TMI Blog2017 (8) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... ind or not A perusal of the order passed by the Commissioner of Income-tax indicated that the assessment order passed by the Assessing Officer was cancelled on the ground that the Assessing Officer has not made proper enquiry and verification in respect of the issue as discussed above. This, in our considered opinion, cannot be sufficient ground for cancelling the assessment. While making the assessment order, it is the satisfaction of the Assessing Officer who made the enquiry and it should be touchstone of assessment order passed by him. No cogent material or evidence was brought to our knowledge by the learned Departmental representative which may prove that view taken by the Assessing Officer in the case of the assessee was unsustainable in law. Therefore, we are of the view that the order passed by the Commissioner of Income-tax is illegal and without jurisdiction. If the order passed by the Commissioner of Income-tax is sustained then this will permit the illegality to continue and the subsequent action is carried out on the illegal order is also illegal per se. - Decided in favour of assessee. - I. T. A. No. 100/Jab/2016 - - - Dated:- 15-3-2017 - P. K. Bansal (Accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted March 3, 2016 which reads as under: Based on the return of income filed for the assessment year 2011-12 on September 29, 2011 through e-filing declaring a total income of ₹ 5,86,73,246 in your case, assessment was completed under section 143(3) on February 17, 2014 on the total income of ₹ 5,86,73,246. 2. On examination of the assessment records in this case, it is noticed that the Assessing Officer has neither verified nor has applied his mind on the following : 3. The details of purchase of Zee shares were submitted by the trust, shows that 17,00,000 Zee shares were purchased in the period from November 4, 2010 to November 9, 2010 and the same were on cum-bonus basis and sold on November 15, 2010 and November 16, 2010 on ex-bonus basis and the loss of ₹ 26,54,79,866 were set off against the profit of sale of Cebbco shares. The loss of ₹ 26,54,79,866 has been calculated on the purchase value of ₹ 50,38,25,478 as reduced by the sale value of ₹ 23,83,46,612. On further examination of the assessment records, it is noticed that the Assessing Officer has not called for the d-mat account of the trust and its beneficiaries, cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st deed dated September 1, 2009. Thus, it is evident from the above facts, that 17,00,000 Zee shares were purchased and sold in the name of Smt. Asha Gopal Gupta in her individual capacity, loss incurred in sale of these shares cannot be adjusted against the income of the assessee M/s. Jashn Beneficiary Trust. The Assessing Officer has allowed professional and consultancy of ₹ 73,03,812 without any examination. From the photocopies of the bills it is noticed that these expenses were related to due diligence work, project core, success fee, advice and negotiation in pre-IPO sale, preparation of the vendor due diligence report and issue management fee etc. apparently these expenses related to IPO (initial public offer) of Cebbco. Therefore, these should be capitalised in the books of Cebbco. (iii) In the assessment year 2011-12 the trust has shown short- term 'capital gain' of ₹ 41,40,175 the period from April 1, 2010 to September 15, 2010 as per schedule CGA of ITR-5 filed on September 29, 2011, as per the following calculation Full value of consideration 51,52,79,987.00 Less : (i) C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 specifically provides that the trustee can hold investments in shares on behalf of the trust in its own name. The allegation that 17,00,000 shares of Zee were purchased and sold by Smt. Asha Gopal Gupta in her individual capacity was misplaced, contrary to the facts and based on suspicion and surmises. 5. The allegation that the expenditure of ₹ 73,03,812 apparently related to IPO of Cebbco was misplaced, contrary to the facts and based on suspicion and surmises. These expenditure were our proportionate share out of the total expenditure incurred jointly by the three shareholders for sale of their stake in Cebbco. 6. The allegation that neither the appellant submitted nor the Assessing Officer asked for and examined the details of all the component of capital gain of ₹ 41,40,175 including the purchase and sale of assets and the expenditure of ₹ 73,14,299 was totally misplaced as the details of purchase and sale of Zee and Cebbco shares and professional and consultancy expenses and other expenses were submitted and examined by the learned Assessing Officer. 3.2 During the proceedings under section 263, the Principal Commissioner of Income-tax had r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt etc. and these were duly verified by the Assessing Officer and no adverse inference was drawn by the Assessing Officer. Our attention was drawn towards the notice issued by the Assessing Officer under section 142(1) dated June 7, 2013 and December 10, 2013 especially page Nos. 40, 41, 4, 45, 46, 47 and 48 of the paper book. It was submitted that vide letter dated December 10, 2014, the assessee has specifically in reply to query raised by the Assessing Officer vide notice dated December 10, 2013 mentioned as under : 1. That we have purchased the shares of Zee Entertainment Ltd. through our broker M/s. J M Financial Ltd., Mumbai as per the loan agreement dated November 1, 2010. Copy of the said loan agreement already been submitted to your honour on December 23, 2013. 2. That we have purchased the 17,00,000 Nos. equity shares of Zee Entertainment Ltd. on November 4, 2010 to November 9, 2010 and sold the said shares from November 15, 2010 to November 18, 2010 on loss of ₹ 26.54 crores as per the details already been submitted to your honour on December 23, 2013. 4.1 The assessee has also mentioned the reasons for the loss under paragraph 3 of this letter as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order is not erroneous on this account. Our attention was drawn towards page No. 33 of the paper book which contains the copy of the assessment order. Refer ring to pages 50 to 68, it was submitted that the copy of the contract notes were duly submitted before the Assessing Officer. Referring to pages 69 to 72, it was submitted that the loan agreement entered into by the assessee with JM Financial Services Ltd. was duly submitted before the Assessing Officer along with the copy of the loan account which is available at pages 88 and 90 of the paper book. It was further submitted that the Commissioner of Income-tax has incorrectly observed that as per the amended trust deed, it is noticed that the trustees were not having any right to hold investments in shares in their names from April 1, 2010 to January 15, 2011. There is no such clause in the amended trust deed and for this our attention was drawn towards the copy of original as well as the amended trust deeds which are available at pages 95 to 126 of the paper book. The amended trust deed was in fact executed on January 15, 2011 and there fore, it is impossible to incorporate a restrictive clause effective from the date prior t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and to represent the 'trust' in all meetings of the shareholders, members, debenture holders or other meeting of the companies/other entities in which trust or the trustee hold shares, debentures, other securities . . . . . . . . 4.5 On the basis of the said clause, it was submitted that the trustee was duly authorised to hold the shares in the name of the trust. Our attention was drawn towards section 153 of the Companies Act, 1956 which stipulates that the name of the trust cannot be entered as member of the company. This provision was also clarified by the Department of Company Law Administration vide circular dated June 12, 1957 as under : Government are advised that under the relevant provisions of the Companies Act, 1956, share in a company, being the property of a trust can be held in the names of its trustees being individuals, corporations, companies or societies registered under the Societies Registration Act, 1860, without the addition of the statement that they are trustees. Shares cannot be held in the name of the trust as such unless it is a separate legal entity such as a registered society. Companies are requested that wherever necessary their sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to the claim of professional and consultancy expenses amounting to ₹ 73,03,812 allowed by the Assessing Officer, the Commissioner of Income-tax has alleged that the Assessing Officer has allowed the said expenses without any examination which is not correct. The Assessing Officer has duly examined these expenses. The Assessing Officer has called for the bills and vouchers for all the expenses before allowing these expenses. Our attention was drawn towards the assessment order as well as the notice issued under section 142(1) and the reply submitted by the assessee thereto, the copy of which is available at pages 39, 42 and 45 of the paper book. These expenses have been incurred by the assessee pre-IPO sale which is being managed by the consultant. This is a private sale which is being managed by the consultant and merchant bankers who perform due diligence of the company whose shares are being offered for sale, provide legal advice, prepare all the documents, negotiate with various parties, provide all information to them duly certified by the reputed consultants, finalise the terms and conditions etc. Whatever fees is settled that is to be paid whether the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not sufficient for revision under section 263 of the Act. Our attention was drawn towards the order of the Income-tax Appellate Tribunal, Delhi Bench in the case of Haryana Coach Body Builders v. ITO [2006] 10 SOT 736 (Delhi) in which it was held that the assessment order cannot be held to be erroneous, if in the opinion of the Commissioner of Income-tax, the order should have been more elaborate or that further inquiry should have been made. Requisite and desired inquiries in relation to various matters have to be left to the best discretion of the Assessing Officer. Reliance was also placed on the decision of the hon'ble Allahabad High Court in the case of CIT v. Krishna Capbox Pvt. Ltd. [2015] 372 ITR 310 (All) (I. T. A. No. 1 of 2015 dated February 23, 2015) in which it was held that mere non-discussion or non-mention about the issue involved in the assessment order would not justify section 263 to be applied. Attention was also drawn towards the decision of the hon'ble Delhi High Court in the case of CIT v. L and T Infrastructure Development Projects Ltd. [2013] 357 ITR 763 (Mad) in which it was held that where the order under section 263 records that the inquiries wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Director 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 power 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 Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120 ; (b) 'record' shall include and shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamine the records of any proceedings under the Act and for this purpose he need not to show any reason or record any reason to believe as is required under section 147 or 148(2). It is a part of his administrative power to call for the record and examine them relating to any assessee which falls under his jurisdiction. Secondly, he may consider any order passed by the Assessing Officer as erroneous as well as prejudicial to the interests of the Revenue. This is exercised by calling for and examining the record available at this stage. There is no question of the assessee to appear and make submission at this stage. Thirdly, if after calling for and examining the records the Commissioner considers that the order of the Assessing Officer is erroneous in so far it is prejudicial to the interests of the Revenue, he is bound to give an opportunity to the assessee of being heard and after making or causing to be made such enquiry as he may deem fit, pass such order thereon as the circumstances of the case may justify including an order enhancing or modifying the assessment or cancelling assessment and directing a fresh assessment. This empowers the Commissioner of Income-tax to cause or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that inadequacy of enquiry according to the whims and caprice of the Commissioner of Income-tax does not give jurisdiction to the Commissioner of Income-tax to invoke section 263 and set aside the assessment. Now, the question before us is whether the Assessing Officer has examined each and every issue relating to the question which has been raised by the Commissioner of Income-tax in the show-cause notice and after examining the same he has taken a conscious decision to make the addition to the extent, he found it to be not justified or he did not make the addition as he is satisfied with the disclosure made by the assessee in the returns filed by him. Whether the income in respect of which the Assessing Officer has not made any addition is duly supported by the disclosure made by the assessee in the return filed. 10. The main issue in respect of which the Commissioner of Income-tax has exercised the jurisdiction under section 263 of the Act relates to set off of the loss on the sale of ZEEL shares against the profit of sale of Cebbco shares. We noted the fact that from the notice issued under section 142(1) dated June 7, 2013 and December 10, 2013 and the reply ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made the inquiry in respect of the loss incurred by the assessee on the sale of shares of ZEEL against the profit earned on the sale of shares of Cebbco. The Commissioner of Income-tax observed that the Assessing Officer did not notice that the trust has not offered any capital gain/loss of ZEEL shares prior to November 9, 2010 pertaining to the period April 1, 2010 to November 15, 2010. This observation of the Commissioner of Income-tax does not have any leg to stand on the basis of the facts submitted by the assessee before the Assessing Officer that the assessee has not sold any share prior to November 9, 2010 and the shares were sold only from November 15, 2010 to November 18, 2010. Therefore, prior to that no question of any capital gain or loss arise. We have gone through the provisions of section 70(2) and we noted that in view of the said provision, the assessee can set off the short-term capital loss against the short-term capital gain and there is no bar for set off of capital loss against the short-term capital gain under the said provision. There cannot be any error in the order of the Assessing Officer while allowing the set off. The assessee has duly submitted the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case where there is a dividend stripping. This sub- section states that loss incurred on the sale of securities and units within the stipulated period of record date in a case of securities or units acquired within three months of the record date, equivalent to the amount of exempt dividend received on such securities and units shall be ignored for computation of income chargeable to tax. In the impugned case, no dividend has been received by the assessee on the shares of ZEEL therefore, on this account also there cannot be any error or illegality in the order of the Assessing Officer. Thus, we noted that this is a case where the asses see has duly explained to the Assessing Officer in response to the notice under section 142(1) dated December 10, 2013 and subsequent query that the assessee has purchased 17 lakhs shares through their broker J.M. Financial Services Ltd. as per the loan agreement from November 4, 2010 to November 9, 2010 and sold these shares from November 15, 2010 to November 18, 2010 on loss of ₹ 26.54 crores. The details in respect of these were also submitted before the Assessing Officer on December 23, 2013. This fact is apparent from the letter dated F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng schedule III to the income and expenditure account. The assessee has duly submitted the complete working of the capital gain of ₹ 41,40,175 which has been arrived at after deducting out of the sale consideration of the shares of Cebbco. The cost of acquisition of those shares as well as expenditure on transfer is given as under : Full value of consideration 51,52,79,987.00 Less : (i) Cost of acquisition 50,38,25,513.00 (ii) Expenditure on transfer 73,14,299.00 Balance 41,40,175.00 11. No doubt, clause (a) of Explanation 2 to section 263 deems the order to be erroneous and prejudicial to the interests of the Revenue in case the order is passed without making enquiries or verification which should have been made in the opinion of the Principal Commissioner or the Commissioner. In our opinion, for the applicability of clause (a) of the Explanation, it is necessary that the Principal Commissioner must mention in the order what inquiries or verification the Principal Commissioner desires to have been carried out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the issue on the points as has been referred by the Commissioner of Income-tax preferred not to make the addition. Therefore, in our opinion there is no error in the order of the Assessing Officer if he has not discussed the issue relating to each and every issue in the assessment order. On this basis, it cannot be concluded that the Assessing Officer has not made any enquiry. It is only the query raised by the Assessing Officer and the submission made by the assessee will speak of where the Assessing Officer has applied his mind or not. We find the hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom) has held in this regard as under (headnote) : Held, that the Income-tax Officer in this case 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. All these were part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. This decision of the Income-tax Officer could not be held to be 'erroneous' simply because in his order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the subsequent action is carried out on the illegal order is also illegal per se. 15. We find this case of the assessee is duly covered by the decision of the hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) wherein their Lordships has held as under : The pre-requisite to the exercise of jurisdiction by the Commissioner under section 263 is that the order of the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous ; and (ii) is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Assessing Officer is erroneous but is not prejudicial to the Revenue-recourse cannot be had to section 263(1). There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile their returns under presumptive scheme of taxation. All these persons were produced before the Assessing Officer in revision proceedings and no question was put to them though their statements on oath were recorded. All these persons have confirmed in revision proceedings that the money was not returned by them to any person and was used for their personal benefit. The payments were made to these persons by banking channels and tax was deducted at source in accordance with law. The assessee has also given complete details with respect to labour expenses called for in assessment proceedings. These details were duly verified by the Assessing Officer with the books and records. No adverse observation was made by the Assessing Officer and hence, no addition was made in the regular assessment. The Assessing Officer has also randomly selected two labourers and examined them and their statements were recorded under section 131. Since all necessary details were furnished by the assessee, there was no reason for the Commissioner of Income-tax to invoke the revisional jurisdiction under section 263. The Commissioner of Income-tax has not stopped merely by issuance of notice under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law. 18. We have also gone through the decision of CIT v. Vodafone Essar South Ltd. [2013] 1 ITR-OL 526 (Delhi) ; [2013] 212 Taxman 184 (Delhi) on which the learned authorised representative vehemently relied. In this decision, we noted that the hon'ble High Court relied on the earlier decision of the High Court in the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) in which it was held that if there is some inquiry by the Assessing Officer in the original proceedings, even if inadequate, that cannot clothe the Commissioner with the jurisdiction under section 263 merely because he can form another opinion. At the most the case of the assessee can be regarded to be the lack of inquiry in accordance with the Commissioner of Income-tax if he has different opinion how to proceed with the assessment of the assessee. 19. Similar view has been taken by the hon'ble Delhi High court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the share application money, as no addition had been made on account of the reasons for reopening, which were recorded before issue of notice under section 148 of the Act. It had held that the Assessing Officer could not have made an addition on account of the share application money as no addition had been made on account of fixed deposits of ₹ 20 lakhs. The Tribunal had noticed and recorded that in the reasons for reopening it was mentioned that the assessee had made investment in the form of fixed deposits of ₹ 20 lakhs but in the assessment order passed under section 147/143(3) of the Act it had been held that the assessee had been able to show and establish the genuineness and capacity of the share applicants to make the investment. The Assessing Officer did not make any addition for the reasons recorded at the time of issue of notice under section 148 of the Act. This position was not disputed or disturbed by the Commissioner in his order under section 263 of the Act. The assessment order was not erroneous. Thus, the Commissioner could not have exercised jurisdiction under section 263 of the Act. 20. In the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se to the Assessing officer for re-examination. The Tribunal allowed the claim of the assessee. On appeal : Held, dismissing the appeal, (i) that the Assessing Officer allowed the claim on being satisfied with the explanation of the assessee. Such decision of the Assessing Officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. The Assessing Officer had called for explanation on the very item from the assessee and the assessee had furnished its explanation. This fact was conceded by the Commissioner himself in his order. This showed that the Assessing Officer had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools was to be treated as revenue expenditure or not. Therefore, it could not be said that it was a case of lack of inquiry. The accounting practice followed for a number of years had the approval of the Income-tax authorities. Even for future assessment years, the very same accounting practice was accepted. (ii) That the dyes were components of the machines. They needed constant replacement, as their life was not more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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