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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ NEW DELHI
Before: SHRI G.D. AGRAWAL & SHRI SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA, J.M.: This is assessee’s appeal preferred against the order dated 12.03.2018 passed u/s 263 of the Income Tax Act, 1961 (hereinafter called 'the Act') by the Ld. Pr. C.I.T., Delhi-13 for assessment year 2013-14. The Ld. Pr.CIT, in the impugned order, has held that the Assessing Officer did not conduct inquiries/verification that he should have done before passing the original assessment order u/s 143(3) on 14.03.2016. It has been held by the Ld. Pr.CIT that the original assessment order is erroneous inasmuch as it is prejudicial to the interest of revenue.
Vide the impugned order, the Ld. Pr. CIT has cancelled original assessment and has directed the Assessing Officer to make fresh assessment after making proper inquiries with respect to certain suspicious transactions relating to long term capital gains on shares.
2.0 Brief facts of the case are that in this case the return of income was filed declaring total income at Rs. 5,55,100/-. The case was selected for scrutiny under CASS and vide order dated 14.03.2016, the Assessing Officer accepted the returned income which included income from long term capital gains and income from other sources. Subsequently, a show cause notice was issued u/s 263 of the Act on 19.12.2017 by the Ld. Pr. CIT stating that the Assessing Officer did not make proper inquiries nor he investigated/verified the various details filed and even omitted issues specially with respect to suspicious transactions relating to long term capital gain in shares, rendering the assessment so made to be erroneous and prejudicial to the interest of the revenue. The assessee was asked to show cause as to why the original assessment order passed on 14.03.2016 u/s 143(3) of the Act not be revised. In response, the assessee submitted before the Ld. Pr.CIT that the assessee had filed all the requisite details and information regarding the nature and source of capital gains along with documentary evidences during the course of assessment proceedings. It was submitted that the Assessing Officer had reached a conclusion after verifying and examining all the information and details and, therefore, the action of the Assessing Officer could not be the basis for initiating revisionary proceedings u/s 263 of the Act. However, the Ld. Pr.CIT was of the opinion that since the law had been amended and Explanation 2 had been introduced below section 263 which specified 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 or the Commissioner, the order has been passed without making any inquiries or verification which should have been made by the Assessing Officer. The Ld. Pr.CIT was of the opinion that since the Assessing Officer had not carried out the investigation/inquiry which he should have, the order is to be deemed to be erroneous inasmuch as it is prejudicial to the interest of the revenue. The Ld. Pr.CIT proceeded to cancel the assessment and directed the Assessing Officer to frame fresh assessment after conducting appropriate inquiry. Aggrieved by this order of the Ld. Pr.CIT, the assessee is now in appeal before the ITAT.
3.0 The Ld. AR submitted that it is not the case of the Ld. Pr.CIT that no inquiry was conducted by the Assessing Officer during the course of original assessment proceedings. He drew our attention to the copy of notice u/s 143(2) of the Act dated 24.09.2015 issued during the course of original assessment proceedings and also a copy of questionnaire dated 04.04.2015 wherein the Assessing Officer had required the assessee to submit details of and substantiate long term capital gain. Our attention was also drawn to copy of replies submitted to the Assessing Officer in this regard along with copies of ledger accounts of the assessee in the books of the share brokers along with contract notes and also copies of purchase bills of shares and share certificates to substantiate that all the transactions were genuine and had been duly inquired into by the Assessing Officer. It was also submitted by the Ld. AR that the Ld. Pr.CIT had not made any inquiries on his own but had directed the Assessing Officer to conduct inquiries which was against the law laid down by the Hon’ble Delhi High Court in the case of CIT vs. Goetze India Ltd. reported in 361 ITR 505 (Del). It was also submitted that the insertion of Explanation 2 to section 263 of the Act was prospective in nature and, therefore, would not apply in assessment year 2014-15.
4.0 In response, the Ld. CIT DR vehemently supported the order of the Ld. Pr.CIT and submitted that since the Assessing Officer had not made any inquiry regarding the long term capital gains, the exercise of revisionary jurisdiction by the Ld. Pr.CIT was justified. The Ld. CIT DR also placed reliance on the following case laws to support her contention that the action of the Ld. Pr.CIT in invoking the provisions of section 263 of the Act was justified:-
Malabar Industrial Co. Ltd. vs. CIT Supreme Court 2000, 109 Taxman 66
CIT vs. Ashok Logani, Delhi High Court, 2011, 11 taxmann.com 208
Surya Jyoti Software Pvt. Ltd. vs. PCIT, ITAT Delhi, 2017, ITA No. 2158/Del/2017
Surya Financial Services Ltd. vs. PCIT, ITAT Delhi 2018, 2018-TIOL-74-ITAT-DEL 5.0 We have heard the rival submissions and perused the material available on record. From the records produced before us, it is very much evident that the Assessing Officer had made detailed inquiries regarding the assessee’s claim of long term capital gain and, thereafter, after considering the reply submitted by the assessee, the Assessing Officer had made further inquiries also which is evident from the copy of questionnaire as well as the reply thereto which has been placed in the Paper Book filed by the assessee before us. Thus, in view of the documentary evidences as called for and examined by the Assessing Officer, it is very much evident that the Assessing Officer had applied his mind to the issue of long term capital gains and it was only after having been satisfied with the correctness of the claim that he accepted the return filed by the assessee. Therefore, we can safely conclude that proper inquiries had been made by the Assessing Officer while accepting the claim of the assessee and, therefore, the contention of the Ld. Pr.CIT that no inquiry was made by the Assessing Officer is factually incorrect. It is not the case where no inquiry has been made by the Assessing Officer.
Merely because the Ld. Pr. CIT felt that further inquiry should have been made does not make the order of the Assessing Officer erroneous and prejudicial to the interest of the revenue.
5.1 It is further seen that the assessee had made detailed submissions before the Ld. Pr.CIT in response to the notice u/s 263 of the Act stating that all the issues raised by the Ld. Pr. CIT had been duly examined by the Assessing Officer during the course of assessment. However, the Ld. Pr.CIT has ignored the replies of the assessee and he has not discussed as to why he does not agree with the contentions of the assessee. The Ld. Pr.CIT has merely remitted the matter back to the Assessing Officer without making any inquiry himself. It is apparent that no independent inquiries have been made by the Ld. Pr.CIT although it was incumbent upon him to make such inquiry so as to reach the conclusion that the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue.
5.2 The Hon’ble Delhi High Court in the case of Pr.CIT vs. Delhi Airport Metro Express Pvt. Ltd. in has categorically held that for the purpose of exercising jurisdiction u/s 263 of the Act and reaching a conclusion that the order is erroneous in so far as being prejudicial to the interest of the revenue, the CIT has to make some minimal inquiry and where the CIT is of the view that the Assessing Officer had not undertaken any inquiry, it becomes incumbent upon the CIT to conduct such inquiry. We are afraid that in the present case the Ld. Pr.CIT has not conducted any such inquiry.
5.3 Further, the Hon’ble Delhi High Court in the case of Pr.CIT vs. Modicare Ltd. in ITA 759/2017 has held that the exercise of jurisdiction u/s 263 of the Act cannot be outsourced by the Ld. Pr.CIT to the Assessing Officer and therefore, the Ld. Pr.CIT cannot direct the Assessing Officer to provide details of the facts on the basis of which proceedings u/s 263 could have been initiated.
5.4 In the present case, it is apparent that the Ld. Pr.CIT, unmindful of the inquiries conducted by the Assessing Officer during the course of assessment proceedings and the submissions made by the assessee in response to notice u/s 263 of the Act, has merely observed that the assessment order was passed without making proper inquiries and it is a matter of record that the Ld. Pr.CIT has himself not undertaken any inquiry to reach a conclusion that the order is erroneous and prejudicial to the interest of the revenue.
5.5 We may further add that there is a difference between lack of inquiry and inadequate inquiry and it is for the Assessing Officer to decide the extent of inquiry to be made and it is his satisfaction which is required under the law. The Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs. 8 Sunbeam Auto Ltd reported in (2010) reported in 332 ITR 167 (Delhi) has held that if there was any inquiry, even inadequate, that would by itself not give occasion to the Commissioner to pass order u/s 263 of the Act merely because the Commissioner had a different opinion in the matter. It is a settled law that the Ld. Pr.CIT cannot pass the order u/s 263 on the ground that thorough inquiry should have been made by the Assessing Officer.
5.6 Although, there has been an amendment in the provisions of section 263 of the Act by which Explanation 2 has been inserted w.e.f. 1.6.2015 but the same does not give unfettered powers to the Commissioner to assume jurisdiction under section 263 to revise every order of the Assessing Officer to re-examine the issues already examined during the course of assessment proceedings. The Mumbai ITAT Bench has dealt with Explanation 2 as inserted by Finance Act, 2015 in the case of Narayan Tatu Rane vs. ITO reported in (2016) 70 taxman.com 227 to hold that the said Explanation cannot be said to have overridden the liability as interpreted by Hon’ble Delhi High Court, according to which the Commissioner has to conduct the inquiry and verification to establish and show that the assessment order was unsustainable in law. The ITAT Mumbai Bench has further held that the intention of the legislature could not have been to enable the CIT to find fault with each and every assessment order without conducting any inquiry or verification in order to establish that the assessment order is not sustainable in law, since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. The ITAT Mumbai Bench of the Tribunal went on to hold that the opinion of the Commissioner referred to in section 263 of the Act has to be understood as legal and judicious opinion and not arbitrary opinion.
5.7 We also note that it has been held by the ITAT Mumbai Bench in the case of M/s Indus Best Hospitality & Realtors Pvt. Ltd. in vide order dated 19.01.2018 that Explanation 2 to Section 263 of the Act introduced by Finance Act, 2015 is retrospective in nature. Since the year under consideration is AY 2014-15, we are afraid that Explanation 2 to section 263 will not come to the aid of the department in this case. Similar view has been taken by the various Coordinate Benches of the ITAT in the following cases:-
AV Industries v. ACIT [ITA No. 3469/Mu m/2010] dated (a) 06.11.2015 Metacaps Engineering and Mahendra Constructions Co. (b) (JV) v. CIT [ITA No. 2895/Mum/2014] dated 11.09.2017 Reliance Money Infrastructure Ltd. v. PCIT [ITA No. (c) 3259/Mum/2017] dated 06.10.2017. Shantikrupa Estate Pvt. Ltd. [ITA No. 1252/Ahd/2015] (d) dated 09.09.2016 Amira Pure Foods Pvt. Ltd. v. PCIT [ITA No. 451/Del/2017] (e) dated 29.11.2017. 5.8 Accordingly, respectfully following the ratio of the various judgments as referred to in the preceding paragraphs, we have no hesitation in holding that the Ld. Pr.CIT had wrongly invoked the revisionary powers u/s 263 of the Act and we have no option but to quash the same. It is so ordered accordingly.
6.0 In the result, the appeal of the assessee stands allowed.
Order pronounced in the open court on 8th January, 2019.