M/S. GENERAL POLYTEX PVT. LTD., ,SURAT vs. ITO, WARD - 1(1), KOLKATA

- This assessee’s appeal for assessment year 2008-09 arises against the Principal Commissioner of Income Tax (Appeals)-1, Kolkata’s order dated 28.03.2018 passed in case M.No.Pr.CIT-1/Kol/Revision u/s263/2017- 18/14797-14800, involving proceedings u/s 263 of the Income Tax Act, 1961; in short ‘the Act’. Case called twice. None appears at assessee’s behest. The registry has already issued RPAD notice dated 20.08.2019 for today’s (09.09.2019) hearing. We therefore proceed ex parte against the assessee to decide the instant appeal on merits.

Case file suggests that the Assessing Officer had framed assessment / re-assessment in assessee’s case in issue dated 28.01.2016 invoking sec.

In response to the said notice, Shri Purvesh Chowdhuri, A/R of the assessee attended and filed written submissions on 23.03.2018 which is as follows:- ‘We have received your notice dated: 02.02.2018 at our presently registered office (Surat, Gujarat) on 13.03.2018. In connection with the above mentioned subject matter. In response to that we have filed an adjournment application through mail on the same day and ask to postpone hearing to 23.03.2018. The name of the company M/s Bambasuksi Tradelinks Private Limited has been changed to M/s General Polytex Private limited and present registered M/s General Polytex Pvt. Ltd. Vs. ITO Wd-1(1), Kol. Page 3 office of the company is A-wing., m 601,602, International commerce Centre (ICC) Near Kadiwala School, Ring Road, Surat-395002. Today we are submitting following explanations and details in connection with the revision of assessment order passed u/s. 143(10 or 147 of the act for AY 2008-09 and we have duly appointed CA Purvesh Choksi as our authorized representative. Honourable PCIT-1 sir has raised an objection and said that the impugned assessment order passed u/s. 143(3) or 147 of the Income Tax Act, 1961 is prima facie erroneous in so far as it is prejudicial to the interest of the revenue. The reason being that the assessee has purchased & sold shares amounting to Rs.11,39,32,000/- during the year. As net amount of investments as on close of the year 31.03.2007 and 31.03.2008 remains same, no notices were issued u/s. 133(6) of the Income Tax Act, 1961 to verify the transactions and no profit/loss had been shown in return of income for that year. Further, honourable PCIT-I sir has also argued for running of such a huge business from very small and single premises at room No.916, 33 C.R. Avenue, Kolkata.’ In this connection we would like to state that our case has been already assessed us/s 143(1) of the Income Tax Act, 1961 and re-assessment of the same was also made on specific issue related to investments vide order dated 28.01.2016. So we would like to request that as the issue related to investments have been already assessed by issues under assessment and revision of the same. Further, we have duly submitted bank statements and produced books of account at the time of re-assessment as well as original assessment. So we kindly request your goodself to accept this point in positive manner an abort the revision proceedings. Your goodself has also noted that there is sale and purchase of shares amounting to Rs.11,39,32,000/- but in actual there is only Rs.8,25,70,000/- that were sold and purchased in that year. Beside the issue related to investment in shares of Recent Suppliers Pvt. Ltd. amounting to Rs.1,40,00,000/- has been already assessed under re-assessment u/s.147 of the Act. So we kindly request your goodself to accept this point in positive manner and abort the revision proceedings. Your goodself has also noted that no income from sale and purchase of shares haves been offered to tax. In this connection we would like to state that the investments have been sold at cost and hence there were no gain from the sale of shares. As there is no gain from the sale of shares no detailed transactions have been reported in return of income and that is not prejudicial to the interest of the revenue. So we kindly request your goodself to accept this point in positive manner and abort the revision proceedings. Your goodself has also asked that the said transactions have been carried out form very small premises at the addressed mentioned in the address. Here, we would like to state that the company was in the business of sale and purchase of shares or rather investments in shares and securities. So basically we did not require much space or huge manpower for carrying out our transactions. The same could be carried out from electronic devices also. Further, there should not be any limitation or law on area of place of business and there mapping with volume of transactions. So we kindly request your goodself to accept this point in positive manner and abort the revision proceedings.

No documents in support have been given. It was further stated thee investments were sold at cost and so there were no income which arose as a result of which details of transaction were not reported in ITR. Be that as it may, it is evident that the AO, despite initiating proceedings u/s. 147, did not make any enquiry as should have been conducted considering the facts and material before him. No documentary evidence requiring source of fund, bank statements containing details of all the shares purchased and sold during the year were found in record. the explanation that the details of transactions were not shown in ITR as no income/loss earned also have no credence. The reassessment was done without examining the genuineness, creditworthiness and identity of the companies, who are apparently registered at same address schedule-3 of the ITR is also not even stamped by the CA. Thus, there is clear non-application of mind on part of A.O. who has just accepted the claims of the assessee which has resulted in an erroneous assessment causing prejudice to revenue.

Hon'ble Delhi High Court in the case of GEE VEE Enterprise vs. Addl. CIT reported in 99 ITR 375, 386 (Del) has held that the CIT may consider the order of the Assessing Officer to be erroneous not only if it contain some apparent error of reasoning or of law or of fact on the fact of it but also because the Assessing Officer has failed to make enquiries which are called for in the circumstances o the case and it is an order which simply accepted what the assessee has stated in his return of income on the said issue. It is not necessary for the CIT to make further enquiries before cancelling the assessment order. The Commissioner can regard the order erroneous on the ground that the Assessing Officer should have made further enquiries.

Hon'ble Karnataka High Court in the case of Thalibai F Jain vs. ITO 101 ITR 1, 6 (Karn) has held that where no enquirires made by the Assessing Officer on the relevant issue, assessment must be held to be prejudicial to the interests of the A.Y.2008-09 M/s General Polytex Pvt. Ltd. Vs. ITO Wd-1(1), Kol. Page 5 revenue and what is prejudicial to the interest of the revenue must be held to be erroneous though the converse may not always be true.

Hon'ble Supreme Court in the case of Malabar Industrial Co. Pvt. Ltd. vs. CIT reported in (2000) 243 ITR 83, 87-88 (SC) affirming the Hon'ble Kerala High Court decision (198 ITR 611) has held that the phrase “Prejudicial to the interests of the Revenue” is of wide import and is not confined to only loss of taxes. If the AO has accepted the claim of the assessee without any enquiries then such assessment order passed by the AO was held to be erroneous.

In this regard it is mentioned that mere non enquiry would also render a particular order passed by lower authority as erroneous and prejudicial to the interests of Revenue. This position has been clearly confirmed by Hon'ble Supreme Court in the case of Rampyari Devi Saraogi vs. CIT [1968] 67 ITR 84 & Smt. Tara Devi Aggarwal vs. CIT [1973] 88 ITR 323 (SC). The reasoning for this proposition has been explained by Hon'ble Delhi High Court in the case of Gee Vee Enterprise vs. Addl. CIT [1975] 99 ITR 375 in the following para:- ‘It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of civil court. The statements made in the pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which come before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the assessee are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word “erroneous” in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not be made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.’ 10. Further to this it is noticed that there is no appeal right available to the Revenue from the order of assessment passed by Assessing Officer and i.e. why revisionary powers have been given to the Commissioner and such power were held to be of wide amplitude by the Hon'ble Supreme Court in the case of CIT vs. Shree Manjunathesware Packing Products & Camphor Works [1998] 231 ITR 53/96 Taxman 1. Therefore, normally when Assessing Officer has not made any enquiry on a particular issue, then such order in view of the above detailed discussion has to be construed as erroneous and prejudicial to the interest of Revenue and therefore, the impugned assessment order is erroneous and prejudicial to the interest of Revenue as Assessing Officer has failed to make an enquiry.

Having regard to the facts and circumstances of the assessee and in the light of the aforesaid decisions of Hon'ble Supreme Court and Hon'ble High Court and in accordance with the amendment made in Sectionn-263 of the Act with effect from - 01.06.2015, I hold that the impugned assessment order date 28.01.2016 passed by the AO is erroneous in so far as it is prejudicial to the interests of the revenue. I further hold, after giving the assessee an opportunity of being heard, that the ITA No.2211/Kol/2018 A.Y.2008-09 M/s General Polytex Pvt. Ltd. Vs. ITO Wd-1(1), Kol. Page 6 impugned assessment order dated 28.01.20166 is liable to set-aside. Therefore, I set aside the said assessment order directing the present Assessing Officer to frame the assessment afresh after considering the aforesaid observations, Hon'ble Supreme Court and Hon'ble High Court decisions and as per law.

In the result, the assessment order 143(3)/147 dated 28.01.2016 for AY 2008-09 is set-aside to the file of the Assessing Officer with a direction to pass a fresh assessment order after considering the aforesaid observations, as per law and after giving an opportunity of being heard to the assessee.”

After giving our thoughtful consideration to assessee’s pleadings and Revenue’s arguments in favour of PCIT’s revision direction under challenge, it emerges that the Assessing Officer had not conducted the due enquiries as per sec. 263 Explanation inserted in the Act with effect from 01.06.2015 regarding share capital / premium in issue. Learned departmental representative further submits that this Tribunal’s “lead” order in Subbhalakshmi Vanijya Pvt. Ltd. & Otrs. ITA No.1104/Kol/2014 as affirmed in hon'ble jurisdictional high court Rajmandir Estate Pvt. Ltd. vs. PCIT ITA No.113/2016 and before the hon'ble apex court in SLP Civil No.2396/2017. Learned co-ordinate bench therein had made a detailed discussion explaining elaborately the relevant method deployed in introducing such share capital / premium by way of jamakharcha companies. We therefore adopt judicial consistency to affirm the PCIT’s findings under challenge directing the Assessing Officer to examine the entire issue of assessee’s share capital / premium afresh as per law.