TMI Blog2013 (2) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... icial to the interest of the revenue. Nothing more is required to be established in such a case. Adverting to the facts of the present case, there is no enquiry by the AO as he just accepted the claim of set off of earlier year unabsorbed depreciation in the assessment year under consideration. The argument of the assessee that there are decisions in favour of the assessee. Therefore, the view adopted by the AO is one of the possible views. The general law on the question of revisional jurisdiction is that an order passed by the AO cannot be held to be erroneous, if the AO has followed one of the possible views on the subject. But in this case the AO not adopted any view on the issue raised by the CIT. Further, the assessee's counsel harped upon that the bonus shares of 56,400 were allotted to the assessee in relation to original equity shares of 28,200 and 14,408 bonus shares were allotted with regard to original shares held by the assessee at 8,209. In support of this, the assessee filed a letter dated 27th November, 2012 from Megasoft Ltd., Chennai. Carefully going through the arguments as well as contents of the letter from Megasoft Ltd. & comparing this letter with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by assessing officer calling for the details of dates of acquisition of shares. 6. The ld. CIT erred in holding that the assessing officer omitted to examine the dates of acquisition of shares held by the appellant, while the shares were held by the appellant for more than a year, which is evident from the details filed on record. 7. The ld. CIT is not correct in holding that the assessing officer confirmed that No Demat Account had been filed by the assessee company and that the assessment was completed under scrutiny without bringing on record evidence of date of acquisition of shares. 8. The ld. CIT further is not correct in holding that exemption of capital gains was granted to the appellant u/s 10(38) of the act, without the information of date of acquisition of shares. 9. The ld. CIT failed to note that assessing officer allowed exemption based on the evidence of Demat account date of acquisition of shares and particulars of sale transaction of shares under securities transaction tax (STT). 10. The ld. CIT is not correct in holding that no evidence for receipt of dividends to claim exemption u/s. 10(34) of Act was filed by the appellant. Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the CIT assumed the jurisdiction u/s. 263 of the I.T. Act. 1961, he had issued a notice, setting out the grounds of error and prejudice and calling upon the assessee to show cause as to why the assessment should not be revised or set aside. The grounds of proposed revision were as under. (i) The assessee had claimed exemption u/s. 10(38) of the I.T Act in respect of Long Term Capital Gains of Rs. 2,41,99,132 on transfer of equity shares of companies and units of equity oriented mutual funds. The Assessing Officer had omitted to examine the dates of acquisition of these shares and units. No questionnaire was issued by Assessing Officer calling for the details of dates of acquisition. There is no order-sheet entry or other correspondence available on record indicating that the dates of acquisition of shares and units were examined or considered. (ii) Demat accounts for the years in which shares and units were acquired and also for the financial year 2005-06 were neither called for nor furnished by the assessee. The Assessing Officer has confirmed that no such Demat accounts had been filed by the assessee, that he had completed the scrutiny assessment without bringing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n being nil). The sale consideration in respect of 20 bonus shares works out to Rs 8,945.43 (cost of acquisition being nil). Hence, the total sale consideration in respect of 800 bonus shares works out to Rs. 3,57,817/- [Rs. 3,48,872 + 8,945]. The record date mentioned in this letter is 31.01.2005. The date of credit of bonus shares to the Demat A/c of the assessee has been stated as 01.03.05. The date of sale of the bonus shares is admittedly 26.08.05. Hence, the duration of holding of bonus shares is evidently less than one year i.e., the minimum period necessary for characterizing the transaction as 'Long Term Capital Gain'. Hence, the amount of Rs. 3,57,817/- is evidently 'Short Term Capital Gains'. But the assessee has erroneously included it in the Long Term Capital gains exemption of claim of Rs. 2.41 crores. The authorized representative has conceded this point (vide order-sheet noting dated 07.03.2011. Hence, the Assessing Officer is directed to bring the said amount of Rs. 3,57,817/- to tax. (ii) Another equity transaction of the assessee which was taken up for in-depth enquiry and examination pertains to Visual Soft Technologies Limited. Along with the return filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares allotment letter in respect of rest of the bonus shares i.e., 56.400. Despite several opportunities given to the assessee by the CIT, the assessee could not produce evidence of bonus allotment letter from Visual Soft Technologies Limited in respect of alleged 56,400 bonus shares i.e., in addition to allotment letter. The authorized representative submitted that the relevant evidence has been lost. In this context, the past assessment records, going back to the asst. year 2001-02, were called for and examined with regard to the Visual Soft Technologies Limited equity. There is no dispute that the year of allotment of bonus shares of Visual Soft Technologies Limited was financial year 2000-01 relevant to the asst. year 2001-02. As on 01.04.2000 the assessee was in possession of 50,100 shares of Visual Soft Technologies Limited, valued by the assessee at Rs. 70,27,453/-. Admittedly, there were absolutely no bonus shares in these 50,100 shares as on 01.04.2000. Along with the return filed by the assessee for the A.Y. 2001-02 on 31.10.2001, the assessee had enclosed 'Annexure-II' containing particulars of Long Term Capital gains which, inter alia, recorded sales of shares of Visual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt letter of Visual Soft Technologies Limited which had allotted only 16,418 bonus shares. The serious discrepancies were communicated to the assessee vide his letter dated 18.03.2011. The assessee AR miserably failed to furnish any rational, convincing and acceptable explanation. The contentions canvassed by the assessee are only two - viz., (i) that the figure of bonus shares in the assessees Demat Account maintained with Karvy are 16.418 + 56.400. A letter was addressed to Karvy Stock Broking limited Hyderabad calling for relevant information u/s 133(6) of the I.T Act i.e.: relating to Visual Soft Technologies Limited in the case of the assessee. The reply received from Karvy reiterated the assessee's version without throwing illuminating light on the evident discrepancy. In the course of the proceeding before the CIT, the Sr. Manager Sri V Seetharam was summoned u/s 131 of the IT Act. He appeared and narrated the version of the assessee orally. A question was put to Sri V Seetharam as to how the entire alleged bonus shares i.e., 72,818 could be credited in the Karvy Demat A/c when the balance in the said Demat A/c with Karvy as on 14.08.2000 is only 8,209 shares of Visual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee must have purchased the shares and not disclosed the same to the Department. It is the matter on record that the assessee's premises had been covered under search operation in 1998- 1999. (ii) It is the claim of the assessee that it has sold 60,000 bonus shares during the asst. year under consideration. Out of these 60.000 alleged bonus shares, 56,400 happen to be the alleged bonus shares for which the assessee has no evidence and the only rational inference possible is that these 56,400 shares must have been purchased by the assessee with undisclosed investment. That would leave 3600 genuine bonus shares. At the rate of sale consideration admitted by the assessee, the sale value of 3600 bonus shares would be Rs 7,05,204. The Assessing Officer is directed to treat this amount as genuine claim on Long Term Capital gains and to allow the same as claimed after verifying the STT payment in the original document. The total sale consideration admitted by the assessee is Rs 1,17,53,414/-. After deducting Rs 7,05,204/-. The balance sale consideration will be Rs. 1,10,48,210. This would apparently relate to the alleged bonus shares of 56,400 which are unproved. The market value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompleting the original assessment, the Assessing Officer had not at all enquired into the issues stated in the show-cause notice. He had mechanically completed the assessment on the erroneous assumption of the correctness of the assessee's claims of exemptions and deduction. He had not called for the relevant evidence regarding dates of acquisition of shares, nor the relevant Demat A/c. Etc. These serious omissions on his part have rendered the assessment not only erroneous but also prejudicial to the interest of revenue in the light of the decision of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs. Addl. CIT and others 99 ITR 375 (Delhi) as well as in the light of the decision of Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd. vs. CIT (109 Taxman 66). It is pertinent to extract the relevant portion of the land mark Judgment of Hon ble Apex Court as under "An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous In the same category fall orders passed without applying the principles of natural justice or without application of mind. xxxx The scheme of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate that the assessee did not file required details relating to the date of acquisition of shares and other details. The Assessing officer was satisfied with the information filed and based on the above information assessment was completed u/s. 143(3) of the Act and the findings of the Assessing Officer are as follows: "In response to the notice and questionnaire issued, the Authorised Representative of the assessee, Shri A. Prakash, Accounts Manager attended from time to time and filed information called for Books of account produced were verified. After examination of information furnished and considering submissions made by the assessee, the assessment is completed as under: It is observed from the profit and loss account that the total income derived from various activities amounts to Rs. 2,63,87,772 out of which Rs. 2,50,99,222 is claimed as exempt income from sale of shares and mutual funds and receipts of dividends. However, the assessee has claimed personal and administrative expenses of Rs. 1,29,487 + Rs. 9,40,187 respectively. This expenditure is in relation to both the activities of earning of taxable incomes and exempt incomes as claimed by the assessee. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... originally allowed. It is settled law Revision u/s 263 of the does not survive where directions are given for examination and investigation of the issues. Revision Order is highly arbitrarily and made on presumption conjectures and suspicion and therefore is required to be vacated and cancelled. 16. The AR submitted that as regards to exemption of long term capital gain on sale of Bonus shares of Visual Soft, the Assessee had filed Statement of acquisition of shares along with the return of Income Vide Page 12 to 21 of the Paper Book. Further Assessee filed copies of Invoices/Brokers Contract Notes and Demat Accounts in respect of sale of the above shares in the Original assessment Proceedings vide letter dated 10.9.2008 Pages 1 to 5 of the Paper Book. From the perusal of Demat Account (Paper Book pages 40-42) maintained by the Assessee company with M/s. Karvy Share Broking Ltd filed on record during Original Assessment Proceedings it may be noted the Demat Account disclosed Bonus shares of Visual Soft received by the Assessee in Sept 2000. 17. The AR submitted that the Assessee was holding originally, equity shares of Visual Soft Technologies Ltd since 1998. At the time of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act. In the above facts and circumstances, allegation of ld CIT that the assessee Company did not file details of acquisition of Bonus shares and sale of Bonus shares is not correct. 19. The AR submitted that in the course of Revision Proceedings the ld CIT made investigation in depth in respect of Sale of Bonus shares and period of acquisition of such shares with references to transactions recorded in Demat Accounts right from 1st January, 1998 to 31st March, 2006 with M/s. Karvy Stock Broking Limited wherein 72818 Bonus Shares were found credited having received by the assessee company in Sept 2000. He further submitted that out of 72,818 Bonus shares, credited in the Demat Account with M/s. Karvy Stock Broking Ltd in respect of 56,400 Bonus shares entry was made under Caption "Corporate Action". As required by the ld CIT the assessee though provided clarification in respect of Caption "Corporate Action" that the same represented credit in respect of Bonus shares from body Corporate and such Caption "Corporate Action" is commonly used under Commercial terms. The ld CIT required further clarification and confirmation on this Caption "Corporate Action" from M/s. Karvy Stock Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on initiated by the ld CIT u/s. 263 of the Act is highly arbitrary presumptuous and requires to be vacated. 22. The AR further submitted that in the Revision Proceedings the ld CIT again interfered with the method and computation of expenditure determined by the Assessing Officer in the original assessment for disallowance u/s. 14A of the Act. The Assessing Officer segregated taxable income and the exempted income as per the CBDT circular dated 24.3.2008 and determined the expenditure to be disallowed u/s 14A of the ITA Act in respect of exempted income at Rs. 3.66 lakhs. 23. The AR submitted that for disallowance of expenditure on exempted income u/s 14A of the Act Revenue has to establish that the expenditure sought to be disallowed is based on evidence and not on adhoc or estimate basis. Further disallowance of expenditure as required to be made in accordance with Rule 8D of the IT Rules which is effective from 24.3.2008 and applicable from the assessment year 2008-2009 as held by the Hon'ble Bombay High Court in the case of Godrej Co. (328 ITR 81). The assessment under consideration since is related to the Assessment year 2006-07, actual expenditure incurred only is require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be the basis for an action under section 263. The order of revision was not justified. (d) CIT vs. Gabriel India Ltd (203 ITR 108) (Bom). The decision of the AO could not be held erroneous simply because in his Order he did not make an elaborate discussion. The CIT after initiating 263 proceedings he could not state about the expenditure. CIT simply asked the AO to re-examine the matter that was not possible. IT AT was right in setting aside the Order u/s 263 of the Act. (e) Kshatriya Girls School Managing Board vs. CIT (1999) [(151 CTR (MAD) 204]: Exemption granted u/s. 19(22) for earlier and subsequent years Revision Orders not valid. (f) Ramakanth Singh vs. CIT 137 TTJ (PAT) 67 AO examined books of account details and explanation were given by the assessee and hence cannot be said that no enquiry was made by AO. It can be case a of inadequate enquiry which does not permit action u/s 263 of the IT Act. (g) CIT vs. Smt. D. Valliammal (230 ITR 695) (Mad): CIT set aside the Order for verification of accounts - Order not valid. (h) Piem Hotels Ltd. vs. Dy CIT (135 TTJ 228) (Mum): Merely because according to the CIT AO has not examined as to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry. The evidence available on record is not enough to hold that the return of the assessee was objectively examined or considered by the Assessing Officer. It is because of such non-consideration of the issues on the part of the Assessing Officer that the return filed by the assessee stood automatically accepted without any proper scrutiny. The assessment order placed before us is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee. The Assessing Officer has completely omitted to examine the issues in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order on the issues herein. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order considering the issues raised by the CIT. In our view, the assessee should have no grievance in the action of le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is that the view so taken by the Assessing Officer without making the requisite inquiries or examining the claim of the assessee will per se be an erroneous view and hence will be amenable to revisional jurisdiction under Section 263. Second reason is that it is not taking of any view that will take the matter under the scope of Section 263. The view taken by the Assessing Officer should not be a mere view in vacuum but a judicial view. It is well established that the Assessing Officer being a quasi-judicial authority cannot take a view, either against or in favour of the assessee / revenue, without making proper inquiries and without proper examination of the claim made by the assessee in the light of the applicable law. As already stated earlier, we are not able to appreciate on what material was placed before the Assessing Officer at the assessment stage to take such a view. The assessee has also not been able to lead enough evidence to show to us that any inquiry was made by the Assessing Officer in this regard. Therefore mere allegation that the Assessing Officer has taken a view in the matter will not put the matter beyond the purview of Section 263 unless the view so take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficult to comprehend as to how the Assessing Officer can be attributed to have "adopted" a permissible course of law or "taken" a view where two or more views are possible when the order passed by him does not speak in that behalf. We cannot assume, in order to provide legitimacy to the assessment order, that the Assessing Officer has adopted a permissible course of law or taken a possible view where his order does not say so. The submissions made by the learned Counsel, if accepted, would require us to form, substitute and read our view in the order of the Assessing Officer when the Assessing Officer himself has not taken a view. It could have been a different position if the Assessing Officer had "adopted" or "taken" a view after analysing the facts and deciding the matter in the light of the applicable law. However, in the case before us, the Assessing Officer has not at all examined as to whether only one view was possible or two or more views were possible and hence, the question of his adopting or choosing one view in preference to the other does not arise. The aforesaid observations do not, in our view, help the assessee; and rather they are against the assessee. 31. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prevented the Commissioner from revising the erroneous order passed by the Assessing Officer, which was prejudicial to the interest of the revenue. In fact, such a course would be counter-productive as it would have the effect of promoting arbitrariness in the decisions of the Assessing Officers and thus destroy the very fabric of sound tax discipline. If erroneous orders, which are prejudicial to the interest of the revenue, are allowed to stand, the consequences would be disastrous in that the honest tax payers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of Section 263. 33. Adverting to the facts of the present case, there is no enquiry by the Assessing Officer whatsoever on the issue in dispute. He just accepted the claim of set off of earlier yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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