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Income Tax Appellate Tribunal, ‘’ A” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Principal Commissioner of Income Tax, Ahmedabad-1, dated 16/03/2021 arising in the matter of Assessment Order passed under s. 263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-2016.
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The only issue raised by the assessee is that the learned PCIT erred in holding the assessment framed by the AO under section 143(3) of the Act as erroneous insofar prejudicial to the interest of Revenue.
The facts in brief are that the assessee in the present case is an individual and director in various companies. The assessee has declared income from rent, capital gain, partnership firm and other sources for an amount of Rs. 27,48,040.00 which was accepted in the assessment framed under section 143(3) of the Act.
However, the learned PCIT under section 263 of the Act on examination of the case records of the assessee found that the case of the assessee was selected under CASS on account of ‘suspicious sale transaction in shares and exempt long-term capital gains shown in the return (Penny stock tab in ITS)’. As such the assessee has shown long-term capital gain of ₹ 9,07,54,203.00 which was claimed as exempted income under section 10(38) of the Act on the sale of the shares of the following companies: i. M/s Alps Motor Finance Limited. ii. M/s Saibaba Investment & Commercial Enterprises Limited.
4.1 As per the learned PCIT, the company namely M/s Alps Motor Finance Limited was identified as one of the penny stock companies which was engaged in providing the bogus long-term capital gain on the basis of investigation carried out by the directorate of investigation wing at Kolkata. According to the learned PCIT, the purchase and sale of the shares of M/s Alps Motor Finance Limited was systematically managed and the price were rigged up to extend the benefit of bogus long-term capital gain.
4.2 Likewise, the assessee acquired 3,30,000 shares of M/s Saibaba Investment & Commercial Enterprises Limited in the financial year 2013-14 at ₹10 per share.
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Out of such shares, the assessee has sold 1,76,549 shares in the year under consideration at an average value of ₹180 per share and generated huge long-term capital gain. As such, the financial of the company M/s Saibaba Investment & Commercial Enterprises Limited were not strong enough so as to invite/attract the investors, particularly in a situation where it did not had any fixed assets and it was not declaring any dividend. Accordingly, the learned PCIT was of the view that the purchase/ sales of the shares of the impugned companies were systematically managed and the price were rigged up to extend the benefit of bogus long-term capital gain to the beneficiaries.
However, the AO in the assessment framed under section 143(3) of the Act has not taken the cognizance of the facts as discussed above with respect to both the companies and allow the benefit of exemption claimed by the assessee under section 10(38) of the Act.
In view of the above, the learned PCIT proposed to hold the assessment framed as erroneous insofar prejudicial to the interest of revenue by issuing a show cause notice to the assessee but there was no response from the side of the assessee. Thus, the learned PCIT concluded that the assessment order passed by the AO is erroneous insofar pre-judicial to the interest of Revenue on account of non-verification and adequate examination of the facts as discussed above.
Being aggrieved by the order of the learned PCIT, the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 314 and contended that the assessment was framed by the AO after conducting necessary enquiries. The ld. AR in support of his contention referred the notice issued under section 142(1) of the Act and the replies made by the assessee based on the documentary/ supporting evidences which are available on record.
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On the contrary, the learned DR before us at the time of hearing has made reference to the judgment of Hon’ble Calcutta High Court recently passed in various cases by way of a combined order dated 14-6-2022 in the case of PCIT Vs. Swati Bajaj reported in 139 taxmann.com 352 and vehemently supported the order of the ld. PCIT.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we find that the primary reason for exercising the jurisdiction by the learned PCIT under section 263 of the Act was with regard to the non-verification of genuineness of the exemption claimed by the assessee under section 10(38) of the Act on account of long-term capital gain from the sale of securities/shares of different companies as discussed above.
10.1 Undoubtedly, the prerequisite for exercise of jurisdiction by the learned Principal CIT under section 263 of the Act is that the order of the AO is to be established to be erroneous insofar as it is prejudicial to the interest of the Revenue. The Principal CIT has to satisfy twin conditions, namely (i) The order of the AO sought to be revised is erroneous; and (ii) It is prejudicial to the interests of the Revenue. 10.2 If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, the provision of section 263 cannot be invoked and vice-versa. The provisions of section 263 of the Act cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue's interest to attract the provisions of section 263 of the Act.
10.3 In the present case, it has been alleged by the Revenue that that the proper enquiries have not been conducted by the AO relating to genuineness of the exemption claimed by the assessee under section 10(38) of the Act on account of
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long-term capital gain from the sale of securities/shares of different companies. However, despite our deep and careful consideration of the materials on record including the necessary enquiries conducted by the Revenue pre-assessment and during the assessment by the AO in the subjected scrutiny assessment, we do not find that the enquiries were not conducted. This can be established from the necessary enquiries conducted pre-assessment by the Investigation wing and during the assessment by the AO. The facts are not disputed, as evident from the order of the learned PCIT, that the case of the assessee was selected under scrutiny based on CASS with the following reason: “suspicious sale transaction in shares and exempt long-term capital gains shown in the return (Penny stock tab in ITS)’.
10.4 In addition to the above, there was also summon issued by the Director of Income Tax dated 13 August 2015 before selecting the case under scrutiny under the provisions of section 131(1A) read with section 131 (1) of the Act upon the assessee requiring, among other details, the following information: You requested to remain present at the required date and time for recording of oral evidence along with the following details: 1. Details of transaction in respect of following scrips for the period 01.04.2008 to 31.03.2015 (i) M/s.Alps Motor Finance Ltd. 2. The details may contain following: p) Financial year –wise details of transaction in respect of purchase/sale of shares (scrip-wise seperartely) mentioning date of transaction, quantity, rate of purchase/sale, total trade value and mode of payment, etc. q) Contract note cum bills in respect of purchase/sale transaction of shares. r) Source of funds for purchase of shares. s) Financial Year wise working of capital gain/loss on account of purchase/sale of above shares. t) Copy of Demat account highlighting the receipt and sale of shares of the said company (i.e M/s.Alps Motor financial Ltd.) 3. Details of transaction of purchase/sale of shares other than mentioned above from 01.04.2008 to 31.03.2015 may also be submitted in similar manner. 4. Copy of acknowledgement of latest return of income filed by you. 5. Please provide copy of bank account highlighting the amount paid for purchase of shares of M/s.Alps Motor finance Ltd.)
10.5 Based on the above, the assessee vide letter dated 24 August 2015 furnishes the details as detailed below:
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From, Dinesh Chhganial Thakkar 22, Rivers 30 Bunglows, Opp: Shiva Si k Arcade, Nr. Auda Garden, Prahaladnagar, Ahmedabad-380015. 24.08.2015 To, Deputy Director of Income Tax(Inv.) Uitl(l), Room No.142, Aaykar Bhawan, Ashramroad, Ahmedabad. Respected Sirs, Sub : Summons u/s.I31 of the Income Tax Act,1961 dated 13.08.2015 I am in receipt of above cited summons and noted contents, With reference to the said subject, I herewith submit the details as called in the said summons as ;jnder. 1 & 2 t Details of Transaction in. scrip M/s. Alps Motors Finance Ltd for the period 01,04,2008 to 31.03.2015. I have made preferential share application for 125000 shares each of Rs.10/-- i.e. Total application amount Rs, 1250000 through RTGS in M/s. Alps Motors Finance Ltd from my bank account no. 00060340008321 of HDFC Bank account maintained in my regular books of accounts.(Copy of RTGS form alongwith bank statement showing details of issued cheque enclosed herewith mark as "Armexure-i"). Alps Motors issued receipt for the same..(Copy of receipt enclosed herewith mark as "A.nnexure-2"),With reference to my share application, Company allotted physical shares of 1,25,000/- on 03/07/2013 bearing certificate no. 30490 & Distinctive Number 5346421-5471420.(Copy of share certificate and letter of allotment of shares enclosed herewith mark as "Annexure-3")-The$e shares were given to DP to convert into D-Mat form on 29.11.2013. (Copy of DP Receipt enclosed herewith mark as "Annexure-4").The shares were converted into D-Mate form on 06,12.2013. (Copy of d-mate statement showing this fact enclosed herewith mark as "Annexure-5"). Company split its shares having face value of Rs.10 into Rs.1 face value on 04.08.2014 and converted 1 shares of Rs.10/ face value into 10 shares of Rs.1 face value.(Copy showing this fact enclosed herewith mark as "Annexure-6"). The 92500 shares having Rs.10 face value lying in D-mate account were converted into 925000 shares having face value of Rs.l face value as on 06.08.2014.( Copy of d-mate statement showing this fact enclosed herewith mark as "Annexure-7"). 32500 Shares having face value of Rs.10/- sold as per details as mark herewith nAnnexure-7". Copy of sale bill enclosed herewith mark as "Annexure-8". Total shares of Rs.32500/- of face vaiue of Rs.10/- sold as detailed above and on 06.08.2014, shares 92500/- each efface value of Rs.10/- converted into 925000 shares each of face value of Rs.l/-. The detail of 925000 shares sold of face value of Rs.1is as per "Annexure-9". Copy of sale bills enclosed herewith mark as "Annexure-9". Bank statements showing the receipt of payment of sold shares enclosed herewith mark as"Annexure-10". The detail calculation of capital gain on sold shares is enclosed herewith mark as "Annexure-Il".
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Copy of Acknowledgement of Income Tax Return: Copy of acknowledgement of income tax return for the Asst.Year;2014-15 alongwith statement of total income enclosed herewith mark as "Annexure-12". 4. Bank Payment details of purchase of shares: Copy of bank statement showing purchase of shares enclosed herewith mark as "Annexure-13". Hope that your honour will find the above in order. Thanking you in anticipations. 5. Letter of Authority: I authorized Mr. Mohan C. Shah, Partner of Mohan C Shah & Associates for Income Tax Proceedings and letter of Authority enclosed herewith mark as “Annexure-14”
10.6 Subsequently, the case of the assessee was selected under complete scrutiny and accordingly the notice under section 143(2) was issued dated 28th July 2016. Further the assessee was required by the AO in the notice issued under section 142(1) of the Act dated 8 December 2017 to furnish the following details: Please refer to the discussion with you AR on 23/11/17, during which he was requested to furnish details of Short Term and Long Term capital gain earned during FY relevant to AY under consideration.
10.7 The assessee in response to the above notice has submitted the necessary details vide letter dated 15 December 2017. The relevant extract of the submission stands as under:
Details of short Term Capital Gain: Assessee has incurred short term capital loss of Rs. 651573/- during the year. The relevant details such as name of the company, purchase quantity, purchase date, sale date, sale value, gain/loss is given in the statement of total income submitted in our earlier submissions. We enclose herewith a copy of statement of total income mark as "Annexure-1" for ready reference. 2. Details of Long term Capital Gain: Assessee earned long term capital gain of Rs.90754203/- during the year. With reference to this subject, we herewith enclose a copy of long term capital gain showing company-wise gain, Company-wise ledger accounts since inception showing the purchase value and dale, sale value and date, and gain/loss earned in the shares of said shares, Company-wise share application, Bank statement] showing cheque payment toward purchase of shares, Acknowledgement receipts issued by company regarding receipt of application, Letter of allotment of shares issued by the company toward share application, Demat receipts given to DP for demat shares, Share certificate issued by company, demate statement showing inward and outward entries and bills issued by registered broker of exchange against sale of shares, enclosed herewith mark as "Annexure- 2". Hope that your honour will find the above in order and do needful the matter, meanwhile
10.8 The above reply of the assessee was supported with the following details:
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Submission to AO dated 15.12.2017 along with 30-31 Details of Alps Motors Finance Ltd. 32 (i) RTGS payment details for purchase of shares 33-34 (ii) bank Statement evidencing debit of amount (iii) Confirmation from Alps Motors Finance Ltd. for 35 receipt of amount (iv) Intimation of allotment of shares 36-37 (v) Demat Requisition form 38-42 (vi) Demat Statement 43-49 (vii) Bank Statement for F.Y. 2013-14 50-64 (viii) Working of Capital Gain 65-66 Details of Sai Baba Investment and Commercial Enterprises Ltd. (ix) Application for equity shares 67-69 (x) Bank Statement evidencing payment 70 (xi) NEFT details for purchase of shares 71 (xiii) Form 2 filed with Ministry of Corporates Affairs 72-77 (xiii) Demat Startement 78 Contract notes for sale of shares 89-307
10.9 The assessee further during the assessment proceedings vide letter dated 15 December 2017 submitted that the transaction carried out by him are genuine and the same cannot be doubted merely on the reasoning that the assessee has generated huge long-term capital gain on purchase and sale of the shares. The assessee in support of his contention has also made reference to the various judgments of the Hon’ble Gujarat High Court. The relevant submission of the assessee reads as under:
In last submission, we have submitted details of purchase of share, d’mate details, cheque payment details for purchase of shares, Bank Statements showing purchase consideration, Sales bills of details, Copy of broker accounts, etc. All the shares were sold on the floor of stock exchange through registered broker and deliveries of said shares were given through demat account as well as sale consideration were received by account payee cheque. In view of this, the transaction cannot be suspicious only on the basis of high amount of long term capital gain. It has been held in a number of judicial decisions in identical cases in favour of assessee. Considering various judicial judgments of various ITAT, High Courts including Gujarat High Courts, transaction of assessee cannot be considered bogus or suspicious in any circumstances. The decision of the Gujarat High Court in the identical issue is the law and binding to all assessing officer having jurisdiction in Gujarat. The following are some judicial pronouncements where identical issue was decided and held in favour of assessee. 1. High Court of Gujarat in case of Commissioner of Income-tax-I vs Maheshchandra G. Vakil [2013] taxmnann.com 326 (Gujarat), held that where assessee proved genuineness of share transaction by contract notes for sale and purchase, bank statement of broker, demat account showing transfer in and out of shares as also abstract of transaction furnished by stock exchange Assessing Officer was not
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justified in treating capital gain arising from sale of shares as unexplained cash credit. 2. High court of Gujarat in case of Commissioner of Income-tax-I Vs. Himani M Vakil (2013) 10 taxmann.com 326 (Gujarat) held that where assessee duly proved genuineness of share transaction by bringing on record contract notes for sale and purchase, bank statement of broker and demat account showing transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. The fact of the above two cases are indentical with the case of the assessee. In the above referred case, assessee proved genuineness of share transactions by bringing contract notes for sale and purchase, bank statement of broker and demat account showing transfer in and out of shares and therefore, the Hon’ble Gujarat High Court held that AO was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. In my case, I have submitted all the documents such as contract notes of transactions, demat statement showing timely inward- outward entries, bank statement showing payment and receipts, broker accounts, books of accounts showing that the purchase sale is made from the regular books of accounts etc and therefore my case is identical with this case. The decision is given by the honourable Gujarat High Court and therefore, binding to all the Assessing Officer having jurisdiction in Gujarat. In view of this, the proposed addition is against the provision of law.
10.10 Hence, we do not agree on this aspect to this extent that there were not conducted proper enquiries about the facts of the case involved in dispute. From the above details, there remains no ambiguity to the fact that there was the application of mind by the AO during the assessment proceedings which is evident from the queries raised by the AO and the details furnished by the assessee. It is the settled position of law that an inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer’s prerogative to make inquiry to the extent he feels proper. The ld. PCIT by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various Hon’ble High Courts in this regard.
10.11 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The
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Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. The relevant observation of Hon’ble Delhi High Court reads as under: “ 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.”
10.12 The Hon’ble Bombay High Court in case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the following manner: “The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.
10.13 The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words:- “20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provison shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis- à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment
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brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.”
10.14 The Hon’ble Supreme Court in recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates*[2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revised order after making addition to assessee's income under section 69A in respect of on-money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revised order under section 263 of the Act on the ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed by Commissioner. The Hon’ble High Court upheld Tribunal's order. The Hon’ble Supreme Court while dismissing the SLP filed by the Department held as under:- “We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed”
10.15 In view of the above, we are of the view that the order of the AO cannot be held as erroneous in so far prejudicial to the interest of Revenue on account of lack of enquiry. At this juncture, it is important to point out the fact that our observation is limited to the extent that the enquiries were conducted by the AO and the same should not in any manner be read as expression on merits. With this observation,
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the order of the ld. PCIT is set aside and quashed. Thus, the ground of appeal of the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the Court on 21/10/2022 at Ahmedabad.
Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
(True Copy) Ahmedabad; Dated 21/10/2022 Manish