RAVI MANOHAR BATWARA,JAIPUR vs. THE PCIT-1, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, ‘’B” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 145/JP/2022 fu/kZkj.k o"kZ@Assessment Year : 2013-14 cuke Shri Ravi Manohar Batwara The Pr. CIT H.No. 241, Sonkiyon Ka Rasta Vs. Jaipur Kishanpole Bazar, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACMPB 7044 F vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri C.M. Batwara, Advocate jktLo dh vksj ls@ Revenue by: Shri Sanjay Dhariwal, CIT lquokbZ dh rkjh[k@ Date of Hearing : 15/09/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 14 /12/2022 vkns'k@ ORDER PER: SANDEEP GOSAIN, JM This is an appeal filed by the assessee against the order passed u/s 263 of the Act by ld. Pr. CIT-1, Jaipur dated 25-03-2022 for the assessment year 2013-14 wherein the assessee has raised the following grounds of appeal. ‘’1. The impugned order u/s 263 of the Act is against law and facts of the case. 2. The impugned order is without jurisdiction being assessment order passed u/s 143/147 of the Act is not erroneous as per explanation 2(a) of Section 263 of the I.T. Act

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2.1 Brief facts of the case are that the assessee Shri Ravi Manohar Batwara filed his returns of income on 28.09.2013 declaring total income of Rs. 23,250/- for the year under consideration. The returns of income was processed u/s 143(1) of IT Act, 1961 computing total income of Rs. 23,250/- on 10.01.2014. As per information available in the office of the AO, the case had been re-opened for re- assessment proceedings u/s 147 of the Act after recording the reasons in writing and after taking necessary approval from the competent authority. Accordingly, notice u/s 148 of the Act had been issued through ITBA portal to the assessee on 30.03.2019. The AO noted from the records that the assessee is proprietor of M/s. R. M. International, engaged in sales of precious stones and earned income from business or profession and other sources. During course of the assessment proceedings, notices u/s 142(1) of the Act alongwith questionnaire had been issued on 05.08.2019, 26.08.2019 & 31.10.2019 through ITBA-portal. In response to the notices, the assessee filed his submission on 19.09.2019 & 23.10.2019 which had been placed on record. The assessee filed returns of income against the notice u/s 148 of the Act on 14.10.2019 and accordingly, notice u/s 143(2) of the Act had

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been issued on 18.10.2019. In view of the above facts and the submission made by the assessee, the returned income declared of Rs. 23,250/- by the assessee in his return of income for the year under consideration had been accepted by the AO.

2.2 It is noted that the ld. Pr. CIT-1, Jaipur on perusal of the assessment record noticed that information was received from the Investigation Wing, Thane that the long term capital gain of Rs.7,70,703/- shown by the assessee needed verification as the company whose shares were sold was a penny stock found to be indulging in giving bogus entries to its clients. However, the AO concluded that the sale of shares at Rs.7.70 lacs is genuine without making any enquiries in spite of the specific information as per the investigation wing report and the alleged dubious value of the shares sold. In view of the aforesaid issue having been accepted in a manner contrary to the material on record, the resultant order is erroneous and prejudicial to Revenue. Therefore, proceedings u/s 263 of the Act were initiated and an opportunity of being heard was provided to the assessee through notice dated 01-03-2022 fixing the case of hearing on 8-03-2022. The show cause notice was issued and sent to the assessee electronically on the ITBA System for which the assessee had submitted his reply on 7-03-2021 before the ld. Pr. CIT-1, Jaipur who after considering the reply of the assessee found it not tenable and invoked the provisions of Section 263 by observing as under:-

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‘’5. The reply of the assessee has been considered but not found tenable. The assessee has only reiterated the facts that were produced before the AO and the same had been accepted by the AO. However, it is a fact that in view of specific information available with the Department and communicated to the AO regarding the particular scrip, the AO should have made in depth investigation. The Investigation Wing report has mentioned in detail the modus operandi of the companies of these penny stocks. As per the report, the share price of the scrip increased exponentially from April,2010 to April,2013 from Rs.0.50 to Rs.200 Le.39900 percent in 26 months. The price rise was not supported by the business activity and the financials of the company. Further, the fall of the price of shares of this company was as sharp and the share which was Rs. 200 in April to June, 2013 fell to Rs. 73 in October, 2013 and Rs. 9.50 in October, 2014 to Rs. 0.35 in September, 2016. The assessee was able to sell during the short period during which the share had peaked. The AO was required to make detailed inquiry about the broker involved as well to make further verification, which he failed to do. The AO accepted the claim of the assessee without any other enquiry when the Investigation Wing report clearly mentioned that the scrip was indeed a penny stock and the transaction was to be thoroughly investigated. which makes the order erroneous and prejudicial to the revenue. 6. As discussed above, the Assessing Officer failed to apply his mind and simply accepted the documents filed by the assessee. The AO failed to invoke the applicable provisions of law. This is turn has resulted in passing of an erroneous order by the Assessing Officer in the case due to non-application of mind to relevant material and an incorrect assumption of facts which is prejudicial to the interest of the revenue and hence liable for revision under section 263 of the Income Tax Act. The Hon'ble Supreme Court in the case of Malabar Industrial Limited V/S CIT 243 ITR it has held as under:- ‘’…..An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.’’

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the applicable sections of the Act and conducting enquiriesin view of the specific information provided by the Investigation wing and which was also the reason for reopening the assessment. The Assessing Officer has not verified the details which were required to be verified under the scope of scrutiny. The order of the Assessing Officer is. therefore, liable to revision under the explanation (2) clause (b) and clause (a) of section 263 of the Income Tax Act. The assessment order is set aside to be made afresh in the light of the observation made in this order. The AO is required to make necessary verification and to determine and finalize the assessment in accordance with the prevailing law to determine the correct income liable for tax for the AY 2013- 14 after allowing reasonable opportunity to the assessee. 2.3 During the course of hearing, the ld. AR of the assessee relied upon the order of the AO and submitted that the assesee submitted all the facts and sale of these shares. The AO passed the assessment order after taking into consideration of all relevant facts and neither committed any mistake of law nor considered irrelevant facts. The ld. AR of the assessee relied upon the following case laws.

Besides this, the ld. AR of the assessee relied upon the order of the ITAT Jaipur Bench in the case of Chambal Alums (P) Ltd. Vs ACIT, Circle-2, Kota (ITA No. 147/JP/2022 dated 16-08-2022 and submitted that the issue in question is squarely covered by the decision of ITAT, Jaipur Bench (supra). It is also noteworthy to mention that the assessee has filed the paper book containing pages 1 to 160 on the

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issue in question. Hence, the order of the ld. Pr. CIT-1, Jaipur is not tenable which should be quashed.

2.4 On the other hand, the ld. DR relied upon the order of the ld. Pr. CIT-1, Jaipur

2.5 We have heard both the parties and perused the materials available on record. In this case, it is noted that the AO during the assessment proceedings found that the returned income declared of Rs.23,250/- so filed by the assessee was accepted by the AO taking into consideration the facts and submission filed by the assessee. However, the ld. Pr. CIT-1, Jaipur on perusal of the assessment order of the AO found that the AO accepted the claim of the assessee without any other enquiry when the Investigation Wing report clearly mentions that the scrip was indeed a penny stock and the transaction was to be thoroughly investigation which makes the order erroneous and prejudicial to the revenue. He further noted that the said order has been passed by the AO in a routine and casual manner without applying the applicable section of the Act and conducting enquiries in view of the specific information provided by the Investigation Wing and it is also the reason for reopening the assessment. The ld. Pr. CIT-1, Jaipur observed that the order of the AO is liable to revision under the explanation (2) clause (b) and clause (a) of Section 263 of the Act and thus he set aside the assessment order to be made afresh

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in the light of his observation made in his order. We have taken into consideration the orders of the lower authorities and found that if the assessing officer has made enquiries during the course of assessment proceedings on the relevant issue and the assessee has given detailed explanation to the AO who has allowed the claim on being satisfied with the explanation of the assessee then the decision of the Assessing Officer cannot be held to be erroneous simply because in his order does not make an elaborate discussion in this regard. It is also imperative to mention that the Hon’ble Jurisdictional High has taken similar view that when the AO takes a decision after going through the material available on record and after considering the explanation of the assessee, it cannot be said that he has not applied his mind for which following decisions of Hon’ble Rajasthan High Court are relevant:-

It is also noteworthy to mention that an order can be treated as ‘’erroneous’’ if it was passed in utter ignorance or in violation of any law or passed without taking into consideration all the relevant facts or by taking into consideration irrelevant facts. The ‘Prejudice’ that is contemplated u/s 263 is the prejudice to the Income

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Tax administration as a whole. The Bench has taken into consideration the reliance made by the assessee in the case of Chambal Alums (P) Ltd. vs ACIT (supra) wherein the ld. AR prayed that the issue in question is squarely covered by this order and it is reproduced as under:-

2.6 We have heard the ld counsels for both the parties and we have also perused the material available on record, deliberated upon judgments cited by the parties as well as the orders of Revenue Authorities. From the fact, we noticed that the assessee is a private limited company and filed return for the year under consideration on 28-10-2017 declaring total loss of Rs. 25,93,828/-. The case of the assessee was selected for limited scrutiny and the AO issued notice u/s 143(2) and 142(1) of I.T. Act. The assessee filed required documents and replies. The assessment was completed u/s 143(3) of I.T. Act dated 23-05-2019 on the same income. Subsequently, the Ld Pr. CIT – Udaipur issued notice u/s 263 of the Act on 31-01-2022 for which assessee filed reply (Copy at APB Page 91-93). However the Ld Pr. CIT was not convinced with the reply filed by the assessee and, therefore, set aside the order passed the AO dated 23-05-2019. The assessee submitted that the investor companies are NBFC and ld Pr. CIT has rejected this claim of the assessee on the ground that no supporting evidence or certificate has been furnished by the assessee. Ld AR submitted that ld Pr. CIT never asked the assessee to submit the certificate of NBFC. He draw our attention to computation of total income of these investor companies (PB Page 62 and 72), wherein the Particular of business is mentioned NBFC. He further drew our attention towards “Notes to audited financial statements” (Page 68 and 78), wherein necessary disclosure in other Notes has been made which is required in the case of ‘Non Banking Financial Companies. However, the ld AR submitted before us the copy of certificate issued by RBI (submitted as E 18-E19 with written submission). We find that the assessee has discharged its primary onus to prove that the investor companies are NBFC and if ld Pr. CIT required further supporting evidence/certificate, she could have asked the assessee to submit the same, but instead of asking the further details, she opted short cut method and rejected the assessee’s claim.. Ld AR further submitted that allegation of ld PCIT against the investor companies is suspected shell companies. We find that merely on the basis of suspicion,

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these companies cannot be held as shell companies. No any enquiry/ investigation was brought on record to hold that these companies are shell companies or to hold that these companies are black listed companies or engaged in money laundering. The ld AR submitted that these companies are group companies of Shri Ramesh Kumar Agarwal, well known person of Kota, who has several other companies engaged in the business of metal, chemicals and transportation. He has drawn our attention towards list of shareholders at APB pg 66 and 76 and submitted that all the shareholders of these companies are group companies or family members of Shri Ramesh Kumar Agarwal. He submitted that these companies are regularly filing their income tax returns, ROC returns, and ROC, Income Tax department, RBI, DRI and ED never initiated any action against these companies. He has drawn our attention towards the master data of the company obtained from ROC site which shows the status of these companies as “Active”. We find from the material submitted by ld AR of assessee that these investor companies are group companies of Shri Ramesh Kumar Agarwal and Smt Asha Mittal without having any involvement of outsider persons and these companies cannot be held as shell companies, without having any enquiry or positive material against the said companies. The ld AR submitted that these companies received money from other sister companies of the group. M/s Mahawat Holdings Pvt Ltd received money from M/s Jammu Pigments Ltd (JPL) and out of that money Mahawat Holding Pvt Ltd invested in shares of the assessee company. Shri Ramesh Kumar Agarwal and Smt Asha Mittal are common director in assessee company, in the investor company M/s Mahawat Holdings Pvt Ltd as well as in the fund giving company Jammu Pigments Ltd (JPL). The ld AR drew our attention towards the bank statement of Mahawat Holdings Pvt Ltd. filed to AO (APB pg 69) which shows receipt of Rs. 64,43,311/- from JPL and the same amount was transferred to assessee company (CAPL). The ld AR submitted the copy of assessment order passed u/s 143(3) of I.T Act by DCIT, Circle 13(1), Delhi on 16/12/2019 in the case of Jammu Pigments Ltd for AY 2017-18 wherein the Income of this company was assessed at Rs. 2,49,80,330/-. Similarly Naseeb Holdings Pvt Ltd received money from Mittal Pigments Pvt Ltd (MPPL) and out of that money Naseeb Holding Pvt Ltd invested in the shares of the assessee company. Shri Ramesh Kumar Agarwal and Smt Asha Mittal are also common director in assessee company, in investor company M/s Naseeb Holdings Pvt Ltd as well as in the fund giving company Mittal Pigments Pvt Ltd (MPPL). The ld AR drew our attention towards the bank statement of Naseeb Holdings Pvt Ltd filed to AO (APB pg 84-85) which

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shows receipt of Rs. 35,88,950/-, Rs. 1,00,00,000/-, Rs. 1,00,00,000/-, and Rs. 1,00,00,000/- totalling to Rs. 3,35,88,950/- on 13-02-2017, from MPPL and out of this amount Rs. 36,90,900/- transferred to share capital to assessee company (CAPL). The ld AR submitted the copy of ledger account of Naseeb Holding Pvt. Ltd in the books of account of M/s Chambal Alums Pvt Ltd (Assessee) at APB page 83. We find that this ledger account shows receipt of Rs. 3,35,88,950/- to assessee company from Naseeb Holding Pvt. Ltd out of which Rs. 36,90,900/- transferred to share capital account of assessee company. There is credit of Rs. 4,14,477/- on account of interest in the account on which TDS of Rs. 41448/- was deducted. The account shows the net credit balance of Rs. 3,02,71,079/- as on 31-03-2017 . The ld AR also submitted the copy of acknowledgement Income tax return and Computation of Total income of the company M/s Mittal Pigments Pvt. Ltd wherein the total income declared was Rs. 79,28,330/-. We find that the origin flow of the funds invested in share capital of the assessee company was other group company namely Jammu Pigments Ltd and Mittal Pigments Pvt Ltd. As regard dummy director namely Shri Jitendra Kumar Goyal and Virendra Kumar Goyal, the ld AR submitted that both the investor companies are controlled and managed by Shri Ramesh Kumar Agarwal and Smt Asha Devi Mittal who are directors of assessee company and not by Shri Jitendra Goyal and Shri Virendra Kumar Goyal. We find from audited annual accounts of these companies that the audited annual accounts of these two companies were signed by Shri Ramesh Kumar Agarwal and Smt Asha Mittal. We find that no inquiry, report, investigation, was shared by ld Pr. CIT to support the allegation that Shri Jitendra Goyal and Shri Virendra Kumar Goyal are dummy directors. Further the issue of dummy directors is also irrelevant here because the funds for investment in shares of appellant company were originated and immediate source of fund was flow of funds from another group companies which are regular companies and regularly filing their returns in all the departments. We noticed from the record that during the assessment proceedings the AO had made all necessary enquires which were necessary to complete the assessment. During the assessment proceedings, the AO had issued notice u/s 143(1) and 142(1) of I.T. Act and questioner. Notice issued u/s 142(1) dated 15-04-2019 was replied by the assessee vide copy placed at APB page 41-48 and 49-50. The assessee submitted several documents in support of share capital as under:-

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S. No. Particulars APB Page No.

i) Copy of master data of the Company in the record of Registrar of Company, 60 wherein the status of company is appearing as Active.

61 to 62 ii) Copy of Acknowledgement of return and computation of total income.

63 to 68 iii) Copy of Audited Balance Sheet of the Company.

69 iv) Copy of relevant Page of Bank Statement showing the entry of payment made to Appellant Company.

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i) Copy of master data of the Company in the record of Registrar of Company, 70 wherein the status of company is appearing as Active.

71 to 72 ii) Copy of Acknowledgement of return and computation of total income.

73 to 82 iii) Copy of Audited Balance Sheet of the Company.

83 iv) Copy of ledger a/c of company in books of account of Appellant.

84 to 85 v) Copy of relevant Page of Bank Statement showing the entry of payment made to Appellant Company.

So, the assessment was completed after making complete enquiry and there was no lack of enquiry or investigation by the AO on this account. Therefore the findings of Ld Pr. CIT that order passed by AO on 23-05-2019 was passed without conducting necessary enquires and without verifying necessary details was without any basis or without any evidence on record.. In view of above facts, circumstances, case laws relied upon by the assessee (supra), we find that it is not a fit case for passing the order u/s 263 of the I.Tax Act by the Ld Pr. CIT. The order passed u/s 143(3) dated 23/05/2019 by the AO was neither erroneous nor prejudicial to the interest of the revenue. Thus, the order passed by the AO is confirmed and grounds of the assessee are allowed. ‘’

In view of the above delineation of the facts, circumstances of the case and the

case laws (supra), we do not concur with the findings of the ld. Pr. CIT-1, Jaipur

and thus the appeal of the assessee is allowed.

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3.0 In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 14 /12/2022.

Sd/- Sd/- ¼ jkBksM deys'k t;UrHkkbZ ½ ¼lanhi xkslkbZ½ (Rathod Kamlesh Jayantbhai) (Sandeep Gosain) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 14/12/2022 *Mishra आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Shri Ravi Manohar Batwara, Jaipur 2. izR;FkhZ@ The Respondent- The Pr. CIT-1, Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 145/JP/2022) vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेजज. त्महपेजतंत