TMI Blog2019 (10) TMI 1423X X X X Extracts X X X X X X X X Extracts X X X X ..... only after making necessary verifications and inquiries, the AO framed assessment order. PCIT has not brought on record anything incriminating which warrant invocation of extra-ordinary revisionary powers as are enshrined u/s 263 of the 1961 Act. On the other hand the learned PCIT is seeking to tax both sides of entries in the Balance Sheet viz. capital introduced on the liability side as well corresponding investments reflected out of said capital introduced which is incompressible and further all these capital introduced and investments made were of the earlier years but the same were not reflected in the Balance Sheet for those years. Merely because the item of investments of earlier years were not added in the Balance Sheet of that years will not give rise to its taxability, unless it is shown that it is out of undisclosed sources . The assessee has explained its sources before the AO as well learned PCIT. There is no allegation as to the investments being made out of undisclosed or undeclared sources. Thus, in our considered view no case is made out by learned PCIT for invoking extra-ordinary revisionary powers as are enshrined in the provisions of Section 263 of the 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which led to selection for limited scrutiny by CASS viz. sale consideration of property in ITR being less than the sale consideration of property reported in AIR is not raised by learned PCIT while invoking his revisionary powers u/s 263 of the 1961 Act and hence we will confine our discussions to the issues now been invoked by learned PCIT u/s 263 of the 1961 Act. 2.2 Coming back, the AO after making inquiry as was deemed fit by him, accepted increase in capital of the assessee in the year under consideration, vide assessment order dated 23.12.2016 passed u/s. 143(3) of the 1961 Act, by holding as under: 4. SUBSTANTIAL INCREASE IN CAPITAL IN A YEAR: On verification of the Balance sheet as on 31/3/2014, it was found that the assessee has shown an amount of ₹ 5,26,72,289/- as Proprietor's Capital, whereas in the A.Y.2013-14 the Capital a/c was shown at ₹ 2,23,80,395/-. Thus there was an substantial increase in the Capital a/c i.e. ₹ 3,02,91,894/- during the F.Y.2013-14. Hence, the assessee was asked to furnish the details of Capital a/c and the sources of the increased Capital. The A.R. vide his letter dated 22/11/2016 has submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increase in Capital a/c in this year. In view of the above, the increase in Capital a/c is found to be properly explained. 3. The ld.PCIT was of the view that the aforesaid assessment order dated 23.12.2016 passed by the AO u/s 143(3) of the 1961 Act was erroneous in so far as it is prejudicial to the interest of the Revenue which led ld. PCIT to issue notice dated 13.11.2018 u/s.263 asking assessee to submit its explanations, by stating in the said notice as under:- The assessee is an Individual assessed with the Income Tax Officer, Non Corporate Ward- 2(2), Chennai. The assessee had filed his Return of Income for Assessment Year 2014-15 on 31.10.2015 declaring a total income of ₹ 25,83,290/-. The case was selected for scrutiny by CASS for limited purposes for examination of LTCG and Large Investments. The assessee had also incorrectly claimed opening balance of ₹ 15,01,144/- for the F.Y. 2013- 14 as against ₹ 26,25,504/- in FY 2012-13. A notice u/s 143(2) dated 27.07.2016 was issued on the assessee and assessment was completed u/s. 143(3) of the I.T.Act, 1961 on 23.12.2016 assessing the total taxable capital gain at ₹ 25,83,290/- accepting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents in its Balance Sheet as at 31.03.2014 as also transfer of credit balance standing in the name of Standard Chartered Capital Markets and transfer of credit balance in Vento Car to capital account, thus explaining all the differences in the books of accounts as were required to be explained by learned PCIT in his notice issued u/s 263 of the 1961 Act. The detailed reply was submitted by the assessee on 02.01.2019 which is reproduced as under: I wish to submit here below matters raised in notice u/s 263 in respect of which assessment is stated to have been made erroneously by the learned assessing officer(AO): Matters raised: 1) The aggregate of increase in capital a/c and investment a/c is ₹ 8,51,83,443 as mentioned in captioned notice. The break up for the increase of ₹ 8,51,83,443 as mentioned in captioned notice is given below: Rs. 1.1 Net increase in capital a/c 3,02,91,894 1.2 Net increase in investment a/c 3,02,91,894 1.3 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84,10,229 --------------- 3.1.1) Increase in investment in Avanthi Leathers Limited ₹ 2,77,87,470: This increase in capital represents corresponding increase in investment in equity shares in Avanthi Leathers Limited. This investment is a part of total investment of ₹ 4,23,93,670 in Avanthi Leathers Limited as disclosed in the balance sheet of the assessee as on 31.03.2014.The total investment of ₹ 4,23,93,670 is corroborated by annual return in Form 20B for F Y 2013- 14 filed with Registrar of Companies by M/s Avanthi Leathers Limited. The copy of above annual return for the financial year 2013-14 is enclosed in Annexure-2 where in the company has confirmed that the assessee is a share holder in the company to the extent of ₹ 4,23,93,670. Year wise allotment of above equity shares of ₹ 4,23,93,670 is given below: Rs. 1 Before 1,4.2002 36,79,000 2 12.02.2011-Conversion of preference share cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 470, being rectification entry in financial year 2013-14 ought not to be treated as unexplained investment for financial year 2013-14. Moreover the above explanation for investment in Avanthi Leathers Limited was submitted exhaustively before learned AO too during assessment proceedings u/s.143(3) and the same was accepted by him. Copy of assessment order under sec 143(3) is enclosed in Annexure-7 for your kind perusal. I draw your kind attention to para no.4 in page no.2 and 3 of enclosed assessment order wherein the learned AO has dealt with this matter elaborately. In view of the above facts, I submit that the assessment is not erroneous and therefore reopening u/s.263 is not justified. 3.1.2) Transfer of credit balance in the a/c of the Standard Chartered Capital Market - ₹ 4,26,759: The assessee was carrying on share trading, the income of which has been considered by assessee in his return of income also. Standard Chartered Capital Market were the share trading agents for the assessee. The credit balance in their a/cs in the books of assessee relating to earlier years was transferred to capital account in the financial year 2013-14. Here also, transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sum of ₹ 2,84,10,229 has been taken twice while arriving at the figure of increase in capital. Therefore the sum at para 1.3 is a duplication and not to be considered as addition to capital at all. 4. Reply to para no.2: Reduction in opening stock of shares a/c to the tune of ₹ 11,24,360 while bringing forward opening balance: Rs. Closing stock of shares as on 31.03.2013 26,25,504 Opening Stock of shares brought forward on 01.04.2013 15,01,144 Reduction in opening stock 11,24,360 By showing lesser figure for opening stock in profit and loss a/c for financial year 2013-14, either the profit goes up or loss comes down which is not prejudicial to revenue. Though there is justification for reduction in opening stock, the matter is not taken up now due to the fact that the reduction is not prejudicial to revenue and rather favorable to department. In view of the above facts the assessee prays for following reliefs and to render justice: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has shown bonafide and sufficient cause for filing this appeal late by 84 days. The assessee has already died and his wife is now being impleaded as legal heirs. As per her affidavit dated 27.05.2019 ( placed in file) filed with tribunal, she was not aware that the revisionary order passed by learned PCIT u/s 263 is to be challenged by filing an appeal with tribunal u/s 253(1) of the 1961 Act but as later when she was advised by her counsel, she took steps to file this appeal. The delay in filing this appeal late with tribunal beyond time stipulated u/s 253(3) of the 1961 Act is only of 84 days and appears to be not willful. When technicalities are pitted against substantial justice, the Courts will lean towards substantial justice unless malafide is shown to be writ large or there is a willful delay on the part of the tax-payer. The taxpayer will not normally gain by filing appeal late with the courts rather non admitting of the appeal due to delay in filing the appeal with Courts will throw out litigant at threshold from the doors of justice, which shall never be the endeavour of the Courts under the normal circumstances. At best when the delay is condoned, the appeal of litigan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 1961 Act, we are of the considered view that the AO did made proper inquiries and verifications before passing the said assessment order. The learned PCIT invoked revisionary powers u/s 263 of the 1961 Act mainly because there was substantial increase in capital and investments reflected by assessee in his Balance Sheet as compared to preceding year. In our considered view, the assessee has duly explained all the increase in the capital as well investments during the course of assessment proceedings conducted by the AO. These investments were all made in earlier years and were brought in the books of accounts of the assessee for the impugned assessment year as the same were not reflected by assessee in his balance sheet of the earlier years. The assessee has duly explained the sources of such investments made in the earlier years before the AO which has been duly recorded in Para No.4 of the Assessment Order passed by the AO. The AO also made inquiries with M/s. Avanti Leathers Ltd. which confirmed the transactions and balances and on such inquiries, the AO had found that the same was in order. The relevant portion of assessment order is reproduced in para 2.2 of this order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or those years. Merely because the item of investments of earlier years were not added in the Balance Sheet of that years will not give rise to its taxability, unless it is shown that it is out of undisclosed sources . The assessee has explained its sources before the AO as well learned PCIT. There is no allegation as to the investments being made out of undisclosed or undeclared sources. Thus, in our considered view no case is made out by learned PCIT for invoking extra-ordinary revisionary powers as are enshrined in the provisions of Section 263 of the 1961 Act as the assessment order passed by the AO cannot be termed as erroneous so far as prejudicial to the interest of Revenue. In this case, proper inquiries and verifications had been made by the AO and after such inquiries and verifications made, the AO accepted the contentions of the assessee and in our considered view . the revisionary order dated 03.01.2019 passed by ld.PCIT u/s 263 of the 1961 Act is not sustainable in the eyes of law as the assessment order dated 23.12.2016 passed by the AO u/s 143(3) cannot be termed as erroneous in so far as prejudicial to the interest of the Revenue. In these circumstances, we allow th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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