AMBIT MULTITRADE P. LTD,MUMBAI vs. ITO 4(1)(3), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य राजे�� के अनुसार लेखा सद�य राजे�� के अनुसार PER RAJENDRA, AM- लेखा सद�य राजे�� के अनुसार लेखा सद�य राजे�� के अनुसार Challenging the order,dated 27.02.2015,of the Principal CIT-4,Mumbai,passed u/s.263 of the Act,the assessee has filed the present appeal. 2.Assessee company,engaged in the business of share trading,filed its return of income on 19.09.2010.Initially, the return of income was processed u/s. 143(1)of the Act.Subsequently, the case was selected for scrutiny and was assessment was completed u/s.143(3) of the Act on 03.01.2013by the Assessing Officer(AO),determining the income of the assessee at Rs. Nil. 3.While going through the case records and the order passed by the AO,the PCIT observed that the AO had passed a routine order without application of mind, that order was completed in a mechanical fashion,that the assessee had allotted 20,000 shares of face value for Rs.10/- per share at a huge premium of Rs.490/-per share,that purchase of Rs.1 crore had been shown as closing stock,that there was nothing on record to reflect the reason for such huge premium, genuineness about the source of money, mode of transaction for share application money. The PCIT,vide notice dtd.16.04.2014,issued u/s.263 of the Act,asked the assessee to explain as to why the income should not be re-computed for the year under consideration.The assessee,vide its letter,dated 12.05.2014,made submissions before the PCIT. After considering the same she held that the AO had neither conducted any enquiry nor had carried out any investigation with respect to genuineness or credit worthiness of the persons from whom the trading stock was purchased,that the computation of capital gain was not enquired by the AO, that this was the first year of incorporation of the assessee company,that the AO had not at any point applied his mind to the reason for such high valuation of a Rs.10/- share at the premium of Rs.490/-,that the AO had not issued notices u/s. 133(6) of the Act to the Kolkata Companies, that the AO had failed to carryout relevant and meaningful enquiries in respect of computation of capital gain and indexation benefit of market rate,that just acceptance of receipt of paper confirmation,without any independent enquiry amounted to non-application of mind.Finally,she held that the AO had failed to enquire the receipt of huge share premium and closing stock.Accordingly,the order passed by the AO was set aside and the matter was restored back to his file to apply his mind and to investigate the issue.

2 ITA/ 1527/Mum/2015-Ambit 4.Before us,the Authorised Representative(AR)stated that the assessee had filed necessary details before the AO,that while passing the rectification order the PCIT did not consider the letter of the assessee dated 01.11.2012,that the return was selected for scrutiny through approval of CCIT,that AO had issued notices u/s. 143(2) and 142(1) of the Act, that vide its letters dated 01.11.2012 and 26.11.2012 the assessee had filed details of audited accounts for the year,party wise details of the purchases debited to the P & L account as well as the details of share capital and security premium received during the year,that the issue of shares at premium and purchase of trading stock was deliberated upon by the AO,that the AO had completed the assessment after discussion and verification,that it could not be construed that the assessment made by the AO was erroneous and prejudicial to the interest of the revenue, that the AO had taken a view which was possible as per the provisions of the Act,that provisions of section 263 were wrongly invoked.The AR produced before us,a copy of the assessment order that contained the office note of the AO,order dated 03.01.2013.It was stated that assessee had inspected the file and had obtained the Xerox copy of the said order. The Departmental Representative (DR) supported the order of the PCIT. 5.We have heard the rival submissions and perused the material before us.We find that originally the return was processed u/s.143(1) of the Act,that after the approval of the CCIT notices u/s.142(1) and 143(2)were issued to the assessee, that the assessee was specifically asked about the share premium charged,that assessee had filed evidences in its support,that it also produced necessary details about the closing stock.We would like to reproduce a part of the office note of the-then-AO and the same reads as under:- “The case was selected for scrutiny under CCIT’s approval, the reason being that this was the first return of the company and the company had received Rs.98,00,000/- as premium on shares issued and the assessee had shown purchases of Rs.1 crore and the entire purchase of Rs.1 crore have been shown as closing stock. All these facts need verification. The details furnished have been verified and the assessment completed accordingly” We further find that the PCIT has not taken into consideration two letters written by the assessee to the AO.The assessee had furnished all the required details about share premium and the closing stock before the AO.In these circumstances,we are of the opinion that the AO had applied his mind while passing the order u/s.143(3) of the Act.The order passed by him does not fall in the category of an order which could be prejudicial to the interest of the revenue or erroneous.Here,we would like to refer to the case of Gabriel India Ltd.(203ITR 108),delivered by the Hon’ble Bombay High Court.The Hon’ble Court has held as under: “The power of suo motu revision under sub-section (1) of section 263 of the Income-tax Act, 1961, is in the nature of supervisory jurisdiction and can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise the power of revision under this sub-section, viz., (i) the order should be erroneous; and (ii) by virtue of the order being erroneous prejudice must have been caused to the interests of the Revenue. An order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a higher figure than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine