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Assessee by Shri Prakash Jotwani - : Advocate Revenue by : Shri N.P. Singh (CIT-DR) Date of hearing : 20.04.2017 Date of Pronouncement : 19.05.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER:
1. 1. This appeal by assessee under section 253 of the Income-tax Act (the Act) is directed against the order of ld. Commissioner of Income Tax-8(CIT), Mumbai passed under section 263 of the Act dated 24.03.2014 for the Assessment Year 2009-10.
2. The background facts are that the assessee filed return of income for relevant AY on 29.09.2009 declaring total income at loss of Rs. -4,88,18,926/-. The assessment was completed on 17.11.2011 u/s 143(3) of the Act. Subsequently, the ld CIT issued notice u/s 263 dated 04.03.2014. In the notice u/s 263 the ld CIT mentioned that on going through the assessment proceeding, it was seen that assessee had converted its investment of 3,00,000 share of SPS Ltd. amounting to Rs. 5,75,70,135/- into stock-in-trade, which were sold on 30.03.2009 for a consideration of Rs. 96,55,125/-. On sale of those share, the assessee claimed loss of Rs. 4,49,03,946/- under the head “Business Income”. The Assessing Officer (AO) assessed the said loss at Rs. 4,49,03,946/- and allowed it to be carried - M/s Nilkanth Tech Park Pvt. Ltd. forward as business loss. The ld CIT further mentioned that the assessee-company is engaged in the business of Real Estate Development and there has been no change in the nature of business during the year. Thus, the provision of explanation to section 73 of the Act is applicable to the share trading transaction during the year. The AO has treated the share trading loss as a business loss while completing the assessment order passed u/s 143(3) on 17.11.2011. The order passed by AO is erroneous and prejudicial to the interest of Revenue. The ld CIT issued a show-caused to the assessee as to why the assessment order be not cancelled/set-aside. The assessee contested the notice by filing detailed reply. The assessee in its reply contended that the AO during the assessment proceeding raised query relating to the applicability of section 73 of the Act, if the share trading loss as a speculation loss. The query of the AO was replied by assessee vide its letter/reply dated 05.11.2011. The assessee had explained to the AO that explanation to section 73 is not applicable to the assessee and the loss sustained by assessee is not speculation loss. The contention of assessee was duly considered by AO and after considering the contention of the assessee, the loss was allowed to be carried forward. The contention of the assessee was not accepted by CIT holding that the AO has not touched (discussed) the possibility of loss incurred to be speculation loss by AO. The AO not considered the binding provision relating to the transaction in share and income/loss. The ld CIT concluded that the assessment is not only prejudicial to the Revenue but erroneous as well. Therefore, the ld. CIT set-aside the assessment order dated 17.11.2011 and directed the AO to pass the assessment order afresh by applying the provisions of section 45(2) of the Act to the conversion of share from investment or capital asset to stock-in-trade. The loss was directed to be treated as speculation loss. Aggrieved by the order of ld. CIT, the assessee has filed the present appeal before us. The assessee has raised the following grounds of appeal: “On the facts and circumstances of the case and in law:
1. The learned CIT erred in passing an order u/s 263 on the facts which were considered by the AO when he passed the original assessment order.
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The learned CIT erred in passing an order u/s 263 on the issue of Sec. 45 (2) and treating loss as capital loss without raising the issue by way of a show cause notice thus violating principles of natural justice.
The learned CIT erred in applying provisions of Explanation to Sec. 73 of the IT. Act, 1961 and thereby treating the loss as speculative. 4. The learned CIT erred in not accepting that in a case where other income exceeds business income then a provision of Explanation to Sec.73 does not apply.” 3. We have heard the submissions of Shri Prakash Jotwani the learned AR of the assessee and Shri N.P. Singh the ld. DR for the Revenue and perused the material available on record. The Ld. AR of the assessee argued that during the assessment proceeding, the AO made the proper scrutiny of the various claim made by assessee. The AO applied his mind to the material placed before him and accepted the view conveyed by assessee, mere fact that the AO expressly not discussed the fact in the assessment order cannot be a ground to conclude that the income has escaped assessment. The AO made adequate enquiry before passing the order of assessment u/s 143(3) of the Act on 17.11.2011. The AO issued a questionnaire during the assessment and the assessee vide its reply dated 02.11.2011 and 05.11.2011 furnished the information and explanation with regard to investment in share of SPS Ltd. of 3,00,000 share of Rs. 5,75,70,135/- which have been converted into stock-in-trade. The assessee reported all the information in tax Audit Report. The AO also examined the applicability of section 73 of the Act. The assessee vide its reply dated 05.11.2011 before AO contended that section 73 is not applicable to the assessee-company as the only income of the company during the year under consideration is income chargeable under the head “Income from Other Sources”. After considering the submission and explanation of assessee, the AO accepted the loss and allowed the same to be carried forward. The AO passed the detailed order on merit. The ld. CIT nowhere in the show- cause referred that the AO passed the order without making any enquiry. The ld. AR for assessee further submitted that the loss carried forward for the year under consideration has not been utilized till now. The ld. AR of the assessee argued that the order of ld. CIT is a mere change of opinion. The order is not erroneous. Per contra the ld. DR for the Revenue made the submission that the assessee is in the - M/s Nilkanth Tech Park Pvt. Ltd.
business of Real Estate Development since inception and there is no change in its nature of business. The major source of income during the year under consideration is dividend income which was claimed as exempted. The Revenue has no right to appeal to the ld. CIT against the order passed by AO, that is why, the ld. CIT is conferred the power u/s 263 by statute to revise the order passed by AO, where the order is erroneous and prejudicial to the interest of Revenue. It was further submitted that the phrase “erroneous and prejudicial” are not defined in the Income-tax Act. The Black Law Dictionary defines ‘erroneous’ as involving error, deviating from the law. Thus, erroneous assessment refers to an assessment that deviates from the law and is therefore, invalid and is defective being jurisdictional in nature. Similarly, the erroneous judgment means “one render not according to course and practice of court, but contrary to law upon mistaken view of law”. The phrase prejudicial to the interest of Revenue has to be read in conjunction of the erroneous order passed by AO. Every loss of Revenue as a consequence of order of AO, though cannot be treated as prejudicial to the interest of Revenue unless the views taken by AO are inconsistent by law. In support of his submission, ld. DR for Revenue relied upon the decision of Hon’ble Supreme Court in case of Malabar Industries Company Ltd. vs. CIT (234 ITR 83) and Smt. Taradevi Aggarwal vs. CIT (1973) 88 ITR 323. The ld. DR further argued that incorrect assumption of fact by AO renders the assessment order as erroneous as held in CIT vs. Amalgamation (238 ITR 963). The AO completely omitted the issue in question from consideration and pass the assessment order arbitrarily in arbitrary manner, which renders such assessment as erroneous. The AO has not examined the issue on sale of share which resulted into heavy loss. There is no discussion in the assessment order with respect to the issue of conversion of share into stock-in-trade in view of the fact that the nature of business of assessee is Real Estate Development, whether provision of section 45(2) were applicable and the said loss be treated as speculation loss as per provisions of section 73. The ld. DR for the Revenue finally submitted that the order passed u/s 263 is proper and may be sustained by dismissing the appeal of the assessee. The ld. DR for the Revenue - M/s Nilkanth Tech Park Pvt. Ltd. also relied upon the decision of Hon’ble Delhi High Court in CIT vs. Ashok Logani in dated 11.05.2011. In rejoinder submission, the ld. AR of the assessee would submit that the case law relied by ld. DR for the Revenue is differ on fact of the present case. The ld. CIT has not given any show- cause for section 45(3) of the Act. In support of his submission, the ld. AR for the assessee also relied upon the decision of Malabar Industries Co. Ltd. (supra). The decision of Mumbai Tribunal in Small Wonder Industries vs. CIT in ITA No. 2464/M/2013 dated 24.02.2017 and decision in case of Hon’ble Madras High Court in First Leasing Co. India Ltd. vs. CIT [134 ITR 641 (Mad.)].
We have considered the rival submissions of the parties and have gone through the record of various decision relied by the parties. Before considering the fact of the present case we may refer the provisions of section 263 of Income Tax Act, which may be reads as under; Revision of orders prejudicial to revenue. 263. (1). The Commissioner may call for and examine the record3 of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue3, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the Assessment, or cancelling the assessment and directing a fresh assessment. Explanation.—For the removal of doubts, it is hereby declared that, for the purposes of this sub- Section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) “record” shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
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(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.—In computing the period of limitation for the purposes of subsection (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. The careful perusal of section 263 make it clear that, the Commissioner can pass an order, however he is required to give the assessee an opportunity of being heard. The Commissioner is required to record that the order made by assessing officer is erroneous insofar as it is prejudicial to the interest of the revenue. If in the fresh assessment, the assessing officer is entitled to examine item which does not form part of section 263 proceedings, the statutory requirement of framing an order under section 263 after giving the assessee an opportunity of being heard, stand obliterated or is made redundant. Further, plan reading of section 263(1), it is apparent that Commissioner could have treated any further item or part of the assessment order as being erroneous and prejudicial to the interest of revenue.
From the record we have seen that the learned AR of assessee has placed on record the copy of reply filed, against the quarries raised by assessing officer during the assessment order. The assessee in its reply /letter dated 2nd November 2011, has specifically referred that during the relevant financial year under consideration investments in the share of SPS Ltd 300000 amounting to Rs. 5,75,70135/- was converted into stock-in-trade at cost. The same was reported in the tax Audit report. The details thereof were mentioned in the balance-sheet. Further, in reply dated 5 November 2011 the assessee further in the quarries raised by the assessing officer contended that during the year under consideration, the assessee was doing business activity for dealing in shares and stocks. The only income and during the year under consideration was dividend on shares and mutual fund which it chargeable to tax under the head ‘income from other sources’. In reply to the applicability of explanation to section 73 of the act the assessee contended that section 73 is not applicable to the assessee company. The copies of reply of assessee dated 2 November 2011 and 5th November 2011(page No.6 to9 of PB)
- M/s Nilkanth Tech Park Pvt. Ltd. and the various details makes it clear that the assessing officer considered the factual matrix of the issue before passing the assessment order. Thus, from the record placed before us it cannot be said that the assessment was passed without application of mind and/or no question was raised by assessing officer regarding the loss shown by assessee. We may also not that the assessing officer has not referred his finding regarding the claim of loss, the manner in which it was substantiated by assessee in the assessment order. The revenue has not disputed the copies of replies placed before the assessing officer. Thus, from the contents of order of assessment we may conclude that order maybe erroneous as the same is not speaking order on a particular issue, however the order is not prejudicial to the interest of revenue. The assessing officer passed the order which is based on one of the possible view. We may further conclude that the order passed by learned Commissioner does not fulfill the twin condition as contemplated under section 263 of the Act. The order of learned Commissioner is based on change of opinion.
We may also refer here that the assessing officer while passing/ framing assessment order performs a quasi-judicial function. The jurisdiction under section 263 can be exercised only when both the twin condition i.e. the order of assessing officer is erroneous and so far as prejudicial to the interest of revenue. These conditions are conjunctive as has been held by Hon’ble Supreme Courts in a Malabar Industrial Company Ltd (supra). Further, the order of assessing officer cannot be termed erroneous unless it is not in accordance with law. If assessing officer in accordance with law makes a certain assessment, it cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more deliberately. Section 263 does not visualize a case of substitution of judgment by the Commissioner for that of the assessing officer who passed the order unless the decision is held to be erroneous. Where the assessing officer has exercised the quasi-judicial power vested in him according to law and arrived at the conclusion such conclusion cannot be found to be erroneous simply because the Commissioner does not feel satisfied with the conclusion as - M/s Nilkanth Tech Park Pvt. Ltd.