TaxTMI 
TaxTMI 
TaxTMI 
2021 (1) TMI 559
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....ot 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 Ld. A.O. framed the assessment and as such the same cannot be treated....
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...., 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 conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Directo....
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....aw 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 the revenue. If the order is erroneous but it is not prejudicial to the interests of the revenue, the Commissioner cannot exercise the revisional powers under section 263(1).There cannot be any prejudice to the revenue on accoun....
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....sing 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 subjected to tax at a rate at which it could yield the maximum revenue in accordance with law or not. If income in question has been taxed and legitimate revenue due in respect of that income had been realised, though as a result of erro....
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....cial 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 Officer is unsustainable under law. (vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the Commissioner of Income-tax, while exercising his pow....
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....tion 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 revisionary jurisdiction u/s 263 of the Act. If he considers that any order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue. Explanation (2) to section 263 of the Act further clarifies that an order passed by the A.O. shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue,....
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....e. 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 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 A.O., who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry. The order of the A.O. may be or may not be wrong. CIT cannot direct reconsideration on this gr....
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....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 mutandis mutandis to other three assessee(s) namely Shri Govind Das Mundra (ITA No.634/Ind/2019), Manish Mundra (ITA No.635/Ind/ 2019) and Shri Manoj Mundra (ITA No.637/Ind/2019). 21. Brief facts of the case as culled out from the records are that the assessee is an individual deriving income from salary, rent, interest and capital gain and agriculture income. The return of income was e-filed dec....
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....e, 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/- 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. The long term capital gain arise on transfer of share is exempted u/s 10 (38) of Income Tax Act, 1961 the same may please be accepted. As regards, date of purchase of shares, it is humbly submitted that th....
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....ught 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 has been held that in case of Long Term Capital Gains from trading in shares of penny stock companies, the enquiries from all the angles including real. value of the scrip traded are to be carried out from brokers, operators promoters and stock exchange before allowing the same as genuine exempt Long Term Capital Gains, which has not been done in present case. 3.7 In view of the above, the AO is required to examine this issue in detail in order to ascertain the true state of the facts. As discussed above, the assessment order is erroneous and prejud....
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....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 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 T ox Act, 1961. Reply submitted by the assessee is examined with records produced for verification. " Subsequently, the Ld. PCIT issued a notice to invoke the provision u/s 263 with the reasons that the Investigation Wing, Bhopal has informed that large number of assessee's have taken bogus entries of LTCG. Thus, the A.O. has despite specific input has accepted the capital gains without verific....
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....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 contra Ld. Departmental Representative vehemently argued and apart from relying on the finding of Ld. PCIT in the impugned order u/s 263 of the Act, also referred to the information filed in the paper book before us on 22.10.2020 and submitted that as per i-taxnet of A.O, EFS instruction No.53 dated 08.03.2016 and Instruction No.54 dated 21.03.2016 uploaded by Director of Income Tax (System), New Delhi regarding information related to penny stock is made available to AO by way of adding a new button in the name of penny stock which is added on individual transaction screen (ITS) of ITD system of AO which can be utilized by the AO to scrutinize the cases selected under CASS. Ld. Departmental Representative also submitted that....
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....vestment". 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 Capital Gain on sale of shares is exempted u/s 10 (38). We are enclosing herewith sale purchase records along with copy of account of the brokers for your kind perusal. In this connection, it is further humbly submitted that the assessee has purchased 5000 shares of Kappac Pharma Limited on 26/06/2012 for Rs. 60,000/- and the same has been sold on 24/02/2014&05/03/2014 for Rs. 25,06,906/- and Rs. 10,67,039/- 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. '_ 2. In view of the above submissions, the long term capital gain arise on transfer of share i....
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....lanation 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 Kappac Pharma Limited at National Stock Exchange on the very same date. 33. So from the perusal of the above we observe that the Ld. A.O has raised specific query about the exempt income earned by the assessee, specific reply along with of relevant details were filed by the assessee and complete particulars were placed on record and Ld. A.O after going through these submissions have duly noted the facts in the assessment order and after being satisfied with the purchase price of the equity shares of listed company which is at fair market price and so is the sale which has been effected on the recognized stock exchange at the price available on that date and also observing that the equity share were purchased from a broker at Ahmedabad and the agent through which ....
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....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 equity shares are being traded is found to be involved in malpractices the financial results are not commensurate with the prices at the NSE/BSE portal and sufficient proofs are available showing the alleged company to be a bogus/penny stock or paper company, one cannot question the genuineness of transactions carried out on the portal of NSE/BSE which are under the control of Securities and Exchange Board of India. 38. Ld. Departmental Representative through the paper book has referred to some instructions issued by the Directorate of Income Tax Systems to all the Assessing Officers which are reflected in the computer system of all the respective Assessing Officers. The basic purpose of the same is that if such transaction is appearing in the Income Tax Return of an assesse....
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.... 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'ble jurisdictional M.P High Court in the case of CIT V/s. Ratlam Coal Ash Co. 171 ITR p.141 (M.P.) held that:- 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. 42. Hon'ble Punjab High Court in the case of CIT V/s. A.K. Timber 177 ITR p.486 (Punjab) held that:- The Income Tax Officer completed assessment u/s.144 and granted registration to the firm. The CIT held that the ITO should have ca....
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....en 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 to have made some enquiry regarding the impugned transactions before setting aside to the file of the assessing officer. Hence, the action of the Ld. Pr. CIT is contrary to the ratio laid down by the binding precedence. We, therefore, hold accordingly, impugned order is quashed. Grounds raised in this appeal are allowed. 45. We therefore in the given facts and circumstances of the case and respectfully following the judgments and decisions referred herein above are of the considered view that since the alleged transaction of sale and purchase of equity share giving rise to the Long Term Capital Gain has been examined by the Ld. A.O in detail by raising specific queries, acknowledging the details filed by the assessee, examining the same with the fair market value and mentioning the observation in the assessment order with a clear ....
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....imited 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 excess of valuation as per Rule 11 UA r.w.s. 56(2)(viib). During the course of the assessment proceeding a notice u/s 143(2) along with a detailed questionnaire was issued with a number of queries. Detailed replies were given vide two letters. The valuation of shares as per Rule 11 UA was made by a Chartered Accountant. The details of valuation of share was given along with the Balance Sheet and P&L A/c as on 14th October, 2013. On the basis of this the share valuation was made and the premium was charged as per the valuation of shares. This value was accepted by the Ld. A.O. while framing the assessment. Complete details of valuation of shares has been reproduced by the Ld. A.O. in the assessment order. After quoting Rule 11 UA and section 56(2)(viib) the Ld. A.O. came to a conclusion that the excess premium of Rs. 5 has been charged for....
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....r 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 considering all the details the Ld. A.O. reproduced the calculations given in the assessment order and held that the share premium received is in excess by Rs. 5 and made the addition of Rs. 13,37,500/-. Once the claim of the assessee is accepted after considering all the facts, the order cannot be said to be erroneous. The audited Balance Sheet and P&L Account as on 14.10.2013 was filed before the Ld. PCIT. The Ld. PCIT did not bother to look into the audited Balance Sheet but merely passed a remark that the same was not filed before the A.O. and was not passed in the AGM. It is humbly submitted that Rule 11 U(b) states "balance sheet in relation to the company means- for the purpose of subrule 2 of Rule 11 UA the balance sheet of the company as drawn up on the valuation date which has been audited by the auditor of the company appointed U/S 224 of the C....
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....n 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 shares i.e. 14.10.2013 was placed before him. There is no change of figures in the unaudited balance sheet as on 14.10.2013 filed before Ld. A.O and the audited balance sheet of even date filed before the Ld. PCIT and thus the valuation of shares as adopted by Ld. A.O remains unchanged and therefore there was no justification in setting aside the issue again to the Ld. A.O. 54. Per contra Ld. Departmental Representative supported the order of Ld. PCIT. 55. We have heard rival contentions and perused the records placed before us. The order of Ld. PCIT framed u/s 263 of the Act in the case of M/s Dhirendra International Pvt. Ltd and M/s Charitra Gold Pvt. Ltd are in challenge before us. The common facts as narrated above are that during the year under consideration asssessee company M/s Dhirendra International Pvt. Ltd allotted equity shares of face value of Rs. 10/- at a share premium of Rs. 100/- per sha....
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.... ) 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 been examined in detail by the Ld. A.O in the first round itself. It is neither the case of no enquiry nor incomplete enquiry. The Ld. A.O has taken one of the permissible view as provided in the law and has completed the assessment. 57. Similarly in the case of assessee M/s Charitra Gold Pvt. Ltd also similar issue was there for which Ld. A.O raised specific query in the notice issued u/s 142(1) of the Act dated 2.11.2016 and at point No.28 following information was called; "from the copy of return of income it has been noticed that you have received share premium of Rs. 26,00,000/-. Please explain as to why no addition be made u/s 56(2)(viib) of the Income Tax Act, 1961 in respect of share premium in excess of fair market value of share on the date of allotment. Please furnish computation of fair market value of shares as per rule 11UA of the Income Tax rules, 1962." 58. The above referred notice issued u/s 142(1) of the Act w....
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....ent 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 completed assessment uls.l44 and granted registration to the firm. The CIT held that the ITO should have cancelled the registration and failure on his part to do so, constituted an error uls.263. Held, if the assessee firm can satisfy the revenue that there was no wilful default, the benefit of continuation of registration may not be denied. In the instant case, the Tribunal was right in law in holding that there was no error in the order of the income tax officer and therefore the commissioner had no jurisdiction uls.263 in respect thereof. c. CIT V/s Gabriel(India) Ltd203 ITE p./108 (Bom.) Held, that the income tax officer had made enquiries in regard to the nature of the expenditure incurred by the assessee, the assessee had given a detailed explanation in that regard by a letter in writing, evidently the claim was allowed by the ITO on being satisfied with the explanation of the assessee. The decision of the income tax officer could not be held to be erroneous simply becaus....