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Income Tax Appellate Tribunal, DELHI BENCH “B ”: NEW DELHI
Before: SHRI NARENDRA KUMAR BILLAIYA & SHRI ANUBHAV SHARMA
O R D E R PER ANUBHAV SHARMA, JM:
The assessee has come in appeal against the order dated 30.03.2019 passed by the Revisional Authority, Principal Commissioner of Income Tax, Ghaziabad u/s 263 of the Income-tax Act, 1961 (hereinafter referred as the “Act”), against the assessment order dated 30.12.2016 passed by the Income-tax Officer Ward-1(2), Ghaziabad (hereinafter referred in short as “Ld. AO”) u/s 143(3) of the Act, for A.Y. 2014-15.
The return was filed by the assessee company on 11.03.2015 declaring total income at Rs.31,790/- which was processed and subsequently selected for scrutiny CASS citing the reasons “Suspicious Transaction relating to short term capital loss/long term capital gains on shares (inputs from investigation wing)”. Later on, assessment was completed by the ITO, Ward-1 (2), Ghaziabad, on total income of Rs.82,73,520/-, vide his order dt. 30.12.2016, passed u/s 143(3) of the I.T. Act, 1961. The A.O. added Rs.82,41,726/- as per provisions of section 68 of the I.T. Act, 1961 (N.P. rate of 8% applied on total turnover of cotton fabric) after considering impugned sale-purchase shown by the assessee as bogus.
2.1 The Revisional Authority gathered from record of the company, for the year under consideration, that there are some omissions in the assessment order passed by the A.O. Therefore, a show cause notice u/s 263 of the I.T. Act, 1961 was issued to the assessee on 28.06.2018, by the then Principal Commissioner of Income-tax, after considering assessment order passed by the A.O. to be erroneous and prejudicial to the interest of revenue. Relevant portion of the same is reproduced below:- i) “The case of the assessee company was selected for scrutiny for the reason “Suspicious Transaction relating to short term capital loss/long term capital gains on shares (inputs from investigation wing)”. From ITS Data for A.Y. 2014-15, it is gathered that during the year under consideration, the assessee company purchased 232004 shares for Rs.99,57,292/- and sold 8332 shares for Rs.5,15,458/- of CCL International Ltd. Whereas as per written reply filed on 22.12.2016 by the assessee, during assessment proceedings, the assessee has shown to have purchased 223673 shares for Rs.94,71,503/- of CCL International Ltd., and shown to have sold 372235 shares for Rs.1,54,59,095/-. As such there is a substantial difference in the numbers and value of the shares shown to be purchased and sold and as per ITS Data. This fact has been left to be considered by the A.O. while passing assessment order in the case. In fact, the reason on which the case was selected for scrutiny remained un-touched and unverified during the scrutiny proceedings.
While passing the assessment order, A.O. took a stand that the whole purchase and sale of | cloth is bogus, yet he proceeded to apply 8% N.P. on total turnover. The major ;reason 1 which strengthens the findings of bogus sale/purchase of cloth is the absence of any evidence of mode of transport and expenses on transport of such bulky goods. Keeping view the fact that cash credits are the in the books of accounts of the assessee, application of 8% N.P. on the turnover is not correct. Actually, in absence of substantial evidence, whole cash credits in the books of account, should have been added by the A.O. as per provisions of section 68/69 of the I.T. Act, 1961, instead of applying 8% on the bogus turnover.”
After taking into consideration the submissions of the assessee the learned Pr. CIT was satisfied with regard to discrepancy in the quantity of shares traded and considered same to be explained but directed the AO to conduct discreet inquiries about transactions of sale of CCL shares. 3.1 On second issue, the learned Pr. CIT directed the AO to verify sales and purchases made by the assessee during the year under consideration from the respective parties to ascertain as to whether transportation charges were paid by them, as assessee company has stated that the transportation charges were not paid by it but were paid by the parties from whom the material was purchases as well as sold.
The assessee is in appeal raising following grounds:
“1. That, the order of learned Commissioner of Income Tax u/s 263 of the I.T. Act erred is bad in law and is against the facts and circumstances of the case, therefore, deserves to be quashed.
2. That, Id. CIT completely misdirected herself in invoking provisions of S.263 because, a) as even in case of rejection of share transactions only amount of short terms loss will increase hence there is no possibility of any loss to revenue. b) appeal against Order cancelled u/s 263, was pending before Id. CIT(A) and is still pending before Hon'ble ITAT and said action is not only against s.263(l)(C ) but is against the scheme of Act which will make pending appeal infructuous. c) notice is issued on the basis that i) difference in qty/value of total share sale/purchase etc. not examined, though difference in qty/value etc. is found duly reconciled and transactions duly examined and ii) notice is issued as Sales/purchase are bogus hence total cash credit u/s 68/69 should be added against 8% rate applied by AO , though directions is to enquire / verify sales-purchases from parties to ascertain payment of transportation charges. d) order is also violating the settled principle that "where the AO adopted one of the courses possible in law or where two views are possible and he has taken one view with which the Commissioner does not agree, it cannot be treated that the assessment order is erroneous so as to be prejudicial to the interest of revenue unless the view taken by AO is unsustainable in law.
3. That, without prejudice to above, as admittedly it is not found to be case of no/lack of enquiry , hence even if it was a case of inadequate enquiries for argument sake despite very detailed enquiries made by AO, than Id. CIT erred in cancelling the order to conduct enquiries instead of conducting such inquiries by herself as per settled law. Also S. 263 can't be invoked merely because Id. CIT desired enquiries in a specific way by the AO who passed the order after due application of mind.
4. That, without prejudice to above on merits, Id. CIT failed to appreciate that enquiry is directed with apprehension that CCL shares are known penny stock which is far from truth as revenue itself has accepted CCL transactions in no. of cases and accepted also by Ld. CIT(A) and hon'ble ITAT, further assessee earned nominal capital gain of Rs. 200329/- on sale of over Rs. 1.54 crores which is also taxable being short term and such facts are against the basic concept of penny stock hence order is without any application of mind.
5. That, without prejudice to above on merits, view of Id. CIT as per notice that, as sales/purchases are bogus than addition should be made of cash credit u/s 68/69 itself is erroneous and against the settled law as per which in such cases only difference in sale/purchase or rate is to be applied. Further, even after detailed enquiries Id. CIT has not found sales/purchases bogus and directed to enquire only about transportation exp. that too without any conclusion.
On behalf of the assessee it is submitted that detailed inquiries were made by the learned AO on the issue of share transaction while passing order u/s 143(3) of the Act. It was submitted that learned Pr. CIT was satisfied with regard to the issue of difference in quantity of purchase/sale of shares from ITS data being not verified, but without there being any notice to the assessee u/s 263 of the Act, proceeded to consider the sale of shares to be suspicious and sham transactions, thereby directing the AO to conduct discreet inquiry with regard to genuineness of transaction of purchases/sales of shares. It was submitted that general and vague direction to verify transactions without arriving at any definite conclusion about order being erroneous for revenue does not justify invoking powers u/s 263 of the Act. It was submitted that based on the inquiries raised, learned AO has taken one of the possible views. The order cannot be considered to be erroneous. It was submitted that no addition could be made u/s 68/69 of the Act in regard to sales/purchases by applying 8% rate of net profit on turnover, which was separately challenged by the assessee by way of appeal u/s 250 of the Act. Learned counsel for the assessee relied on the following judgments:
- CIT V NTPC Ltd. (2017) 88 taxmann.com 561 (SC) - Kwality Steel Suppliers Complex (2017) 84 taxmann.com 234 (SC) - Malabar Industrial Co. Ltd. (2000) 243 ITR 83 (SC) - CIT V Krishna Capbox (P) Ltd. (2015) 60 taxmann.com 243 (All) - D.G. Housing Projects Ltd. (2012) 20 taxmann.com 587 (All.) - CIT V Vam Resorts & Hotels (P) Ltd. (2019) 111 taxmann.com 62 (Allahabad) - Ranka Jewellers V Addl. CIT 328 ITR 148 (Bom)
S.K. Jain V CIT (2010) 127 ITD 217 (Agra)(TM) - Punjab State Civil Suppliers Corn. Ltd. Vs. CIT 200 ITR (P& H)
On the other hand, learned DR submitted that there is no error in the findings of learned Pr. CIT.
Appreciating the material on record it can be observed that apparently from the order of learned Pr. CIT it is established that he was satisfied with regard to reconciliation of number and values of shares shown to be purchased and sold as per ITS data. However, he considered that as the case was selected to examine the suspicious transactions relating to short term capital loss/ long term capital gain of shares and same has not been properly examined by the AO during the course of assessment proceedings, so the order was erroneous and prejudicial to the interest of Revenue. 8. The first thing that comes up from the finding of learned Pr. CIT is that when notices u/s 263 of the Act was issued there was no observation of questioning the assessment order on the basis of non-examination of the issue of suspicious transactions relating to short term capital loss/ long term capital gain on shares by the learned AO. The issue required to be explained by assessee was restricted to the non-examination of the difference in the number and value of shares shown to be purchased and sold as per ITS data. However, during the revisionary proceedings being satisfied of these factual queries without calling upon the assessee to explain further about his opinion of lack of inquiry on whole of the issue and without giving any specific findings by way of any further inquiry at his own end, learned Pr. CIT gave a direction for a discreet inquiry. 9. The Bench is of the considered view that such an order of conducting a discreet inquiry cannot be part of exercise of revisional jurisdiction. The learned Pr. CIT was expected to cite specific error in the inquiry conducted by the learned AO to conclude that there was lack of inquiry on the issue at the stage of scrutiny assessment. 10. On the other hand it comes up that while issuing notice dated 8.6.2016 u/s 142(1) of the Act, the learned AO had raised following questions:
“14. Details of month-wise sales and purchases in terms of amount and quantity along with sales/purchase return, if any.
Please produce books of account i.e. cash book, ledger, Journals, stock register with purchase/sale bills and vouchers of expenditure for AY 2014- 15.
16. Furnish complete copy of D-mat account of shares/derivatives/mutual funds etc. for /the year under consideration and last year i.e. A.Y. 2013-14 & 2014-15.
Furnish copy of trading account of shares/derivatives/mutual funds etc. for the year under consideration and last year i.e. A.Y. 2013-14 & 2014- 15.”
10.1 The assessee has given a detailed reply to the aforesaid questionnaire and the paper book filed on behalf of the assessee brings forth that copy of reconciliation of shares available at page no. 44-45, copy of D-Mat account available at page no. 46-47, copy of ledger account of laws from shares available at page no. 48, contract note of job / enter day trading available at page no. 58 to 60, copy of order u/s 143(3) of the CCL International Ltd. for corresponding A.Y. 2014-15 available at page no. 124-125 were before Ld. AO who must examined the same.
10.2 Rather, the Bench is of considered opinion that when the scrutiny assessment was for the reason “suspicious transaction relating to short term capital loss / long term capital gain on shares (inputs from Investigation Wing)” then if the aforesaid documents and evidence were before Ld. AO in response to the aforesaid questionnaire and he had not made any adverse remark upon the same and Ld. PCIT was also satisfied with regard to the discrepancy which was made foundation for issuance of notice u/s 263, then the impugned assessment order could not have been considered erroneous and prejudicial, to be followed by the direction of discreet inquiry.
In regard to the second issue for which directions have been issued to the Ld. AO it can be observed that Ld. PCIT has not made any discussion of fact or evidence upon the same and has merely made following observations ; “b) In respect of N.P. rate of 8% applied by the A.O. on purchase and sale of cloth, the A.O. is directed to verify all sales and purchase, made by the assessee during the year under consideration, from the respective parties, to ascertain as to whether transportation charges were paid by them as the assessee company has stated that the transportation charges were not paid by it but were paid by the parties from whom the material was purchased as well as sold.”
On the contrary, what comes up is that before Ld. PCIT on behalf of the assessee evidence was filed in the form of confirmation from M/s. Sybly Industries Ltd. available at page no. 40 to 43 of the paper book and the assessment u/s 143(3) of these two companies available at page no. 51 to 57 of the paper book showing that the sales and purchase from the said companies though, doubted qua present assessee, were accepted in the case of these two entities. The assessee had also filed details of party wise sale / purchase along with confirmations and ITR of all the parties available at page no. 61 to 87 of the paper book and page no. 94 to 95 of the paper book. The copy of the stock register, copy of bank statement and bank pass book of assessee and the comparative financials for A.Y. 2013-14 to 2016-17 were made available however, not a word what discussed by Ld. PCIT. 13. The Bench is of considered opinion while exercising Revisional Jurisdiction, Ld. PCIT was expected to go on to the merits of the submissions and also make form some independent opinion however the same is lacking. Thus, the findings of learned Pr. CIT that there was lack of inquiry on the two issues, is not sustainable. 14. Even otherwise what comes up admittedly from the records is the fact that assessment order was passed on 30.12.2016. Assessee had preferred an appeal against same u/s 250 of the Act and the same was filed before Ld. CIT(A) on 28.01.2017. The same was dismissed on 02.02.2018. However, the notice u/s 263 was issued on 28.06.2018, that is after the dismissal of the appeal by CIT(A). The impugned order u/s 263 was passed on 30.03.2019.
14.1 The issues examined by Ld. CIT(A) pertains to both the facts. Ld. CIT(A) in order dated 02.02.2018 had taken note of the fact, the scrutiny assessment was made on the specific issue of suspicious transaction relating to short term capital loss/ long term capital gain on shares (inputs from Investigation division) and had upheld the order of ld. AO of the addition made only with regard to bogus sales and purchase. In that order dated 02.02.2018 in para 5.2.1 Ld. CIT(A) had observed ; “5.2.1 Examination of facts reveals that appellant claim to engaged in trading fabrics and declared loss of Rs. 18,697/-. The AO found difference in quantitative details filed during assessment proceedings and as given in the audit report. It is noted that even during assessment proceedings the appellant did not furnish any details to support the fact that appellant has undertaken the business activity of purchase and sale of shares. The AO also noted that there was no opening stock, no closing stock and no expenses regarding cartage or freight was debited to the P&L account and sales made to the parties namely M/s Sybly Industries and M/s ALPS Industries Ltd. were made in the same pattern and same rate. The appellant claimed total sale of Rs. 10,30,21,585/- and purchase during the year of Rs. 10,36,56,700/-. Even during appellate proceedings no details of freight expenses etc. were given rather according to the appellant fabric was purchased on FOR basis (understood as free on rail or road basis). However, no document to substantiate the above said claim was furnished during the appellate proceedings. Considering above facts it is held that appellant failed to prove the genuineness of the alleged business undertaken by the appellant.”
15. The Bench is of considered view that both the issues were examined by the Ld. CIT(A) and thus the explanation (c) to Section 263(1) of the Act comes into effect which provides that where the assessment order in regard to which revisional powers are being exercised has been subject matter of any appeal then the powers of revision only extend to such matters as had not been considered and decided in the appeal. In the case in hand, there is no doubt the Ld. CIT(A) has taken into consideration both the issues and sustained the order of Ld. AO qua one. Thus exercise of jurisdiction u/s 263 was not called for being beyond the powers.
In the light of aforesaid, the grounds raised are sustained. Consequently, the appeal of assessee is allowed.
Order pronounced in open court on 03.08.2023.