TMI Blog2023 (12) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT was of the opinion that profit derived from sale of shares is assessable under the head profits gains of business and profession - It is very clear that the assessee was maintaining two portfolios i.e. one for investment and another for trading and there was a clear demarcation in the books of accounts of the assessee in respect of both segments. Therefore, we are of the considered view that the assessee has rightly declared profit derived from purchase sale of shares under the head short term capital gains . But, it is only the Ld.CIT wrongly invoked his jurisdiction u/s. 263 of the Act, without pointing how why assessment order passed by the AO on the issue of profit derived from purchase sale of shares is incorrect and erroneous in so far as it is prejudicial to the interest of the Revenue. This, position is clarified by the CBDT in their Circular No.4/2007 dated 15.06.2007, where, various parameters have been prescribed for verification of share transactions and none of parameters prescribed by the Board is adversely affecting the transactions of the assessee. Board has very clearly stated that the tax payers can have two portfolios i.e. one for investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest of Revenue. 2. That on facts and in law the CIT erred in holding that the AO has not verified transaction of sale / purchase of shares offered to tax as Income from Capital Gain. 3. That on facts and in law the CIT has erred in setting aside the assessment and directing the AO to modify the same. 4. That on facts and in law the CIT erred in directing the AO to disallow deduction of Rs. 2,20,000/- claimed by the appellant u/s 35D of the Act. That the appellant prays for leave to add, alter, amend and/or vary the ground(s) of appeal at or before the time of hearing. 3. At the outset, we find that there is a delay of 1526 days in filing of the appeal before the Tribunal, for which, a petition for condonation of delay along with Affidavit explaining reasons for such delay has been filed. The Ld.Counsel for the assessee referring to petition filed by the assessee submitted that the delay in filing of the appeal is mainly due to wrong professional advice given by Mr.K.V.Srinivasan, CA, who was the Auditor Tax Consultant of the assessee s company, where he had advised the assessee s company not to file any appeal against the order of the Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Further, the assessee was advised by qualified team of professionals. Therefore, it cannot be said that the assessee got wrong professional advice, which is reason for not filing the appeals before the Tribunal within time allowed under the Act, is vague and beyond imagination. He further referring to Affidavit filed by Mr.K.V.Srinivasan submitted that the assessee is aware of filing petition before the Hon ble High Court the Hon ble Supreme Court and at the same time, claims that it does not know filing appeal before the Tribunal against the order passed u/s. 263 of the Act. Further, from the sequence of events, it is very clear that the assessee was pursuing alternate remedy available under the Act, when it does not get favourable results from the AO, has decided to file appeal against the order of the Ld.CIT passed u/s. 263 of the Act. Therefore, he submitted that there is no merit in petition filed by the assessee and same should be rejected. In this regard, he relied upon the decision of ITAT Chennai Bench in the case of Smt.Jumma Khan Pathar Nisha v. ITO in ITA No.983/Chny/2020 order dated 23.05.2022 and also in the case of Mrs.Preeti Madhok v. ITO in ITA No.752/Chny/202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was not pursing the matter at all, then, the Revenue s contention that the assessee has filed appeals deliberately with a delay of 1526 days appears to be correct. Because, as we have already discussed in our earlier paragraphs of this order, no person would get any benefit by not filing appeal against any assessment order or order passed u/s. 263 of the Act, rather, he or she would be in adverse position, if an appeal is not filed and challenged the assessment order or 263 order passed by the Ld.CIT. Therefore, we are of the considered view that there is a merit in the reasons given by the assessee in the petition for condonation of delay in filing of the appeals and which is supported by Affidavit filed by Mr.K.V.Srinivasan, CA, who had represented their case before the AO and the Ld.CIT. 3.3 Having said so, let us come back to legal precedents on the issue of condonation of delay. It is a well settled principle of law by the decision of various courts including the Hon ble Supreme Court in the case of Collector Land Acquisition Vs. Mst. Katiji Ors. reported in [1987] 167 ITR 471 (SC), where, the Hon ble Supreme Court clearly laid down the law in condonation of del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done the delay in filing of the appeals and admit appeals filed by the assessee for adjudication. 4. The brief facts of the case are that the assessee is a Non-Banking Finance Company (in short NBFC ) engaged in the business of investment in shares and Mutual Funds and also trading in shares securities. The assessee company had filed its return of income for the AY 2010-11 on 08.09.2010 declaring total income of Rs. 5,77,99,170/-. The case was taken up for scrutiny and notice u/s. 143(2) of the Act, dated 05.09.2011 notice u/s. 142(1) dated 07.02.2012, was issued calling for certain information. In response, Mr.K.V.Srinivasan, CA/Authorized Representative was present, from time to time, and furnished the information called for. The assessment has been completed u/s. 143(3) of the Act, on 25.04.2012, and accepted the income returned as per return of income, where the AO observed that as per the AIR information, the assessee company has invested in various Mutual Funds Shares, and the same was verified with the copies of bank statements and found to be correct, and after examining the information furnished, the assessment is completed accepting the income returned. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO and the AO has verified the same and accepted the claim of the assessee. Therefore, it cannot be said that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. 6. The Ld.CIT after considering relevant submissions of the assessee and also taken note of certain judicial precedents, including the decision of the Hon ble Andhra Pradesh High Court in the case of Spectra Shares Scrips (P.) Ltd. v. CIT-III reported in [2013] 36 Taxmann.com 348 and also the Circular of CBDT dated 15.06.2007, opined that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue on the issue of assessment of profit derived from purchase sale of shares under the head short term capital gains , disallowance u/s. 14A of the Act r.w.r.8D of the Income Tax Rules, 1962, and deduction claimed u/s. 35D of the Act, towards preliminary expenses. Therefore, set aside the assessment order passed by the AO and direct the AO to re-frame the assessment in accordance with law. The relevant findings of the Ld.CIT are as under: 6. There are three issues involved in this case. The issues are dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had a profit of Rs. 6,78,761/- on redemption which has been offered for tax and assessed. The profit on redemption is thus not an exempted income. Therefore, the assessee has taken opening investment as '0' and closing investment as Rs. 28,00,86,8397- arriving at average investment of Rs. 14,00,43,420/- and hence, the assessee company had argued that the disallowance made by the assessee company in the Return of Income for the AY 2010-11 is correct. The Assessing Officer is hereby directed to verify the assessee's claim and arrive at the correct disallowance as per the provisions of Sec. 14-A of the Income Tax Act, 1961 r.w. Rule 8D of the Income Tax Rules. (iii) The assessee company has declared a sum of Rs. 6,07,02,655/-under Short-Term Capital Gain, being the gain on sale of investments. A perusal of the details filed by the assessee during the course of assessment proceedings, for profit on sale of investments, it is observed that the assessee company during the previous year, has purchased 84,18,000 numbers of shares in various companies and has sold the entire 84,86,000 numbers of shares during the previous year i.e., the assessee has sold all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and u/s. 142(1) of the Act, dated 07.02.2012 submitted that the AO has called for various details in respect of purchase sale of shares. The assessee has filed all details in respect of computation of short term capital gains from purchase sale of shares. The AO verified details filed by the assessee with reference to AIR information and accepted the claim of the assessee with regard to short term capital gains . Therefore, it cannot be said that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. The Ld.Counsel for the assessee further submitted that the assessee is a NBFC involved in investment in shares Mutual Funds and also trading in shares securities right from beginning. The Department has accepted two portfolios i.e. one for investment and another for trading. The assessee is declaring short term capital gains and business profits for earlier assessment years also, and the Department has accepted the claim of the assessee. Further, the assessment for the AY 2006-07 has been reopened by the Department and the assessee has challenged notice issued u/s. 148 of the Act, in Writ before the Hon ble High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Year, which needs to be assessed under the head profits gains of business profession . The AO failed to apply his mind to relevant facts in right perspective of law which rendered the assessment order to be erroneous in so far as it is prejudicial to the interest of the Revenue, and thus, the CIT has rightly set aside the assessment order passed by the AO and their order should be upheld. 10. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The Ld.CIT has set aside the assessment order passed by the AO, u/s. 143(3) of the Act, dated 25.04.2012 in exercising his powers u/s. 263 of the Act, on the ground that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. The Ld.CIT has taken up three issues for revision proceedings and according to the Ld.CIT, the AO has failed to carry out necessary enquiries with regard to capital gains declared by the assessee from purchase sale of shares disallowance of expenditure relatable to exempt income u/s. 14A of the Act r.w.r.8D of the Income Tax Rules, 1962 and deduction claimed u/s. 35D of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m capital gains , relevant bank statements, etc. The AO has verified the transactions reported in AIR information with reference to various details filed by the assessee and has recorded categorical findings that the assessment has been completed after examining the information furnished with reference to income declared under the head short term capital gains . From the above, it is very clear that it is not a case of the Ld.CIT that the AO has not verified the issue at all. In fact, the Ld.CIT himself admits the fact that the AO called for necessary information and verified the details filed by the assessee with reference to AIR information reported in Income Tax Data Base. Therefore, we are of the considered view that the Ld.CIT erred in assuming jurisdiction u/s. 263 of the Act, because, it is not a case of lack of enquiry. No doubt, various courts, including the Hon ble Delhi High Court in the case of ITO v. D.G.Housing Projects Ltd., (supra) very clearly held that in a case of lack of enquiry, the powers of the Ld.CIT is wide, where he can set aside the assessment order. But, in a case of inadequate enquiry, the Commissioner cannot assume his jurisdiction and set aside the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for verification of share transactions and none of parameters prescribed by the Board is adversely affecting the transactions of the assessee. Further, the Board has very clearly stated that the tax payers can have two portfolios i.e. one for investment and another for trading, but there should be clearly demarcation in the books of accounts in respect of both portfolios. In this case, the assessee has filed all evidences to prove that it was having two portfolios and maintaining separate records for investment portfolios and trading portfolio. Therefore, we are of the considered view that the assessee has rightly declared short term capital gains towards profit derived from purchase sale of shares, and thus, the assumption of jurisdiction by the Ld.CIT fails on this issue. 14. At this stage, it is relevant to refer to certain judicial precedents. The assessee has relied upon the decision of the Hon ble Delhi High Court in the case of ITO v. D.G. Housing Projects Ltd., where, the Hon ble Delhi High Court had considered the issue and held as under: 10. Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances would make such an inquiry prudent that the word erroneous in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 13. In the said judgment, Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogi vs. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal vs. CIT (1973) 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. After reference to these two decisions, the Delhi High Court observed:- These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was discussed in the following manner (page 113): . . . From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue . It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (1). The 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 a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. The assessee had given detailed explanation in that regard by a letter in writing. All these are 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. Such decision of the Income-tax Officer cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. 16. 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 Section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 interest of Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of twin conditions viz. the assessment order should be erroneous and prejudicial to the revenue. By erroneous is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no occasion to exercise powers of revision can arise. Nor can revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. This power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry. [Para 6] In this case, during the assessment proceedings, the Assessing Officer issued a query memos to the assessee, calling upon him to justify the genuineness of the gifts. The assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their bank accounts. On perusal, the Assessing Officer was sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfied, consequent to making an enquiry and examining the evidence produced by assessee, establishing the identity and creditworthiness of the donor as also the genuineness of the gift. The Commissioner in his order of revision, did not indicate any doubt in respect of the genuineness of the evidence produced by the assesses. The satisfaction of the Assessing Officer on the basis of the documents produced was not shown to be erroneous in the absence of making a further enquiry. This is a case where a view has been taken by the Assessing Officer on enquiry. Even if this view, in the opinion of the Commissioner not correct, it would not permit him to exercise power under section 263. [Para 12] In view of above, revenue's appeal is dismissed. 16. The assessee had also relied upon the decision of the Hon ble Calcutta High Court in the case of CIT v. Merlin Holding (P) Ltd., where, the Hon ble Calcutta High Court held as under: The facts and circumstances of the case go to show that the assessee primarily was in the business of dealing in shares rather than in the business of investment. The frequency of transaction highlighted by the revenue is not decisive on eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cords placed by the assessee and after noting the submissions of the Chartered Accountant of the assessee, the assessment was completed and the stand taken by the assessee was accepted by the Assessing Officer. However, the plea raised by the assessee with regard to the cost of indexation benefit was not accepted and the Assessing Officer held that the assessee is allowed cost of indexation benefit only from the financial year 2011-12 as per Explanation (Hi) in section 48. The Commissioner had issued show cause notice under section 263. In the show cause notice, the Commissioner states that the figures mentioned by the assessee were culled out from the records, thus there was no other independent material which formed the basis of the show cause notice. The Commissioner opined that the expenses claimed by the assessee towards payment to the charitable institutions and others were not incurred wholly and exclusively in connection with the transfer of property and the same is not allowable. According to the Commissioner, the order passed by the Assessing Officer under section 143(3) is erroneous and prejudicial to the interest of revenue and therefore, he proposed to revise the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sily form an opinion that the order is based upon the interpretation which the Commissioner has given to the terms and conditions of the last will and testament of the assessee's father. Thus, it is evident that the Commissioner has made a roving enquiry and substituted his view to that of the view taken by the Assessing Officer who had done so after conducting an enquiry into the matter and after calling for all documents from the assessee, one of which is the last will and testament executed by the assessee's father. Therefore, this is not a case where the Commissioner could have invoked the power under, section 263. [Para 6] The last will and testament of the assessee's father has been gone through. He had appointed MSN. Advocate as the executor to give effect to the terms and conditions of the will and dispose of his properties-as stated-by him in the will. The executor was entitled to a sum of Rs. 50,000 as professional fee and all expenses for the due execution of the will from and out of the estate of the deceased testator. After setting out the details of his family and the property possessed by him, the testator states that he bequeaths the sale consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;thereafter' used in the order of the Tribunal nowhere occurs in the will. However, the testator's direction to sell the property was to the executor of the will and there was a specific direction, to the executor to pay specific sums of money to the charitable institutions, clear the property tax arrears, claim his professional fee, meet the stamp duty expenses and the remaining amount shall be paid to the assessee. Therefore, the misinterpretation of the intention of the testator in his will has resulted in an erroneous order passed by the Commissioner which order was erroneously confirmed by the Tribunal by the impugned order. [Para 8] The case on hand requires to be interpreted based on the intention of the testator for which purpose we have read the will as a whole to gather the intention of the testator which is clear and lucid. The testator bequeathed only portion of the sale consideration left over after effecting payments directed to be made by him. If the executor failed to honour the commitments, then the sale itself would be invalid. Furthermore, in the recitals in the sale deed, it has been clearly mentioned about the payments effected to all the charita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make an in-depth inquiry. As mentioned in the preceding paragraphs, the assessee has responded to the notice issued under section 142 and produced documents and records including their statement of total income wherein they had given the entire details including the receipts issued by the respective persons to whom payments were effected, all of which were through banking channels. Therefore, the finding rendered by the Commissioner was perverse which ought not to have been affirmed by the Tribunal more so for the reason that there was no evidence with regard to the expenses like professional fee, etc. The Tribunal failed to note that the assessee had produced the copies of the receipts signed by the respective party before the Assessing Officer who was satisfied with the same and in the absence, of any fraud being alleged with regard to the authenticity of those documents, the Commissioner could not have revised the assessment by invoking section 263. [Para 13] In the result, the appeal filed by the assessee is allowed and the substantial questions of law are answered in favour of the assessee. [Para 14] 18. Let us come back to case laws relied upon by the Ld.CIT-DR. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent appeal filed by the assessee against the order of the Ld.CIT(A) in pursuant to consequential assessment order passed by the AO u/s. 143(3) r.w.s.263 of the Act, becomes infructuous and thus, appeal filed by the assessee in ITA No.1852/Chny/2018 has been dismissed as infructuous. ITA No.2803/Chny/2019 22. The present appeal filed by the assessee against the order of the Ld.CIT dated 26.02.2014 passed u/s. 263 of the Act, relevant to AY 2010- 11 is a duplicate appeal, because, the assessee has filed a fresh appeal when the Tribunal has dismissed the appeal filed by the assessee in ITA No.2298/Chny/2018 against the order of the Ld.CIT u/s. 263 of the Act. Since, the Tribunal has recalled its order in ITA No.2298/Chny/2018 dated 26.08.2019 and decided the appeal filed by the assessee, the duplicate appeal filed by the assessee against the order of the Ld.CIT u/s. 263 of the Act, dated 26.02.2014 becomes infructuous and thus, the same has been dismissed as infructuous. 23. In the result, appeal filed by the assessee in ITA No.2298/Chny/2018 is allowed and ITA Nos.1852/Chny/2018 ITA No.2803/Chny/2019 are dismissed as infructuous. Order pronounced on the 12th da ..... X X X X Extracts X X X X X X X X Extracts X X X X
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