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TMI Blog2020 (11) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... roneous in so far as being prejudicial to the interests of revenue, particularly when the Ld. AO had made complete inquiries, thus the order passed deserves to be struck down. 1.2 That, Ld. Pr. CIT has erred in passing the order u/s 263 setting aside the assessment only on the basis of change of opinion whereas the assessment order has been passed by Ld. AO after complete explanation and required enquiries and thereby order u/s 263 deserves to be quashed. 2. On the facts and in the circumstances of the case and in law, ld. Pr. CIT erred in directing the AO to examine the issue of equity share transaction after using the information /material passed on by Investigation Directorate by ignoring the fact that all such material/information has already been considered and enquiries based on such material / information has already been carried out by ld. AO thus such directions of ld. Pr. CIT are devoid of merits and not in consonance with facts on record and thereby consequent order passed u/s 263 deserves to be quashed. 3. On the facts and in circumstances of the case and in law, Ld. Pr. C1T has grossly erred in ignoring the fact that the Id. AO has passed the assessment order acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see are reproduced as under: "Brief facts of the case are that assessee is a HUF and for the year under appeal has filed its return of income declaring total income at Rs. 4,90,900/- and claimed exempt income of Rs. 11,52,000/- towards the long term capital gains from the sale of shares. Thereafter the case of assessee was selected for scrutiny under CASS which was specifically for verifying the genuineness of the share transactions. Various query letters / show cause notice were issued by the Ld. AO from time to time and after due scrutiny, enquiries and verifications into the matter, the assessment was completed u/s 143(3) of the Act vide dated 29.11.2017 wherein the returned income was accepted. Thereafter, the Ld. CIT (Admn.) invoked the provisions of section 263 of the Income Tax Act, 1961 by alleging that the Ld. AO has not made proper enquiries and verification into the matter and issued Show Cause Notice u/s 263 to the assessee requiring him to show cause with regard to the proposed action u/s 263 (APB 10-11). In response to show cause notice replies were submitted alongwith necessary evidences (APB 4-9) and it was vehemently emphasized that all the aspects of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the hon'ble bench is invited to the fact that during the course of assessment proceedings on 22.11.2017 (APB 16-18) a detailed show cause notice running into 3 pages was issued by ld. AO wherein it was alleged that the transaction of purchases and sale of shares of M/s Jackson Investment ltd. entered into by the assessee is accommodated bogus entry carried out to obtain bogus long term capital gains. It is also relevant to state here that the said show cause notice is issued in accordance with the instructions issued by the System Directorate of the Income Tax department. From the perusal of the same, it can be seen that in the said notice ld. AO specifically referred certain enquiries carried out by the Director of Income Tax (Investigation) Kolkatta and further show caused the assessee as to why not the capital gains declared by it is held as unexplained credit and the same be not added u/s 68 of the Act. Ld. AO further proposed to make the addition towards the commission paid for obtaining such gain. However, after considering the evidences filed by the assessee and also after considering the judicial pronouncements which includes the decision of Hon'ble Jurisdictiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AO had not made sufficient enquiries and he should have made more enquiries. The extent of in-depthness of enquiries differs from person's perception and cannot be made as a base to treat the order passed by Ld. AO as erroneous and prejudicial to the interest of revenue. In view of the above factual background of the case, it is humbly submitted that essential elements necessitated for invoking section 263 are not fulfilled. The basic ingredients to be fulfilled before invoking section 263 have been explained by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT reported in 243 ITR 83 (SC) (Case Law paper book APB 1-6) in the following words: "A bare reading of section 263 of the Income Tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income Tax Officer is erroneous is 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) it is prejudicial to the interests of the Revenue. If one of them is absent - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying out enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquires or verification that would have been carried out by a prudent officer. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irety of the case, we deem it fit and proper to uphold the grievance of the assessee and quash the impugned revision order as devoid of jurisdiction. The assessee gets the relief, accordingly." In view of above, it is submitted that : 1. The Order of Ld. AO is not erroneous: It has already been established above that assessee has purchased the shares after making payment through banking channels and after sold them after a period of more than three years through online mode in the recognized stock exchange. Nevertheless, the Ld. AO had made inquiry on this aspect and complete details as asked for by the Ld. AO were submitted by assessee during the course of assessment proceedings and, as submitted above, the Ld. AO passed the assessment order after taking into consideration all those details and evidences. It is therefore, submitted that the Ld. AO has taken a legal and correct view of the entire material available before him and after due application of mind on law and on facts had reached to a reasonable satisfaction of concluding the assessment, without taking any adverse view on these issues, thus the order of Ld. AO is not erroneous on any count nor prejudicial to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be made merely because the CIT is of the opinion that the other view should have been taken by the AO. 2. The Order of Ld. AO is not prejudicial to the interest of revenue: In light of the facts of the present case, it is submitted that the Ld. CIT (Adm.) has failed to appreciate the facts that the shares purchased by the assessee were through payees account cheque and after getting transfer, the same were lying in the DMAT account of the assessee for about 2 years when the same were sold through a member broker in recognized stock exchange. Further the assessee has submitted all these details before the Ld. AO in reply to the show cause letter (APB 12-15) and ld. AO could not found out any deficiency in the same. Rather the ld. CIT(Adm.) in his order asked the AO to make enquiries in specific manner by ignoring the fact that all such enquiries were conducted by the ld. AO while issuing the show cause letter. Therefore, the action of the Ld. AO was not at all prejudicial to the interest of revenue. It has been held in the case of CIT v. Max India Ltd. reported in 295 ITR 282 (SC) that 'every loss of revenue cannot be said to be prejudicial to the interests of revenue', how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o correct each and every mistake or error committed by the AO. Every loss to the Revenue, cannot be treated as prejudicial to the interest of the Revenue and if the Assessing Officer has adopted one of the course permissible under the law or where two views are possible and the AO has taken one view which the CIT does not agree with, it cannot be treated as an order erroneous and prejudicial to the interest of the revenue. The AO exercises quasi judicial power vested in him and if he exercises such powers in accordance with law, arrives at a just conclusion such conclusion cannot be termed as erroneous only because the CIT does not feel satisfied with the conclusion. 2. CIT Vs. M/s Deepak Real Estate Developers P. Ltd. (Raj HC) (2014) 51 TW (IV) 186 It is no longer res-integra that the revisional jurisdiction available to a Commissioner u/s 263 of the Act, is essentially circumscribed by the determinant that the order of the Assessing Officer is erroneous so much so that it is prejudicial to the interest of the revenue. This statutory enjoinment carves out an extremely constricted ambit of such discretionary jurisdiction. The word 'considers' applied in the statutory provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s laid down u/s 263 i.e. erroneous and prejudicial to the interest of the revenue have to be cumulatively satisfied and in the absence of one of the conditions, not being attracted the other would become nonest for the purposes of revision. Therefore, in view of the above it is prayed that the impugned order of Ld. CIT(Admn.) be quashed and held bad in law. 5. Per contra, Learned. Departmental Representative (DR) vehemently opposed these submissions and supported the impugned order. Ld. CIT-DR has taken through impugned order and also the assessment order. The argument of the Ld. CIT-DR is that the ex-facie there is a lack of enquiry by the assessing officer as he failed to make proper investigation in respect of the material gathered by the investigation wing. He further contended that after amendment in the law when the explanation (2) section 263 has been inserted and the Ld. Pr. CIT is empowered to revise the orders where he finds that there is a lack or inadequate enquiry. He further relied upon the decisions as relied by the Ld. Pr. CIT in the impugned order. 6. We have heard rival contentions and perused the material available on records. The only issue is with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penny stock i. e. M/s Jackson Investment Ltd , and allowed exempt long term capital gains u/s 10(38) of the Income-tax Act, 1961, of Rs. 11, 52, 000/-. Therefore, the order passed by the AO on 29. 11. 2017 is erroneous and prejudicial to the interest of the revenue. 7. There is no dispute with regard to the fact that the assessing officer had issued show cause notice dated 22.11.2017. The relevant contents of the notice are as under: From the perusal of details filed during the course of scrutiny proceedings and on examination of material available on record, it is seen that that you have claimed Exempt Income under sec. 10(38) being Long Term Capital Gain of Rs. 11,52,000/- on sale of shares of M/s Jackson Investments Limited. during the year under consideration. In this regard, you are required to furnish following details with respect to your investment in the share M/s Jackson Investments Limited...:- i. Amount of Investments made by you in the share; ii. Source of investment; iii. Mode of payments made to Share Broker with evidence; iv. Contract note for purchase of shares/investment made and sale of investment/ shares; v. Bank statement reflecting payment and rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement of Directors/entry operators had been recorded and they admitted that the various companies are being run on paper only and they do not exist in reality. Some of them were formed to provide accommodation entries only in the form of share capital. 7. The statement of various key persons of share brokers were recorded during the course of survey proceedings conducted by the Investigation Wing, Kolkatta and they admitted that various companies are being run on paper only and they do not exist in reality. 8. As per Report of Investigation Wing, Kolkatta, the company Kis Jackson Investments Limited. is also one of the penny stock companies. You have also sold out shares of above company and claimed exemption u/s 10(38) for Rs. 11,52,000/-. 9. In view of the above facts and circumstances, the transactions entered into by you for purchase and sale of shares of Mis Jackson Investments Limited... are found to be bogus as the said company accommodated bogus entries and is used cheques for bogus Long-term Capital Gains. It is therefore proposed to treat the said amount of Rs. 11,52,000/- , as unexplained credit as found in the books of account under sec. 68 tc the returned income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the point of long terms investment, hence we also like to invested in these shares. (viii) That the assessee has forget the name & Address of the person who has recommended the purchases these share. (ix) That assessee having primary school knowledge, hence he was unable to made analysis of financial performance before purchases of shares. (x) That copy of shares allotment and transfer latter enclosed. (xi) That being earning of good profit as per assessee's expectation the assessee sold out his shares. (xii) That the assessee place the purchases orders with broker/ authorized person on phone. (xiii) That the assessee paid Rs. 40000/- & Received Rs. 1187082.08/-. (xiv) That the date of purchases of shares 13/10/2011 & the date of Demat 18/02/2013. 2. That the assessee is not a regular investor. 3. That assessee's transaction in shares is genuine and the assessee in not liable for the allegation of the third party which are fake & false statement based on mere presumption, suspicion or surmise and supposition. 4. That the assessee has not made any manipulation of converting black money into white, as the assessee's transaction is genuine. The all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Maheshchandra G. Vakil {2013) 40 taxmann.com 326 (Gujrat) (iv) High Court of Allahabad in case of CIT Vs. Udit Narain Agarwal in ITA 560 of 2009 (v) Tribunal at Kolkata in Case of SCIT vs Sunita Khema in ITA nos 714 to 718/ kol/ 2011 (vi) High Court of Bombay in case of Commissioner of Income Tax-13 vs Mr. Shyam R. Pawar 10. That the assessee is not made any commission or brokerage & 0.50% to 8% on the alleged penny stock as the assessee not made any investment in penny stock, however the assessee has paid commission/brokerage, service tax, STT, and Trxn. Charges etc for sale of these shares to M/s Shri Parasram Holding Pvt. Ltd. as per enclosed Net Obligation dated 01/01/2015, hence the commission or brokerage paid on above transactions should not be added U/s 69C of the I.T. Act 1961. It is, therefore, requested to you to drop the proceedings i/s 68 & 69C of the I.T. Act 1961. 9. Ld. Counsel for the assessee has relied upon the judgment of Delhi High Court in the case of ITO vs. Dg Housing Projects Ltd.(supra) wherein the Hon'ble Court after examining entire law on the issue held as under: "16. Thus, in cases of wrong opinion or finding on merits, the CIT has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase "prejudicial to the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not. 10. Further reliance is placed on the decision of the Coordinate Bench of this Tribunal in the case of M/s. Arun Kumar Garg, HUF, vs. Pr. CIT in ITA No. 3391/Del/2018 wherein the Tribunal has considered the amended law and held as under: 5.6 Although, there has been an amendment in the provisions of section 263 of the Act by which Explanation 2 has been inserted w.e.f. 1.6.2015 but the same does not give unfettered powers to the Commissioner to assume jurisdiction under section 263 to revise every order of the Assessing Officer to re-examine the issues already examined during the course of assessment proceedings. The Mumbai ITAT Bench has dealt with Explanation 2 as inserted by Finance Act, 2015 in the case of Narayan Tatu Rane vs. ITO reported in (2016) 70 taxman.com 227 to hold that the said Explanation cannot be said to have overridden the liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rayan Tatu Rane(supra) wherein the Tribunal in paras 19 to 21 has decided the issue as under: "19. The law interpreted by the High Court makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon'ble Delhi High Court, referred above. If that be the case, then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall have retrospective or prospective application shall not be relevant. 21. In the instant case, as noticed earlier, the AO has accepted the explanations of the assessee, since there is no fool proof evidence to link the assessee with the document and M/s RNS Infrastructure Ltd, from whose hands it was seized, also did not implicate the assessee. Thus, the assessee has been expected to prove a negative fact, which is humanely not possible. No other corroborative material was available with the department to show that the explanations given by the assessee were wrong or incorrect. Under these set of facts, the AO appears to have been satisfied with the explanations given by the assessee and did not make any addition. We have noticed that the Hon'ble Supreme Court has held in the case of Central Bureau of Investigation Vs. V.C. Shukla and Others (supra) that the entries in the books of account by themselves are not sufficient to charge any person with liability. Hence, in our view, it cannot be held that the assessing officer did not carry out enquiry or verification which should have been done, since the facts and circumstances of the case and the incriminating document was no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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