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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Sri A.T.Varkey, JM & Shri M.Balaganesh, AM ]
This appeal of the assessee arises out of the order of the Principal Learned Commissioner of Income Tax, Kolkata-15, Kolkata [ in short the ld CIT] in M. No. PCIT-15/Kolkata/u/s 263/09/16-17/8781-84. dated 07.02.2017 passed u/s 263 of the Act against the order passed by the Income Tax Officer, Ward 44(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act ‘) dated 25.3.2015 for the Asst Year 2012-13.
The only issue to be decided in this appeal is as to whether the learned Administrative C.I.T. was justified in invoking revisionary jurisdiction u/s 263 of the Act, in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is an individual and running his business in the name and style of ‘M/s. Parrot Hosiery Factory’ engaged in the business of manufacturing of vests. The assessee electronically filed his return of income for the Sri Govind Lal Rathi A.Yr.2012-13 assessment year 2012-13 on 27.09.2012 declaring taxable income of Rs.9,58,258/- which was duly processed u/s 143(1) of the Act. Later the assessment was selected for scrutiny and during the course of assessment proceedings the assessee appeared from time to time and produced the books of accounts, bills and vouchers and the same were duly test checked by the ld. AO. In the assessment proceedings the ld. AO observed from the personal balance sheet of the assessee for the assessment year 2012-13 that he had sold certain old silver utensils amounting to Rs.21,09,203/-. But the same was not offered to tax under the head ‘Capital gains’. In response to the show cause notice issued in this regard, the assessee replied that the old used silver utensils sold during the year, were personal effects, and therefore outside the purview of the definition of capital assets u/s 2(14 ) of the Act., The ld. AO did not heed to the contention of the assessee and concluded that section 2(14) of the Act defines the expression ‘capital asset’ which means property of any kind held by the assessee, whether or not connected with his business or profession but does not include personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him but excludes (a) Jewellery ……. Explanation – For the purposes of this sub-clause, “Jewellery” includes – (a)Ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparent.
Based on this definition and explanation thereon the ld. AO concluded that old silver utensils should be treated as capital asset and accordingly transfer of such capital asset would have to be brought to tax as capital gain. Accordingly he added the sum of Rs.21,09,203/- under the head ‘Long Term Capital Gain’ in the assessment order u/s 143(3) of the Act on 25.03.2015. Against this assessment the assessee had preferred an appeal before the ld. CIT(A) and the same is pending. Meanwhile the ld. Administrative Commissioner of Income tax sought to invoke revisionary jurisdiction u/s 263 of the 2
Sri Govind Lal Rathi A.Yr.2012-13 Act by treating the order of the ld. AO u/s 143(3) of the Act dated 25.03.2015 as erroneous in as much as prejudicial to the interest of the revenue by issuing the following show cause notice :- “ OFFICE OF THE PR. COMMISSIONER OF INCOME TAX - 15, KOLKATA 3. GOVT. PLACE (WEST). GROUND FLOOR. KOLKATA -700001
No. Pr. CIT - 15/Kolkata/263/ /2016-17/4763 Date: 08 /08/2016 To Shri Govind Lal Rathi, 9/1, Sova Ram Bysack Street, Kolkata- 700 007
Sub: Show cause notice u/ s.263 of the Income Tax Act, 1961 in the case of Shri Govind Lal Rathi with PAN:ADIPR0507N andA.Y.2012-13 against order u/s. 143(3) dated 25/03/2015 passed by ITO. Wd-44(1), Kolkata - matter regarding.
Please refer to the above.
It is noticed that you sold utensils made of silver amounting to Rs. 21,09,203/- but the same was not offered for tax under the head "capital gain". It was argued by you that Silver utensils sold during the year were personal effect and therefore the matter is outside the purview of the definition of capital assets u/ s. 2(14) of the LT. Act. Accordingly, no capital gain was offered for taxation by you. The A.O. in his order treated the sale consideration as Long Term Capital Gain and added back to your total income. But as you could not furnish the date of purchase of that asset so A.O. should have treated the gain as Short Term Capital Gain. The mistake resulted In an under-charge of tax and interest of Rs. 6,00,719/- . The A.O. while completing your assessment u/s. 143(3) dated 25/03/2015 has not made any enquiry into this issue, although prima facie evidence against you was available on record. I am, therefore, of the opinion that prima facie the order u/s. 143(3) of the I.T. Act, 1961 dated 25/03/2015 is erroneous and prejudicial to the interest of the Revenue. You are, therefore, requested to appear personally or through your authorized representative before the undersigned on 29/08/2016 at 1 P.M. along with your written submission, if any, to show cause as to why the assessment made u/s. 143(3) on 25/03/2015 should not be revised u/s. 263 of the I.T. Act, 1961. Sd/- (K.C.P.Patnaik) Pr.CIT-15, Kolkata”
Sri Govind Lal Rathi A.Yr.2012-13 From a perusal of the aforesaid show cause notice it could be inferred that the ld. CIT justified his action u/s 263 of the Act on the ground that no enquiry was made on the sale of silver utensils by the ld. AO in the assessment proceedings. The assessee filed a reply before the ld. CIT stating as below :- “To The Pr. Commissioner of Income Tax, Kol - 15,· Kolkata Dated:29.8.2016
Sir, Sub: Show cause Notice U/s 263 - In the matter of Govind Lal Rathi ::PAN-ADIPR0507N- Assessment year 2012-13- - reg.
With reference to the above, it is submitted that the assessee sold 38.37 Kgs of; silver utensils during the year out of the silver utensils weighing 338 kgs which were very old and were disclosed by the assessee in the VDIS Scheme, 1997 and tax thereon was paid. The Ld CIT also issued certificate for the said acquisition of the silver utensils . .In support of the same, the Certificate of VDIS is enclosed along with the declaration made duly supported by Affidavit. It is evident from the certificate supported by the affidavit that the silver utensils were acquired in assessment year 1963-64. The utensils were therefore held even before 1.4.81. Your honour has proposed to exercise jurisdiction u/s 263 on the ground that the AO has not made any enquiry regarding the date of purchase of silver utensils so as to come to the conclusion that the assets sold were long term in nature. Therefore, the silver utensils were held for more than 50 years. Further, your honour has missed to look into the records wherein the AO has made specific requisition regarding the date of purchase of silver utensils sold vide point no. 24 of the notice issued u/ s 142(1) dated 14/11/2014, copy of which is enclosed herewith. The same was also filed before the AO vide letter dated 18/12/2014, copy of which is enclosed herewith wherein the VDIS Certificates were filed along with declaration made duly supported by Affidavit . Therefore, it is submitted that proper enquiry had been made by the AO regarding the date of purchase of silver utensils and hence the order is neither erroneous nor prejudicial to the interests of revenue. Hence the proceedings may please be dropped. Apart from that it is submitted that the old house-hold silver utensils used for personal purposes were sold during the year. These utensils were old and were personal effects of the assessee and therefore outside the purview of the definition of capital assets as stated in sec. 2(14) of the Income Tax Act. Therefore, there was no capital gain offered for tax during the year. The same view has also been taken by the Hon’ble Jurisdictional High Court in the case of Shree Kumari Mundhra VS 4
Sri Govind Lal Rathi A.Yr.2012-13 CIT reported in 228 ITR 548. Therefore, the fact the matter has travelled to High Court itself shows that two opinions are possible and where the issue is debatable, jurisdiction u/ s 263 cannot be exercised to tax the sale of silver utensils as short term capital gain. Hence, the proceedings may please be dropped. “
The ld. CIT, however, did not heed to the contentions of the assessee and proceeded to pass an order u/s 263 of the Act by observing as below :- “I have carefully considered the issues with specific reference to the relevant assessment records as well as admission made by the assessee in his written submission. The facts narrated above and submission made by the assessee indicates that some aspects remained to be seen by the A.O. during the assessment proceedings regarding sale proceeds of silver utensils. The Assessing Officer has not made proper enquiry before completing assessment regarding the above issue. By not verifying the treatment of sale proceeds of silver utensils and by not making adequate enquiry the Assessing Officer has not assessed the proper income thus making the order erroneous and prejudicial to the interest or the revenue The treatment of sale proceeds of silver utensils was not properly examined thus rendering the assessment order erroneous and prejudicial to the interests of revenue. In view of the above, the order dated 25/03/2015 passed by I.T.O. W-44( 1), Kolkata is found to be erroneous and prejudicial to the interest of revenue and hence set aside on the above limited issue with the direction to pass fresh assessment order after examining the evidences and documents in respect of the above issue raised after giving opportunity to the assessee and in accordance with law.”
Aggrieved, the assessee is in appeal before us on the following grounds:- “
1. For that the order of the Ld. CIT is arbitrary, illegal and bad in law.
2. For that the Ld. CIT erred in assuming jurisdiction on the issue of period of holding of silver utensils which was taxed as long term capital by the AO which was already enquired into and considered by the Assessing Officer after due application of mind in the assessment made u/ s. 143(3).
3. For that the Ld. CI.T erred in holding the order as erroneous and prejudicial to the interest of Revenue when admittedly according to him enquiry was made regarding the purchase of silver utensils which was not adequate and therefore the order is liable to be cancelled since it was not a case of lack of enquiry being made by the AO.
Sri Govind Lal Rathi A.Yr.2012-13 4. For that the Ld. CI.T erred in setting aside the order to the file of the AO by holding that some aspects remained to be seen regarding sale proceeds of silver utensils when the show cause notice was issued regarding the date of purchase of the silver utensils for categorising the gain on sale as long term and short term and therefore the order of the Ld. CIT is liable to be cancelled since the same was not the issue in the show cause notice.
5. For that the Ld. CI.T erred in holding that some aspects remained to be seen by the AO regarding the sale proceeds without pin pointing specific aspects which were not seen by the AO.
6. For that the Ld. CI.T should have himself examined the issue whether the purchase of silver utensils were held as short term capital assets or long term capital assets when all the details and documents were filed to prove the dates of purchase.
7. For that even otherwise the silver utensils held by the assessee were personal effects, outside the definition of capital assets and therefore no jurisdiction under sec. 263 can be exercised on a debatable issue specifically when the matter was pending in appeal before the C.I.T(A).
For that on the facts and circumstances of the case the order of the CIT be modified and the assessee be given the relief prayed for.
9. For that the assessee craves leave to add, alter or amend any ground before or at the time of hearing.”
We have heard the rival submissions and perused the materials available on record. At the outset, we find that the subject matter of the issue regarding purchase and sale of silver utensils have been duly examined by the ld. AO during the course of assessment proceedings. It is evident from the notice issued u/s 142 (1) of the Act dated 14.11.2014 on the assessee together with detailed questionnaire comprising of 25 questions wherein in question no.24 the assessee was directed to reply for the following question :- “24. Please produce details of sale of old used silver utensils, in the following proforma: Items & Cost price Date of Date of sale Amount of sale quantity purchase In response to the said questionnaire the assessee had duly replied before the ld. AO vide letter dated 18.12.2014 furnishing details of sale of old used silver utensils in the desired format as required by the ld. AO which is enclosed in pages 14 to 16 of the paper book. We also find that the assessee vide another letter dated 27.02.2015 had 6
Sri Govind Lal Rathi A.Yr.2012-13 explained the subject mentioned transactions vide reply in para-9 of this letter as below :- “ 9. The old house-hold silver utensils sold during the year were personal effects of the assessee and therefore outside the purview of the definition of capital assets as stated in sec.2(14) of the Income Tax Act. Therefore, there was no capital gain offered for tax during the year. The same view has also been taken by the Hon’ble Jurisdictional High Court in the case of Shree Kumari Mundhra Vs. CIT reported in 228 ITR 548.”
Along with these documents the assessee had also enclosed the declaration made under Voluntary Disclosure of Income Scheme (VDIS) 1997 wherein the assessee had disclosed 338.6 kgs of silver utensils for A.Y.1963-64. We find that these silver utensils were valued based on independent valuer’s report at Rs.60,610/- and the said declaration under VDIS was also supported by an affidavit duly notarized by a notary public as required to be furnished under VDIS 1997. We find from page -8 of the paper book filed by the assessee that the ld. Administrative CIT-VIII had issued certificate u/s 68(2) of the VDIS 1997 accepting the declaration made by the assessee as silver utensils pertaining to A.Y.1963-64 in the value of Rs.60,610/-. While these documents are staring on us it can be concluded that the silver utensils were indeed held by the assessee for more than 50 years and part of such silver utensils were sold by the assessee during the A.Y.2012-13. The ld. AO ignoring those documents had not given any deduction towards the purchase cost of silver utensils even based on fair market value as on 01.04.1981 and simply treating the entire sale proceeds of such silver utensils as capital gain while completing the assessment. Moreover, we find that the ld. AO had duly appreciated the fact that this silver utensils being held by the assessee for more than one year thereby treated the sale on gain arising from sale of utensils as long term capital gain. We find that the ld. CIT initially issued a show cause notice to treat the subject mentioned gains on sale of silver utensils as short term capital gain instead of long term capital gain and in this regard he observed that the ld. AO had not made any enquiry at all while issuing the show cause notice. Later on going through the reply 7 Sri Govind Lal Rathi A.Yr.2012-13 filed by the assessee, the ld. CIT shifted his stand by stating that the ld. AO had not made proper enquiry on the subject mentioned issue before completing the assessment. This shifting of stand by the ld. CIT and seeking to revise the order u/s 263 of the Act on the ground of inadequate enquiry is found impermissible in law as decided by the Hon’ble Bombay High Court in the case of CIT vs Nirav Modi reported in (2016) 71 Taxmann.com 272 (Bom).
It was next submitted that no enquiry was done by the Assessing Officer to find out whether the donor Mr Deepak Modi (father) had received money from M/s. Chang Jiang as claimed. Nor any inquiry was done to find out whether the sister had in fact earned amounts on account of Foreign Exchange Transactions as claimed by her. We find that this enquiry of a source of source is not the requirement of law. Once the Assessing Officer is satisfied with the explanation offered on inquiry, it is not open to the CIT in exercise of his revsional powers direct that further enquiry has to be done. At the very highest, the case of the Revenue is that this is a case of inadequate inquiry and not of "no enquiry." It is well settled that the jurisdiction under Section 263 of the Act can be exercised by the CIT only when it is a case of lack of enquiry and not one of inadequate enquiry. This view has been taken by this Court in the matter of CIT v. Shreepati Holdings & Finance (P.) Ltd. [ITA 1879 of 2013 dated 5th October, 2013], by the Delhi High Court in CIT v. Vikas Polymers [2012] 341 ITR 537 and in D.G. Housing Projects (supra). In fact the Delhi High Court in D.G. Housing Projects (supra) while so holding placed reliance upon the decision of this Court in Gabriel (India) Ltd. (supra). It is very important to note that the CIT in his order under Section 263 of the Act has recorded the fact that there has been no adequate inquiry. Thus, this is not a case of no inquiry, warranting order under Section 263 of the Act. Thus, this objection on the part of the Revenue, is also not sustainable.
The Revenue placed reliance upon the decision of the Delhi High Court in D.G. Housing Projects Ltd., (supra) that as the Assessing Officer had not enquired into the source of the source of the gifts received by the Assessee, the Assessment Order is erroneous. The aforesaid decision holds that the power of Revision under Section 263 of the Act would normally be exercised in case of no enquiry and not in cases of inadequate enquiry. However, even in case of inadequate enquiry by the Assessing Officer, the order of the Assessing Officer could be erroneous in two classes of situation. The first class would be where orders passed by the Assessing Officer are ex facie erroneous i.e. a decision rendered ignoring a binding decision in favour of the Revenue or where enquiry is per se mandated on the basis of the record available before the Assessing Officer and that is not done. In the second class of cases, where the order is not ex facie erroneous, then the CIT must himself conduct an enquiry and determine it to be so. The Court held that it is not permissible to the CIT while exercising power under Section 263 of the Act to remit the issue to the Assessing Officer to re-examine the same and find out whether earlier order of Assessment is erroneous. It is the CIT who must hold that the order is erroneous, duly supported by reasons. In 8
Sri Govind Lal Rathi A.Yr.2012-13 the present facts, the CIT in exercise of its powers under Section 263 of the Act has merely restored the Assessment to the Assessing Officer to decide whether the gifts were genuine and, if not, then the Assessment could be completed on application of Section 68 of the Act. In this case, the order passed by the Assessing Officer is not per se erroneous and further the CIT has not given any reasons to conclude that the order is erroneous. In fact, he directs the Assessing Officer to find out whether the order is erroneous by making further enquiry. This the decision of the Delhi High Court in D.G. Housing Projects Ltd. (supra), clearly negates. In the above view, the decision of Delhi High Court in D.G. Housing Projects Ltd. (supra) would not assist the Revenue in the present facts.
Hence, the case of the assessee herein does not fall under the category of ‘lack of enquiry’ for which revisionary proceedings u/s 263 cannot be invoked.
6.1. In any case, the subject mentioned issue is already the subject matter of the appeal before the ld. CIT(A) and hence, on that ground also the action of the ld. CIT u/s 263 of the Act cannot be sustained. We find that the action of the ld CIT was in complete disregard to the specific provisions of clause (c ) of Explanation to section 263(1) of the Act, which places a clear embargo on the ld CIT with respect to exercise of revisionary jurisdiction on assessments which have been subject matter of appeal. Reliance in this regard is placed on the decision of the Hon’ble Calcutta High Court in the case of Oil India Ltd vs CIT reported in 138 ITR 836 (Cal) wherein, the Hon’ble Court interpreting the scope of powers of the Commissioner u/s 263 of the Act held that where an appeal is preferred before the Appellate Assistant Commissioner (AAC) and a subject is particularly raised, the Commissioner cannot revise such an order taking into account an aspect not dealt by the AAC.
6.1.1. We find that the clause (c ) of Explanation 1 to section 263(1) of the Act clearly prohibits the action of the ld CIT for invoking revisionary jurisdiction by the ld CIT . For the sake of convenience, the relevant provisions are reproduced below:-
Section 263 - Revision of orders prejudicial to revenue 9
Sri Govind Lal Rathi A.Yr.2012-13 (1) ……………… Explanation 1 – For the removal of doubts, it is hereby declared that , for the purposes of this sub-section , - (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 [Principal Commissioner or] 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.
Hence the emphasis is to be given on the expression ‘matters as had not been considered and decided in such appeal’ in Clause (c ) of Explanation 1 to section 263(1) of the Act. Hence even if the issues raised by the ld CIT in the revision proceedings u/s 263 of the Act are found to be correct, the same could very well be done by the ld CITA in the first appellate proceedings, if he so desires, in view of enhancement powers provided to him in the statute. It would be relevant to look into the decision of the Hon’ble Calcutta High Court in the case of Oil India Ltd vs CIT reported in 138 ITR 836 (Cal) in this regard, wherein it was held that :- Upon this the three questions as mentioned hereinbefore have been referred to this court. The first question is directed to the aspect whether after the appellate order was passed by the AAC or an appeal had been preferred, the Commissioner had jurisdiction in the facts and circumstances of this case under section 263 of the Act. Now, it is well settled that before an appeal before the AAC certain orders are appealable. It is also well settled that in an appeal preferred before the AAC the whole assessment is open for review by the AAC. He is both the appellate as well as the adjudicating authority. But his jurisdiction is limited to the appeal preferred before him. There are certain orders which are not appealable before the AAC but certain types of allegations can be taken up in an appeal by separate appeals. Apart from those two cases if an assessment is the subject-matter of appeal then any ground which was held in favour of the assessee can also be held against him though the appeal was preferred by the assessee. This jurisdiction of the AAC is indisputable. In this case the question is whether the quantum of allowance or disallowance or depreciation was the subject-matter of appeal or not. It is true that whether depreciation should be calculated on the basis of 12 months or it should be calculated on the basis of 11 months was not a specific aspect which was agitated before the AAC nor did he give any direction on this aspect of the matter but he had this aspect kept open for adjudication by him even though not taken by the assessee. Then, on that, he could have allowed 5% or 2½% depreciation and should have directed the ITO to compute the same on such basis as he considered fit and proper, namely, 11 months or 12 months on the view that the employee of the assessee was on 10
Sri Govind Lal Rathi A.Yr.2012-13 leave for one month and as such could not be said to be entitled to this accommodation. If that is the position, then, in our opinion, once the appeal has been preferred before the AAC on any aspect of the quantum of depreciation, the Commissioner cannot assume jurisdiction, otherwise an anomalous position would arise. The ITO has been directed by the AAC to fix depreciation at a certain percentage, indicated by the AAC, without any further direction that it should be confined to 11 months or 12 months. But, now, if further consideration is superimposed by the Commissioner by rectification made by the ITO as a result of the order passed by the Commissioner under section 263 then that would be in conflict with the direction given by the AAC in his appellate order. Therefore, where an appeal is preferred and the subject-matter of appeal, particularly raised, is the subject-matter before the AAC, then that order, in our opinion, cannot be the subject-matter of an order of revision by the Commissioner. This principle, however, comes where the appeal does not lie from the order of the ITO and before the AAC where different kinds of appeal are provided for in the scheme of the Income-tax Act. This principle was enunciated by the Supreme Court in the case of CIT v. Amritlal Bhogilal & Co. [1958] 34 ITR 130 (SC). This was also reiterated in the decision in the case of Jeewanlal (1929) Ltd. v. Addl. CIT [1977] 108 ITR 407 (Cal) and the decision in the case of Premchand Sitanath Roy v. Addl. CIT [1977] 109 ITR 751 (Cal). The Allahabad High Court reiterated the same principle in the case of J.K. Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344 (All). Therefore, it appears to us that as the quantum of depreciation was the subject-matter of appeal the Commissioner had no jurisdiction, in the facts and circumstances of this case, to issue the notice under section 263 and to pass any order on this aspect of the matter. Question No. 1 therefore, in our opinion, must be answered in the negative and in favour of the assessee.
6.1.2. We find that similar views were expressed in the following decisions :- a) Hon’ble Karnataka High Court in the case of DCIT vs Verma Industries Ltd reported in 117 Taxman 512 (Kar) b) Hon’ble Madras High Court in the case of CIT vs Farida Prime Tannery reported in 135 Taxman 70 (Mad) c) Hon’ble Supreme Court in the case of CIT vs Sri Arbuda Mills Ltd reported in 231 ITR 50 (SC). d) Decision of co-ordinate bench of Delhi Tribunal in the case of Sujata Grover vs ACIT reported in 74 TTJ 347 .
6.2. In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the ld. CIT grossly erred in invoking the Sri Govind Lal Rathi A.Yr.2012-13 revisionary jurisdiction u/s 263 of the Act in the facts and circumstances of the case and accordingly we hereby quash the revision order passed u/s 263 of the Act. Accordingly the grounds raised by the assessee are allowed.
In the result the appeal of the assessee is allowed.
Order pronounced in the Court on 07.07.2017