TaxTMI 
TaxTMI 
2019 (9) TMI 1177
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....9 as the "lead" case. 2. We advert to the basic relevant facts. This assessee / HUF M/s Gitesh Tikmani filed its return on 28.07.2014 declaring total income of Rs.5,57,140/-. The same stood summarily processed. The Assessing Officer thereafter completed the regular assessment in question on 29.09.2016 accepting the above declared income as well as its Long Term Capital Gains (LTCG in short) of Rs.53,635.18 as correct. 3. It emerges from a perusal of the case file that the PCIT issued sec. 263 show-cause notice dated 12.11.2018 seeking to revise the above regular assessment being erroneous causing prejudice to interest of the Revenue. The assessee filed its written submission on 27.11.2018 and 03.12.2018 contesting the above revision proposal. The same stand rejected in the PCIT's order under challenge as follows:- "5. The issue under consideration in this case is that as to whether the impugned transactions of purchase and sale of shares were indeed bogus in nature and accordingly whether the entire amount of sale consideration should have been added back or not. 5.1 From the records, it is seen that credible information was available in the custody of....
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....ividuals who control a large number of paper/shell companies which are used for routing cash for the transactions as well as buying and selling shares during the process of price rigging. They work for commission to be paid by the Syndicate Members. To cut costs sometimes in smaller operations, the same group performs more than one function. The Transaction The transaction involves three legs. i) Purchase of shares by the beneficiary: In this the beneficiary sold a fixed number of shares at a nominal rate. The price and the number of shares to be purchased are decided on the basis of the booking taken and the value up to which price would be rigged This leg of the transaction mostly is off-line. This is done to save on SIT using the loophole in Section 10(38) of the IT Act which places restriction of trading by payment of SIT on sale of shares and not purchase. ii) Price rigging: After the shares have beef) purchased by the beneficiaries, the syndicate members start rigging the price gradually through the brokers. In these transactions the volume is almost negligible. Two fixed brokers who are in league with the Syndicate buy shares at a fixed....
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....hese entities is not supported by fundamentals of the company or any other genuine factors. (7)An analysis in respect of persons involved in transactions apparently carried out in order to jack up the share prices has been done in respect of 84 companies. It has been noted that many common persons/entities were involved in trading in more than 1 LTCG companies during the period when the shares were made to rise which implies that they had contributed to such price rise. (8) Names of most of the LTCG companies are changed during the period of the seam. (9) Most of the companies split the face value of shares [this is probably done to avoid the eyes of market analysts. (10) The volume of trade jumps manifold immediately when the market prices of shares reach at optimum level so as to result in LTCG assured to the beneficiaries. This maximum is reached around the time when the initial allottees have held the shares for one year or little more and, thus, their gain on sale of such shares would be eligible for exemption from Income Tax. (11) An analysis of share buyers of some of LTCG companies was done to see if there were common pe....
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....recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 1 " 5.5 It is pertinent to mention here that two retired judges of the Supreme Court, Hon'ble Justice M. B. Shah (Retd.) and Hon'ble Justice Arijit Pasayat (Retd.) as Chairman and Vice Chairman respectively of the 11 member Special Investigation Team(SIT) of the Hon'ble Supreme Court of India on Black Money have pointed out the above mentioned modus operendi in the Third SIT report on Black Money. The recommendations of the SIT on black money as contained in the third SIT report as given below, deserve a look: Press Information Bureau Government of India Ministry of Finance 24-July-2015 15:45 1ST Recommendations o(SIT on Black Money as Contained in the Third SIT Report Misuse of exemption on Long Term Capital gains tax/or money laundering (Reference p. 82-84 of the Third SIT Report) This issue was deliberated by SIT during a series of meetings held on 1" January, 14'" March, 08th April and 3rd April. In this regard, it is pertinent to mention the observations of the Committee headed by Chairman, CBDT on "Measures....
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....of firms through their annual returns and any other indicators SEB! may develop. We believe that with effective and timely monitoring by SEBI a significant number of such instances can be checked in time. * Once such instances are detected, SEBI should invariably share this information with CBDT and FIU. * Barring such entities from securities market would no: be of strong deterrence in itself. In case it is established, that stock platforms have been misused for taking LTCG benefits, prosecution should invariably be launched under relevant sections of SEBI Act. Section 12A. read with section 24 of the Securities and Exchange Board of India Act 1992 are predicate offences. * Enforcement Directorate should then be informed to take action under Prevention of Money Laundering Act for the predicate offences. 5.6.1 On perusal of the records available, it is found that the scrip of 'UNNO INDUSTRIES LTD is amongst the 84 penny stocks where artificial rigging of prices were made for the desired purpose. 5. 6.2 On perusal of the financial results for last few years including years from purchase to sale, it is seen that the financial ....
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....us, the appreciation in the rates of shares is as high as 1.25:34, i.e almost 27 times. 5.6.5 As seen from the records, the assessee apparently sold these scrips at a pre-determined price, at a pre-determined time and to pre-determined buyers with the help of accommodation entry providers under the shell of director, share broker etc. to bring his unaccounted income into the regular books of accounts in the form of claim of exemption u/s 10(38) of the Action LTCG . 5.6.6 A microscopic view of all such data suggests that there is a common pattern in the trading of all such scrips and the pattern is that they represent a bell shape in their trading. It means first, their prices start from a low range, then it rises rapidly, stays there for a while and then it decreases more rapidly. Thus the trading pattern represents a Bell Shape[ Annexure A and made part of the order] 5.6.7 Ultimately SEBI vide its order dated 29.03.2016 has restrained some persons/entities from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, till further direction. The list includes the name of Unno In....
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....uch accommodation entries. Based on their statements, it would be justified to conclude the payment of commission to entry operators, brokers, etc. @ 5% of such accommodation entry. Considering the above, it is concluded that the assessee must have incurred expenditure of Rs. 2,68,176/- [5% of Rs. 53,63,518-] to obtain the above said accommodation entry. In view of the above, the unexplained expenditure of Rs. 2,68,1761- also needs to be added back U/S 69C of the Act (taxable at the rate 0[30% as provided U/S 115BBE). 5.9 Reference is also drawn to the judicial pronouncement of the Apex Court in the case of N.K.Proteins Ltd. v. Deputy, Commissioner of Income-tax SPECIAL LEAVE TO APPEAL(C) NO.769 OF 2017 JANUARY 16, 2017, as reported in [2017] 84 taxmann.com 195 (SC), wherein the High Court's decision to add back the entire bogus purchase as per the fictitious invoices debited to trading account holding that percentage disallowance of bogus purchases goes against principle of Sec 68 and 69C of the Act, was upheld by the Apex Court. 5.10 It is imperative on the part of the Assessing Officer to examine each and every transaction and finally to assess correct inco....
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....or (d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. This amendment takes effect from 1-6-2015. " 5.12.2 The spirit of this ratio is squarely applicable in a recent judgment, wherein the order u/s 263 passed by the PCIT was upheld in the case of M/s. Vama Sundari Investment (Delhi)(P) Ltd vs. Pr. CLT. - 9, New Delhi (ITA No: 22521De1l2018) by the Hon'ble ITAT, Delhi F Bench, New Delhi. In doing so, the Hon'ble ITAT had placed reliance on the following orders : * Hon'ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/20171 dated 29.11.2017. In this group of cases, Hon'ble Supreme Court has dismissed SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer t....
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....eemed fit and appropriate in the interest of justice to add back the entire sale consideration of the bogus penny stock shares, amounting to Rs. 53,63,518/- unexplained cash credit u/s 68 of the Act. Further, the quantum of unexplained expenditure on account of commission payment to the tune of 2,68,176/- is also liable to be added back u/s 69C of the Act. Accordingly, I direct the AO to reassess. the income of the assessee for the relevant AY 2014-15 on the issue as discussed above." This leaves the assessee aggrieved. 4. We have given our thoughtful consideration to rival contentions. The assessee's detailed paper book running into 98 pages containing PCIT's sec. 263 show-cause notice dated 12.11.2018, assessee's reply, Assessing Officer's notice u/s 142(1), its response thereto dated 16.06.2016 and 24.01.2016, income-tax return, computation, profit and loss account, balance-sheet, details of STCG / LTCG on shares, copy of purchase bills, money received, confirmation of accounts, share transfer advice, dematerilazation request forms, intimation letter for allotment of bonus shares, copy of contract notes for sale of shares to M/s SHCL Services Ltd., copy of SHCL , the....
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....ion to this effect that such kind of LTCG are offshoot of collusion amount of entry operators, promoters and investors concerned deriving bogus LTCG by taking recourse to artificial price of the scrips. He next highlights the CBDT's standard operating procedural (SOP) issue recently to the field authorities for handling cases of bogus LTCG / losses derive mainly of penny stock. 7. Dr. Srihari's next reliance is on various decisions i.e. ITA No.4057/Del/2018 Pooja Gupta vs. Pr. CIT,New Delhi decided on 31.01.2019, ITA No.5714/Del/2018 Pooja Ajmani vs. ITO Ward-20(4), New Delhi decided on 25.04.2019, ITA No.1723/Bang/2018 Smt. M.K. Rajeshwari vs. Income-tax Officer, Ward-3, Raipur decided on 12.10.2018 and those referred in the PCIT's order under challenge (supra) to pray for upholding the impugned revision order under challenge. 8. We have given our thoughtful consideration to rival contentions. The sole issue that arises for our apt adjudication in facts of instant case is as to whether the PCIT has rightly exercised his revision jurisdiction vested u/s 263 or not. There is no dispute that the Assessing Officer accepted the assessee's LTCG as genuine as per his discussion in ....
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....neous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyaridevi Saraogi v. CIT (1968) 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal V. CIT (1973) 88 ITR 323 (SC)". 25. In Max India Ltd. (3 Supra), reiterated the view in Malabar Industrial Co.Ltd. (2 Supra) and observed that every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. On the facts of....
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....wance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo motu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. 27. In Sunbeam Auto Ltd.( 5 Supra), the Delhi High Court held that the Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc.; that whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous....
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.... do so is to divide one argument into two and multiply the litigation. It held that cases may be visualized where the Income Tax Officer while making an assessment examines the accounts, makes inquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the account or by making some estimate himself; that the Commissioner, on perusal of the record, may be of the opinion that the estimate made by the Officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer; but that would not vest the Commissioner with power to reexamine the accounts and determine the income himself at a higher figure; there must be material available on the record called for by the Commissioner to satisfy him prima facie that the order is both erroneous and prejudicial to the interests of the Revenue. Otherwise, it would amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh inquiry in matters which have already been concluded under law. ....
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....s of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. c) To invoke suo motu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo motu revisional power....
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....rs which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interest of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. INCOME TAX OFFICER vs. DG HOUSING PROJECTS LTD343 ITR 329 (Delhi) Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. S. 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression "prejudicial to the interest of the Revenue" is of wide import and is not confined to merely loss of tax. The term "erroneous" means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an ad....
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....st be kept in mind by the CIT while exercising jurisdiction under s. 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 is that the CIT must come to the conclusion that the order is erroneous a....
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....ropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact that the order was passed by the assessing officer after due application of mind. Meerut Roller Flour Mills Pvt. Ltd. vs. C.I.T., ITA No. 116 /Coch/ 2012; CIT vs. Infosys Technologies Ltd., 341 ITR 293 (Karnataka); S.N. Mukherjee vs. Union of India, AIR 1990 SC 1984; ....
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....prejudicial to the interest of the Revenue. The power of revision is not meant to be exercised for the purpose of directing the AO to hold another investigation without describing as to how the order of the AO is erroneous. From this it also follows that where the assessment order has been passed by the AO after taking into account the assessee's submissions and documents furnished by him and no material whatsoever has been brought on record by the CIT which showed that there was any discrepancy or falsity in evidences furnished by the assessee, the order of the AO cannot be set aside for making deep inquiry only on the presumption and assumption that something new may come out. For making a valid order under s. 263 it is essential that the CIT has to record an express finding to the effect that order passed by the AO is erroneous which has caused loss to the Revenue. Furthermore, where acting in accordance with law the AO frames certain assessment order, same cannot be branded as erroneous simply because according to the CIT, the order should be written more elaborately.-Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC), Gee Vee Enterprises vs.....
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....ries. In the detailed discussion on this aspect, the Tribunal has observed that insurance claim was lodged for the goods lost in transit. The assessee at that time had merely filed a claim with the insurance company. This claim had not been approved as the insurance company had neither accepted the same nor given any assurance for making payment. Therefore, no income had "accrued" which could be taxed. The Tribunal rightly held that ordinarily the income is said to have accrued to a person when he acquires the right to income and this should be enforceable right, though actual quantification or receipt may follow in due course. The mere claim to income without any enforceable right cannot be regarded as an accrued income for the purpose of IT Act. (Para 16) Coming to the claim under s. 80HHC, it was totally uncalled for on the part of the CIT to say that the AO did not make requisite inquiries because of the simple reason that the AO had, in fact, declined and rejected this claim of the assessee. If the AO himself disallowed the deduction claimed by the assessee on this account under s. 80HHC, one fails to understand what further inquiries were needed by the AO. (....
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....r that there is an error made by the AO or that the circumstances was such that would require and warrant further inquiry or investigation. No error in the assessment order has been pointed out and it is not stated as to how prejudice was caused to the revenue. The finding that the AO had failed to properly scrutinise the above aspects does not give powers to the ld. CIT to revise the assessment u/s 263 of the Act. Making rowing enquiries is not a finding of an error. Assessments cannot be set aside for fresh enquiries unless a specific error is pointed out at not making proper enquiry cannot be equated with no enquiry. In view of the above we quash the order passed u/s 263 of the Act and allow the appeal of the assessee. 12. In the result the appeal of the assessee is allowed" Keeping in mind the foregoing detailed discussion that an assessment has to be both erroneous as well as prejudicial in interest of the Revenue simultaneously before the same is sought to be revised and it is not permissible for the CIT or the PCIT to exercise his revision jurisdiction in case the Assessing Officer has taken one of the possible view, we proceed to deal with the relevant facts of ....