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Facts
The assessee filed ITR for AY 2015-16 declaring an income of Rs.54,98,450/-. Information was received that the company 'Parikh Herbals Ltd./Safal Herbs Ltd.' used for accommodation entries of bogus LTCG did not exist. The assessee was identified as a beneficiary of this scheme to the tune of Rs.6,71,600/-.
Held
The Tribunal held that the Pr. CIT erred in exercising revisionary jurisdiction under Section 263 of the Act without identifying specific errors in the assessment order. The order of the Pr. CIT was therefore illegal and set aside.
Key Issues
Whether the CIT's order under Section 263 was justified without identifying specific errors in the assessment order. Whether the AO's assessment was erroneous and prejudicial to the revenue without proper inquiry.
Sections Cited
263, 147, 144B, 148, 142(1), 2(a)
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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
O R D E R
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeal filed by assessee is against order dated 28.03.2024 of Learned Principal Commissioner of Income-Tax, Delhi-20 (hereinafter referred as “the Ld. PCIT(A)”) under Section 263 of the Income Tax Act, 1961 ( hereinafter referred as “the Act”) arising out of assessment order dated 28.03.2022 of the Learned Assessing Officer/National Faceless Assessment Centre (NFAC) Delhi (hereinafter referred as “Ld. AO") under Sections 147 read with section 144B of the Act for assessment year 2015-16.
Brief facts of case are that assessee filed ITR for the assessment year 2015-16 declaring income of Rs.54,98,450/-. As per information available with the office, it was observed that the company Parikh Herbals Ltd./Safal Herbs Ltd. (PAN: AAGCP1840A) does not exist at its address and, therefore, lacked its identity as well as genuineness. The evidence of exchange of cash against accommodation entries of bogus LTCG were found and impounded in the search case of JSSS where Jignesh Shah and Umang Shah had admitted that the scrip was used for providing accommodation entries of bogus LTCG against cash from beneficiaries. The modus-operandi of such cases was that the assesse did not claim any LTCG in ITR for the assessment year 2015-16. The assessee was one of the beneficiaries of the above mentioned Scheme to the tune of Rs.6,71,600/- through selling the shares of Safal Herbs Ltd. during the year under consideration. Hence the case was reopened and notice u/s 148 was issued on 31.03.2021 by the Assistant Commissioner of Income Tax, Circle 60(1), Delhi with the prior approval of Ld. PCIT, Delhi-20. This notice was served upon the assessee through e-mail. The assesse filed his return of income on 31.05.2021 in response to notice under Section 148 of the Act. Notice under Section 142(1) dated 15.11.2021 along with relevant questionnaire was issued to the assesse. The assessee submitted his response along with necessary documents such as bank statements, copy of ITR, income computation etc. to notice under Section 142(1) dated 15.11.2021 on 15.12.2021. The case was assigned by the NeAC for assessment proceedings under Section 147 of the Act 2 to this office. A final show-cause-notice proposing draft assessment was issued to the assessee on 25.03.2022. The assessee submitted its response on 25.03.2022 & 26.03.2022 along with supporting documents and explanation. On the basis of the above material, it was observed that the assesse is one of the beneficiaries of the accommodation entries of bogus LTCG scheme to the tune of Rs.6,71,600/- through selling the shares of Safal Herbs Ltd. The assessee had declared the capital gains earned on transfer of shares of Safal Herbs Limited while filing the return of income for the relevant year and the sale consideration of the shares is routed through Stock Exchange and there is no direct exchange of money between the buyer and the seller. In view of the above, the returned income of the assessee was accepted. On completion of assessment proceedings, Ld. AO vide order dated 28.03.2022 completed the assessment at the returned income.
Ld. PCIT on examination of record, issued notice under Section 263 dated 19.02.2024. Detailed reasons were provided to the assessee. In response to the notice, CA Shri V.D. Aggarwal, Learned Authorized Representative for the assessee, appeared and filed written submissions. On completion of proceedings, Ld. PCIT vide order dated 28.03.2024 directed the Ld. AO to make self-assessment after verification of the issues discussed in the order.
Being aggrieved, the appellant/assessee preferred present appeal with the following ground:
“That on the facts and in the circumstances of the case and in law the Pr. Commissioner of Income Tax, Delhi erred in passing order under section 263 of the Income Tax Act, 1961 ('the Act' for short) holding the order dated 28/03/2022 passed by the Assessing Officer u/s 147 read with section 144B of the Income Tax Act to be erroneous and prejudicial to the interest of revenue and directing the Assessing Officer to make a fresh assessment. That order being, arbitrary, misconceived, erroneous and unlawful must be quashed.”
Learned Authorized Representative for the appellant/assessee submitted that Ld. PCIT erred in revising an assessment which can be taken up only if there is an error in the order. 5.1 In the subject case, the Investigating Wing had reported the facts to the Ld. ACIT with regard to accommodation entries having been availed of by persons through shares of Safal Herbs Ltd. On the basis of such inputs received from the Investigation Wing that the Assessee's case was reopened for camying out a reassessment. In the course of the reassessment proceeding, the AU thoroughly examined the allegations made against the Assessee with regard to the transactions in the shares of Safal Herbs Ltd. (SHL). After a methodical and meticulous examination of the transactions the ACIT found that the reported share transactions of the present Assessee in SHL were beyond reproach. The allegation of accommodation entries was found to be wrong in the facts and circumstances of the case. No evidence to support such a belief was found by the AU.
5.2 With the comments as extracted above in para 3 above, AU specifically held that though LTCG to the tune of Rs. 6,71,600/- had been availed by the Assessee in the relevant AY, yet the sale consideration and exchanges were in the regular and normal course of transactions and, therefore, no fault could be attributed to the same. In sum, therefore, the AU accepted the returned income of the Assessee. 5.3 When the Ld. PCIT interceded in the matter to undo the assessment by way of a revision u/s. 263 of the Act it was incumbent on her to identify the error in the assessment order. No specific error was identified by her in her order. The PCIT relying upon generalities and probabilities and which was completely distinguishable on facts adopted a devious course to invoke Explanation 2(a) to Sec.263 of the Act to say and to hold that enquiries which ought to have been made by the AU had not been made by it. That indeed is a travesty of facts.
5.4 Series of decisions of the apex Court and the various High Courts that the Revision order u/s. 263 of the Act to be maintainable and sustainable must identify the error which is manifest in the impugned order. The PCIT, in the subject case, was obliged to locate the error in the AU's order. With the PCIT not identifying a single error her order is dumb and defunct. It is case of the PCIT that enquiries have not been made even in the facts of the case when, indeed the AU clearly asserts that it had made specific enquiries of the point at issue. In fact the reassessment itself has been taken up by the AU on those very points at the behest of the Investigation Wing which the PCIT complains of not having been enquired into. 5.5 The Jurisdictional High Court has held that a Commissioner's Revision order u/s. 263 of the Act, to be sustainable in law, must identify the error in the order. This is as per the decision in ITO v. DG Housing Projects Ltd. (2012) 343 ITR 329(Del). The observations of the Court in that case at page 34 of the report is noteworthy:-
"Thus when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to the Revenue; or two views were possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interests of the Revenue." 5.6 In the absence of the PCIT failing to identify the error in the order proposed to be revised, the order of Revision has to be held to be deficient and unsustainable in law. On similar ground, the Delhi High Court quashed the Revision orders passed by the Commissioners in DIT vs. Jyoti Foundation (2013) 357 ITR 388 and CIT vs. New Delhi Television Ltd. (2014) 360 ITR 44.
Learned Authorized Representative for the Revenue submitted that regarding explanation to Section 263 of the Act, Hon'ble High Court of Delhi in the judgement in PCIT vs. Paramount Propbuild (P) Ltd. 161 taxmann.com 85 (Delhi) [2024] has held as under:
".......23. Therefore, in light of the findings which are unravelled from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. that the entities M/s. Sarvottam Securities Ltd. and M/s. Upaj Leasing & Finance Pvt. Ltd. are the shell companies of an entry operator, the relevance of ascertaining the genuineness and creditworthiness of the transactions cannot be undermined. Additionally, the genuineness and creditworthiness of the transactions may not be satisfactorily determined solely on the basis of the ledger accounts or the ITR of the entities, especially when the identities of such entities are not bonafide. As observed in N.R. Portfolio (P.) Ltd. [supra], the task of unveiling the mischief of the human minds working behind the corporate veil in such cases requires a deeper scrutiny, which goes beyond the periphery of documents ordinarily submitted for the purpose of assessment. An inquiry for ascertaining the creditworthiness and genuineness of financial transactions necessarily requires unknotting of the transactions, by going beyond what is conspicuously available.
Unfortunately, the assessment order nowhere reflects any element of inquiry or verification. The discussion about the loan transactions in question is altogether missing. Furthermore, the assessment record would also reflect that the AO has not taken any concrete steps to ascertain the genuineness and creditworthiness of the transactions, which merits consideration in the light of the findings that emerged from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. It emerges that the present is a case where the AO failed not only to spell out any finding about the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. but also to scrutinize the highlighted aspects in the said report qua the genuineness and creditworthiness of aforenoted loan transactions. Therefore, this is the minimum inquiry which atleast was expected to have been made by the AO.
At this juncture, it is apposite to point out that clause (a) of Explanation 2 of Section 263 of the Act introduces a deeming fiction to the effect that the order passed by the AO shall be considered erroneous and prejudicial to the interests of the Revenue, if the order is passed without making inquiries or verification, which should have been made. Henceforth, since neither there is any facet of discussion about the aforenoted aspects in the assessment order nor the assessment record duly reflects that the AO has done inquiry in the light of the findings of the investigation report. We find that the present is a fit case to invoke the revisional powers under Section 263 of the Act.
Thus, so far as question (a) is concerned, we hold that the ITAT was incorrect in holding that the AO had duly made the inquiry in the instant case and considered the material produced before it. Furthermore, the ITAT also erred in holding that the PCIT has wrongly assumed the jurisdiction under Section 263 of the Act as the assessment order is not only prejudicial to the interests of the Revenue but also erroneous in nature.
In so far as question (b) is concerned, it is crystal clear that Explanation 2 to Section 263 of the Act will be applicable in the instant case as the said explanation was inserted vide Finance Act, 2015 with effect from 01 June 2015 and the case of the assessee belongs to AY 2016-17.
Thus, in the light of the foregoing discussion, we are of the view that the aforementioned questions of law need to be answered in favour of the Revenue and against the assessee. We accordingly do so.
In view of the aforesaid, we set aside the ITAT order dated 14 February 2022. 30. The appeal is accordingly allowed and disposed of, alongwith pending applications, if any....."
6.1 Various judgments relied upon by the Revenue are as under:-
1. Hon'ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/2017) dated 29.11.2017.
2. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC) 3. Hon'ble Supreme Court in the case of Tara Devi Aggarwals vs. CIT [1073] 88 ITR 323; 4. Rajmandir Estates (P) Ltd. vs. PCIT [ 70 taxmann.co.124 - (Calcutta)/[2016] 240 Taxman 306 (Calcutta)/[2016] 386 ITR 162 (Calcutta)/[2016] 287 CTR 512]
5 Rajmandir Estates (P.) Ltd. Vs PCIT [2017] 77 taxmann.com 285 (SC)/[2017] 245 Taxman 127 (SC) 6. Order of Hon'ble ITAT F-Bench in the case of PTC Impex (India) Pvt. Ltd. Vs CIT, dated 03.04.2018 7. Order of Hon'ble HIGH COURT OF KARNATAKA in the case of CIT vs. Infosys Technologies Ltd. 341 ITR 293 dated 04.01.2012 8. Order of Hon'ble Delhi ITAT in the case of CIT vs. Apollo Tyres Ltd., 65 ITD 263 9. Order of Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs Addl. CIT, 99 ITR 375 10. Order of Hon'ble Delhi Bench in the case of Perfetti Van Melle India Pvt. Ltd., for A.Y. 2009-10 order dated 11.01.2019
Order of Hon'ble Delhi Bench in the case of Ramesh Kumar., for A.Y. 2014-15 order dated 25.01.2019; 12. Order of Hon'ble Delhi Bench in the case of Shanker Tradex Pvt. Ltd. vs. PCIT, for A.Y. 2007-08 order dated 16.04.2018; 13. Order of Hon'ble Delhi Bench in the case of Surya Financial Services Ltd. Vs. PCIT [2018-TIOL-74-ITAT-DEL] order dated 8.01.2018; 14. Hon'ble High Court of Delhi in the case of CIT vs. Ashok Logani [2011] 347 ITR 22 (Delhi); 15. Hon'ble ITAT Delhi in the case of Pooja Gupta in 2018 dated 31.01.2019; 16. In the judgment of BSES Rajdhani Power Ltd. vs Pr. CIT, Delhi 88 taxmann.com 25 (Delhi) [2017] Hon'ble High Court of Delhi; & 17. In the Judgment in CIT vs Paville Projects (P.) Ltd. 149 taxmann.com 115 (SC) [2023] the Hon'ble Supreme Court.”
From examination of record in light of aforesaid rival contentions, it crystal clear that assessee submitted return declaring an income of Rs.54,98,450/-. The Assessment Unit (hereinafter referred as “AU”) had been conveyed information by the Departmental sources (IW) that a Company known as Parikh Herbals Ltd./Safal Herba Ltd. did not exist at the address and, therefore, lacked identity as well as genuineness. Evidence of exchange of cash against the accommodation entry of bogus long term capital gains (LTGC) were found and impounded in the search of one JSSS where the duo of Jignesh Shah and Umang Shah had admitted that the scrip was used for providing accommodation entries of bogus LTCG against cash from beneficiaries. The information further stated that the modus operandi of such cases was that the Assessee would not claim any LTCG in the ITR for AY 2015-16. This Assessee was stated to be one of the beneficiaries of the abovementioned scheme in a sum of Rs. 6,71,600/- through selling the shares of Safal Herbs Ltd. during the year under consideration. With the aforesaid information the case of the Assessee was reopened and notice u/s. 148 of the Act was issued on 31.03.2021 by the ACIT, Circle 60(1), Delhi after reportedly obtaining the approval of the Pr. CIT. In response to that notice Assessee filed return of income on 31.05.2021. Ld. AO/The AU completed the assessment after issuing notice under Section 142(1) of the Act dated 15.11.2021 etc. Assessee submitted replies to those notices. Ld. AO/the AU completed the assessment at the returned figure of Rs.54,98,450/- vide order dated 28.03.2022 by observing as under:
"3. On the basis of the material available on record and response from the assessee, it is observed that the assessee is one of the beneficiaries of the accommodation entries of bogus LTCG scheme to the tune of Rs. 6,71,600/- through selling the shares of Safal Herbs Ltd. during the year under consideration. The assessee had declared the capital gains eamed on transfer of shares of Safal Herbs Ltd while filing the return of income for the relevant year and the sale consideration of the shares is routed through Stock Exchange and there is no direct exchange of money between the buyer and the seller. In view of the above, the returned income of the assessee is accepted." 7.1 The Ld. PCIT, Delhi-20 issued show cause notice (SCN) dated 19.02.2024 u/s. 263 of the Act. The Assessee responded to that SCN. The PCIT marked the reassessment to be erroneous, after considering the reply thereto of the Assessee as stated in para 5 of the order dated 28.03.2024. The grounds for rejection are contained in paras 6 to 14 of the PCIT order. More specifically in para 15 of the order, the PCIT held that the reassessment order framed by the National Faceless Assessment Centre had to be deemed to be erroneous in terms of Explanation 2(a) to Sec.263 of the Act because, according to the PCIT, the order had been passed without making enquiries or verification which should have been made by the AO. With that charge the PCIT directed a fresh reassessment to be made by Ld. AO.
7.2 From perusal of order dated 28.03.2024, it is evident that Ld. PCIT revised an assessment without identifying specific error.
7.3 In view of above material facts in light of ratio of the judgment in “PCIT vs. Paramount Propbuild (P) Ltd.” case (supra), it is apparent on record that Ld. PCIT erred in exercising revised jurisdiction under Section 263 of the Act by directing the Ld. AO to make fresh reassessment without identifying specific errors. Therefore, the order of Ld. PCIT being illegal is set aside. The ground of appeal is accepted.