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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI ARUN KHODPIA
आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee company is directed against the order passed by the Principal Commissioner of Income- Tax, Raipur-1 (for short “Pr.CIT”’), dated 27.03.2021, which in turn arises from the order passed by the A.O under Sec 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 29.12.2017 for assessment year 2015-16. The assessee has assailed the impugned order on the following effective ground of appeal before us : “1. On the facts and in the circumstances of the case, the Ld. Principal Commissioner of Income Tax, Raipur-1 has erred in holding the assessment order passed by the A.O on 29.12.2017 as erroneous and prejudicial to the interest of the revenue. The assessment order passed by the A.O is neither erroneous nor prejudicial to the interest of revenue and therefore the order u/s.263 passed by the Ld. CIT is unjustified, unwarranted and uncalled for.”
Succinctly stated, the assesee company which is engaged in the business of a builder and real estate agent had e-filed its return of income for A.Y.2015-16 on 23.09.2015, declaring an income of Rs. 1,29,77,370/-. Subsequently, the case of the assessee company was selected for ‘Limited scrutiny” under CASS for the purpose of examining and verifying two issues, viz. (i) large other expenses claimed in the profit and loss account; and (ii)
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mismatch in sales turnover reported in the audit report and income-tax return. Original assessment was thereafter framed by the A.O vide his order passed u/s. 143(3) of the Act, dated 29.12.2017 accepting the assessee’s returned income as such.
The Pr. CIT after culmination of the assessment called for the records of the assessee company. It was observed by him that the assessee company had in its Profit & loss a/c debited a loss from currency derivative trade of Rs. 5,09,66,606/-. The Pr. CIT further observed that although the assessee had claimed to have carried out the transactions in derivatives through its broker M/s. Bahubali Forex Pvt. Ltd., but the records of the said broker were not available on SEBI and other recognized stock exchanges. The Pr. CIT on the basis of the aforesaid facts held a conviction that the assessee had not carried out any genuine transactions in derivatives but had in the garb of accommodation transactions raised a bogus claim of loss in its books of accounts. It was further observed by him that after conclusion of the assessment in the case of the assessee company the Central Economic Intelligence Bureau, New Delhi had vide its letter (through proper channel) intimated that SEBI pursuant to certain investigations had implicated the assessee for its indulgence in execution of reversal trades in stock option with same entities on the same day, thereby creating artificial volumes, leading to false and misleading appearance of trading in the illiquid stock
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options at BSE. The Pr. CIT after considering the modus-operandi that would be adopted by an entity who would indulge in manipulating the share market platform for gaining artificial/rigged/premeditated profit and loss in the derivative segment - both equity derivatives and currency derivatives which had two facets, viz. (i). booking of loss/profit through reversal trades; and (ii). booking of loss/profit through one sided expiry trades, observed, that the SEBI on the basis of its investigations for the period 01.04.2014 to 30.09.2015 after cracking the aforesaid modus-operandi had vide its order dated 21.12.2018 imposed a penalty of Rs.5 lac on the assessee company for disproportionate gain or unfair advantage u/s.15J of the SEBI Act, 1992. The Pr. CIT after referring to the facts involved in the case of the assessee company observed, that it had during the investigation period i.e. 01.04.2014 to 30.09.2015 traded in 12 unique contracts in F&O segment of BSE, out of which it had allegedly executed 38 non-genuine trades in 11 contracts resulting in artificial volume of total 3334500 units which had allegedly resulted into a loss of Rs.1.77 crore, as under :
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It was further observed by him that in the course of investigations carried out in the case of the aforesaid 11 contracts (supra) the details of counter parties who had made the gains out of these transactions were also
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obtained. The Pr. CIT thereafter referring to four contracts (out of 11 contracts) observed as under: Sl. Buyer Name Seller Name Trade Time Rate (Rs.) Traded Qty Time No. (hh.mm.ss) ( No. of Difference Units) (hh.mm.ss)
Dealings in contract Viz. AXIS15APR560.00CEW4 on 23/03/2015 (i) Shayam Ispat Avinash 10:18:48 4 136000 Udyog Infra Projects 00:00:15 (ii) Avinash Infra Shayam 10:19:03 21.6 136000 Projects Ispat Udyog
Dealings in contract viz. AXIS15APR580.00CE on 23/03/2015 (i) Subhang Avinash 10:19:55 0.5 121000 Exports Limited Infra Projects. 00:00:08 (ii) Avinash Infra Subhang 10:20:03 17 121000 Projects Exports Limited
Dealings in contract viz. ACCL15APR1590.00PE on 23/03/2015
(i) Sonal Abhijit Avinash 10 43500 Bora Infra 10:26:20 Projects. (ii) Avinash Infra Subhang 10:26:27 56 43500 Projects. Exports 00:00:07 Limited (iii) Subhang Avinash 10:26:48 20 55500 Exports Limited Infra Projects. 00:00:05
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(iv) Avinash Infra Sonal 10:26:53 56 55500 Projects. Abhijit Bora
Dealings in contract Viz. RCAP15APR460.00CEW4 on 24/03/2015
(i) Shri Radha Avinash 11:33:08 2.8 130000 Raman Alloys Infra Limited Projects. (ii) Avinash Infra Shri Radha 11:33:14 12.8 130000 Projects. Raman 00:00:06 Alloys Limited (iii) Rajat Power & Avinash 11:33:08 2.8 130000 Steel Infra Projects. 00:00:06 (iv) Avinash Infra Rajat Power 11:33:14 12.8 130000 Projects. & Steel
It was further observed by the Pr. CIT that it was not the case of the assessee that the aforesaid transactions were unauthorized transactions which were carried out by the stock broker without its approval.
The Pr. CIT observed that the assessee company had during the course of the assessment proceedings submitted only 15 contract notes in support of its claim of loss of Rs.1,40,20,597/-, and thus, had failed to furnish all the contract notes proving its claim of having suffered a loss of Rs. 5,09,66,606/-. The Pr. CIT further observed that though the A.O in the course of the assessment proceedings had issued a notice u/s. 133(6) of the
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Act to the broker, viz. M/s. Bahubali Forex Pvt. Ltd., however, the same was returned unserved. It was observed by the Pr. CIT that SEBI vide its ex-parte ad-interim order No. WTM/RKA/ISD/25/2016 dated 17.02.2016 had restrained M/s. Bahubali Forex Pvt. Ltd. from buying, selling or dealing in the securities markets, either directly or indirectly, in any manner except as a stock broker for their existing clients in the cash segment. It was further observed by him that the SEBI as per its report dated 21.12.2018 had analyzed 11 transactions in detail and had arrived at a conclusion that the assessee company had during the year under consideration booked an artificial loss of Rs.1.77 crore. The Pr. CIT was of the view that now when the 11 transactions (supra) were found to be in the nature of accommodation entries which were executed by the assessee company for booking artificial loss, therefore, the remaining transactions also would not be on a better footing, and thus, not free from such consideration and concept. It was further observed by him that as the assessee had failed to prove the bonafides of the other transactions on the basis of which an overall loss of Rs.5.09 Crore (supra) was claimed, therefore, as concluded by SEBI, an independent organization, the entire amount of loss was nothing but an artificial loss. Accordingly, the Pr. CIT on the basis his aforesaid observations concluded that the summarily accepting of the assessee’s claim of loss of Rs. 5.09 crore (supra) had rendered the order passed by the A.O
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u/s. 143(3), dated 29.12.2017 as erroneous in so far as it was prejudicial to the interest of the revenue u/s. 263 of the Act.
The Pr. CIT further observed that the assessee company had in its Profit & Loss A/c debited a “Provision for development cost” of Rs.2,42,62,384/-, which being in the nature of a contingent liability was not allowable as deduction u/s. 37 of the Act. It was observed by the Pr. CIT that as the A.O had not made any enquiry as regards allowability of the assessee’s claim for deduction of the aforesaid amount and had summarily accepted the same, therefore, the order passed by him u/s. 143(3), dated 29.12.2017 for the said reason too was rendered as erroneous in so far it was prejudicial to the interest of the revenue u/s.263 of the Act. The Pr. CIT was also of the view that though in the case of an assessee who was maintaining his accounts on a mercantile basis the expenditure which would either actually be paid or provided for towards a liability actually existing at the time would be deductible, but the putting aside of money which may become expenditure on happening of an event was not to be allowed as an expenditure. In sum and substance, it was observed by him that a contingent liability that may have to be discharged in future cannot be considered as an expenditure. Accordingly, the Pr. CIT was of the view that as the “Provision for development cost” of Rs.2.42 crore (approx.) that was debited by the assessee in its Profit & loss account was in the nature of
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a contingent liability which may arise in future, thus, the same as per the settled position of law was not to be allowed as a deduction. The Pr. CIT on the basis of his aforesaid observation was thus of the view that the summarily acceptance by the A.O of the assessee’s claim of deduction of “Provision for development cost” had rendered his order passed u/s. 143(3) of the Act, dated 29.12.2017 as erroneous in so far as it was prejudicial to the interest of the revenue u/s. 263 of the Act.
The Pr. CIT on the basis of his aforesaid observations held the order passed by the A.O under u/s. 143(3), dated 29.12.2017 as erroneous in so far it was prejudicial to the interest of the revenue under Sec. 263 of the Act, and disallowed the assessee’s claim for deduction of expenses, viz. (i). claim of loss from derivatives of Rs. 5.09 crore (supra); and (ii). claim for deduction of provision for development cost of Rs. 2.42 crore (supra).
The assessee being aggrieved with the order passed by the Pr. CIT u/s.263 of the Act, dated 27.03.2021 has carried the matter in appeal before us.
We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.
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We shall first deal with the claim of the Ld. AR that the Pr. CIT while concluding that the acceptance of the assessee’s claim for deduction of “Provision for development cost” of Rs.2.42 crore by the A.O had rendered the order passed by him u/s.143(3), dated 29.12.2017 as erroneous in so far it was prejudicial to the interest of the revenue u/s. 263 of the Act. It is the claim of the ld. A.R that the Pr. CIT by so observing had traversed beyond the scope of the limited jurisdiction that was vested with him under Sec. 263 of the Act. It was submitted by the Ld. AR that the case of the assessee was selected for limited scrutiny assessment through CASS u/s. 143(2) of the Act for the purpose of examining and verifying two issues, viz. (i). large other expenses claimed in the profit and loss account; and (ii). mismatch in sales turnover reported in audit report and income-tax return. It was submitted by the Ld. AR that the “Provision for development cost” of Rs.2.42 Crore (approx.) was debited by the assessee in its Profit & loss account under the head “cost of land, material consumed, labour & other charges” of Rs. 3,95,52,358/-, Page 105 and Page 111 of APB, and was not included in the “Other expenses” of Rs.6,07,12,566/-, Page 105 and Page 111 of APB. The Ld. A.R submitted that now when pursuant to the selection of the assessee’s case for limited scrutiny the scope of jurisdiction of the A.O to frame the assessment was, inter alia, circumscribed and restricted to examination and verification of “Large other expenses claimed in the Profit and Loss Account”,
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therefore, the Pr. CIT in the garb of his revisionary jurisdiction could not have expanded the scope of such limited jurisdiction of the A.O by holding his order as erroneous, for the reason that he had while framing the assessment failed to verify and examine an issue which never formed the basis for selection of the case for limited scrutiny. The Ld. AR had drawn our attention to the relevant extracts of the assessee’s Profit & loss account for the year ended 31.03.2015 a/w. annexures which duly fortified his claim that “Provision of development cost” of Rs.2.42 crore (approx.) formed part of the “cost of land, material consumed, labour & other charges” of Rs.3.95 crore (approx.) and was never claimed as a deduction under the head “Other expenses” of Rs.6.07 crore (approx.) debited by the assessee in its Profit & loss account. It was, thus, the claim of the Ld. A.R that now when the case of the assessee company was, inter alia, selected for limited scrutiny for the purpose of examining and verifying the authenticity of its claim for deduction of “Other expenses”, therefore, the jurisdiction of the A.O while framing the assessment was confined to the said specific issue and he was precluded from dealing with such other issues which did not form a basis for selection of its case for limited scrutiny under CASS. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that now when the A.O in the course of the assessment proceedings was not vested with the requisite jurisdiction to deal with the aforesaid issue i.e. allowability of the assessee’s claim for deduction of “Provision of development cost” of Rs.2.42
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Crore (supra), therefore, the Pr. CIT could not have stepped in to hold the order passed by him u/s. 143(3), dated 29.12.2017 as erroneous, for the reason that he had while framing the assessment failed to verify and examine an unrelated issue, i.e, an issue which never formed a reason for selection of the assessee’s case for limited scrutiny.
Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities.
We have given a thoughtful consideration to the aforesaid claim of the Ld. A.R and find substantial force in the same. Admittedly, it is a matter of fact borne from record that the case of the assessee was selected for limited scrutiny assessment under CASS for the purpose of examining and verifying two issues, viz. (i). large other expenses claimed in the profit and loss account; and (ii) mismatch in sales turnover reported in audit report and income-tax return. As stated by the Ld. AR and, rightly so, it transpires from a perusal of the record that the “Provision for development cost” of Rs.2.42 Crore (supra) formed part of “cost of land, material consumed, labour & other charges” of Rs.3.95 crore (approx.) that was debited by the assessee in its Profit & loss account for the year under consideration, Page 105 & Page 111 of APB. Admittedly, the “Other expenses” of Rs.6.07 crore (approx.) debited by the assessee in its Profit & loss account did not include “Provision for development cost” of Rs.2.42 crore (approx.). As per the CBDT
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Instruction No.20/2015, dated 29.12.2015, it is inter alia provided, viz. (i) that the queries of the A.O in 'Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which the case has been picked up for scrutiny; and (ii). that if in the course of the assessment proceedings in 'Limited Scrutiny cases, it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs five lac (for metro charges, the monetary limit shall be Rs. ten lac) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr.CIT/CIT concerned who shall grant his approval in writing after being satisfied about the merits of the issue(s) necessitating complete scrutiny in that particular case. As in the present case before us the case of the assessee company was selected for limited scrutiny under CASS, and the same at no stage in the course of the assessment proceeding was converted into "complete scrutiny”, therefore, we concur with the Ld. AR that the A.O was statutorily bound to confine himself to the limited issues for examination and verification of which the case had been selected for scrutiny assessment. As the A.O was divested of his jurisdiction to deal with such other issues which did not form a basis for selection of the assessee’s case for limited scrutiny, therefore, as stated by the ld. A.R and, rightly so, the Pr. CIT could not have expanded the scope of his jurisdiction in the garb of powers vested with him u/s.263 of the Act. Our aforesaid view is fortified by the decision of a co-ordinate Bench of the
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Tribunal in the case of M/s Su-Raj Diamond Dealers Pvt. Ltd Vs. Pr. CIT, (2020) 203 TTJ 137 ( Mum.) (to which one of us i.e., Judicial Member was a party), wherein it was held as under :
“6. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, the case of the assessee was selected for limited scrutiny through CASS for two reasons viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares. Insofar the fact that the case of the assessee was selected for limited scrutiny for the aforesaid reasons is concerned, the same as observed by us hereinabove is not disputed and is clearly discernible from the order passed by the Pr. CIT under Sec. 263 of the Act. In fact, we find, that the Pr. CIT in his order had categorically observed that the case of the assessee was not selected for examination on the issue relating to „closing stock‟, but was selected for limited scrutiny for the aforesaid two reasons viz. (i). Large other expenses claimed in the P&L A/c.;and (ii). Low income in comparison to High Loans/advance /Investment in shares. We find that as per the CBDT Instruction No. 20/2015, dated 29.12.2015, scrutiny in cases selected through Computer Aided Scrutiny Selection (CASS) is to be confined only to the specific reasons/issues for which the case has been picked up for scrutiny. In order to appreciate the issue under consideration, we deem it fit to cull out the CBDT instruction No. 20/2015, dated 29.12.2015., which reads as under: "INSTRUCTION NO. 20/2015, DATED: 29-12-2015 29/12/2015 Subject : Scrutiny Assessments-some Important issues and scope of scrutiny in cases selected through Computer Aided Scrutiny Selection ('CASS') - Reg.-
The Central Board of Direct Taxes ('CBDT'), vide Instruction No. 7/2014 dated 26.09.2014 had clarified the extent of enquiry in certain category of cases specified therein, which are selected for scrutiny through CASS Further clarifications have been sought regarding the scope and applicability of the aforesaid instruction to cases being scrutinized.
In order to facilitate the conduct of scrutiny assessments and to bring further clarity on some of the issues emerging from the aforesaid Instruction, following clarifications are being made:
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i. Year of applicability: As stated in the Instruction No. 7/2014, the said Instruction is applicable only in respect of the cases selected for scrutiny through CASS-2014. ii. Whether the said Instruction is applicable to all cases selected under CASS: The said Instruction is applicable where the case is selected for scrutiny under CASS only on the parameters) of AIR/CIB/26AS data. If a case has been selected under CASS for any other reason(s)/parameter(s) besides the AIR/CIB/26AS data, then the said instruction would not apply. iii. Scope of Enquiry: Specific issue based enquiry is to be conducted only in those scrutiny cases which have been selected on the parameter(s) of AIR/CIB/26AS data. In such cases, the Assessing Officer, shall also confine the Questionnaire only to the specific issues pertaining to AIR/CIB/26AS data. Wider scrutiny in these cases can only be conducted as per the guidelines and procedures stated in Instruction No 7/2014 iv Reason for selection: In cases under scrutiny for verification of AIR/CIB/26AS data, the Assessing Officer has to intimate the reason for selection of case for scrutiny to the assessee concerned 3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year-- one is 'Limited Scrutiny' and other is 'Complete Scrutiny'. The assessees concerned have duly been intimated about their cases falling either in Limited Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under: a. In 'Limited Scrutiny' cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in 'Limited Scrutiny' cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny Further, the scope of enquiry shall be restricted to the Limited Scrutiny' issues. c. These cases shall be completed expeditiously in a limited number of hearings. d. During the course of assessment proceedings in 'Limited Scrutiny' cases, if it comes to the notice of the Assessing Officer that there is
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potential escapement of income exceeding Rs five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr CIT/CIT concerned. However, such an approval shall be accorded by the by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating Complete Scrutiny' in that particular case Such cases Shalt be monitored by the Range Head concerned The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata. Bengaluru, Hyderabad and Ahmedabad. 4. The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show- cause notice. 5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance. Now, the case of the assessee before us was selected for limited scrutiny through CASS, for the reasons, that there were viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares.. Accordingly, it can safely be concluded that the assessment framed by the A.O fell within the realm of the limited purpose for which its case was selected for scrutiny assessment viz. viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares. 7. As observed by us hereinabove, as per the CBDT instruction No. 20/2015, dated 29.12.2015, in a case which had been selected for scrutiny assessment on the basis of Computer Aided Scrutiny Selection ('CASS'), the scrutinising of such case would be confined only to the specific reasons/issues for which the case has been picked up for scrutiny. However, the case may thereafter be taken up for complete scrutiny with the approval of the administrative Principal commissioner of income-tax/Commissioner of income-tax, where it is felt that apart from the CASS information there is potential
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escapement of income of more than Rs.10,00,000/-. Accordingly, the CBDT had in clear and unequivocal terms clarified that for broadening the scope of a case selected for limited scrutiny as per CASS information the approval of the administrative Principal commissioner of income-tax/Commissioner of income-tax would be required. In the case before us, it is an admitted fact that the case of the assessee was selected for "limited scrutiny" under CASS,for the reasons, viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares. In fact, it is neither a fact nor the case of the revenue that the said case was thereafter taken up for complete scrutiny with the approval of the administrative commissioner. In the backdrop of the aforesaid facts, we are of the considered view that as the scope of the assessment framed by the A.O under Sec. 143(3), dated 08.12.2016 was circumscribed by the limited reasons for which the case of the assessee was selected for scrutiny assessment, therefore, he was absolutely divested of his powers from traversing on issues which did not fall within the realm of the said limited purpose for which the said case was selected for being scrutinised. 8. We shall now in the backdrop of our aforesaid observations deliberate on the validity of the order passed by the Pr. CIT under Sec. 263. As observed by us hereinabove, the Pr. CIT had held the order passed by the A.O under Sec. 143(3), dated 08.12.2016 as erroneous, in so far it was prejudicial to the interest of the revenue, for the reason, that he had failed to carry out proper investigation as regards the issue of valuation of the “closing stock as reflected in the audited accounts of the assessee. We are of a strong conviction that now when the case of the assessee was selected for limited scrutiny for the reasons viz. (i). Large other expenses claimed in the P&L A/c.; and (ii). Low income in comparison to High Loans/advance /Investment in shares, therefore, no infirmity could be attributed to the assessment framed by the A.O on the ground that he had failed to deal with other issues which though did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment. In other words, the Pr. CIT in the garb of his revisional jurisdiction u/s. 263 cannot be permitted to traverse beyond the jurisdiction that was vested with the A.O while framing the assessment. In sum and substance, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was vested with the A.O while framing the assessment. As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid observations, we are of the considered view that as the A.O had aptly confined himself to the issues for which the case of the assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order, for the reason, that he had failed to dwell upon certain other issues which did not form part of the reasons for which the case
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was selected for limited scrutiny under CASS. We thus not being able to concur with the view taken by the Pr. CIT that the order passed by the A.O under Sec. 143(3), dated 08.12.2016 is erroneous, therefore, „set aside‟ his order and restore the order passed by the A.O. As we have quashed the order passed by the Pr. CIT under Sec. 263 on the ground of invalid assumption of jurisdiction by him, therefore, we refrain from adverting to and therein adjudicating the contentions advanced by the ld. A.R on the merits of the case, which thus are left open.”
We, thus, on the basis of our aforesaid observations are of a strong conviction that as stated by the Ld. AR and, rightly so, the Pr. CIT had clearly traversed beyond the scope of his jurisdiction and revised the order passed by the Assessing Officer by holding the same as erroneous, for the reason that he had while framing the assessment failed to look into and carry out necessary verification and examination of the assessee’s claim of deduction of “Provision for development cost” of Rs.2.42 Crore (supra), i.e, an issue which was never the subject matter for selection of the case of the assessee for limited scrutiny under CASS.
We shall for the sake of clarity and in order to dispel all doubts herein cull out the relevant extract of the Profit & loss account of the assessee for the year under consideration, as under:
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NOTE 17. COST OF LAND, MATERIAL CONSUMED, LABOUR & OTHER CONSTRUCTION EXPENSES 2014-15 2013-14 (Rs.) (Rs.) Materials 25,04,815 - Payment to Contractors & other Labour Charges 30,27,722 - Provision against development cost 2,42,62,384 - Other Construction & project related expenses 97,57,437 12,27,193.00 Total 3,95,52,358 12,27,193.00 (emphasis supplied by us) NOTE 21. OTHER EXPENSES 2014-15 2013-14 (Rs.) (Rs.) Legal & professional Expenses 2,500 15,794 Commission paid 94,76,415 - Loss on currency derivatives 5,09,66,606 Computer Expenses 1,000 Filling fees 2,525 14,700
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Rent 1,95,120 - Bank Charges - 743 Payment to Auditors 68,400 28,090 For Audit Fees Total 6,07,12,566 59,327
On a perusal of the aforesaid extracts it is established beyond doubt that the “Provision against development cost” of Rs.2.42 Crore (supra) was debited in the Profit & loss a/c under the head “cost of land, material consumed, labour & other charges” of Rs. 3.95 crore (approx.) and never formed part of “Other Expenses”.
We, thus, in terms of our aforesaid observations are of the considered view that now when the case of the assessee company was selected for limited scrutiny under CASS, inter alia, for the examination and verification of “Large other expenses claimed in the Profit and Loss Account”, and the “Provision against development cost” of Rs. 2.42 crore (approx.) was not included in the “Other expenses” of Rs. 6.07 crore (approx.) debited in the Profit & loss a/c, therefore, the Pr. CIT had clearly exceeded his jurisdiction u/s. 263 of the Act by holding the order passed by the A.O u/s.143(3) dated 29.12.2017 as erroneous, for the reason that he had erred in not disallowing the assessee’s claim for deduction of “Provision against development cost” of Rs.2.42 crore (supra) i.e an issue which never formed the basis for selection of the case for “Limited scrutiny”.
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As we have for want of valid assumption of jurisdiction vacated the order passed by the Pr. CIT u/s.263 of the Act, i.e to the extent he had held the order passed by the A.O as erroneous in so far as it was prejudicial to the interest of the revenue, for the reason that he had while framing the assessment failed to disallow the assessee’s claim of deduction of “Provision against development cost” of Rs.2.42 Crore (supra), therefore, we refrain from adverting to and therein dealing with the other contentions advanced by the Ld. AR as regards the sustainability of the view taken by the Pr. CIT, which, thus, are left open.
We shall now deal with the claim of the Ld. A.R that the Pr. CIT had grossly erred in law and the facts of the case in holding that the allowing the assessee’s claim of loss from derivative trading had rendered the order passed by the A.O under Sec. 143(3) of the Act, dated 29.12.2017 as erroneous in so far it was prejudicial to the interest of the revenue under Sec. 263 of the Act. As the challenge of the ld. A.R to the sustainability of the aforesaid view of the Pr. CIT on the aforesaid issue is found to be multi- facet, therefore, we shall hereinafter deal with his respective contentions as under :. 16. Re: Pr. CIT had based his view on material which never formed part of the assessment record : It is submitted by the ld. A.R before us that the Pr. CIT had triggered the proceedings under Sec. 263 in context of the aforesaid issue on the basis of
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information that was received after culmination of the assessment proceedings from Central Economic Intelligence Bureau, New Delhi, which in turn was based on the order passed by SEBI, dated 21.12.2008. It is the claim of the ld. A.R that as neither the aforesaid information from Central Economic Intelligence Bureau, New Delhi nor the SEBI order, dated 21.12.2018 were available before the A.O at the time of framing of the assessment vide his order passed u/s 143(3), 29.12.2017, thus, the same did not form part of the “record” on the basis of which the Pr. CIT could have exercised his powers u/s 263 of the Act. In sum and substance, it was the claim of the Ld. AR that as the Pr. CIT was supposed to confine himself to examination of the record as was available before the A.O at the time of framing of the assessment, therefore, the impugned order of revision passed by him on the basis of extraneous material, i.e., information received from Central Economic Intelligence Bureau, New Delhi r.w SEBI order, dated 21.12.2018, neither of which did form part of the assessment record could be sustained and was liable to be struck down for want of valid assumption of jurisdiction. In support of his aforesaid contention the Ld. AR had drawn support from the judgment of the Hon’ble High Court of Allahabad in the case of Commissioner of Income Tax, Allahabad & Anr. Vs. Late Bhakt Mohan (2014) 89 CCH 0045 (All). In the aforesaid judgment it was observed by the Hon’ble High Court that the word “examine the record” u/s. 263 means material available on record at the time of assessment and not
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material which has been obtained subsequent to the assessment order, as said material cannot be said to be part of record and cannot be examined for invoking the provisions of section 263 of the Act. Also reliance was placed by the Ld. AR on the judgment of the Hon’ble High Court of Calcutta in the case of Jai Kumar Kankaria Vs. CIT (2001) 251 ITR 707 (Cal.). In its order it was observed by the Hon’ble High Court that the term “erroneous” will be looked into from the facts and circumstances and the material which was placed before the A.O at the time of the assessment and there was no scope u/s. 263 to reopen an assessment on the basis of a subsequent event or any new material.
We have given a thoughtful consideration to the aforesaid contention of the Ld. AR and are unable to persuade ourselves to subscribe to the same. At this stage, we may herein observe that the meaning of the term “record” can be traced in the “Explanation 1(b)” of Section 263 of the Act. The aforesaid meaning of the term “record” was substituted and made available on the statute vide the Finance Act, 1988 w.e.f 01.06.1988. For the sake of clarity the meaning of the term “record” as contemplated in “Explanation 1(b)” of Sec. 263 is culled out as under (relevant extract):
“Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a)………………… (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
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[Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or ] Commissioner; (c) …………………..” (emphasis supplied by us) On a careful perusal of the aforesaid meaning of the term “record” as had been envisaged in the aforesaid statutory provision, it transpires that the same 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 revisional authority. Ostensibly, the term “record” pursuant to the aforesaid amendment that was made available on the statute vide the Finance Act, 1988 w.r.e.f 01.06.1988 would include all records relating to any proceeding under this Act available at the time of examination by the revisional authority. We, thus, on the basis of our aforesaid deliberations are of the considered view that the claim of the Ld. AR that the meaning to be assigned to the term “record” is to be confined to that as was available at the time of framing of the assessment by the A.O does not merit acceptance. Our aforesaid conviction is fortified by the judgment of the Hon’ble Supreme Court in the case of the Commissioner of Income Tax, Bangalore Vs. Shree Man Junathesware, Packing Products & Camphor Works, dated 02.12.1997. The Hon’ble Apex Court in the said case was seized of the following question of law: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the word 'record' used in Sec. 263 (1) of the Act would not mean the record as it stands at the time of examination by the Commissioner, but it means the record as it stands at the time the order in question was passed by the ITO?"
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After exhaustive deliberation on the scope of the term “record” as contemplated in Section 263 of the Act, it was held by the Hon’ble Apex Court that it was open to the Commissioner to take into consideration all the records available at the time of examination by him. For the sake of clarity the relevant observations of the Hon’ble Apex Court are culled out as under:
“It, therefore, cannot be said, as contended by the learned counsel for the respondent, that the correct and settled legal position, with respect to the meaning of the word "record" till 1st June, 1988, was that it meant the record which was available to the income Tax Officer at the time of passing of the assessment order. Further, we do not think that such a narrow interpretation of the word "record' was justified, in view of the object of the provision and the nature and scope of the power conferred upon the Commissioner. The revisional power conferred on the commissioner under Section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the assessing officer is erroneous insofar as it is prejudicial to the interests of the revenue. After examining the record and after making or causing to be made an enquiry if he considers the order to be erroneous then he can pass the order thereon as the circumstances of the case justify. Obviously, as a result of the enquiry he may come in possession of new material and he would be entitled to take that new material into account. If the material, which was not available to the Income-Tax Officer when he made the assessment could thus be taken into consideration by the Commissioner after holding an enquiry, there is no reason why the material which had already come on record though subsequently to the making of the assessment cannot be taken into consideration by him. Moreover, in view of the clear words used in clause (b) of the explanation to Section 263(1), it has to he held that while calling for and examining the record of any proceeding under Section 263(1) it is and it was open to the Commissioner not only consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination. The view that we are taking receives support from the two decisions of this Court, though the point which is raised before us was not specifically raised in those tow cases. In Tax Reference Case No. 11 of 1983 (The Commissioner of Income- Tax, Gujarat-I vs. Shri Arbuda Mills Ltd.) this Court after considering the effect of the amendment made in Section 263(1) of the Act by the Finance Act. 1989 whereby lause (c) of the explanation was also amended with retrospective effect from 1st June, 1988, held that "the consequence of the said amendment made with retrospective
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effect is that the powers under Section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Accordingly, even in respect of the aforesaid three items, the powers of the Commissioner under Section 263 shall extend and shall be deemed always to have extended to them because those items had not been considered and decided in the appeal filed by the assessee." In that case the assessment was completed o 31.3.1978 and the Income Tax Officer while computing loss and income of the assessee had accepted the claim of the assessee in respect of those three items. Obviously in the appeals filed by the assessee those items were not the subject-matter of the appeals as the decision in respect thereof was in its favour. In respect of those three items the Commissioner had exercised his power under Section 263 of he income-Tax Act and , therefore, the question which had arisen for consideration was "whether on the facts and in the circumstances of the case, the order of assessment passed by the ITO u/s 143(3) read with section 144B on 31.7.1978 had merged with that of the Commissioner (appeals) dated 15.10.1979 in respect of the three items in dispute so as to exclude the jurisdiction of the Commissioner of Income-Tax under sec 263?" Thus the amendment made in clause @ was held applicable to the orders passed before 1st June, 1988. In South India Steel Rolling Mills, Madras vs. Commissioner of Income Tax, Madras [1997 (9) SCC 728], the Commissioner in exercise of his power under Section 263 had withdrawn the development rebate granted for the years 1962- 63, 1963-64, 1967-68 and 1968-69 on the ground that since the partnership stood dissolved on 3.3.1968 on the death of one of the two partners, before the expiry of eight years the assessee firm was not entitled to the benefit of the development rebate under Section 33(1) (a) of the Act. The said order passed by the Commissioner was challenged before the Tribunal but the assessee's appeal had failed. At its instance the following question was referred to the Madras High Court:- "Whether on the facts and circumstances of the case the revision of assessment under section 263 by the Commissioner for withdrawing the development rebate granted for Assessment years 1962-63, 1963-64, 1967-68 and 1968-69 is proper and justified." The High Court also decided against the assessee. In the appeal filed by the assessee the order of Commissioner was challenged inter alia on the ground that the power under Section 263 could have been invoked on the basis of the record as it stood when the order was passed by the Income Tax Officer and that it was not open to the Commissioner to take into account dissolution of the assessee firm, which took place after passing of the assessment order because that circumstance was not disclosed by the record which was before the Income Tax Officer. Rejecting this contention this Court held "As regards his taking into consideration an event which had occurred subsequent to the passing of the order by the Income-Tax Officer, it may be stated that in Explanation (b) in Section 263 there is an express provision wherein it is prescribed that "record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at time of examination by the Commissioner". The death of one of the two partners resulting in the dissolution of the assessee firm on account of such death took place prior to the passing of the
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order by the commissioner and it could, therefore, be taken into consideration by him for the purpose of exercising his powers under Section 263 of the Act." In that case also the amendment was held applicable to an order passed before 1st June, 1988. We, therefore, hold that it was open to the Commissioner to take into consideration all the records available at the time of examination by him and thus to consider the Valuation Report submitted by the Departmental Valuation Cell subsequent to the passing of the assessment order and, so the order passed by him was legal. The High Court was wrong in taking a contrary view. We, therefore, allow this appeal, set aside the judgment and order passed by the High Court and answer the question referred to the High Court in the negative i.e. in favour of the Revenue and against the assessee. In view of the facts and circumstances of the case, there shall be no order as to costs.” Also, support is drawn from the memorandum explaining the provisions of the Finance Bill, 1988, vide which an amendment was made available on the statute as regards the meaning of the term “record” in the “Explanation” to Section 263 of the Act, as under (relevant extract) :
"48. x xxxxxxxx (a) On the interpretation of the term 'record'. It has been held in some cases that the word 'record' in section 263 (1) could not mean the record as it stood at the time of examination by the Commissioner but it meant the record as it stood at the time of examination by the Commissioner but it meant the record as it stood at the time when the order was passed by the Assessing Officer. Such an interpretation is against the legislative intent and defeats the very objective sought to be achieved by such provisions, since the purpose is to revise the order on the basis of the record as is available to the Commissioner at the time of examination. xxxxxxxxx To eliminate litigation and to clarify the legislative intent in respect of the provisions in the three Direct tax Acts, it is proposed to clarify the legal position in this regard the Explanation to the relevant Sections. The proposed amendments are intended to make it clear that 'record' would include all records relating to any proceedings under the concerned direct tax laws available at the time of examination by the commissioner." The relevant part of the explanation after its substitution read as follows: "Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub- section,-
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(a) ................ (b) "record" includes all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (b) ........................... "
As certain doubts regarding the meaning of the term “record” still persisted, therefore, a further amendment was carried out by the Legislature while enacting the Finance Act, 1989. The memorandum explaining the provisions of the Finance Bill 1989 at Para 28, explained that though a definition of the term “record” for the purpose of Section 263 was made available on the statute vide the Finance Act, 1988 w.e.f. 01.06.1988, i.e, for making it clear that the term “record” includes all records relating to any proceeding under the concerned direct tax laws available at the time of examination by the Commissioner, however, the same was only to clarify the legal position which shall be deemed to have always been in existence, and thus, was not to be confined by giving a prospective applicability to the same, i.e., only to those orders which were passed by the Commissioner after 01.06.1988. The relevant extract of the memorandum explaining the provisions of the Finance Bill, 1989, i.e Para 28 is culled out as under: "28. Under the existing provisions of Section 263 of the Income-tax Act and corresponding provisions of the Wealth-tax Act and the Gift-tax Act, the Commissioner of Income-tax is empowered to call for and examine the record of any proceeding and if he considers that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of Revenue,, he may pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the same or directing a fresh assessment. By the Finance Act, 1988, an Explanation was substituted with effect from 1st June, 1988, to the relevant sections of the Income-tax Act, Wealth-tax Act and Gift-tax Act to clarify that the term "record" would include all records relating to any proceeding available at the time of examination by the Commissioner.
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Further, it was also clarified that the Commissioner is competent to revise an order of assessment passed by the Assessing Officer on all matters except those which have been considered and decided in an appeal. The above Explanation was incorporated in the Finance Act, 1988, to clarify this legal position to have always been in existence. Some Appellate Authorities have, however, decided that the Explanation will apply only prospectively, i.e., only to those orders which are passed by the Commissioner after 1.6.1988.
Such an interpretation is against the legislative intent and it is, therefore, proposed to amend section 263 of the income tax Act, so as to clarify that the provisions of the explanation shall be deemed to have always been in existence.
Amendments on the above lines have been proposed in section 25 of the Wealth-tax Act and section 24 of the Gift-tax Act also."”
We, thus, in terms of our aforesaid observations are of the considered view, that the contention of the Ld. AR that the Pr. CIT by referring to the information received from the Central Economic Intelligence Bureau, New Delhi, which in turn was based on SEBI order, dated 21.12.2018, an extraneous material which was not available before the A.O at the time of framing of the assessment, had thus, by so doing exceeded his jurisdiction, does not merit acceptance and is accordingly rejected.
Re : Validity of the order passed by the Pr. CIT under Sec. 263, dated 27.03.2021 pursuant to a subsequent reopening of the assessee’s case u/s 147 for the same reason on the basis of which revisional jurisdiction was earlier exercised. We shall now deal with the contention of the Ld. AR that as subsequently on the same information/material which had formed the basis for assumption of jurisdiction by the Pr. CIT under Sec. 263 of the Act, the case of the assessee company was thereafter reopened by the A.O vide Notice u/s 148, dated 30.06.2021 and that too with the approval of the Pr. CIT,
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therefore, the order passed by the Pr. CIT under Sec. 263, dated 27.03.2021 would stand vitiated. We shall before dealing with the aforesaid issue briefly cull out the facts that form the very basis for raising of the aforesaid contention. Original assessment in the case of the assessee company was framed by the A.O vide his order passed u/s. 143(3), dated 29.12.2017. The Pr. CIT thereafter by primarily acting upon the information received from the Central Economic Intelligence Bureau, New Delhi (through proper channel) that the assessee by indulging in execution of reversal trades in stock option with same entities on the same day had booked bogus/structured losses, thus, vide his order passed u/s.263 dated 27.03.2021, inter alia, on the said ground modified the assessment order and disallowed the assesee’s claim of loss from derivative trading of Rs. 5.09 crore (approx). Accordingly, the Pr. CIT on the basis of his aforesaid observation had disallowed the assessee’s claim of loss of Rs.5.09 crore (approx.) on the ground that the same was nothing but only an artificial loss. After passing of the order by the Pr. CIT u/s.263 of the Act, dated 27.03.2021, the A.O on the basis of the same information had thereafter reopened the concluded assessment of the assessee vide notice issued u/s.148 of the Act, dated 30.06.2021. On a perusal of the “reasons to believe” it transpires that the A.O was of the view that as the assessee had benefited from indulging in reversal trades in stock option with same entities on the same day, thereby creating artificial volume leading to false and misleading appearance in the trade in illiquid stock
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options at BSE, which had resulted in bogus loss of Rs.6,39,16,970/-(sic) that was set-off against its other income, therefore, its income chargeable to tax had escaped assessment to the said extent, Page 22 to 41 of APB.
On the basis of the aforesaid facts the ld. AR has came forth with the present claim before us. It is the claim of the ld. A.R that now when the A.O had on the basis of same information reopened the concluded assessment of the assessee u/s.147 of the Act, therefore, it was proved to the hilt that though there could be a “reason to believe” that the income of the assessee chargeable to tax had escaped assessment, but the said information did not suffice for concluding that the assessment framed by the A.O allowing the assessee’s claim of loss was to be held as erroneous in so far as it was prejudicial to the interest of the revenue within the meaning of Sec. 263 of the Act. In sum and substance, it is the claim of the Ld. AR that now when the A.O for the very same reason had exercised his jurisdiction and reopened the concluded assessment of the assessee company u/s.147 of the Act, and that too after obtaining the approval of the Pr. CIT, therefore, it was conclusively proved that the Pr. CIT had admittedly wrongly triggered his jurisdiction u/s.263 of the Act and out rightly disallowed the assessee’s claim of loss of Rs. 5.09 crore (supra).
Re : Furnishing of Contract notes. 20.
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The Pr. CIT in his order passed u/s 263 of the Act, dated 27.03.2021 had, inter alia, observed that though the assessee had claimed a loss of Rs. 5.09 crore (approx.) but it had failed to furnish all the contract notes. Rebutting the aforesaid observation it was stated by the ld. A.R that copies of all the contract notes in support of the assessee’s claim of loss on derivatives of Rs. 5.09 crore (approx.) were filed in the course of the original assessment proceedings. The ld. A.R in order to buttress his aforesaid claim took us through a copy of letter that was filed in the course of the assessment proceedings with the A.O, Page 64 of APB. Our attention was drawn towards the contents of the aforesaid letter, wherein referring to the loss on currency derivatives it was clearly stated that the contract notes in respect of the loss incurred were being enclosed. Also, the ld. A.R took us through another letter that was filed in the course of the assessment proceedings with the A.O, Page 86 of APB. Taking us through the aforesaid letter it was submitted by him that the assessee had therein categorically stated that it had during the year suffered loss from trading in currency derivatives of Rs. 5.09 crore (approx.) and had already alongwith its earlier reply filed the contract notes. The ld. A.R in order to dispel all doubts also took us through the confirmation of account of M/s Bahubali Forex Pvt. Ltd as was appearing in the books of accounts of the assessee company, Page 90-91 of APB. The ld. A.R referring to the loss on currency derivatives aggregating to Rs. 5,09,66,606/- as was appearing in the aforesaid account over the period
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29.10.2014 to 27.03.2016, took us through the copies of all the contract notes that were filed in the course of the assessment proceedings with the A.O, Page 65 to 83 of APB. It was, thus, the claim of the ld. A.R that the Pr. CIT had wrongly observed that the assessee company in the course of the assessment proceedings had not submitted complete contract notes.
Re. Registration of the broker, viz. M/s Bahubali Forex Pvt. Ltd 21. with SEBI and other recognized stock exchange : The Pr. CIT had in its order observed that though the assessee had claimed to have carried out derivative trading through its broker, viz. M/s Bahubali Forex Pvt. Ltd., but on examination of records it was found that the said brokers records was not found in SEBI and other recognized stock exchanges. Rebutting the aforesaid observation, it was stated by the ld. A.R that the aforesaid claim of the Pr. CIT was absolutely incorrect and contrary to the facts discernible from the records. The ld. A.R submitted that the assessee company had filed with the Pr. CIT a letter dated 16.03.2020, wherein, it had, inter alia, provided the complete details of its broker, viz. name of the broker, address of its registered office, phone no., CIN, E-mail id, SEBI registration No., PAN and service tax registration no., Page 6 -15 of APB. The Ld. A.R further submitted that the copy of the registration details of the broker M/s Bahubali Forex Pvt. Ltd. with, viz. (i). Bombay Stock Exchange Limited (BSE): Registration No. INZ000006833; and (ii).United Stock Exchange of India Limited: Registration No. INE271487733 were also
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filed in the course of the revision proceedings with the Pr. CIT, Page 94 of APB. It was, thus, the claim of the ld. A.R that the Pr. CIT had wrongly observed that the records of the aforesaid broker, viz. M/s Bahubali Forex Pvt. Ltd. were not found in any recognized stock exchange.
Per contra, the Ld. Departmental Representative (for short ‘DR’) objected to the aforesaid contentions of the assessee’s counsel. The ld. D.R submitted that the Pr. CIT remaining well within the realm of his jurisdiction had rightly revised the assessment order under Sec. 263 of the Act. It was submitted by the Ld. DR that as the exercise of jurisdiction by the A.O u/s. 147 of the Act and that by the Pr. CIT/CIT u/s. 263 of the Act, both operate in their respective fields and are not overlapping, therefore, the contention of the Ld. AR being misconceived of the settled position of law did not merit acceptance.
We have given a thoughtful consideration to the aforesaid issue, and are of the considered view, that as stated by the Ld. DR and, rightly so, the respective jurisdictions vested with the A.O and the Pr.CIT/CIT u/s.147 and u/s.263 of the Act, respectively, operate in their respective fields and are in no way overlapping. We are of the considered view that merely for the reason that the case of the assessee was subsequently reopened by the A.O u/s.147 of the Act, the same would not divest the Pr. CIT/CIT of his jurisdiction and render the order passed u/s 263 as invalid. In fact, we are of a strong
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conviction that as long as the preconditions enshrined in the respective statutory provisions are satisfied by the concerned authority, they can validly exercise the powers that stands vested with them. On a perusal of Section 263 of the Act, it transpires that in a case where the Pr. Commissioner of Income Tax or Chief Commissioner or Commissioner after examining the records considers any order passed by the A.O as erroneous in so far as it is prejudicial to the interest of the revenue, then 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. On the other hand Section 147 of the Act contemplates that if any income chargeable to tax in the case of the assessee has escaped assessment for any assessment year, then the A.O may subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year, though subject to satisfaction of certain preconditions contemplated in the said section. On a careful perusal of the respective statutory provisions, it transpires that while for the powers vested with a Pr. CIT/CIT u/s.263 of the Act would get triggered where on examination of the records to any proceedings under the Act, if he consider that any order passed by the A.O is erroneous in so far as it is prejudicial to the interest of the revenue; while for on the other hand the power vested with the A.O u/s.147 of the Act operates exclusively in an
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independent field, i.e., where in a case income of the assessee chargeable to tax had escaped assessment for any assessment year, then, the A.O may subject to certain conditions assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year. We, thus, on the basis of our aforesaid observations are of the considered view that as the respective course of actions available to the aforementioned authorities i.e. the Pr. CIT/CIT on the one hand and the A.O on the other hand, gets triggered subject to satisfaction of the conditions contemplated in the respective sections, viz. Section 263 and Section 147 of the Act, and there is nothing available in the statute which therein jeopardizes the powers vested with either of the authority for the reason that the other authority had exercised the power vested with him in context of the issue under consideration, therefore, we do not find any merit in the claim of the assessee that the Pr. CIT in the present case before us had exceeded his jurisdiction and revised the order passed by the A.O u/s.143(3), dated 29.12.2017 for the reason that the same had thereafter been subjected to reopening in the hands of the A.O u/s.147 of the Act. We, thus, in terms of our aforesaid observations are not inclined to subscribe to the aforesaid claim of the Ld. AR and reject the same.
Although, we are of the considered view that the Pr. CIT remaining well within the scope of his jurisdiction had validly exercised the powers
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vested with him u/s.263 of the Act, but at the same time are unable to concur with the view taken by him, inter alia, on the issue of disallowance of the assessee’s entire claim of loss from derivatives of Rs.5.09 crore (approx). Admittedly, as is discernible from the record the Pr. CIT was in receipt of information from Central Economic Intelligence Bureau, New Delhi that SEBI vide its order dated 21.12.208 had implicated the assessee company for executing reversal trades in stock option with the same entities on the same day, thereby creating artificial volume leading to false and misleading appearance in the trade in illiquid stock options at BSE. Our attention was drawn by the ld. A.R to the Adjudication Order No. Order/JS/DJ/2018-19/1759, dated 21.12.2018 passed by SEBI under Sec. 15-I of Securities And Exchange Board of India Act, 1992 r.w Rule 5 of SEBI (Procedure for holding Inquiry and imposing penalties by adjudicating officer) Rules, 1995, dated 21.12.2018 in the case of the assessee company, Page 42–58 of APB. SEBI vide its order dated 21.12.2018 had held that the assessee company during the period 01.04.2014 to 30.09.2015 had executed 38 non-genuine trades in 11 option contracts, and thereby created artificial volume of 13334500 units with a resultant loss of Rs. 1.77 crore. The Pr. CIT vide his order passed u/s 263 of the Act, had observed that SEBI as per its report dated 21.12.2018 had concluded that the assessee company had executed 38 non-genuine reversal trades in 11 contracts
39 Avinash Infra Projects (P) Ltd. Vs. DCIT, Circle-1(1), Raipur ITA No.31/RPR/2021
resulting in artificial volume of total 13334500 units and a loss of Rs. 1.77 crores, as under:
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However, the Pr. CIT instead of confining himself to the artificial loss of Rs.1.77 crore (supra) as reported by SEBI vide its order dated 21.12.2018, had most arbitrarily without referring to any material observed that the other transactions of the assessee company were also not free from such
41 Avinash Infra Projects (P) Ltd. Vs. DCIT, Circle-1(1), Raipur ITA No.31/RPR/2021
consideration and concept, and thus, were to be similarly construed. Accordingly, the Pr. CIT on the basis of his aforesaid observation had concluded that the assessee’s claim of entire loss of Rs.5.09 crore (approx.) from derivative trading was to be disallowed.
We have given a thoughtful consideration to the aforesaid observations of the Pr. CIT in the backdrop of the SEBI Order dated 21.12.2018, and are unable to persuade ourselves to subscribe to the adverse inferences that have been drawn by him as regards the assessee’s claim of loss of Rs.5.09 crore (approx.). Admittedly, it is a matter of fact borne from record that SEBI vide its order dated 21.12.2018 after analyzing 11 option contracts of the assessee company had concluded, that the assessee had booked an artificial loss of Rs.1.77 crore (supra). In our considered view, now when as per the information available with the Pr. CIT the assessee company had during the period 01.04.2014 to 30.09.2015 indulged in execution of 38 non-genuine trades in 11 option contracts, and thereby created artificial volume of 13334500 units with a resultant loss of Rs. 1.77 crore, then, merely on the basis of said information and without placing on record any material proving to the contrary there was no justification on his part to conclude that the remaining transactions of the assessee were to be similarly construed as bogus/structured, and thus, the entire claim of loss of Rs. 5.09 crore (approx.) was to be disallowed. Although
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there was every justifiable reason for the Pr. CIT to have declined the assessee’s claim of structured loss of Rs. 1.77 crore (supra), which as per SEBI order dated 21.12.2018 was claimed by it by executing 38 non-genuine trades in 11 option contracts, however, in absence of any adverse material proving to the contrary there was no justification on his part in summarily declining the assessee’s claim for the balance loss of Rs. 3.32 crore (approx.) [out of total loss from derivatives of Rs. 5.09 crore (approx.)]. We, say so, for the reason that now when SEBI vide its order passed u/s.15-I of SEBI Act, 1992 r.w Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, dated 21.12.2018, Page 42 to 58 of APB, had after its in depth investigations implicated the assessee of having indulged in execution of 38 non-genuine trades in 11 option contracts, thereby creating an artificial volume of 13334500 units, as under:
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,therefore, the Pr. CIT in the absence of any independent material which would disprove the genuineness of the assessee’s claim of balance loss of Rs. 3.32 crore (approx.) could not have summarily dislodged the same.
We, thus, in the backdrop of our aforesaid deliberations are of the considered view that now when SEBI vide its order u/s.15-I of SEBI Act, 1992 dated 21.12.2018, had held that the assessee had indulged in reversal of trades of 11 option contracts which had resulted in an artificial loss of Rs.1.77 crore, therefore, there was no justification for the Pr. CIT to have summarily drawn adverse inferences as regards the entire claim of loss of Rs. 5.09 crore (approx.) that was claimed by the assessee company. Accordingly, we though concur with the Pr. CIT to the extent he had disallowed the assessee’s claim of loss of Rs. 1.77 crore (supra), but are unable to persuade ourselves to subscribe to the declining of the balance loss of Rs.3.32 crore (approx.) [Rs.5.09 crore (-) Rs.1.77 crore] by him.
We are also unable to persuade ourselves to subscribe to the observation of the Pr. CIT that the assessee in the course of the assessment proceedings in support of its claim of loss from derivatives of Rs. 5.09 crore (approx.) had failed to file the complete contract notes. As had been brought to our notice by the ld. A.R the assessee company had in the course of the assessment proceedings filed a letter with the A.O, Page 64 of APB, wherein referring to the loss on currency derivatives it had clearly stated that the
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contract notes in respect of the loss incurred were being enclosed. The assessee company had thereafter filed another letter with the A.O, Page 86 of APB, wherein it had submitted that it had during the year suffered a loss from trading in currency derivatives of Rs. 5.09 crore (approx.) and had already vide its earlier reply filed copies of the contract notes. Apart from that, the ld. A.R had taken us through the confirmation of account of M/s Bahubali Forex Pvt. Ltd as was appearing in its books of accounts, Page 90- 91 of APB, and referring to the loss on currency derivatives as were appearing in the account of its broker over the period 29.10.2014 to 27.03.2016, therein, aggregating to Rs. 5,09,66,606/-, had taken us through the copies of all the contract notes that were filed in the course of the assessment proceedings with the A.O, Page 65 to 83 of APB. We, thus, in terms of our aforesaid observations are unable to concur with the observation of the ld. Pr. CIT that the assessee company in the course of the assessment proceedings had not submitted complete contract notes to support its claim of loss from derivative trading of Rs. 5.09 crore (approx.).
We are also unable to concur with the observation of the Pr. CIT that though the assessee company had claimed to have carried out derivative trading through its broker, viz. M/s Bahubali Forex Pvt. Ltd., but on examination of records it was found that the said brokers records was not found in SEBI and other recognized stock exchanges. On a perusal of the
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records to which our attention was drawn by the ld. A.R, it transpires that the assessee had filed with the Pr. CIT a letter dated 16.03.2020, wherein, it had, inter alia, provided the complete details of the aforesaid broker, viz. name of the broker, address of its registered office, phone no., CIN, E-mail id, SEBI registration No., PAN and service tax registration no., Page 6 -15 of APB. Also, the assessee had in the course of the revision proceedings filed with the Pr. CIT the copy of the registration details of the broker M/s Bahubali Forex Pvt. Ltd. viz. (i). Registration with Bombay Stock Exchange Limited (BSE) : Registration No. INZ000006833; and (ii). Registration with United Stock Exchange of India Limited : Registration No. INE271487733, Page 94 of APB. We, thus, are of the considered view that pursuant to the aforesaid details that were filed by the assessee in the course of the revision proceedings the aforesaid observation of the Pr. CIT cannot be approved.
Accordingly, we in terms of our aforesaid observations partly uphold the order passed by the Pr. CIT u/s.263 of the Act on the aforesaid issue under consideration i.e disallowance of the assessee’s claim of loss from derivatives of Rs. 5.09 crore (supra). Resultantly, the order passed by the Pr. CIT under Sec. 263, dated 27.03.2021 is partly set-aside, while for the order passed by the A.O under Sec. 143(3), dated 29.12.2017 is partly restored in terms of our aforesaid observations.
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Resultantly, the Ground of appeal No.1 raised by the assessee is 30. partly allowed in terms of our aforesaid observations.
In the result, appeal of the assessee is partly allowed in terms of our aforesaid observations.
Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board. Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 17th October, 2022 ***SB
आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The Pr. CIT, Raipur-1 (C.G) 4.�वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुरब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.