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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri P.M. Jagtap(KZ) &Shri A. T. Varkey, JM]
This appeal preferred by the assessee is against the order of Ld. Pr. CIT-15, Kolkata dated 22-06-2020 for assessment year 2015-16 passed u/s. 263 of the Income tax Act, 1961 (hereinafter referred to as the “Act)”.
The main grievance of the assessee is that the Ld. Pr. CIT failed to make out a case that the assessment order passed by the AO u/s. 143(3) of the Act dated 29.12.2017 is erroneous as well as prejudicial to the interest of the revenue. Therefore, the action of the Ld. Pr. CIT without satisfying the essential condition precedent to invoke the jurisdiction u/s. 263 of the Act being not complied with, the Ld. Pr. CIT lacked jurisdiction to usurp the jurisdiction u/s. 263 of the Act and, therefore, all actions taken by the Ld. Pr. CIT are null in the eyes of law.
Brief facts of the case as discernible from the Ld. Pr. CIT’s order are that the assessee HUF had filed its return of income for AY 2015-16 declaring total income of Rs.5,99,670/- which was later selected for scrutiny through CASS and he notes that the reason for scrutiny by AO was for “suspicious transaction in shares” (penny stock tab
Sunil Kumar Agarwal, AY- 2015-16 in ITS). The Ld. Pr. CIT notes that the AO, the ITO, Ward-43(6) completed the assessment u/s. 143(3) of the Act on 29.12.2017 accepting the return filed by the assessee to the tune of Rs.5,99,670/-. This order of the AO, according to Ld. Pr. CIT, was performed not in the right spirit and he completed the assessment without application of mind and without appreciation of the facts and circumstances of the case because according to him, during the year under consideration the assessee had shown long term capital gain (LTCG) of Rs.27,50,981/- on sale of shares of a company viz., M/s. Kapaac Pharma Ltd. (hereinafter M/s. KPL) and availed exemption from tax u/s. 10(38) of the Act. According to Ld. Pr. CIT, the departmental information available to the effect that M/s. KPL’s shares had been rigged/manipulated to generate bogus long term capital gain and is a penny stock. According to Ld. Pr. CIT, the AO failed to utilize the evidence furnished by the Investigation Wing of the Department and he merely relied on the recital on the documents submitted by the assessee and failed to lift the veil of tax evasion in which the assessee participated. Thus, according to him, the assessment order was prima facie both erroneous and prejudicial to the interest of the revenue within the meaning of section 263 of the Act. Therefore, he issued notice (SCN reproduced by Ld. Pr. CIT) and thereafter gave opportunity of hearing to the assessee.
In the show cause notice (SCN), the Ld. Pr. CIT notes that he has examined the records and found that the AO has failed to conduct adequate and proper enquiries in respect of assessee’s claim of exemption of LTCG. Then he alleged that the AO failed to utilize the information from the Directorate of Income-tax, Investigation which unearthed large economic scam of tax evasion in July, 2013 by conducting search and seizure operations on two companies dealing with share transactions ;and thereafter, he refers to the surveys in March 14 and August, 2014 which according to him, confirmed the earlier findings regarding the manipulation of market price of shares to provide entries of bogus LTCG and he refers to 84 BSE listed penny stock which had been used for generating bogus LTCG. According to him, the Investigation Wing also identified large number of beneficiaries such as the assessee who had participated in this operation of generating bogus LTCG and according to him, the DIT (Inv.) despite having furnished corroborative evidence against all the share brokers and the penny stock companies to the AO, still AO failed to look into this Sunil Kumar Agarwal, AY- 2015-16 investigation report while adjudicating the claim of the LTCG in respect of sale of shares of M/s. KPL which is figuring in the list of 84 companies. According to him, the AO failed to analyze the antecedents and financial strength of M/s. KPL and abnormal rise of the shares from Rs. 15/- to Rs.565/- within a short period of one year, therefore he called upon the assessee to be present before him by issuing the SCN and gave opportunity to the assessee to represent its case before him, as to why he should not invoke the revisionary jurisdiction against the assessee.
Pursuant to the SCN issued by the Ld. Pr. CIT, the assessee submitted that the assessment order passed by the AO u/s. 143(3) of the Act cannot be held to be erroneous for the reason of lack of enquiry on the part of AO before completion of assessment and pointed out to the Ld. Pr. CIT the investigation/enquiry conducted in detail by the AO in respect of the shares of M/s. KPL by issuance of various statutory notices and the replies filed by assessee along with supporting evidence. According to the assessee, even though all the requisite facts were brought to the notice of the Ld. Pr. CIT to show that the decision of AO was based on adequate inquiry and on production of documents and confirmations called upon, by the AO, still the Ld. Pr. CIT refused to drop the 263/revisional proceeding. And not satisfied with the replies of the assessee, the Ld. Pr. CIT was of the opinion that the AO merely had relied upon the recital of the documents submitted by the assessee and failed to lift the veil of tax evasion in which the assessee participated and, therefore, the Ld. Pr. CIT concluded that the AO had not performed the job in the right spirit and completed the assessment without application of mind and without proper appreciation of the facts and circumstances of the case. Therefore, he set aside the assessment and directed the AO to initiate fresh assessment by carrying out necessary enquiries and verification in respect of this LTCG claim of the assessee. Aggrieved, the assessee is before us.
The Ld. AR for the assessee Shri Akkal Dudhewala vehemently assailing the action of the Ld. Pr. CIT submitted that the jurisdictional fact and law in respect of invoking revisional jurisdiction u/s. 263 of the Act is absent since the AO had taken note in the assessment order itself that the return of the assessee was selected for scrutiny through CASS in respect of suspicious sales transaction in shares as per the inputs of Investigating Wing. The Ld. AR drew our attention to para 1 of the assessment order wherein the AO has Sunil Kumar Agarwal, AY- 2015-16 clearly noted that the reason for scrutiny in the case of assessee was due to suspicious sale transaction in shares (inputs from Investigation Wing ) and therefore, he issued 143(2) notice and sent the questionnaire by notice u/s. 142(1) on 13.11.2017. Thus, according to Ld. AR, the Ld. Pr. CIT’s allegations that AO has not taken seriously the Investigation Wing’s report itself is wrong. According to Ld. AR, pursuant to the notice of AO issued u/s. 143(2) of the Act, the assessee had furnished its financial statement for the FY 2014-15 relevant to AY 2015-16 and the computation of income for the relevant assessment year. According to the Ld. AR, the AO after examining the details of the LTCG claim as exempt u/s. 10(38) of the Act, issued notice along with the list of questionnaire u/s. 142(1) of the Act dated 30.11.2019 and referred to pages 24 to 26 of the paper book where we find the 142(1) notice dated 13.11.2017 wherein the AO asked the following questions:
I) Details of source of income, ii) How you decide about investing in shares of a particular company, iii) details of purchase and sale of the shares, iv) Do you know about the business of the companies? v) The company was listed on NSE/BSE during the time purchase and sales, vi) Mode of transaction of the shares, vii) Purchase Bill with mode of transaction, viii) Provide details of Bank statement-mat account, ix) Contract note, x) Reason for claim exemption u/s. 10(38) of the Act.
Pursuant to the aforesaid questionnaire the assessee replied to the AO vide letter dated 28.11.2017 which copy of the letter is found placed at pages 27 to 34 of the paper book. Thereafter not satisfied with the reply of the assessee, the AO issued another letter in respect of the LTCG claim of the assessee, wherein question regarding price variation of Rs 15/- to Rs 565/- per share of M/s KPL [question number 8] and the investigation report [question number 10] was asked, a copy of which is reproduced as under:
Sunil Kumar Agarwal, AY- 2015-16
Sunil Kumar Agarwal, AY- 2015-16
Pursuant to the aforesaid notice of the AO, the assessee filed detailed reply dated 27.12.2017 which is placed at pages 35 to 44 of paper book. Then the Ld. AR drew our attention to the fact that the AO issued notice u/s. 133(6) of the Act to the registered broker M/s. Intellect Stock Broking Limited and also the seller M/s. Shalibadra Steel Pvt. Ltd. which notices are placed at pages 45 and 46 of the paper book. Thereafter, the Ld. AR of the assessee drew our attention to the page 55 to 67 of the paper book, the copies of the statement of Shri Alok Harlalka and Shri Sunil Kayan provided by the Ld. Pr. CIT-15, Kolkata along with the copy of the reply dated 06.02.2020 filed by the assessee in response thereto which is kept in pages 55 to 67 of the paper book and he drew our attention to page no. 59 of paper book wherein the names of the major clients/jamakharchi companies which were engaged in bogus trading of scrips through his broking house Shri Sunil Kumar Kayan has been given. The Ld. AR drew our attention to the 23 names of jamakharchi companies to point out that neither the assessee’s name nor its brokers’ name figuring in it.
Sunil Kumar Agarwal, AY- 2015-16 9. It was brought to our attention that the assessee had filed the following documents before the AO as well as the Ld. Pr. CIT to authenticate the transaction which resulted in their claim of LTCG: i) Profit & Loss Account and Balance Sheet for the FY 2014-15. ii) Bank statement for the FY 2014-15, iii) Purchase invoices of the shares of M/s. Kappa Pharma Ltd. along with the relevant receipt issued by the seller and its ledger. iv) Share certificates of Kappac Pharma Limited evidencing that the shares stood transferred in the assessee’s name and that the name o the assessee appeared in the register of members of Kappac Pharma Limited. v) Contract Notes dated 22.04.2014 and 25.04.2014 evidencing sale of shares through registered stock broker, M/s. Intellect Stock Broking Limited along with dematerialization request form.
Thereafter the Ld. AR drew our attention to the order sheet of the AO which is kept in pages 47 to 49 of paper book from which the Ld. AR drew our attention to the fact that the cases were fixed from 01.05.2017 and there was several rounds of assessment proceedings on various dates and he also drew our attention to page 48 (order sheet) wherein assessment proceedings that was recorded on 29.12.2017 has been noted by the AO assessed u/s. 143(3) of the Act as per ITNS-65 issue copy of computation sheet, Demand Notice, copy of order to the assessee. Thereafter, he drew our attention to page 49 of paper book wherein the AO records that there was an audit objection on 29.12.2019 and based on the audit objection the case was put up by AO before the Ld. Pr. CIT who in turn issued SCN 25.09.2019 u/s. 263 of the Act and that is the genesis for the Ld. Pr. CIT to invoke revisional jurisdiction. Therefore, according to Ld. AR, in the facts and circumstances and a perusal of assessment order of AO it can be observed that the AO has correctly identified the CASS issue which was selected for scrutiny and has clearly brought out in the notice he issued u/s. 142(1) wherein he cites the investigation report and had raised the query regarding price variation from Rs.15 to Rs.565/- (supra) and after going through the reply of assessee , the AO had called for confirmation from the broker and the seller by issuing notice u/s. 133(6) of the Act and thus AO has conducted in depth enquiry and after having collected all the information and having gone through the documents being satisfied with Sunil Kumar Agarwal, AY- 2015-16 the replies and in line with various decisions of High Court and Tribunal, the AO has taken a plausible view which according to Ld. AR, cannot be interfered unless the Ld. Pr. CIT make a finding that the view of the AO in the facts and circumstances of the case is unsustainable in law and for contending so he relied on the order of the Hon’ble Supreme court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC).
Per contra, the Ld. CIT, DR Shri Imokaba Jamir vehemently opposed the contention of the Ld. AR and submitted that the Investigation Wing has clearly brought out that M/s. KPL’s shares are manipulated and the assessee participated in this bogus transaction and the AO failed to take notice of the Investigation Wing report and did not conduct proper enquiry due to which the Ld. Pr. CIT has found the order of the AO to be erroneous as well as prejudicial to the interest of the revenue, which decision he does not want us to interfere.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee is aggrieved by the action of the Ld. Pr. CIT to invoke jurisdiction u/s. 263 of the Act which is the revisional jurisdiction vested with him. Since the assessee has raised the legal validity of invocation of jurisdiction u/s. 263 of the Act, we may refresh ourselves with respect to this issue by referring to the Hon’ble supreme Court’s decision in Malabar Industries Ltd. (supra) wherein their Lordship have held that twin conditions should be satisfied before jurisdiction u/s 263 of the Act is exercised by the ld. Pr. CIT. The twin conditions which need to be satisfied are that (i) the order of the Assessing Officer must be erroneous and (ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous i.e. (i) if the Assessing Officer's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed without application of mind; or (iv) if the AO has not investigated the issue before him. In the circumstances enumerated above only the order passed by the Assessing Officer can be termed as erroneous for the purpose of section 263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised by the Ld. Pr. CIT only when it is shown that the said order is prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Sunil Kumar Agarwal, AY- 2015-16 Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an "erroneous" order passed by the Assessing Officer. The Hon’ble Supreme Court, held that for invoking powers conferred by section 263 the Ld. Pr CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue. Their Lordship in the said judgment held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It was further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.
Keeping the aforesaid law laid down by the Hon’ble Apex Court, when we examine this case, we note that main allegation of Ld. Pr. CIT to invoke the revisional jurisdiction u/s. 263 of the Act is that the AO failed to identify the purpose for which the assessee’s return was selected for scrutiny and thereafter the AO has not taken into consideration the investigation report about penny stock and especially the price variation of scrip i.e, [purchase price of M/s. KPL by assessee for Rs.15/- and sale price @ Rs.565/- ], thus the AO failed to conduct proper investigation on the claim of LTCG and thus there was non- application of mind by AO, resulting in passing an erroneous assessment order as well as caused prejudice to the interest of Revenue. In this context, we find that the AO has clearly taken note in the assessment order of the fact that the assessee’s return was selected for scrutiny through CASS and reason for scrutiny “suspicious sale transaction in shares (inputs from Investigation Wing)’’ and thereafter, we note that the AO issued statutory notices to verify the claim. We note that the AO had issued notice u/s. 142(1) dated 13.11.2017 which is found placed at pages 24 of the paper book and we also note that the assessee had replied to the statutory notice vide letter dated 28.11.2017 and 27.12.2017 which are found placed at page 27 to 44 of the paper book. We note that the AO had issued another letter [reproduced supra] wherein he asked searching questions in respect of the LTCG claim of the assessee, wherein question regarding price variation of Rs 15/- to Rs
Sunil Kumar Agarwal, AY- 2015-16 565/- per share of M/s KPL [refer question number 8] and he confronts the assessee as to why he should not treat the claim of assessee as to evade tax on the strength of the investigation report of the wing prepared and disseminated in july 2015 [refer question number 10]. We also note that the AO had issued notices u/s. 133(6) of the Act to the registered broker M/s. Intellects Stock Broking Ltd. and the seller of the scrip M/s. Shalibhadra Steel Private Limited which are found placed at pages 45 and 46 of the paper book respectively. Both the letters have been issued on 30.11.2017 u/s. 133(6) of the Act wherein the AO also directed them to produce details of purchase/sale account with the assessee HUF along with details of the transactions. It is noted from the order sheet maintained by AO in respect of assessee that the AO had started the scrutiny assessment proceedings in December, 2016 fixing the matter on 16.01.2017 and thereafter fixed the matter on 01.05.2017, thereafter on 13.11.2017 and thereafter on 24.11.2017 and thereafter on 26/27.12.2017 before passing the assessment order. In the light of the aforesaid investigation carried out which we have noted in para 6 to 10 and the replies which the assessee has given (page 27 to 44 of paper book) the AO being satisfied with the claim of assessee in respect of LTCG has not taken any adverse view against the assessee cannot be said to be an exercise in AO did not conduct enquiry. In this case, the AO had conducted enquiry as discussed supra which cannot be termed as a case of ‘no enquiry’. Moreover, we presume that Ld. Pr. CIT having perused the assessment folder must have seen that the AO has conducted the above said enquiries; however the Ld Pr CIT has not given any factual finding that the result of the enquiry conducted by AO was factually wrong or the assessee had misled the AO by filing forged documents. The ld. Pr. CIT has neither been able to show from the relevant extracts of the investigation report that assessee’s registered broker M/s. Intellect Stock Broking Ltd nor the seller of scrip M/s. Shalibadra Steels Pvt Ltd was engaged in un-scrupulous/nefarious activities of this sort. It is true that some persons were engaged in jacking up the price of certain shares like M/s. KPL and made claim of LTCG or loss (depending on the necessity of beneficiary). However, one cannot assume that everyone who claims LTCG on sale of shares of M/s. KPL has been participant in this conspiracy to make windfall gain/loss. Why it is said so, because the purchase and sales of M/s. KPL happens through the electronic platform of stock Exchange which are under close watch/scrutiny of the SEBI and trading happens transparently/openly in the electronic platform of stock Exchange, where any person through registered broker can purchase and Sunil Kumar Agarwal, AY- 2015-16 sell listed shares. In such transaction on electronic platform, the buyer and seller are not known to each other and it happens on the click of a mouse and through de-mat accounts. If the Pr. CIT’s allegation is correct then the transaction was fixed between the assessee’s registered broker and the buyer’s broker, then naturally if there was a foul play in assessee’s case then naturally the investigation report of the department could have black listed the registered brokers involved in the purchase and sale of M/s KPL, which is not the case of Ld Pr CIT. Moreover, it is not the case of the SEBI that each and every transaction which happened in respect of 84 suspected companies shares (including M/s. KPL) are eye wash or non-genuine. May be there might be some unscrupulous persons involved in participating in the scam. That does not mean that everyone who had purchased and sold shares of M/s KPL can be branded as active participants in the scam for claiming bogus LTCG, unless there is some material to point a finger at assessee for participation in the scam. We note that in this case AO has called for confirmation from the assessee’s broker and seller regarding the claim of LTCG and it is neither the case of Revenue that the assessee’s registered broker or seller had participated in this fixing scam nor the Pr CIT’s case that they had been named by any Investigation Wing about their involvement in this unscrupulous activities regarding bogus LTCG. So in the light of the facts discussed, we find on a perusal of assessment order that the AO has correctly identified the CASS issue for which the assessee’s return was selected for scrutiny and has clearly brought out in the notice issued u/s. 142(1) wherein he cites the investigation report of investigation wing [ question number 10 of AO in the notice u/s 142(1) reproduced supra]and had raised the query regarding price variation from Rs.15 to Rs.565/- [ question number 8 of AO in the notice u/s 142(1) reproduced supra] and after going through the reply of assessee , the AO had called for confirmation from the broker and the seller by issuing notice u/s. 133(6) of the Act. And we find from queries raised by AO and replies given by the assessee on the issue of LTCG on sale of shares which we have discussed in detail at para 6-10 supra which is not being repeated for the sake of brevity and to avoid repetition, we find that AO has conducted enquiry based on investigation report and after having collected all the information and having gone through the documents and having carried out cross- verification from broker and seller of scrip, the AO issued another letter dated 26.12.2017 in respect of the LTCG claim of the assessee, wherein question regarding price variation of Rs 15/- to Rs 565/- per share of M/s KPL [question number 8] and the investigation report
Sunil Kumar Agarwal, AY- 2015-16 [question number 10] was asked, the AO being satisfied with the replies, have taken a plausible view which is in line with the views expressed by various Hon’ble High Courts and this Tribunal. So, we find that the AO’s view which was taken by him, after enquiry as discussed supra cannot be termed as unsustainable view in the eyes of law and since AO’s view is plausible view it could not have been interfered by Ld. Pr. CIT as held by Hon’ble Supreme Court in Malabar Industries Ltd. (supra). Therefore, in the light of the aforesaid discussion, since the Ld. Pr. CIT failed to show/demonstrate that the order of the AO was erroneous in respect of accepting the claim of LTCG, we find that the condition precedent necessary to invoke the revisional jurisdiction to u/s 263 of the Act is absent and, therefore, we are inclined to allow the appeal of the assessee and quash the impugned order of Ld. Pr. CIT.