TMI Blog2021 (1) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... was not before the AO. Thus, the order passed by the AO by taking into account a document or information which is not before him and based on the enquiry and documents before him in a possible view and the assessment order and cannot be held to be erroneous insofar as it is prejudicial to the interest of the revenue. As relying on M/S GITSH TIKMANI case [ 2019 (9) TMI 1177 - ITAT KOLKATA] the order passed u/s 263 of the Act is bad in law. The coordinate Bench of ITAT, Kolkata in the case of Shashi Bala Bajaj [ 2018 (11) TMI 1823 - ITAT KOLKATA] applied to the judgment of CIT vs. Bhagwati Prasad Agarwal [ 2009 (4) TMI 138 - CALCUTTA HIGH COURT] and held that the long term profits and gains received on, the purchase and sale of shares of M/s Surbhi Chemicals and Investment Ltd. though the Stock Exchange is exempted from tax u/s 10(38) of the Act. Thus, the view taken by the AO is plausible view which is supported by judicial decisions on this grounds also the order u/s 263 fails. - Decided in favour of assessee. - I.T.A. No. 874/Kol/2019 - - - Dated:- 12-1-2021 - Sri J. Sudhakar Reddy, Accountant Member And Sri S. S.Godara, Judicial Member For the Assessee : Sh. Imokaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined / verified all the details of this transaction. b) It is very clear that the ld. Pr. DIT(INV) s report was not available on record of the AO and that the said company M/s Surabhi Chemicals and Investment Ltd. is stated to be a penny stock company and its share price was said to be manipulated. c) The AO has failed on this issue and hence the order is erroneous and prejudicial to the interest of the revenue. d) This is a case of lack of enquiry. He then discussed the legal position and thereafter concluded as under: 6. I have carefully considered the submission made on behalf of the assessee and perused the material available on record and found that the issue pointed out in the show cause needs verification and the AO failed to examine the above referred issue. After having considered the position of law and facts and circumstances of the instant case, I am of the considered opinion that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2(c ) below section 263(1) of the Act. Accordingly, the issue is set aside to the table of AO on specific point mentioned in para 2 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale and purchase of share of M/s Surbhi Chemicals and Investment Ltd. Details of Investment in Equity Shares during the year under consideration i) Name address of the company in which investment is made ii) Copy of allotment letter iii) Copy of Contract Note in respect of quoted shares iv) Date of allotment of shares v) No. Of shares vi) Value of shares vii) Source of payment made for obtaining shares viii) In this regard, you are also requested to furnish the evidence of Mode of such payment alongwith the details of cheque numbers and the copy of bank statement (FY 2013- 14) highlighting the relevant entries therein showing the transaction. 7. Please furnish the following details in respect of Long Term Capital Gain i) Name of Scrip ii) Date of purchase iii) Quantity iv) Rate v) Mode of payment vi) Date of sale vii) Quantity Sold viii) Rate ix) Date of Sale x) Amount of dividend xi) STT Paid xii) L. T. Capital Gain xiii) Copy of Brokers Contract Note In this regard, you are also requested to furnish the evidence of Mode of such payment along with the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sec. 263 revision jurisdiction:- 11. Now we shall discuss the propositions of law as laid down by various courts on the issue of revisionary jurisdiction of the Commissioner of Income Tax u/s 263 of the Act. The Hone ble Andhra Pradesh High Court in the case of Spectra Shares and Scrips Pvt. Ltd. V CIT (AP) 354 ITR 35 had considered a number of judgments on this issue of exercise of jurisdiciton u/s 263 of the Act by the Principal Commissioner of Income Tax and culled out the principles laid down in the judgments as below: 24. In Malabar Industrial Co.Ltd. ( 2 Supra), the Supreme Court held that a bare reading of Sec.263 makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is the order of the Income Tax 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) it is prejudicial to the interests of the Revenue. If one of them is absent if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that section; that the said section was amended eleven times; that different views existed on the day when the Commissioner passed his order; that the mechanics of the section had become so complicated over the years that two views were inherently possible; and therefore, the subsequent amendment in 2005 even though retrospective will not attract the provision of Sec.263. 26. In Vikas Polymers (4 Supra), the Delhi High Court held that the power of suo motu revision exercisable by the Commissioner under the provisions of Sec.263 is supervisory in nature; that an erroneous judgment means one which is not in accordance with law; that if an Income Tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written differently or more elaborately; that the section does not visualize the substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order unless the decision is not in accordance with the law; that to invoke suo motu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer that expenditure on tools and dies by the assessee, a manufacturer of Car parts, is revenue expenditure where the said claim was allowed by the latter on being satisfied with the explanation of the assessee and where the same accounting practice followed by the assessee for number of years with the approval of the Income Tax Authorities. It held that the Assessing Officer had called for explanation on the very item from the assessee and the assessee had furnished its explanation. Merely because the Assessing Officer in his order did not make an elaborate discussion in that regard, his order cannot be termed as erroneous. The opinion of the Assessing Officer is one of the possible views and there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. 28. In Gabriel India Ltd. (6 Supra), the Bombay High Court held that a consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revisional powers cancelled assessee s assessment for the years 1952-1953 to 1960-61 because he found that the income tax officer was not justified in accepting the initial capital, the gift received and sale of jewellery, the income from business etc., without any enquiry or evidence whatsoever . He directed the income tax officer to do fresh assessment after making proper enquiry and investigation in regard to the jurisdiction. The assessee complained before the Supreme Court that no fair or reasonable opportunity was given to her. Supreme Court held that there was ample material to show that the income tax officer made the assessments in undue hurry; that he had passed a short stereo typed assessment order for each assessment year; that on the face of the record, the orders were pre-judicial to the interest of the Revenue; and no prejudice was caused to the assessee on account of failure of the Commissioner to indicate the results of the enquiry made by him, as she would have a full opportunity for showing to the income tax officer whether he had jurisdiction or not and whether the income tax assessed in the assessment years which were originally passed were correct or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. g) The power of the Commissioner under Sec.263 (1) is not Commissioner is entitled to examine any other records wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because a wrong order has been passed on merits. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under s. 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act can be exercised even in a case where the issue is debatable, it was held that the case of CIT vs. M. M. Khambhatwala was not applicable. The observation that the Commissioner can exercise power under Section 263 of the Act even in a case were the issue is debatable was a mere passing remark which is again contrary to the view taken by the Apex Court in the case of Malabar Industrial Company Ltd. Max India Ltd. If the Assessing Officer has taken a possible view, it cannot be said that the view taken by him is erroneous nor the order of the Assessing Officer in that case can be set aside in revision. It has to be shown unmistakably that the order of the Assessing Officer is unsustainable. Anything short of that would not clothe the CIT with jurisdiction to exercise power under Section 263 of the Act. CIT vs. M. M. Khambhatwala reported in 198 ITR 144; CIT vs. Raison Industries Ltd. reported in 288 ITR 322 (SC), not applicable; Malabar Industrial Co. Ltd. v. CIT reported in 243 ITR 83, relied on. (Para 72) As regard the third question as to whether the assessment order was passed by the Assessing Officer without application of mind, it was held that the Court has to start wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the CIT was satisfied that the basis for exercise of jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the CIT for exercising jurisdiction was called for or not, has to be decided having regard to a given fact situation. In the present case, the Tribunal has held that the assessee had disclosed that out of sale consideration, a sum of ₹ 1 lakh was to be received for sale of permit. If that is so, there was no error in the view taken by the AO and no case was made out for invoking jurisdiction under s. 263. COMMISSIONER OF INCOME TAX vs. LEISURE WEAR EXPORTS LTD. 341 ITR 166 (Del) The prerequisite to the exercise of suo motu jurisdiction under s. 263 by the CIT is that the order of the AO is erroneous insofar as it is prejudicial to the interest of the Revenue. Two conditions are to be satisfied, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) the error committed by the AO in the order is prejudicial to the interest of the Revenue. Both these conditions are to be satisfied simultaneously. It is also well-settled principle that provisions of s. 263 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said facts, the CIT does not take the said order to its logical conclusion which was the prime duty of the CIT in order to justify exercise of power under s. 263. There is not even a whisper that the order is erroneous. Even if it is inferred that non-consideration of the issues pointed out by the CIT would amount to an erroneous order, it is not stated as to how this order is prejudicial to the interest of the Revenue. The penultimate paras of the order, at best, contain the observations that the AO was satisfied with making flimsy additions which were deleted by the CIT(A). There is not a whisper as to how this order was prejudicial to the interest of the Revenue. That apart, the approach of the Tribunal in discarding the observation of the CIT about not making proper inquiries in respect of the said four issues is also justified and without blemish. (Paras 12 to 14) First comment of the CIT was in respect of finished goods in the closing stock. The CIT found that these were to the tune of ₹ 5.28 crores. According to the CIT, when the total turnover of the assessee was ₹ 6.13 crores, the AO should have satisfied himself by calling for more details as to how there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate as to what was the reason for doubting the income offered by the assessee. Even if it is found that part of such income was claimed as deduction under s. 80HHC, no benefit enured to the assessee on this account as claim under s. 80HHC was fully disallowed by the AO. It is not at all observed as to how the order of the AO on this account was erroneous and further as to how it was prejudicial to the interest of the Revenue. Thus, order of the CIT was rightly set aside by the Tribunal. In the case on hand the ld. CIT finds fault with the AO for not invoking Rule 8D while making disallowance u/s 14A. The Hon ble Delhi High Court in the case of Maxop Investments Ltd. Vs CIT (supra) held that the AO cannot proceed to determine the amount of expenditure incurred in relation to exempt income without recording a finding that he is not satisfied with the correctness of the claim of the assessee. This is a condition precedent while rejecting the claim of the assessee, with regard to incurring of expenditure or no expenditure in relation to exempt income. The AO will have to indicate cogent reasons for the same and Rule 8D comes into play only when the AO records a finding that he is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operators of the entity in light of Ministry of Finance s letter dated 24.07.2015 figures, there is not even an iota of material quoted against the assessee to have been engaged in all the foregoing artificial price rigging. We are observing in view of all these facts that the Assessing Officer had rightly accepted the assessee s LTCG keeping in making the overwhelming evidence forming part of records. This tribunal s co-ordinate bench decision (supra) as well as hon'ble jurisdictional high court s decisions CIT vs. Ratan ITA No.105/2016, M/s Classic Growers Ltd vs. CIT ITA 129/2012, CIT vs. Lakshmargarh Estate Trading Co. Ltd. (2013) 40 taxman 439 (Cal), CIT vs. Smt. Shreyashi Ganguly ITA 196/2012, CIT vs. Bhagwati Prasad Agarwal (2009/ TMI 34738/Cal in 22/2009 29.04.2009 have accepted genuineness of similar LTCG. Since the issue is covered by all the foregoing decisions of hon'ble jurisdictional high court, we observe that the Assessing Officer had rightly treated the assessee s foregoing LTCG derived from sale of shares to be genuine. That being the case, we hold that PCIT s exercise of revision jurisdiction merely on suspicious circumstances by invoking in sec. 263 Ex ..... 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