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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri J.Sudhakar Reddy & Shri S.S.Godara
आयकर अपील�य अधीकरण, �यायपीठ – “ए” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “A” KOLKATA Before Shri J.Sudhakar Reddy, Accountant Member and Shri S.S.Godara, Judicial Member ITA No.699/Kol/2018 Assessment Year: 2012-13
Bengal Steel Industries Ltd., Income Tax Officer बनाम / 84/1A, Topsia Road, (S), Ward-11(3), Aayakar V/s. Kolkta-700 046 Bhawan, P-7, [PAN No.AAABCB 0969 P] Chowringhee Square, Kolkata-700 096 .. अपीलाथ� /Appellant ��यथ� /Respondent
Shri Goutam Banerjee, FCA अपीलाथ� क� ओर से/By Appellant Shri A.K. Nayak, CIT-DR ��यथ� क� ओर से/By Respondent 03-12-2019 सुनवाई क� तार�ख/Date of Hearing 22-01-2020 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This assessee’s appeal for assessment year 2012-13 arises against the Principal Commissioner of Income Tax-4, Kolkata’s order dated 28.02.2018, involving proceedings u/s 263 of the Income Tax Act, 1961; in short ‘the Act’.
We have heard both the parties. Case file perused. We advert to the basic relevant facts. This assessee-company is a manufacturer of steel products. It also derives income from house property / rental income and carries out investment business. The assessee had filed its original return on 26.09.2012 declaring total income at ₹501,410/-. The same stood summarily processed on 08.05.2013 by CPC.
ITA No.699/Kol/2018 Assessment Year 2012-13 Bengal Steel Industries. Ltd. Vs ITO Wd-11(3), Kol. Page 2 The assessing authority thereafter formed reasons to believe that the assessee’s taxable income liable to be assessed had escaped assessment. He issued sec.148 notice dated 12.09.2014 and framed the re-assessment in question dated 16.03.2016 assessing the assessee’s total taxable income at ₹121,49,582/- as reduced by long term capital gains adjustments carried forward from the preceding assessment year to the tune of ₹40,31,675/-; coming to net assessed income of ₹81,17,907/-.
Both the learned representatives submitted at this stage that it is the said re- assessment which forms subject-matter of the PCIT’s exercise of sec. 263 revision jurisdiction as under:- “2. Subsequently, the assessment records of the assessee were called for & on the basis of the verification of the material available on records, it was found that the order assessment was erroneous so far as it is prejudicial to the interest of revenue on the following grounds:- It is noticed that Long Term Capital loss of Rs. 40,31,675/- relating to previous year was set off with the total taxable income. From the details available on record it is seen that the losses were pertaining to A.Y2005-06 for Rs.20,46,281/-, A.Y 2010-11 for Rs.5,38,147/- and A.Y 2011-12 for Rs.14, 47, 247/-. Further, on perusal of assessment record it revealed that Long Term Capital Loss for Rs.14,47,2481- in A.Y 2011-12 was exempted loss. Since, exempted Long Term Capital Loss cannot be carried forward, their setting without current year’s Long Term Capital Gain was not allowable and therefore the same was required to be disallowed by the AO while passing the order u/s 147/143(3) of the Act, but the same was not done by the AO . Further, the nature of other loss claimed for A. Y 2005-06 and A. Y 201011 also needs to be verified as to whether those were on account of Section 10(38) or otherwise. 3. A show cause notice was issued to the assessee on 04-12-2017 requiring it to submit clarification or explanation to the aforementioned issues & also to show cause why remedial action u/s 263 of the Act would not be taken against the assessment made u/s 147/143(3) of the Act dated 16-03-2016 but no compliance was made on the said date. The assessee was given another opportunity vide letter dated 13-02-2018 fixing date of hearing on 21-02-2018. In response to this notice Shri Gautam Banerjee, the AIR of the assessee appeared and sought adjournment and case was adjourned to 26-02-2018. Shri Gautam Banerjee, the AIR of the assesse appeared and filed written submission. The relevant portion of the written submission of the assessee is extracted below:- ".. ... This has reference to your notice dated 04.12.2017 in course of proceedings u/s. 263 for A.Y. 2012-13 against the above assessee. The assessee submitted Return of Income showing income of Rs. 501,410 as per normal calculation. The assessee's tax u/s 115JB was higher at Rs. 14,32,311 and this tax was paid. The assessment was reopened and income reassessed at Rs. 81,17,907 after set- off of long term capital loss of Rs.40,31,675. This set-off of LTCL arises from transfer of share/M.F., the income of which qualify for exemption u/s. 10(38). Your objection is that the LTCG u/s. 10(38) being exempt, the corresponding L TCL cannot be allowed to be carried forward or
ITA No.699/Kol/2018 Assessment Year 2012-13 Bengal Steel Industries. Ltd. Vs ITO Wd-11(3), Kol. Page 3 set-off against income of succeeding years. The figures are undisputed and the only legal issue to decide is whether LTCL arising from transfer of shares/M.F., the income of which qualify u/s.10(38), is allowable for set-off/carry forward u/s.70/74. As per s.74(1)(c) the LTCL is allowed to be carried forward & set-off against LTCG of subsequent eight A. Yrs. The LTCL for the purpose of s. 74, so computed, does not distinguish between losses from shares/M.F. income of which qualify u/s. 10(38) or other losses. Thus, the profit on transfer of shares/M.F. qualifying u/s. 10(38) may be exempt but it does not make, corresponding LTCL to be ineligible to be considered as a loss. Thus, the LTCL arising from transfer of equity shares/M.F. qualifying u/s. 10(38), can be adjusted from LTCG of same year or can be carried forward & set-off against L TCG of future years. The impugned assessment order is passed u/s. 1471143(3) on 16.03.2017. In reasons recorded for reopening the issue of claim of excess set-off of carry forward LTCL was raised. The assessee's claim of set-off of carry forward LTCL was examined and then the same was allowed at Rs.40,31,675. The reassessment was completed on 16.03.2016 after granting hearing and examining and verifying all necessary details and information relating to reassessment. Thus, it can be presumed that the set-off of LTCL has been done with full knowledge and conscious decision that the same is allowable. Now, to hold differently would be a change of opinion on the part of Dept. In 263 proceedings, error prejudicial to revenue are to be revised but opinion of higher authority cannot be replaced for opinion of AO. This, obviously, cannot be admitted nor held to be correct. The proceedings drawn u/s. 263 appears to be a result of audit observation and is not based on any law but on general principle, not accepted or admitted as law. Such observation, therefore, cannot be empirical truth or sacrosanct by itself. So far as proceedings u/s. 147/143(3) is concerned, the issue of set-off of carry forward loss under long term capital loss, was examined, verified and then only allowed, which is one of the two opinions available in this field. This is not a decision which is impossible to be taken by any person of reasonable wisdom. It cannot be said that the set- off of long term capital loss is erroneous. In that case, one of the mandatory requirements of application of s. 263 fails and the proceedings become unjust. Moreover, as per your notice referred to above, it appears that the nature of loss for A.Y. 2005-06 and A.Y. 2010-11 claimed as set-off in this A.Y. are not known to you since you felt that this needs to be verified. Unless after causing enquiry and after consideration of the impugned order, there is no certain finding about the set-off of loss of A.Y. 2005-06 and A.Y. 2010-11, the same cannot be covered u/s. 263 at present. It is also mentioned that the assessment order passed u/s. 147/143(3) dated 16.03.2014 is not an order which can be held to be erroneous as per Explanation 2 of S. 263. The processing of the return of income for A.Y. 2012-13 having been completed on 26.09.2012, it is submitted that the 263 proceedings is not valid due to effluxion of time and could be made only before 31.03.2015. It is submitted that the assessment order passed u/s. 147/143(3) dated 16.03.2016 for A.Y. 2012-13 is assailed in appeal before CIT(A)-4 on the ground jurisdiction u/s. 147/148 as well as of determination of assessed long term capital gains. This matter of set-off of capital loss against LTCG is associated with the assessed income and the issue being contested in appeal, cannot now be the subject matter in proceedings u/s. 263. The CIT(A) has all powers of the AO to exert so that he can also hold the LTCL to be not adjustable. From this point of view also, the jurisdiction of u/s. 263 does not exist. On an earlier occasion, the AO issued notice u/s, 154/155 to rectify mistake apparent from record for disallowing the set-off of earlier year's losses of Rs.40,31,675. It was pointed out that this difference of opinion is not a mistake apparent from record and the proceedings were dropped. Now, the same difference of opinion is being sought to be imposed on assessee in the name of erroneous and prejudicial proceedings, which it is not.
ITA No.699/Kol/2018 Assessment Year 2012-13 Bengal Steel Industries. Ltd. Vs ITO Wd-11(3), Kol. Page 4 Reliance is placed on following: 1. G.K. Rammurthy V JCIT (ITAT-Mum) Long Term capital loss (LTCL) as per computation after charging STT is an additional reason for allowing carry forward & set-off of this loss against other income. 2. Raptakos-Brett case - ITAT online - ITAT Mumbai. Hope, you will find the aforesaid in order." 4. The submission of the Id. AIR of the assessee considered. The submission of the Id. AIR of the assessee that the LTCL arising from transfer of equity shares/M.F. qualifying u/s.10(38) can be adjusted from L TCG of same year or can be carried forward & set-off against LTCG of future years is not tenable. In this regard submission of assessee relying upon the various juridical pronouncement is not applicable in this particular issue as the same are prima facie distinguishable on facts. The exempted L TCL cannot be carried forward and their setting off with current year's LTCG does not appear to be prima facie allowable. However, the AO failed to the examine this issue while passing the order u/s 147/143(3) of the Act. The final application of judicial pronouncements will come into play only after ascertaining the full facts regarding nature an genuineness of transaction which the A. as failed to do during the assessment proceedings. The plea of the Id. AIR could also be judicially examined only after examination/verification of relevant material facts. Thus, the order passed u/s 147/143(3) of the Income Tax Act, 1961 on 16-03-2016 suffers from lack of enquiry/inadequate verification making the order passed u/s 147/143(3) of the Income Tax Act, 1961 erroneous so far as prejudicial to the interest of revenue. Prima-facie on the whole the assessment order suffers from lack of enquiry on the above mentioned ground. 5. The power of revision by the CIT u/s 263 of the Act is very wide and it is in the nature of supervisory jurisdiction. The power u/s 263 can be exercised even in cases where the issue is debatable and such power is not comparable with the power of rectification of mistake u/s 154 of the Income Tax Act. It is well settled that incorrect assumption of facts or application of law satisfies the requirement of law i.e. order being erroneous & prejudicial to the interest of revenue. The order passed by the A.O. without application of mind or order showing apparent error of reasoning or the order where the A.O simply accepts where the assessee stated in his return of income and fails to make the enquiries which are called for in the facts and circumstances of the case will also call for intervention u/s 263 of the Act by the CIT/Pr.CIT. It is a trite law that the disclosure of facts by the assessee in the return of income and / or in the course of assessment proceedings cannot give immunity from revisional jurisdiction of the CIT/Pr.CIT u/s 263. In this context, it may be mentioned here that in the case of Commissioner of Income tax, Central-l Kolkata Vs Maithan International, it was held by Calcutta High Court [2015] 56 taxmann.com 283(Calcutta) that "it is not the law that the Assessing Officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial order. Where the relevant enquiry was not undertaken, as in the case, the order is erroneous and prejudicial too and therefore revisable. Investigation should always be faithful and fruitful. Unless all fruitful areas or enquiry are pursued the enquiry cannot be said to have been faithfully conducted. " The Hon'ble Supreme Court, further, in the case of Rampyari Devi Saraogi-Vs- CIT(1968) 67 ITR 87(SC) and Smt. Tara Devi Aggarwal-Vs-CIT(1973) 85 ITR 323 (SC) has held that in absence of proper enquiries, the assessment order would become erroneous and prejudicial to the interest of the revenue.
ITA No.699/Kol/2018 Assessment Year 2012-13 Bengal Steel Industries. Ltd. Vs ITO Wd-11(3), Kol. Page 5 The Hon'ble Delhi High Court in the case of Gee Vee Enterprise-Vs-Addl. CIT(1975) 99 ITR 375 has also held as under:- "The reason is obvious. The position and function of the income tax officer is very different from that of a Civil Court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a Civil Court in the absence of rebuttal. The Civil Court is neutral. It simply gives decision on the basis of pleading and evidence which comes before it. The income tax officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of return which is apparently in order but calls for further enquiry. It is his duty to ascertain the truth of facts stated in the return when the circumstances of case are such as to provoke an enquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the income tax officer to further such an enquiry prudent that the word "erroneous" in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an enquiry has not been and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. " In view of the facts and the legal position stated above, I am of the view that the order passed on an incorrect assumption of facts or incorrect application of law and without making requisite inquiries will satisfy the requirement of the order being erroneous and pre-judicial to the interest of the revenue within the meaning and scope of Section 263 of the Income Tax Act, 1961. The aforestated decisions postulate that when the officer is expected to make an inquiry of a particular item of income and if he does not make an inquiry as expected, that would be a ground for the Commissioner to interfere with the order passed by the Officer since such an order passed by the Officer is erroneous and prejudicial to the interests of the Revenue (K.A. Ramaswamy Chettiar V. CIT, (1996) 220 ITR 657). 6. I have carefully considered the material available on record and found that the issues pointed out in the show cause needs verification as merely accepting submission without calling for relevant material / evidences during the course of assessment proceedings the A.O. failed to examine the above referred issue. After having considered the position of law and facts and circumstances of the instant' case, I am of the considered opinion that the assessment order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2(c) below section 263(1) of the Act. Accordingly, the issue is set aside to the table of A.O on specific point mentioned in para 2 above. The A.O. is directed to provide reasonable opportunity to the assessee company to produce documents & evidences which it may choose to rely upon for substantiating its own claim. Thereafter a fresh assessment order may be passed in accordance with the relevant provisions of Taw.”
Learned authorized representative vehemently contended during the course of hearing that the PCIT has erred in law and on facts in assuming his revision jurisdiction for the purpose of holding the above regular assessment / re-assessment as erroneous causing prejudice to the interest of the Revenue on the sole issue of the set off long term capital loss (LTCL) pertaining to assessment years 2005-06, 2010-11 & 2011-12; respectively. His further case is that such LTCL is arising out of transfer of
ITA No.699/Kol/2018 Assessment Year 2012-13 Bengal Steel Industries. Ltd. Vs ITO Wd-11(3), Kol. Page 6 shares and securities; after payment of securities transaction tax (STT), is very well allowable to be carried forward as per this tribunal’s co-ordinate bench’s decision in M/s United Investments vs. ACIT, Circle-40, Kolkata ITA No.511/Kol/2017 decided on 01.07.2019. His plea case therefore is that the impugned regular assessment framed by allowing the assessee’s benefit of set off long term capital loss(es) deserves to be restored.
Learned CIT-DR has strongly supported the PCIT’s revision direction under challenge that the Assessing Officer had erred in allowing the impugned set off of LTCL pertaining to foregoing three assessment year(s) (supra) which is not allowable under the provision of the Act.
We have heard the foregoing rival contentions. Case file perused. After giving our thoughtful consideration to assessee and Revenue’s against and in favour of correctness of PCIT’s impugned revision jurisdiction, we find no merit in assessee’s grievance. There can hardly be any dispute about the legal proposition flowing from various judicial precedents discussed in the PCIT’s revision order under challenge (supra) that an assessment has to be both erroneous as well as causing prejudice to the interest of the Revenue before sec.263 revision jurisdiction is invoked. Coming to the relevant facts involved in the instant lis, we note that although the assessee’s returns of income assessment year(s) 2005-06, 2010-11 and 2011-12 had stated LTCL of ₹20,46,281, ₹5,38147/- and ₹14,47,241/-, the corresponding sec. 143(3) assessment dated 28.12.2007 had taken the loss figure as nil in the assessment year and the latter two assessment year(s) returns had been summarily processed on 27.07.2011 and 21.02.2012 u/s 143(1) of the Act, we observe in this backdrop of facts that the impugned LTCL stood reduced to the extent of ₹19,85,394/- only whereas the relief granted to the assessee during the course of re-assessment read an amount of ₹40,31,675/-. We thus are of the view that the PCIT has rightly exercised his sec. 263 revision jurisdiction followed by his directions under challenge to the Assessing Officer for finalizing the impugned computation afresh as per law. The same stands affirmed therefore. Suffice to say, the Assessing Officer’s consequential assessment
ITA No.699/Kol/2018 Assessment Year 2012-13 Bengal Steel Industries. Ltd. Vs ITO Wd-11(3), Kol. Page 7 shall be framed after affirming adequate opportunity of hearing to this taxpayer who shall be at liberty to raise all factual & legal pleas in support of the impugned LTCL set off claim. This assessee’s appeal is dismissed. 7. Order pronounced in open court on 22/01/2020 Sd/- Sd/- (लेखा सद'य) (�या)यक सद'य) (J.Sudhakar Reddy) (S.S.Godara) Accountant Member Judicial Member *Dkp-Sr.PS *दनांकः- 22/01/2020 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-Bengal Steel Industries Ltd., 84/1A, Topsia Road,(S) Kol-46 2. ��यथ�/Respondent-ITO Wd-11(3), P-7, Aaykar Bhawan, Kolkata-700 069 3. संबं-धत आयकर आयु.त / Concerned CIT 4. आयकर आयु.त- अपील / CIT (A) 5. /वभागीय �)त)न-ध, आयकर अपील�य अ-धकरण कोलकाता/DR, ITAT, Kolkata 6. गाड3 फाइल / Guard file. By order/आदेश से, /True Copy/ सहायक पंजीकार आयकर अपील�य अ-धकरण, कोलकाता ।