.09.2015 declaring total income of Rs. 69,040/- which was processed u/s Kaushalya Dealers (P) Ltd. 143(1) of the Act. Thereafter, the case of the assessee was selected for scrutiny through CASS and assessment was framed vide order dated 05.09.2017 passed u/s 143(3) of the Act assessing the income at Rs. 69,040/- after taking into account the various contentions/replies of the assessee filed during the course of assessment proceedings.
3. Thereafter, the Ld. PCIT upon examination of assessment records came to the conclusion that the AO has not examined certain issues during the course of assessment proceedings and, therefore, the order so framed is erroneous and prejudicial to the interest of the revenue and accordingly issued a show cause notice u/s 263 of the Act vide letter dated 12.03.2020 proposing to revise the assessment on the following issues:
“1. No inquiry/verification has been done on the issue of suspicious transactions in penny stock (one of the reasons for selection of scrutiny). It is noteworthy that the assessee made a major loss in penny scrip and the same was set off with income from house property.
The assessee had purchased an immovable house property during the previous year. The purchase cost is shown at Rs. 4,28,13,810/- whereas the Stamp Duty valuation of the said property is at Rs. 5,05,27,200/-. The officer did not pass on the information in regard to applicability of section 50C to the jurisdictional AO of the vendor.
It is apparent from the financial statements that a part of interest bearing loan borrowed by the assessee was advanced to Millennia Infrastructure (P) Ltd. on interest till 2014-15. In the year under consideration, the loan given to M/s. Millennia Infrastructure (P) Ltd. was converted into purchase cost of immovable property from the said company by the assessee. The assessee earned house property income from the said immovable property and offered the income under the head ‘income from House Property’, which means the interest bearing loan taken by the assessee was infused into immovable property purchased by the assessee. Yet the assessee claimed interest payment made to loan creditor under the head of income from business which is not allowable. However, the officer Kaushalya Dealers (P) Ltd. allowed the interest on loan in violation to section 36(1)(iii) of the I.T. Act.
4. In the previous year, the assessee had taken loan of Rs. 50 lakhs & 30 lakhs from two companies viz. Lily Vintrade (P) Ltd. and Mountview Dealmark (P) Ltd. But no verification was made”.
In reply to the show notice, the assessee filed written submissions alongwith details/evidences explaining that the issues proposed to be raised in the show cause notice have been examined by the AO during assessment proceedings and only after carrying out a detailed examination and verification, a plausible and possible view was taken and accordingly the assessment was framed u/s 143(3) of the Act. The Ld. PCIT after taking into account, the written submissions and arguments of the Ld. AR revised the assessment framed u/s 143(3) by the AO vide order passed u/s 263 dated 23.03.2020 by directing the AO to verify these issues and frame the assessment afresh after giving a reasonable opportunity to the assessee.
At the outset, the learned counsel of the assessee, submitted that the revisionary jurisdiction u/s 263 was exercised by ld PCIT in respect of four issues stated in the show cause notice which are also extracted by the ld CIT(A) in para 3 of the impugned order passed u/s 263 of the Act. The Ld. AR, by referring to the assessment framed u/s 143(3) r.w.s. 263 of the Act dated 27.09.2021, submitted in the set aside proceedings, the AO has made addition only in relation to first issue of loss from penny stock as mentioned by the Ld. PCIT in para 3 sub para 1 while no addition was made in respect of remaining issues mentioned in sub paras no. 2 to 4 after taking into consideration the contentions made by the assessee. The Ld. AR, therefore, submitted that the assessee is pressing its appeal only inspect of the first issue on which the addition has been made by the AO in the set aside proceedings. The Ld. AR, therefore, submitted
Kaushalya Dealers (P) Ltd. that the order of Ld. PCIT has become academic in respect pf the remaining three issues as no addition has been made by the AO in the assessment framed in th4e set aside proceedings and, therefore, are not being pressed.
The ld AR vehemently submitted before the bench that during the original assessment proceeding the AO called for the details and explanation of the assessee in respect of loss on sale of penny stocks and justification of setting off the same against the house property income which were duly furnished before the AO by referring to the notices issued u/s 142(1) dated 9.3.2017 and 2.08.2017. The ld AR stated that in the first notice on page no 2 vide para 9 the AP specifically called for the details of sales and purchases of shares along with evidences which was replied by the assessee was replied by written submission on 10.11.2018.the ld AR submitted that the assessee has furnished the details of purchase and sale of shares in respect of which the Ld. PCIT has proposed to exercise jurisdiction u/s 263 of the Act. The assessee also filed the copies of bank account, ledger accounts, D-mat account, contract notes and bank statement evidencing the payment for purchase of shares, payment proof of STT payments and receipt of sales consideration through banking channels and only after taking into consideration the reply of the assessee, the AO has taken a plausible view on this issue. The Ld. AR, therefore, stated that the issue has been examined by the AO during the course of assessment proceedings and a plausible view has been taken. The Ld. AR submitted that this is not a case of lack of enquiry and, therefore, the assessment already framed by the assessee after taking into account all the evidences and explanations offered during the course of assessment proceedings cannot disturbed by exercising jurisdiction u/s 263 of the Act. The Ld. AR
Kaushalya Dealers (P) Ltd. relied on the series of decisions of coordinate benches which are as under:
“1. M/s. Sethia Finance Trading Co. vs ACIT, Circle-45, Kolkata vide ITA No. 783/Kol/2013.
2. M/s. Rupayan Udyog vs CIT, Kol-XVII vide ITA No. 1073/Kol/2012.
3. Shri Manish Chirania vs Pr. CIT-15, Kolkata vide ITA No. 1161/Kol/2019.
4. M/s. Sinhotia Metals & Minerals Pvt. Ltd. vs PCIT, Durgapur vide ITA No. 889/Kol/2017.
5. M/s. Patron Ninimay Pvt. Ltd. vs ITO, Ward-10(4), Kolkata vide ITA No. 1614/Kol/2019.
6. M/s. Ganapati Tradewings Pvt. Ltd. vs ITO, Ward-1(4), Kolkata vide ITA No. 2651/Kol/2019.
7. M/s. Khetawat Properties Ltd. vs PCIT, Kolkata vide ITA No. 578/Kol/2019.
8. M/s. Kaushalya Dealers Pvt. Ltd.”
The Ld. AR therefore, submitted that in view of the various decisions of the coordinate benches wherein it has been held that invoking jurisdiction u/s 263 in case the AO has taken a plausible view after taking into consideration the reply/evidences furnished by the assessee. The Ld. AR submitted that it is not a case of lack of enquiry or incorrect assumption of facts or incorrect application of law by the AO and submitted that the revisionary proceedings and consequent order may kindly be quashed.
Per contra, the Ld. DR relied heavily on the order of Ld. PCIT by submitting that no prejudice is caused to the assessee by the revisionary proceedings u/s 263 of the Act by the by the PCIT as the assessee was given full opportunity to present his case before the AO in set aside proceedings. Besides the Ld. AR argued that though admittedly the issues, which are proposed to be raised in the show
Kaushalya Dealers (P) Ltd. cause notice issue du/s 263 of the Act , have been raised by the AO during the course of assessment proceedings and has been replied by the assessee by filing details of purchase and sale of shares, payment proofs of STT, contract notes, D-Mat statement, bank statement evidencing the payments for purchase of shares and receipt of sale consideration but the AO has not examined the issues further and so much so that he ignored the report of investigation Wing, Kolkata that the scrips involved are penny stock and, therefore, this is fit for revisionary jurisdiction u/s 263 of the Act as the PCIT is conferred with power u/s 263 to revise the assessment order if it is prejudicial and erroneous to the interest of justice. The Ld. DR also submitted that the fact that certain items in their show cause notice have been accepted by the AO during the course of set aside proceedings but it would be premature to decide the same at this stage as the PCIT has only directed the AO to examine the issues denovo.
After hearing both the parties and perusing the material available on record, we note that the revisionary jurisdiction was exercised by the Ld. PCIT u/s 263 of the Act in order to revise the assessment on four issues. In the set aside proceedings, the AO has made rejected the loss on sale of penny whereas the other three issues proposed by the PCIT were accepted and no addition were made. Therefore, we find merit in the contentions of the Ld. AR that the order of PCIT becomes academic to the extent of these three issues on which no additions were made by the AO assessment framed u/s 263 r.w.s. 143(3) of the Act. Accordingly we are not adjudicating the validity of jurisdiction of PCIT on these three issues. The issue raised in respect of loss of penny stock, we observe on perusal of records produced before us that the AO has specifically called for details of purchase and sale of shares during the original
Kaushalya Dealers (P) Ltd. assessment proceedings and the assessee has furnished the details of sale and purchase of shares, proofs payment of STT, copy of D- Mat statement, copy of bank statement evidencing the payment for purchase of shares and receipt of sale consideration into the assessee’s bank account through banking channels. We note that the AO has framed the assessment only after taking into account the above aforesaid details. Therefore, simply because the order does not speak or discuss about the loss on sale of shares should not be taken to mean that AO has not examined the details by the assessee or has not applied his mind to the details and there was complete lack of enquiry. In opinion the AO has take a possible view after taking into account the evidences filed by the assessee which are part of records and therefore the Ld. PCIT has no power to revise the assessment on the ground of lack of enquiry. In our considered view this is not a case of wrong assumption of facts or incorrect application of law and therefore the revisionary powers have been invalidly exercised. The case of the assessee finds support from the decision of jurisdiction High Court in the case of CIT vs J.L. Morrison (India) Ltd. 366 ITR 593 (Kolkata) wherein the Hon’ble Jurisdictional High Court has held that where all the requisite evidences are on records and same were duly examined by the AO, then the order of the AO was not erroneous and prejudicial to the interest of the revenue after following the decision of Hon’ble Bombay High Court in the case of CIT vs Gabriel India Ltd. 203 ITR 108(Bom) the operative part whereof is as under:
We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer 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 Income-tax Officer on being satisfied with the explanation of the Kaushalya Dealers (P) Ltd. assessee. Such decision of the Income-tax Officer 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 Income-tax Officer 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 Income-tax Officer 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.
The assessee has also filed a series of decisions of Kolkata benches as stated hereinabove deciding the similar issue in favour of the assessee by holding that PCIT cannot exercise the jurisdiction u/s 263 of the Act where the AO has taken a plausible view on the basis evidences filed by the assessee which is not contrary to law and facts. Accordingly respectfully following the decision of the jurisdiction High Court and various other decisions, we are inclined quash the revisionary jurisdiction exercised by ld PCIT in so far as it relates to loss on penny stocks.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 10.12.2021.