TMI Blog2023 (6) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... elines. Hence the revision order passed u/s 263 of the Act is to be quashed on this count also. Revision order passed by the PCIT u/s 263 of the Act deserves to be quashed both on law and also on merits - Decided in favour of assessee. - ITA No.636/Mum/2021 - - - Dated:- 21-2-2023 - SHRI M.BALAGANESH, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER For the Assessee : Shri. Rushabh Mehta For the Revenue : Shri K.C.Selvamani ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.636/Mum/2021 for A.Y.2012-13 preferred by the order against the revision order of the ld. Principal Commissioner of Income Tax-5, Mumbai u/s. 263 of the Act dated 30/03/2021 for the A.Y.2012-13. 2. The only issue to be decided in this appeal is asked whether the learned PCIT was justified in invoking revisional jurisdiction under section 263 of the Act on facts as well as on law. 3. We have heard the rival submissions and perused the materials available on record. The moot question to be decided in this appeal is as to whether the learned PCIT had validly assumed revision jurisdiction under section 263 of the Act both on law and also on merits. In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was mainly utilized for routing of funds and finally for wording entries to beneficiaries by crediting its account with the routed funds. On this count a trail has been prepared and on the basis of the same the following beneficiary has been detected. S No Name of the entity from whom fund has been transferred PAN F.Y. Name of the entity who received fund/PAN Amount (Rs. . ) 1. Anunay Sales Pvt Ltd AAICA4706G 2011-12 M/s. Pantime Finance Pvt Ltd (PAN- AAACP9097 M)- 15,00,000 Further from the ITD Application, it is gathered that M/s Pantime Finance Pvt Ltd is a regular IT Return filer. From the above table it is clear that the concern m/s. Pantime Finance Pvt Ltd was received funds to the tune of Rs. 15,00,000/- by way of routing materialized by Anunay sales Pvt. Ltd during the FY 2011-12 which requires further investigation analysis and verification by its respective jurisdictional assessing officer at his end. However the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti Finance Pvt Ltd under distinctive Nos. 1287021 to 1296521 @ Rs. 1000 per share as per allotment advice dated 05.04.2010. Out of these shares, the assessee has sold 5500 shares @ Rs. 1000 per share for Rs. 55,00,000/- to Tejaswini Vincom Pvt Ltd at cost and 1500 shares @ Rs. 1000 per share to Anunay Sales Pvt Ltd at cost. In effect, the entire 9500 shares were sold by the assessee at cost. The ld. AO in the re-assessment proceedings had further held that the transactions relating to purchase and sales have been made through regular banking channels and the shares were also disclosed in the balance sheet. Accordingly, the ld. AO did not make any addition in the entire re-assessment and accepted the return filed in response to notice u/s 148 of the Act in the reassessment completed u/s 143(3) read with section 147 of the Act on 20.11.2018. 3.4. Since the re-assessment order framed in the hands of the assessee was in favour of the assessee on merits, there is no question of challenging the same by the assessee. In other words, the fact that there was only reason to suspect and not reason to believe for the ld. AO while recording reasons, got further ratified by his own re-asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Out of these shares the assessee sold 5500 shares @ Rs. 1000/- for Rs. 55 lakh to Vincom Pvt Ltd at cost and 1500 shares Rs. 1000/ for Rs. 15 lakh is further seen that all the transactions relating to purchase and sales have been made through banking channel and also the shares were disclosed in the balance sheet and that there was no loss or gain from the transaction No additions has been made in this case with respect to penny stock sales as the AO has mentioned in the assessment order that sales have been made through banking channel and also the shares were disclosed in the balance sheet. However, the Standard Operating Procedures (SOP/ Guidelines) issued by the department for dealing with Penny stock cases has not been complied in this case 4. Therefore, it is clear that the assessment order passed u/s 143 (3) rws 147 of the Act dated 20.11.2018 is erroneous in so far as it is prejudicial to the interest of revenue within the meaning of Sec 263 of the Act. Hence it is proposed to revise the aforesaid order Us 263 of the Act 5. In this connection you are hereby given an opportunity of being heard and your case is fixed for nearing on 23.03.2020 at 12:30PM. On that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in that regard to respond in the revision proceedings u/s 263 of the Act. However, in the final concluding paragraph, the ld. PCIT did not direct the ld. AO to look into these issues. The ld. PCIT ignoring all the contentions of the assessee concludes that the ld. AO had not followed the procedures laid down with the Standard Operating Procedures (SOP) Guidelines issued by the CBDT for dealing with penny stock case, as during the year , the assessee has traded in penny scrip, M/s Aditi Finance Pvt Ltd. Accordingly, the ld. PCIT concluded that non-application of SOP guidelines of CBDT makes the order of the ld. AO erroneous and prejudicial to the interests of the revenue warranting revision u/s 263 of the Act. Hence the ld. PCIT passed an order setting aside the re-assessment order dated 20.11.2018 for denovo adjudication of the issue of sale of shares of Aditi Finance Pvt Ltd. 4. We find that in the appeal preferred against the section 263 order , the assessee has even challenged the validity of re-assessment u/s 147 of the Act by the ld. AO. As stated earlier, since the re-assessment proceedings resulted in no grievance to the assessee, the assessee did not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason to believe has rational connection with the formation of the belief. To the same effect, the Apex Court in ITO v. Lakhmani Merwal Das [1976] 103 ITR 437 had laid down that the reasons to believe must have rational connection with or relevant bearing on the formation of belief i.e. there must be a live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income. If the aforesaid requirement are not met, the Assessee is entitled to challenge the very act of re-opening of Assessment and assuming jurisdiction on the part of the Assessing Officer. 13. In this case, the reasons as made available to the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the ld. AO which has not been pointed out by the ld. PCIT while granting approval u/s 151 of the Act. 4.2.2. It is a fact that the assessment has already been framed in this case u/s 143(3) of the Act on 28.02.2015. But the ld. AO in response to Question No. 8 of the proforma says that the assessment is framed for the first time pursuant to reassessment. This is factually incorrect. This mistake committed by the ld. AO was not pointed out by the ld. PCIT while granting approval u/s 151 of the Act. 4.2.3. When the aforesaid mistakes committed by the ld. AO were not even pointed out by the ld. PCIT and the ld. PCIT grants approval for the same u/s 151 of the Act for reopening the assessment, the said approval could only be construed as a mechanical approval given by the ld. PCIT without due application of mind. Reliance in this regard has been rightly placed by the ld. AR on the decision of Delhi Tribunal in the case of Omkam Developers Ltd vs ITO in ITA Nos. 6862 7507/Del/2018 for A.Y. 2009-10 dated 11.05.2021, wherein it was held as under:- 10. We have heard rival submission of the parties on the issue in dispute raised in the cross appeals. As far as ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rietor/Signatory. There are other 19 outstation Branch Accountsn which are linked/connected to main 12 accounts and having non-related business/not in the same line of business accounts. During the financial year 2008-09, high, value cheques totaling around Rs. 2030 crore are deposit at outstation branches in these accounts. Subsequent to which on realisation of high value credit amount, debit internal transfer transaction of large value and in round figures has been, transacted within connected group/linked accounts. The cumulative turnover In 31 accounts discussed was reported to be 673 crores. B. VERIFICATION OF FACTS AND INVESTIGATIONS DONE: To verify in the STR, the Bank Accounts of all 31 accounts mentioned in the STR were requisitioned from the Bank and scrutinized. The 31 Bank accounts- were opened at different, branches of the Development Credit Bank. The following, facts emerged from the scrutiny of Bank Accounts: I. There were 7 Bank Accounts belonging to 6 entities in which cash of Rs. 15.26 crore was deposited in the F.Y.-2008-09: The cash deposited were swiftly Transferred to other entities through Cheques/RTGS. These-6 entities are proprietorships ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the beneficiaries or the recipient companies from the bank accounts of paper companies during F.Y. 2008-09 is details in Annexure-8. The A.O. of the all beneficiary (Annexure-B) companies is being appraised of regarding accommodation entry accepted by the companies in F.Y. 2008-09. Further, A.O. of V concerns listed in Annexure-C, C-l and S is also being intimated regarding, cash deposit and credit made in different bank controlled by them for taking necessary action. It appears that assessee M/s Omkam Developers Ltd. has received 'I bogus share capital/premium to the tune of Rs. 1.93 Crores. The Income Tax | Returns of the assessee were also examined and noticed that the share premium; of assesses was increased to Rs. 81,28,52,000/- in the relevant year from Rs. 17,69,50,000/-in the preceding year. As discussed in earlier paras, the assessee has obtained such entries through above mentioned modus-operandi, it is actually assessee's own money (cash) which was rotated through such channel. This cash was out of his unaccounted income. I have reasons to believe that an amount of Rs. 1.93 crores has escaped from the Assessment for the A.Y. 2009-10 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving at satisfaction of Learned Pr.CIT on the reasons recorded by the Assessing Officer. Even no evidences whether Ld PCIT examined the material relied upon by the Ld AO for reopening, was produced before us. In similar circumstances, Hon ble Delhi High Court in the case of NC Cable Ltd (supra) held that section 151 of the Act clearly stipulates that Learned CIT, who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The Hon ble High Court further observed that the mere appending of the expression approved‟ says nothing. It is not as if the CIT has to record elaborate reasons for agreeing with the noting put up but at the same time, satisfaction has to be recorded of the given case, which can be reflected in the briefest possible manner. The Hon ble High Court further observed that in that case the exercise appeared to have been the ritualistic and formal rather than meaningful, which is the rationale for safeguard of an approval by a high-ranking officer. Thus, in the instant case, mere mentioning of yes‟ for approval, without any other evidence of application of the mind, amounts to mechanical approval by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the assessee. 4.2.4. From the above order, it could be seen that the tribunal had considered the decision of Hon ble Delhi High Court in the case of NC Cables Ltd and decision of Hon ble Bombay High Court. Hence the reopening made by the ld. AO suffers from this legal infirmity. 5. Hence it could be safely concluded that the base order seeking to be revised i.e the re-assessment order dated 20.11.2018 itself is bad in law and is liable to be quashed due to various legal infirmities stated supra, then any subsequent proceedings on the said illegal base order also would get automatically quashed. Hence the revision order u/s 263 of the Act deserves to be quashed on this count also. 6. Even on merits of revision order passed by the ld. PCIT only says that M/s Aditi Finance Pvt Ltd is a penny stock and that SOP guidelines issued by CBDT had not been followed by the ld. AO while framing the reassessment. In this regard, it is pertinent to note that penny stock SOP guidelines have been issued by CBDT only in respect of listed scrips. In the instant case, Aditi Finance Pvt Ltd scrip is not listed in any stock exchange. We hold that the SOP guidelines issued by CBDT ca ..... 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