TaxTMI 
TaxTMI 
2016 (3) TMI 548
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.... 4. Brief facts of the case are that the assessee has filed its return of income on 28.9.2010 declaring total income at Rs. 9,100/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Income Tax Act was issued upon the assessee on 5.9.2011. He passed an assessment order under section 143(3) on 31.10.2012. The ld.AO has accepted the returned income of the assessee. On perusal of the record, the ld.commissioner harboured a belief that the AO did not examine the issues properly, and therefore, he took cognizance under section 263 of the Income Tax Act. He issued show cause notice to the assessee on 18.9.2014. The show cause notice issued by the ld.Commissioner reads as under: "OFFICE OF THE COMMISSIONER OF INCOME-TAX, AHMEDABAD-II 1st Floor, Navjeevan Trust Building B/h. Gujarat Vidyapith, Ahmedabad 380 014. No.CIT-II/ABD/Tech/263/07/2014-15 Date :18th September, 2014 To, Principal Officer Jay Agriculture & Horticulture Products P. Ltd. Ambuja Tower, Opp. Memnagar Satation Vijay Char Rasta Navrangpura Ahemdabad. Sir, Sub: Notice u/s.263 of t....
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....bility of the Profit from acquisition and sale (through buyback) was to be verified more closely. Other issues related to the same transaction (which is the only revenue generating transaction in its books of a/cs) are listed hereunder : i) Assessee has stated that the equity shares in question were acquired on 31.12.2004 but the assessee company itself was incorporated on 06.06.2006. ii) There were no verification/inquiry or at least calling for the information and supporting evidence w.r.t the 'cost of acquisition' of shares in question, iii) No verification/inquiry was made w.r.t the 'buyback' offer price at which assessee claimed to have sold partial equity holding. iv) No inquiry was made w.r.t the 'cost' of equity share in Indian currency nor the 'sale price' in Indian currency and the Exchange rate applied by assessee in this regard. v) No inquiry was made to check veracity of assessee's claim w.r.t the date and quantity of acquisition of shares or w.r.t the date and quantity of buyback offer in the company in which assessee claimed to have purchased equity shares, vi) Since the acquisi....
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.... Agreement for re-purchase of 625074 shares between M/s. Royale Export Ltd and Jay Agri dated 09/12-06-2009 10 to 14 9 Remittance letter from M/s. Royale Export Ltd. for re-purchase /buyback of shares 15 10 Copy of letter filed by company for FIRC with PNB in the matter of Buyback of shares dated 26-06-09 16 11 Copy of FIRC issued by PNB dated 07-07-09 17 12 Copy of intimation filed by company for buyback of shares to RBI in compliance to FEMA dated 08-07-09 18 13 Copy of abstract of article of DTAA 19&20 14 Copy of computation of income, tax challans and Form no. 26AS 21 to 26 6. After analysis of the record, the ld.Commissioner has held that the AO failed to carry out adequate inquiry, and therefore, the assessment order is erroneous and prejudicial to the interest of the Revenue. Accordingly, the ld.Commissioner has set aside the assessment order with direction to the AO to pass a fresh assessment order determining the total taxable income of the assessee. While impugning the order of the ld.Commissioner, ld.counsel for the assessees has raised three fold submissions, viz. - (a) That there is a disti....
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.... of 30% shares, according to which, 6,25,074 shares held by the assessee (20,83,580 x 30% = 6,25,074) shall be bought back by Royale Exports Ltd. An agreement dated 12.6.2009 in respect of such buy-back was entered into between the assessee and Royale Exports Ltd. The assessee has sold shares. Remittance letter dated 23.6.2009 was sent by Royale Exports Ltd. through SBI, Colombo. A copy of the letter dated 23.6.2009 with regard to inward remittance of US dollar 5,07,935 was forwarded by the assessee to Punjab National Bank, which is placed at page no.16 of the paper book. The assessee intimated RBI about such buy-back vide letter dated 8.7.2009. In response thereto, certificate of foreign inward remittance was received from PNB as per which, a sum of Rs. 2,46,38,132/- was credited against inward remittance made by Royale Exports Ltd. The cost of 6,25,074 shares sold by assessee work out to Rs. 29,08,205/-, and hence profit on sale of such shares as per the book is Rs. 2,17,29,927/-. The long term capital gain on such shares as per DTAA was taxable in Sri Lanka and not in India. Hence, the assessee was not liable for any capital gain on sale of shares held in Sri Lankan Company. Whi....
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....a finding, demonstrating the fact as to how the AO failed to conduct a proper inquiry. In support of his contentions, he relied upon the decision of the Hon'ble Delhi High Court in the case of ITO Vs. D.G. Housing projects Ltd., 343 ITR 329 (Delhi). 10. With regard to his last proposition, the ld.counsel for the assessee drew our attention towards Article 13(4) and (5) of the DTAA between Republic of India and Republic of Sri Lanka. On strength of this Article, he submitted that gain from alienation of stock/shares of the company may be taxed in the contracting State in which they have been issued. Thus, the gain from buy-back of shares of Sri Lankan is taxable in the country in which they have been issued. Had the ld.Commissioner has considered this issue, then, probably, he would not have set aside the assessment order and restore this issue to the file of the AO, because, ultimately, even after carrying out the whole exercise the result will be the same, which will be adopted by the AO. No long term capital gain would be taxable in the hands of the assessee. In support of his contentions, the decision of the Hon'ble Karnataka High Court in the case of CIT vs. D.G. Gopala Gowd....
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....d on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded." 14. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263....
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....n will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT do....
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....is submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open". 16. In the case of Gee Vee Enterprise vs. Commissioner of Income Tax reported in 99 ITR page 375, the Hon'ble court has expounded the approach of ld. Assessing Officer while passing assessment order. The observation of the Hon'ble court on pages 386 of journal read as under:- "... it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very diffident from that of a civil court. The statement....
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....along with the Dr./Cr. Balances as on 31.03.2010. (e) Details of immovable/movable property held by you with supporting evidences. (f) Director's details along with share holding, PAN etc. (g) Copy of Memorandum/Article of Association. (h) Complete details of addresses of all the business premises occupied by the assessee, viz. office/factory /godown/warehousing premises. Explain whether these premises are owned by the assessee or taken on rent. If the same is taken on rent, then kindly submit for each rented premises the details of rent paid and TDS deducted thereon, details of the land lord and submit a copy of rental agreement, if any. 3. The case is fixed for hearing on 22.8.2012 at 1.00, PM. You are requested to submit all the same date. I am also enclosing a notice u/s 142(1) of the IT Act, notice u/s 143(2) of the IT Act dated 5.9.2011 and you are requested to submit any details/explanations/evidences which you want to product in support of various claimed by you in the R/I filed on the same date. Kindly note this is time barring case and hence no adjournment will be granted. In case of non/partial compliance of the notice u/s....
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....e. It reads as under: "18. This distinction must be kept in mind by the Commissioner of Income-tax while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated....
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....en after setting aside the issue to the AO, the result will be same i.e. gain will not be taxed in India. The Hon'ble Karnataka High Court in the case of D.G. Gopala Gowda (supra) had an occasion to examine similar aspect, i.e. if after exercise of power u/s.263, no taxable income is unearthed in the hands of the assessee, then, action u/s.263 should not be upheld. The facts in that case are noticed by Hon'ble Court in para-2 which read as under: "2. The assessee had purchased a site at Rupena Agrahara in the financial year 1995-96 for a consideration of Rs. 3,46,520/-. He started construction of the building in April 1999. He agreed to sell the said property under the agreement dated 9-9-2000 in unfinished condition. Under the terms of agreement, the assessee should complete the construction of the building before execution of sale deed with the help of the funds provided by the purchaser. On 22-11-2000 the assessee executed a sale deed in favour of the purchaser for a consideration of Rs. 1,38,00,000/-. The assessee received a sum of Rs. 40,00,000/- at the time of agreement. The total cost of construction was Rs. 1,04,30,425/-. Thereafter, the assessee purchased another ....
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....d to the assessee. Therefore, the condition precedent for exercising the revisional power under Section 263 of the Act is that the order under revision should not only be erroneous, but such erroneous order should result in prejudice to the interest of the revenue. Mere error would not confer jurisdiction to exercise revisional power under Section 263 of the Act. We have gone through the order passed by the revisional authority. It is a very cryptic order. It neither points out an error nor prejudice which has caused to the revenue. After declaring that the order is prejudicial, it refers to the notice being issued to the assessee and the assessee filing reply to the said notice and then review authority feels that it is a matter to be readjudicated by the Assessing Authority and therefore, the matter was remanded for fresh consideration. This is not the way, the revisional authority should exercise their power under Section 263 of the Act. The order of revisional authority should indicate the error committed by the Assessing Authority and consequential prejudice caused to the revenue because of the erroneous order. Unless these two conditions exist, the revisional authority does n....
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.... even if this exercise is being done, then there will not be any tax liability and therefore, there is no need to set aside the assessment order. The Hon'ble High Court has upheld this finding of the Tribunal. 23. In view of the above discussion, we allow the appeal of the assessee and quash the order passed by the ld. Commissioner under section 263 of the Income Tax. 24. Now we take up the ITA No.606/Ahd/2015. In this case, the assessee has filed its return of income on 12.10.2010 declaring total income at Rs. 6,10,690/-. The case of the assessee was selected for scrutiny assessment and assessment order was passed under section 143(3) on 31.10.2012. The ld.AO has accepted the income disclosed by the assessee. After perusal of the record, the ld.Commissioner harboured a belief that the AO has not conducted adequate inquiry, therefore, he took cognizance under section 263 of the Income Tax Act on 11.12.2014. The contents of the notice issued by the ld.Commissioner read as under: "OFFICE OF THE COMMISSIONER OF INCOME-TAX, AHMEDABAD-2 1st Floor, Navjeevan Trust Building B/h. Gujarat Vidyapith, Ahmedabad 380 014. No.CIT-2/ABD/Tech/263/20/2014-15 Date :11t....
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....ncome from house property in profit and loss account. The hearing is fixed on 19.12.14 at 11.00 AM, in the office of the undersigned either personally or through an Authorized Representative and may also file written submissions, if any. on the said date. 25. With the assistance of the ld. representative, we have gone through the record. In the light of the position of law, we have discussed in the aforegoing paragraphs, while disposing of the appeal being ITA No.605/Ahd/2015. Let us examine the facts of the present case. 26. Notice issued by the ld.AO on 9.8.2012 is available at page no.96 of the paper book, which reads as under: "Date : 9 August, 2012 The Principal Officer JAY INFRA & PROPERTIES P.LTD. AMBUJA TOWER, OPP MEMANAGAR FIRE STATION NR. VIJAY CHAR RASTA NAVRANGPRUA, AHMEDABAD. Sir/Madam, Sub: Scrutiny assessment for the A.Y.2010-11. Ref: (i) Return of income filed in your own case for A.Y.2010-11 (ii) Notice u/s.143(2) of the IT Act, dated 5.9.2011. Kindly refer to the above. 2. Please find herewith the formal/statutory notice u/s 142(1) of the IT Act 1961, calling for details encl....