TaxTMI 
TaxTMI 
2021 (1) TMI 559
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....to the interest of revenue to the extent of not examining some issues. As agreed by both the parties we are disposing off all these appeals through this common order for sake of convenience and brevity. 3. With regard to ITA. No.632, 634, 635 and 637/Ind/2019 similar grounds are raised by the four assessee(s) and therefore the grounds raised by Shri Aditya Mundra in ITA. No.632/Ind/2019 are reproduced below:- 1. The order passed by the Ld. PCIT is illegal and bad in law and hence be set aside. The Ld. PCIT has erred in passing the order u/s 263 on the ground that the order passed by the Ld. AI.O. is erroneous and prejudicial to the interest of the revenue. It was proved before the Ld. PCI'T that the assessment was framed after due scrutiny of facts and after verification of the details. In para 3 the Ld. A.O. discussed about the long term capital gains and observed that after taking into consideration the details submitted by the assessee and the explanations offered the assessment is completed. Complete papers with the details of sale/purchase of shares with copy of the brokers account were furnished. After verification and detailed scrutiny the L....
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....s; 263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, 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, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation 1.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer confer....
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....unity 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. 8. It is well settled law that for invoking the provisions of section 263 of the Act both the conditions that the assessment order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts. 9. Hon'ble Jurisdictional High Court of Madhya Pradesh in the case of H.H. Maharaja Raja Power Dewas (1983) 15 Taxman 363 in para 10 of this order held that "However, the first argument, viz., that an assessment order without compliance with the procedure laid down in section 144B is erroneous but not prejudicial to the interests of the revenue conferring revisional jurisdiction on the Commissioner under section 263(1), has force. Under section 263(1) two pre-requisites must be present before the Commissioner can exercise the revisional jurisdiction conferred on him. First is that the order passed by the ITO must be erroneous. Second is that the error must be such that it is prejudicial to the interests of t....
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.... by assessee and accepted same - Commissioner under section 263 held that said amount was not connected with agricultural activities and was liable to be taxed under head 'Income from other sources' - Whether, where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263(1) was justified - Held, yes 11. Hon'ble Gujarat High Court in the case of Smt. Minalben S. Parikh - [1995] 215 ITR 81 - order pronounced on 17.10.1994 - Para 12 - "From the aforesaid, it can well be said that the wellsettled principle in considering the question as to whether an order is prejudicial to the interests of the revenue or not is to address oneself to the question whether the legitimate revenue due to the exchequer has been realised or not or can be realised or not if his orders under consideration are allowed to stand. For arriving at this conclusion, it becomes necessary and relevant to consider whether the income in respect of which tax is to be realised, has been subjected to tax or not or if it is subjected to tax, whether it has been subjec....
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....e following broader principle to judge the action of the Commissioner of Income-tax taken under section 263. (i) The Commissioner of Income-tax must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled. (ii) Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it was only when an order is erroneous that the section 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 Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax does not agree. If cannot be treated as erroneous order, unless the view taken by the Assessing Of....
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....ue, if the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; 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. 16. The above inserted explanation has been discussed and analysed by the Hon'ble High Court of Delhi in the case of ITO V/s D.G Housing Projects Ltd (2012) 20 Taxman.com 557 and was subsequently considered by this Tribunal in the case of Rakesh Khandelwal 65 ITA No.204 of 2019 order dated 29.1.2020 observing as follows:- "Therefore, it is not the case where there was no enquiry at all by the A.O. The assessee had furnished certain evidences, which the assessing officer has gone through. There is no dispute that the Ld. Principal CIT can exercise the rev....
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....is able to establish and show the error or mistake made by the A.O. making the order unsustainable in law. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the A.O. had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the A.O. who conduct further enquiries without a finding that the order is erroneous finding that order is erroneous the condition or requirement which must be satisfied for exercise of jurisdiction u/s 263 of the Act. In such matters, to remand the matter/issue to the A.O. would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the A.O. to decide the aspect/question. The Hon'ble Court further held that this distinction must be kept in mind by the CIT while exercising jurisdiction u/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 jurisdi....
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....rinciples referred above in para 13. Tenth principles would be that "the PCIT/CIT before holding the order of the AO as erroneous and prejudicial to the interest of revenue should examine the issues at its end by way of conducting necessary enquiries/investigation and verify the issue/transaction and give a finding on merit". 18. Now we proceed to examine the facts of the instant case in the light of the ratio laid down by Hon'ble Courts so as to examine firstly whether the assessment order passed by the Ld. A.O is erroneous in nature and secondly whether it is prejudicial to the interest of revenue. 19. We will first take up ITA No.632, 634, 635 & 637/Ind/2019 wherein Ld. PCIT has set aside the orders of the Ld. A.O to have not examined in detail the transaction of Long Term Capital from sale of shares of scrip of M/s Kappac Pharma Limited alleged to be a penny stock company in order to ascertain the true facts of the case. 20. Since the issue raised and facts under consideration in all the four appeals are same as agreed by both the parties, we will take up the facts of Shri Aditya Mundra in ITA No.632/Ind/2019 for adjudication and our decision shall be applicable mu....
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....sees have taken bogus entries of LTCG and shares at premium through broker of Kalkatta to various persons. The A0, has despite specific input, accepted the capital gain claimed without verification. In the light of entire facts discussed above, I am of the considered view that the assessment order passed u/s 143(3) on 22.12.2016 for the A.Y. 2014-15 in your case is erroneous as well as prejudicial to the interest of revenue, which requires to be revised u/s 263. However, before 1 proceed to invoke the powers u/s 263 and pass an appropriate order, I deem it proper to give you an opportunity of being heard in the matter. 22. The assessee duly replied to the above show cause notice submitting as follows:- The assessee is earning income from Job work of engineering/vehicle parts in the name of his proprietary concern M/s Aditya Engineering and salary from M/s Gangotri Flexitubes Pvt. Ltd. Besides this he earns income from rent, capital gain and interest income during the year under assessment. He is regularly assessed to tax since A. Y.1993-94. The assessee has sold 5000 shares of Kappac Pharma Limited on 4/02/2014 & 05/03/2014 for Rs. 25,06,906/- and Rs. 10,67,039....
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....ies with regard to the transaction of Long Term Capital Gain and thus held that the assessment order dated 22.12.2016 issued u/s 143(3) of the Act as erroneous and prejudicial to the interest of revenue observing as follows :- 3.5 In view of the above findings of Investigation Wing, there was no reason for the AO to accept the Long Term Capital Gains of the assessee as genuine and exempt LTCG without carrying out the enquiries regarding the nature of security trade by the assessee and verification from seller, buyer and operators as brought by the Investigation Wing. The AO has not carried out any of above enquiries before the passing of order. The case was required to be examined from all the angles including value of the above Scrip KAPPAC PHARMA LTD and the value at which profits were claimed to have received. The AO has ignored the various aspects which are required to be investigated in case of penny scrips while passing the order and has not made enquires which ought to have been made, thereby making the order erroneous and prejudicial to interest of revenue. 3.6 In several decisions of the Tribunals, High Courts and the latest judgment of the Apex Court, it....
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....nd explanation were filed along with the bank statements, the copy of the brokers account for purchases and sale, and the details of security transactions payments. It was further submitted that the shares were transferred in the name of the assessee. On the sale of the shares the consideration was received through banking channel. The purchases of shares were duly reflected in the statement of affairs. After considering all these documents the Ld. A.O. accepted the profits on sale of share and in para 3 he observed as under: "During the course of assessment proceeding the assessee asked to explained about capital gain on sale of share. In connection with long term capital gain assessee submitted in writing that long term capital gain on sale of shares is exempted u/s 10(38). Also enclosed with written reply details of sale/purchase records along with copy of account of the brokers., it is further stated that the assessee has purchased 5000 shares of Kappac Pharma Ltd. on 26/06/2012 for Rs. 60,000/- and the same has been sold on 24/02/2014 and 05/03/2014 for Rs. 25,06,906/- and Rs. 1,067,039/-. The assessee has held such shares more than 12 months and as such the same is a....
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....eration received on the sale of shares together with the fact about the payment of security transaction tax conclusively proved that the transaction is genuine. The claim of the assessee is accepted after considering all the facts. The report of the Investigation Wing is general and the name of the assessee has not been specifically mentioned. Under these circumstances, the order cannot be said to be erroneous. It is humbly submitted that the assessment order is neither erroneous nor is prejudicial to the interest of the revenue and as such the action u/s 263 is bad in law. In this connection we would like to draw your honours kind attention to the various High Court judgments which are as under:- CIT V/s. Govindram Sakseria Trust 166 ITR p.580 (MP) CIT V/s. Ratlam Coal Ash Co. 171 ITR p.141 (MP) CIT V/s. A.K. Timber 177 ITR p.486 (Punjab) CIT V/s. Gabriel (India) Ltd. 203 ITR p.108 (Bom.) CIT V/s M/s Max India Ltd 295 282 CIT V/s DLF Power 329 ITR Pg. 289 (Delhi) CIT V/s Krishna Capbox 372 ITR 310 (All.) Om Prakash Badaya V/s Pr. CIT (ITA No.217/JP/2020 dated 19.11.2020 (Jaipur-Tribunal) 26. Per co....
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.... having specific input accepted the capital gains claim without verification. 29. Now to examine this issue we will first go through the assessment proceedings. We find that Ld. A.O vide letter dated 25.2.2016 issued notice u/s 143(2) of the Act and in the Annexure to this notice 16 informations were called for. In this annexure at Serial No.1 the Ld. A.O has asked for the complete details of the income relevant to Assessment Year under consideration along with evidences also furnish income claimed exempt under Chapter VI-A. At Point No.6 of the annexure the Ld. A.O asked assssee to provide the "details of any FDs, Debentures, Shares or any other investments made in your name or joint name. Also furnish the source of such investment". In reply to this notice dated 25.5.2016 assessee filed its written submission on 03.08.2016 providing various details. Thereafter on 11.12.2016 another reply was submitted which was included the information relating to the transaction of sale of share of Kappac Pharma Limited and relevant Para No.1 of the letter dated 11.12.2016 is mentioned below:- As regards, long term capital gain on shares, it is humbly submitted that the Long Term ....
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.... same has been sold on 24/02/2014 & 05/0312014 for Rs. 25,06,906/- and Rs. 1O,67,039/- respectively totalling Rs. 35,73,945/-. The assessee has held such shares more than 12 months and as such the same is a long term capital assets. The share duly listed on stock exchange and Security Transaction has also been charged. In view of the above submissions, the long term capital gain arise on transfer of share is exempted u/s 10 (38) of Income Tax Act, 1961. Reply submitted by the assessee is examined with records produced for verification. During the year as per return filed by the assessee he has shown return income at Rs. 11,60,010/- + Agricultural income for Rs. 10,000/_. After taking into consideration, the details submitted by the assessee, and the explanation offered by him, the assessment completed as under:- 32. During the course of hearing Ld. Counsel for the assessee also submitted the details of price of equity shares as on the date of purchase which has been downloaded from Business Stock Exchange Ltd from the "Section search historical data". We find that the off market purchase made by the assessee is at Rs. 12/- per share which is similar to the price of the ....
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....the broker is posted at Ahmedabad. Ld. PCIT has also not rebutted the fact that the purchase and sale consideration were carried out at fair market value as appearing on the portal of recognized stock exchange which is under the control of government authorities. There is no enquiry with regard to the company Kappac Pharma Limited and the observation in the notes issued by Ld. PCIT are "general" in nature and there is no specific enquiry conducted by Ld. PCIT. 37. On the other hand all the relevant documents to prove the purchase and sale were before the Ld. A.O. Purchases were at the fair market value at Rs. 12/-. Sales have been effected through registered broker after payment of security transaction tax and sold at the prices appearing at the recognized stock exchange. Merely observing that the prices of the equity shares have been increased drastically cannot be a evidence in itself to treat the transactions as bogus. There are number of incidences where the share prices of certain listed companies increased drastically but that all depends on demand and supply of the equity share, perception of its growth and the market sentiments. Unless and until the company of which the ....
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.... pick and choose. 40. Under these given facts and circumstances the enquiries conducted by the Ld. A.O are fair and justified and in our view this is a detailed case of enquiry conducted by the Ld.A.O and not the case of no enquiry. Plethora of judgments asserts this view and in light of decisions referred herein above it is a clear case that since the Ld. A.O has conducted sufficient enquiry as required and the transactions have been carried out at a fair market value, the contention of the Ld. Departmental Representative will not stand that the Ld. A.O has not adhered to the instructions issued by DIT(Systems). This fact is further fortified with the detailed observation of the Ld. A.O appearing in the body of the assessment order and Ld. Departmental Representative also could not controvert this fact that no separate enquiry/investigation was carried out by Ld. PCIT before setting aside the order of Ld. A.O and his decision was mainly based on the information received by the department in some other case. Ld. PCIT has not made any efforts at its own to conduct the enquiry in order to verify the genuineness of the transaction and has not given any finding on merit. 41. Hon'....
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.... and also heavily relied upon the amendment made in the law. We find that the coordinate Bench of this Tribunal in the case of ITO vs. Shri Narayan Tatu Rane(supra) , M/s. Arun Kumar Garg, HUF, vs. Pr. CIT(supra) have ruled that the Pr. CIT can not pass the order ix] s 263 of the Act on the ground that thorough enquiry should have been made by the Assessing Officer. In the present case the assessing officer had given a specific notice regarding the disputed transactions and the assessee also gave specific reply to the show cause notice issued by the assessing officer. Therefore, it is not a case where the assessing officer has not made any enquiry regarding impugned transactions but the Ld. Pr. CIT invoked the provisions of section 263 of the Act on the ground that the enquiry was not made in the manner, it ought to have been done. In the light of the ratio laid down in the judgment of the Hon 'ble Delhi High Court in the case ITO vs. Dg Housing Projects Ltd. (supra) and other decisions of the Coordinate Benches of this Tribunal i.e. ITO vs. Shri Narayan Tatu Rane(supra) , M/s. Arun Kumar Garg, HUF, vs. Pr. CIT(supra). In our considered view Ld. Pr. CIT himself ought t....
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....n ITA No. 634, 635 & 637/Ind/2019 are allowed. 48. Now we take up remaining two appeals in the case of M/s Dhirendra International Pvt. Ltd (ITA No.750/Ind/2019) and M/s Charitra Gold Pvt. Ltd (ITA No.517/Ind/2019) wherein also assessee(s) have challenged the action of Ld. PCIT assuming jurisdiction u/s 263 of the Act. In both these cases Ld. PCIT has directed the Ld. A.O to examine the issue of valuation of equity shares allotted during the year and the application of rule 11 UA(b) of the Income Tax rules. As agreed by both the parties since similar issues has been raised the same can be decided on the basis of the facts in the case of M/s Dhirendra International Pvt. Ltd in ITA No.750/Ind/ 2019. 49. Brief facts of the case as culled out from the records and as narrated by the Ld. Counsel for the assessee are that the assessee is a limited company deriving income from processing of agricultural produce. The return was filed declaring income of Rs. 15,75,110/-. The case was selected for scrutiny and the assessment was completed u/s 143(3) on 22.12.2016 on the total income of Rs. 29,12,610/- by making the additions of Rs. 13,37,500/- on account of the share premium received in....
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....erated the reasons given in the notice and came to the conclusion that the books of accounts are neither audited nor approved in the AGM and as such the Fair market value of the shares has been worked out without fulfilling the mandatory condition as laid down under Rule 11 UA. He therefore, set aside the assessment order, being erroneous and prejudicial to the interest of the revenue. 51. Now the assessee is in appeal before the Tribunal. 52. Ld. Counsel for the assessee vehemently argued referring to following written submissions which are reproduced below:- It is humbly submitted that since the assessment has been framed after due verification of the facts and material on record, the action u/s. 263 is bad in law. The Ld. A.O. has raised a specific query about the provisions of section 56(2)(viib) and also required the computation of fair market value of shares as per Rule 11 UA. The detailed calculation of value of shares with the Balance Sheet was filed for determining the value of shares as on 14.10.2013. The shares were valued as per Rule 11 UA as per the Balance sheet. The said valuation was provided to the Ld. A.O. during the course of the assessment. After ....
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....issions. It is humbly submitted that the assessment order is neither erroneous nor is prejudicial to the interest of the revenue and as such the action u/s 263 is bad in law. In this connection we would like to draw your honours kind attention to the various High Court judgments which are as under:- CIT V/s. Govindram Sakseria Trust 166 ITR p.580 (MP) CIT V/s. Ratlam Coal Ash Co. 171 ITR p.141 (MP) CIT V/s. A.K. Timber 177 ITR p.486 (Punjab) CIT V/s. Gabriel (India) Ltd. 203 ITR p.108(Bom.) 53. Ld. Counsel for the assessee also submitted that the issue of valuation of equity shares allotted to the assessee during the year and its valuation as per rule 11 UA of the Income Tax Rules was very much under consideration by the Ld. A.O since a specific query was raised and the detailed reply was filed by the assessee. Ld. A.O has thoroughly examined the valuation on the basis of unaudited balance sheet as on 14.10.2013 filed during the course of assessment proceedings and also made the addition of Rs. 13,37,500/-. However, when Ld. PCIT issued the show cause notice u/s 263 of the Act the audited balance sheet as on the date of allotment of s....
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.... of huge order book, dedicated work force, large range of satisfied customers, ambitious expansion plan, good will etc. After considering the reply of the assessee in this regard, fair market value of shares as on 15.10.2013 is hereby taken at Rs. 95/- per share. Increase in fair market value from Rs. 91.69/- as determined under Rule 11UA to Rs. 95/- is made considering the claim of tangible and intangible assets of the company mentioned above. 10. In view of above discussion, it is clear that share premium taken by the assessee company is more than fair market value of the shares allotted on 15.10.2013. The assessee has made allotment of 2,67,500 shares at a rate of Rs. 100/- per share. Considering excess premium of Rs. 5/- per share, addition of Rs. 13,37,500/- is hereby made u/s 56(2)(viib) of the Income Tax Act, 1961. As the assessee has furnished inaccurate particulars of its income, penalty proceedings u/s 271(1)(c ) of the Income Tax Act, 1961 are also initiated. 56. After giving above finding Ld. A.O made addition of Rs. 13,37,500/-. So from the above it is evident that the issue for which Ld. PCIT has directed the Ld. A.O to re-examine the details has already b....
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....ate of allotment of shares and valuation as per the audited balance sheet placed before Ld. PCIT remains the same. Therefore there is no prejudice or loss caused to the revenue. 60. Under these given facts where the Ld. A.O has conducted necessary enquiry as provided under the Act for the particular issue in question and since there is no change in the income of the assessee even if issue is set aside to the Ld. A.O, the assessment order cannot be held to be erroneous so far as prejudicial to the interest of revenue. Our above view is further supported by following decisions also. a. CIT v/s Ratlam Coal Ash Co. 171 ITR .141 (M.P) An order of assessment was revised by the Commissioner u/s. 263, on the ground that the income tax officer had not made proper enquiries. The order of revision was set-aside by the Tribunal because it was found that the assessee had furnished requisite information and the income tax officer had completed the assessment after considering all facts. Held, that the Tribunal was justified in Law reversing the order of the Commissioner u/s. 263. b. CIT V/s A.K. Timber 177 ITR p.486 (Punjab): The Income Tax Officer....