SHAH JITENDRAKUMAR MAFATLAL HUF,ELLISBRIDGE, AHMEDABAD vs. PCIT, AHMEDABAD-1, AHMEDABAD
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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax, (in short “Ld. PCIT”), Ahmedabad-1, Ahmedabad vide order dated 13.03.2024 for Assessment Year 2014-15.
The Assessee has taken the following grounds of appeal:-
“1. The learned Pr. C.I.T. has erred in passing Order u/s. 263 without jurisdiction and appropriate powers available under the Act It is submitted that the order passed u/s. 263 is bad in law and void ab initio. 2. The learned Pr. C.I.T. has erred in invoking the provisions of Section 263 of the Income Tax Act on the ground that order passed by the A.O. u/s 147 rws 144B of the Act for A.Y. 2014-15 is erroneous and prejudicial to the interest of revenue. It is submitted that the order passed by the learned A.O. is neither erroneous nor prejudicial to the interest of revenue. On facts and circumstances of the case, the order passed by Pr. C.I.T, u/s 263 of the Act is completely incorrect both on facts and in law and the same be quashed and set accordingly.
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The learned Pr. C.I.T. has erred in holding that the Assessing Officer has not verified the issue of accommodation entries amounting to Rs.47,50,000/-, It is submitted that the case being reopening of assessment had reopened on ground of fictitious loan transactions of Rs 47,50,000/- and after verification of objection filed against such reopening and after due application of mind, the Ld, AO has passed the order accepting the contention of the Appellant. It is therefore submitted that is no question of any lack of inquiry or verification on the part of assessing officer and further under assessment of income. In view of this, order passed u/s 263 being totally illegal and unjustifiable be set aside and Assessment Order passed u/s 147 r.w.s 144B of the Act be restored. The same please be held accordingly. 4. The learned Pr. C.I.T. has erred in holding that the Assessing Officer has not verified the issue of accommodation entries of Rs.47,50,000/- with Jignesh Shah. It is submitted that during reopening proceeding while granting the approval u/s 151 of the Act, the Pr. C.I.T. has himself confirmed the information about fictitious loan transaction of Rs.47,50,000/-, whereas, now he turned up and wrongly invoked the provisions of Section 263 of the Act under shelter that the AO has not verified issue properly. Thus the actions of Pr. CIT u/s 263 of the Act is contradictory to his own earlier action, which is not at all permissible in the eyes of law. In view of this, the order u/s 263 of the Act being incorrect and illegal and deserves to be quashed. 5. Without prejudice to the above, the learned Pr, CJ.T. has erred in not appreciating fact that the Assessment order passed u/s 147 rws 144 of the Act was without disposing off objection by way of speaking order and thus it is itself defective and NULL and VOID, it is settled law that once the assessment order itself is null and void, such assessment order cannot be the subject matter of revision under section 263 of the Act as held by Hon'ble ITAT Ahmedabad in case of Jignesh Shah vs Pr. CIT (ITA No 149/Ahd/2021). On this count also, the order u/s 263 of the Act is illegal and unjust and be set aside in the interest of justice. 6. Without prejudice to the above, the Ld. Pr CIT has erred in not appreciating fact that the issue of accommodation entries in the form of bogus capital gain in script Safal Herbs Ltd. has already been examined during course of Regular assessment proceeding conducted u/s 143(3) of the Act. It is submitted that the Id AO has after detailed verification and after application of mind passed order u/s 143(3) dated 23/12/2016 accepting returned income as assessed income. Thus in any event, the invoking provisions of Section 263 of the Act by Pr. CIT in case of Appellant is not at all justifiable and is invalid in eyes of law. The same be held now. 7. The order passed by the learned Pr. C.I.T. is bad in law and contrary to the provisions of law and facts. It is submitted that the same be held so now. 8. Your appellant craves leave to add, alter and/or to amend all or any of the grounds before the final hearing.”
The brief facts of the case are that a return of income for the Assessment Year 2014-15 was filed on September 29, 2014, declaring a total income of ₹12,25,450/-. Order under section 147 read with section 144B of the Income-tax Act, 1961 (Act), was passed on March 22, 2022
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accepting the income as per the original assessment order under section 143(3) of the Act dated December 26, 2016, at the figure of ₹12,25,450/-. However, the Principal CIT upon reviewing the records, observed that the assessee had obtained accommodation entries of a sum of ₹47,50,000/- from an entry operator named Jignesh Shah. The case of the assessee was reopened u/s 147 of the Act based on specific information about these accommodation entries. Despite this, the Assessing Officer (A.O.) did not make any additions related to these accommodation entries, and therefore, the assessment order was erroneous and prejudicial to the interests of the Revenue. The assessee submitted that the A.O. had verified the issue before passing the assessment order under section 147 read with section 144B of the Act and had not made any additions. The assessee also claimed that the case was both reopened and subsequently closed with the permission of the relevant office. After reviewing the submissions of the assessee, Principal CIT was of the view that though the case of the assessee was reopened with the permission of the relevant office, the closure of the proceedings was solely under the jurisdiction of the Faceless Assessing Officer/Assessing Officer, with no involvement from the office of the Principal CIT. The Principal CIT was of the view that the assessee had obtained accommodation entry of ₹47,50,000/- through the sale of penny stock scrips of Safal Herbs Ltd. Principal CIT was of the view that once the case was reopened based on this information available with the Ld. Assessing Officer, he was required to verify the details and make the necessary additions regarding the accommodation entries. The failure to do so rendered the A.O.'s order erroneous and prejudicial to the interests of the Revenue. Consequently, the impugned order passed by the A.O. was set
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aside, and the A.O. was directed to make a fresh assessment after considering the accommodation entries of ₹47,50,000/- obtained by the assessee through transactions in the penny stock scrips of Safal Herbs Ltd., which was managed by Jignesh Shah and his group. Given the circumstances, Principal CIT held that the A.O. had erred by not adequately verifying the issue of accommodation entries, leading to an erroneous assessment order that was erroneous and prejudicial to the interest of the Revenue.
The assessee is in appeal before us against the aforesaid order passed by Principal CIT u/s 263 of the Act. Before us, the Ld. Counsel for the assessee submitted that both the notice and the order issued under section 263 of the Income-tax Act are invalid and liable to be set aside. It was submitted before us that the order u/s 263 of the Act does not satisfy the twin conditions required for invoking section 263 viz. that the assessment order must be both erroneous and prejudicial to the interests of the revenue. The Ld. Counsel for the assessee submitted that there is no error in the order passed under section 147 of the Act, as it was issued after thorough verification of details and submissions by the assessee, and after due application of mind by the Assessing Officer. The case was reopened and order u/s 147 of the Act was passed on the basis of information available to the A.O. at that time, and therefore, the order cannot be deemed erroneous under the meaning of section 263. The Ld. Counsel for the assessee relied on several judicial decisions to support this contention. The Ld. Counsel for the assessee further submitted that this is not a case where the A.O. failed to conduct an inquiry, as provided in Explanation 2 of Section 263, which was
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inserted with effect from June 1, 2015. The A.O. clearly made due inquiry based on the recorded reasons, and took into consideration the detailed reply filed by the assessee, and thereafter passed the order without making any addition. Since due inquiry was conducted by the Assessing Officer, Explanation 2 of Section 263 is not applicable, particularly as the case pertains to AY 2014-15, prior to the insertion of Explanation 2. The PCIT, therefore, wrongly interpreted and applied Explanation 2. To support this argument, the Ld. Counsel for the assessee relied on several decisions in support of his contention. The Ld. Counsel for the assessee also submitted that the PCIT’s notices under section 263, dated 09-02-2024 and 26-02- 2024, stated that the assessee had received accommodation entries of ₹47,50,000/- from Jignesh Shah, and that the A.O. should have added this bogus transaction as unexplained cash credit under section 68 read with section 115BBE of the Act. However, in the order passed under section 263, the PCIT made a contradictory claim, stating that the assessee had sold shares of a penny stock company operated by Jignesh Shah and his group. This change in the PCIT's stance renders the entire proceeding under section 263 null and void. The Ld. Counsel for the assessee argued that the PCIT introduced a new contention in the order passed under section 263, which is self-contradictory and was never communicated to the assessee before passing the order, making the proceeding illegal and unjustifiable. In the 263 order there is no finding as to how the assessment order was erroneous and prejudicial to the Revenue. Accordingly, the Ld. Counsel for the assessee submitted that in light of the above facts and judicial precedents on the subject, the order passed under section 263 is liable to be quashed and set aside.
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In response, Ld. DR placed reliance on the observations made by the Principal CIT in the 263 order.
We have heard the rival contentions and perused the material on record. On going through the facts of the instant case, there are certain noteworthy points which need to be mentioned before proceeding to adjudicate on this issue. In the original assessment order dated 23-12-2016, it has been specifically mentioned that the reason for scrutiny selection is “suspicious transactions relating to long-term capital gain on shares as per inputs from the investigation wing”. Accordingly, during the course of original assessment proceedings, the assessing officer, on the basis of return of income and submissions and evidences filed by the assessee and discussions during the course of assessment proceedings, and after specifically inquiring into the aspect of bogus long-term capital gain on sale of shares of Safal Herbs Ltd, assessed the total income, without making any addition is and accepting the return of income as filed by the assessee. Therefore, evidently, the issue regarding accommodation entry regarding sale of shares of Safal herbs Ltd was to be enquired the course of original assessment proceedings and no additions were made by the assessing officer. Thereafter, the case of the assessee was reopened under section 147 of the Act and from a perusal of “reasons recorded”, the case of the assessee was reopened on the basis that the assessee had made transactions as fictitious loan (entry operator beneficiaries) of Jignesh Shah for a sum of ₹ 47,50,000/-. In the order passed under section 147 of the Act, the assessing officer observed that notice under section 148 had been issued upon the assessee on the basis of information that the assessee has entered into
ITA No. 645/Ahd/2024 Shah Jitendrakumar Mafatlal HUF vs. PCIT Asst.Year –2014-15 - 7– transactions as fictitious loan entry operator beneficiary amounting to ₹ 47,50,000/- of Jignesh Shah. In the reassessment proceedings, the assessee raised a specific objection that the assessee had not taken any loan from Jignesh Shah in any manner and accordingly, the reassessment proceedings which have been initiated are bad in law. The assessing officer accepted the contention of the assessee and no variation in the income of the assessee was made in the order passed under section 147/148 of the Act. Thereafter again, Principal CIT issued notice under section 263 of the Act with the observation that the case of the assessee was reopened under section 147 of the Act on the ground that the assessee had taken accommodation entries amounting to ₹47,50,000/- from Jignesh Shah. Further, Principal CIT proceeded to hold that from the information available on record, assessee had received accommodation entry of ₹47,50,000/- from Jignesh Shah during the year under consideration and therefore, the assessing officer should have added that the bogus transaction as unexplained cash credit under section 68 r.w.s. 115BBE of the Act. On going through the instant facts, it is observed that firstly Principal CIT initiated 263 proceedings on the presumption that reassessment u/s 147 of the Act was initiated on the assessee on the ground that the assessee had taken accommodation entries of ₹ 47,50,000/- from Jignesh Shah, whereas in the 147 proceedings, the issue was whether the assessee had taken fictitious loan (entry operator beneficiary) from Shri Jignesh Shah for a sum of ₹ 47,50,000/-. Therefore, evidently the factual basis mentioned in the 263 notice itself is apparently flawed. Secondly, we observe that the issue regarding alleged bogus accommodation entry had been examined both during the course of original assessment proceedings (refer original assessment order passed dated 23-
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12-2016 u/s 143(3) of the Act) and again during the course of 147 proceedings (refer notice under section 147 of the Act dated 04-02-2022) wherein the issue for consideration was whether the assessee had made transactions as fictitious loan (entry operator beneficiaries) of Jignesh Shah amounting to ₹ 47,50,000/-. Therefore, it is seen that evidently the same issue has been again raised by the Principal CIT, when this issue had earlier been examined by the assessing officer of both during the course of original assessment proceedings and also in the course of 147 proceedings, and after thorough examination, no addition was made on this issue in the hands of the assessee. It is well settled law that recourse cannot be made to 263 proceedings, only with a view to enhance the scope of assessment / reassessment proceedings. It is evident from the facts placed on record that the issue regarding accommodation entry has been examined in detail both during the course of assessment as well as reassessment proceedings under section 147 of the Act, and again the Principal CIT has initiated proceedings under section 263 of the Act, to enquire into the same issue by observing that there was lack of enquiry on the part of the assessing officer. In our considered view, the Department has at various stages of proceedings (both during the course of regular assessment under section 143 (3) as well as under section 147 of the Act) have examined this issue and therefore, the contention of the principal CIT that there was lack of adequate enquiry, cannot be accepted. In the case of Sir Ratan Tata Trust v. DCIT 122taxmann.com273 (Mumbai - Trib.), the ITAT held that if receipt of some inputs at last minute from a third party cannot result in an extension of time for completion of assessment under section 143(3) directly, it cannot
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be done by way of invoking Section 263 either. The Tribunal made the following observations while passing the order on this aspect:
As we have seen above, one of the allegations that the learned Commissioner has made is against the Assessing Officer's "not using the material available with him to take the matter to the logical conclusion," and it is also observed by the learned Commissioner that "this note itself makes the order of Assessing Officer on this issue erroneous and prejudicial to the interests of the assessee." What is being done now is to send the matter back to the Assessing Officer for examination de novo so as to inquire into the allegations so made by Cyrus Mistry. What this approach overlooks is that it is only elementary that what can not be done directly cannot be done indirectly either. If receipt of some inputs at the last minute from a third party cannot result in an extension of time for completion of assessment under section 143(3) directly, it cannot be done by way of invoking Section 263 either.
Secondly, we observe that in the order passed by the principal CIT under section 263 of the Act, there is no specific finding to the effect as to where and in what manner, the order passed by the assessing officer under section 147 of the Act is erroneous insofar as prejudicial to the interests of the revenue. It is a well settled law that in order to hold that the assessment order is erroneous insofar as prejudicial to the interest of the revenue, the principal CIT is required to give a specific finding as to on what basis the conclusion has been arrived at as to why the assessment order is erroneous and prejudicial to the interest of the revenue. However, on going through the contents of the order passed under section 263 of the Act, it is observed that there is no finding in the 263 order as to why the order passed under section 147 of the Act is erroneous, insofar as prejudicial to the interest of revenue. The ITAT in the case of Vinod Bhandari 116 Taxmann.com 264 (Indore ITAT)held that Commissioner before holding order of Assessing Officer as erroneous and prejudicial to interest of revenue should have to conduct necessary enquiries or verification in order to show that findings given by Assessing Officer are unsustainable in law. The Hon'ble Mumbai
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ITAT has dealt with Explanation 2as inserted by the Finance Act, 2015 in the case of Narayan Tatu Rane v. ITO [2016] 70 taxmann.com 227 to hold that the said Explanation cannot be said to have overridden the law as interpreted by the Hon'ble Delhi High Court, according to which the Ld. PCIT has to conduct an enquiry and verification to establish and show that the assessment order is unsustainable in law. The Tribunal has further held that the intention of the legislature could not have been to enable the ld. PCIT to find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law, since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. The opinion of the Ld. PCIT referred to in section 263 of the Act has to be understood as legal and judicious opinion and not arbitrary opinion. The law interpreted by the Hon'ble courts makes it clear that Ld. PCIT before holding the order of the Ld. A.O as erroneous in so far as prejudicial to the interest of revenue should have to conduct necessary enquiries or verification in order to show that the findings given by Ld. A.O is unsustainable in law. Similar view was taken by the Hon'ble Delhi High Court in the case of D.G. Housing Projects Ltd. wherein the Hon'ble Court after referring to judgments of Hon'ble High Court in the case of Addl. CIT v. Gee Vee Enterprise [1975] 99 ITR 375 (Delhi), Sunbean Auto Ltd. (supra), Malabar Industries held in favour of the assessee confirming the order of the Tribunal observing as follows:-
In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed
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by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not. The CIT is patently wrong in mentioning and stating that Schedule III to the Wealth Tax Act, 1957 was not applicable but, the Assessing Officer should have adopted the said formula/method. The aforesaid reasoning cannot be accepted and does not show or establish that the assessment order was erroneous. In view of the aforesaid reasoning, the question of law is answered in favour of respondent assessee and against the Revenue and the appeal is accordingly dismissed. No costs.
Thirdly, we observe that the principal CIT has given a specific finding that once the proceeding under section 147 of the Act have been initiated to verify information regarding accommodation entry, then the assessing officer was duty bound to verify the information and make addition on account of accommodation entry. However, in our considered view, Principal CIT has erred in facts and in law in giving attention to the assessing officer to make an addition in the hands of the assessee. Firstly, we observe that the 263 order has not pointed out to any specific infirmity/lack of enquiry by the assessing officer and has also not pointed out as to how the order passed under section 147 of the Act is erroneous and prejudicial to the interest of revenue and secondly, in the 260 order, the
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principal CIT has given a specific direction/finding that the assessing officer should have made additions on account of accommodation entry, taken by the assessee during the impugned year under consideration. Accordingly, in view of the facts highlighted before us, we hold that the order passed under section 263 by principal CIT is liable to be set aside for the reason that firstly, the 263 order there is no specific finding by the principal CIT as to how the assessment order is erroneous insofar as prejudicial to the interest of revenue and secondly, from the facts placed on record the issue for which 263 proceedings have been initiated by the principal CIT have already been examined by the Department in detail, both during the course of original assessment proceedings as well as reassessment proceedings under section 147 of the Act and therefore, there is no lack of enquiry as alleged in the 263 order.
In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 29/08/2024
Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 29/08/2024 TANMAY, Sr. PS TRUE COPY आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad
