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2020 (1) TMI 83
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.... Pr.CIT called for the assessment records and on examination thereof he noted that the AO had allowed the set off of the short term capital loss of Rs. 15,49,658/- against other heads of income without enquiring into the allowability of such claim in terms of the CBDT Instruction No.287/30/2014-IT(Inv II)Vol. III dated 16.03.2016, which circular, according to him, debar from allowing short term losses arising from the transaction of penny stock. He accordingly issued a show cause notice calling upon the assessee as to why he should not exercise the revisional jurisdiction u/s. 263 of the Act and after hearing the assessee, the ld. Pr. CIT held that AO's order was erroneous and prejudicial to the revenue for lack of enquiry in respect of the claim of loss and was pleased to set aside the order of AO and directed him to pass order afresh after taking note of his observations in the impugned order passed u/s 263 of the Act. Aggrieved by the impugned revision order of the ld. Pr. CIT, the appellant has preferred this appeal before us. 4. We have heard both the parties and perused the paper book and case laws cited by both the parties. We note that the appellant company filed the....
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....s been collected u/s. 133(6) of the Act from the broker in respect of investment made in shares as derived from the books of account vis-à-vis bank statement. We also note that the AO had issued notice dated 01.08.2016 placed at page 5 of paper book wherein he has asked for the following information from the assessee: i) Name and address of the company in which investment is made ii) Copy of allotment letter iii) Copy of "Contract Note" in respect of quoted shares iv) Date of allotment of shares v) No. of shares vi) Value of shares vii) Source of payment made for obtaining shares viii) In this regard, you are also requested to furnish the evidence of mode of such payment along with the details of cheque number sand the copy of bank statement (FY 2013-14) highlighting the relevant entries therein showing the transaction. 6. We note that pursuant to the aforesaid notice, the assessee had replied vide letter dated 06.06.2016 which is found placed at page 6 of the paper book wherein the assessee had filed the details of trading in shares, details of investment and attached copy of the contract note and le....
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....of the transaction which resulted in short term capital loss of Rs. 19,70,000/- which was duly disclosed in the return of income for AY 2014-15. He therefore submitted that it was not a case of lack of enquiry as alleged by the Ld. Pr. CIT in his order u/s 263 of the Act and, therefore, the very assumption of jurisdiction u/s 263 was on an erroneous premises and so is bad in law and consequently the impugned order deserves to be quashed. 8. Per contra, the Ld. CIT, DR, supported the order of the Ld. Pr. CIT, and contended that since the AO did not follow the instruction of the CBDT on the subject as per the Explanation 2(c) of sec. 263 the order of the AO is deemed to be erroneous as well as prejudicial to the interest of the revenue and does not want us to interfere in the order of the Ld. Pr. CIT. 9. With the aforesaid factual background, let us examine whether the finding of the Pr.CIT that the AO's order is erroneous and prejudicial to Revenue on account of lack of enquiry on the part of AO was factually and legally justified and sustainable. We note that the assessee company has challenged in the first place, the very usurpation of jurisdiction by ld. Principal CIT t....
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....mbered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. 10. In the given facts of the present case the only fault found by the ld. Pr. CIT to interfere with the order of AO was the alleged lack of enquiry in respect of short term capital loss and for which he held the assessment order to be erroneous and prejudicial to interest of the Revenue. In the opinion of the Pr. CIT, before completing the assessment the AO did not conduct the enquiries which he was expected to conduct in view of the instruction dated 16.03.2016 issued by CBDT. We are aware of the fact that the Assessing Officer's role while framing an assessment is not only as an adjudicator but he is also an investigator. The AO has ....
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....settled position of law is that lack of enquiry on the part of the AO on an issue makes his order erroneous on that issue whereas inadequate enquiry does not make the order erroneous unless, the ld. Pr.CIT after himself conducting the inquiry on the issue, demonstrates with tangible material that the finding of fact of AO in the order passed on the issue, was factually or legally wrong or view followed by him in the order was unsustainable in law. In such an event only the ld. Pr.CIT would be able to satisfy the jurisdictional fact which is required to interdict and exercise revisional jurisdiction u/s 263 of the Act. 12. In order to understand the difference between "lack of inquiry" and "inadequate inquiry" and when it can be termed as erroneous, let us look at the following case laws wherein their Lordships explained the difference between the two as follows:- 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 Asse....
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....le. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under s. 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must 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....
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....at the assessment order was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate 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 t....
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....deration. (i) Name & address of the company in which investment is made (ii) Copy of allotment letter (iii) Copy of "Contract Note" in respect of quoted shares (iv) Date of allotment of shares (v) No. of shares (vi) Value of shares (vii) Source of payment made for obtaining shares (viii) In this regard, you are also requested to furnish the evidence of Mode of such payment along with the details of cheque numbers and The copy of bank statement (F.Y. 2013-14) highlighting the relevant Entries therein showing the transaction. 3. Please furnish the following details in respect of Short Term Capital Loss (i) Name of Scrip, (ii) Date of purchase (iii) Quantity (iv) Rate (v) Mode of Payment (vi) Date of sale (vii) Quantity Sold (viii) Rate (ix) Date of Dividend declaration (x) Amount of dividend (xi) STT paid (xii) S.T. Capital Loss. 14. We note that the appellant complied with the above questionnaire as well by replying to it. On these facts therefore it cannot be said that AO did not enqu....
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....hat necessary directions may kindly be issued to the officers working under your jurisdiction to access this functionality and ensure that information available in the 'Penny Stock' functionality which may be useful for the purpose of cases presently under scrutiny, is examined and considered while finalizing assessments and considering reopening of cases under section 148 of the IT Act, 1961.(Emphasis supplied) 6. This issues with the approval of Member (Inv), CBDT." 15. On perusal of the above Instruction, it is noted that the CBDT had only informed the field officers that a button 'Penny Stock' has been added on their Individual Transaction Screen to display information related to penny stock, including the investigation report of the Kolkata Investigation Directorate. Accordingly the CBDT had issued directions to CITs to ensure that the officers working under their respective jurisdictions should access this functionality. We do not find that the CBDT instruction referred to by the PCIT in his SCN, any way out lined the mode or the manner of the enquiry to be conducted by the Assessing Officers concerning such suspicious transactions inter alia inclu....
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....ve stipulated the condition precedents in sec. 263 of the Act to invoke the same. We find that before the order of assessment was passed, the AO had required the assessee to furnish transactional documents proving the purchase and sale of all shares held as investment during the year. On examination of the material placed before him by the appellant, the AO was satisfied that the short term capital loss was incurred by the appellant on sale of shares listed on the Bombay Stock Exchange. The appellant had filed before the AO the relevant details and also produced the time stamped contract notes issued by its broker. All the transactions were made through registered share broker at rates prevailing on the stock exchange on the relevant dates. The payment for acquisition of shares and the subsequent sale proceeds were also transacted through the appellant's regular bank account. It is noted that the listed shares were sold within a period of one year from the date of acquisition and therefore the gain/loss was short term in nature. In the facts and circumstances as discussed above therefore we find that the AO had discharged his duties as an investigator as well as that of an adjudica....
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....nd establish the cash trail and the allegations, particularly in respect of the appellant, which is yet to be proved in the instant case. Similar view has been pronounced by Hon'ble Delhi High Court in the case of Pr. CIT vs Jatin Investment (P) Ltd. wherein it was observed "A transaction cannot be treated as fraudulent if the appellant has furnished the documentary proof and proved the identity of the purchaser and no discrepancy is found. The AO has to exercise his powers u/s 131 & 133(6) of the Act to verify the genuineness of the claim and cannot proceed on surmises. The AO must establish that cash has changed hands. There is no material or evidence even to suggest that the cheques directly or indirectly emanated from the appellant so that it could be said that the appellants' own money was brought back in the guise of sale proceeds''. 19. In the case of CIT vs. Lavanya Land Pvt Ltd. the Hon'ble Bombay High Court ruled that the allegations made by the authorities have to be supported by actual cash passing hands or actually has changed hands. 20. In the case of DOLARRAI HEMANI vs. ITO, this Tribunal held that the fact that the stock is thinly traded & there is unus....
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....et transactions cannot be a ground to treat the transactions as sham transactions. The statement of the broker P that the transactions with the H Group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees were in consonance with the market price. On perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought on record to show that the findings recorded by the Tribunal are contrary to the documentary evidence on record. The Tribunal has further recorded a finding of fact that the cash credits in the,bank accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, yn the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were in conformity with the market price, the Tribunal recorded a finding of fact that the cash credits in the buyers' bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the Tribunal. Therefore, the decision of the Tribunal is based on finding of facts. No ....
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....hares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. --Therefore, the AO could not have added income, which was rightly deleted by the CIT(A) as well as the Tribunal. It is settled law that suspicion, howsoever strong cannot take the place of legal proof. Consequently, no question of law, much less a substantial question of law, arises for adjudication.- C. Vasantlal & Co. vs. CIT (1962) 45 ITR 206 (SC), M.O. Thomakutty vs. CIT (.1958) 34 ITR 501 (Ker)) and Mukand Singh vs. Sales Tax Tribunal (1998) 107 STC 300 (Punjab) relied on; Umacharan Shaw &Bros. vs. CIT (1959) 37 ITR 271 (SC) Applied; Jaspal Singh vs. CIT (2006) 205 CTR (P & H) 624 distinguis....