TaxTMI 
TaxTMI 
2025 (5) TMI 1564
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....ang/2024 for the AY 2016- 17 wherein the assessee has raised the following grounds of appeal: 1. GENERAL 1.1. The order passed by learned Assistant Commissioner of Income-tax, Special Range - 6 Bangalore, (hereinafter referred as "AO" for brevity) under section 143(3) of the Income- tax Act, 1961 ('Act' for brevity) and confirmed by the learned Commissioner of Income- tax, Appeals, National Faceless Appeal Centre (NFAC) (hereinafter referred as "CIT(A)" for brevity) ["AO" and "CIT(A)" collectively referred as "Lower authorities" for brevity] is bad in law and liable to be quashed. 2. GROUNDS RELATING TO THE CLASSIFICATION OF PURCHASE OF SHARES AS 'ADVENTURE IN THE NATURE OF TRADE': 2.1. The learned CIT(A) has erred in concurring with the conclusion of the learned AO that the purchase of 87,000 shares of Bharat Electronics Limited (BEL) by the Appellant during the previous year and subsequent sale thereof constitutes an 'adventure in the nature of trade'. 2.2. The Lower authorities have erred in (i) presuming that the Appellant had not bought the BEL shares as Investment; (ii) presuming that the Appellant's sole intention in buying and sell....
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....o enable the Income-tax Appellate Tribunal to decide the appeal according to law. . 2.1 The assessee has raised the following additional grounds of appeal: 1. The learned Assistant Commissioner of Income-tax, Special Range - 6, Bangalore ['AO' for brevity] has erred in expanding the scope of 'limited scrutiny' of the Appellant, covering additional issues that were not identified for examination under the scrutiny as per the notice issued under section 143(2) of the Income-tax Act, 1961 ['Act' for brevity]. 2. The learned AO has erred in expanding the scope of limited scrutiny of the Appellant without following the mandatory procedure laid down by the Central Board of Direct Taxes ['CBDT' for brevity] to expand the scope of a limited scrutiny or to convert it into a complete scrutiny. 3. The variations made in the assessment order under section 143(3), beyond the scope of limited scrutiny of the Appellant, are without jurisdiction and are hence liable to be deleted. 3. We have heard both the parties on admission of additional grounds. In our Opinion all the facts are already on record and there is no necessity of investigation of any fresh fac....
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.... - Rs. 20,24,90,717/-) was offered to tax. 4.1 Thereafter, the case of the assessee was selected for scrutiny and accordingly notice under section 143(2), 142(1) as well as 131 of the Act were issued. In response to notices & summon, the assessee appeared on various dates and filed submissions related to relevant details, particulars and clarifications as called for. Further in response to summon also the assessee appeared and a statement u/s 131(1A) was recorded. It is worthwhile here to note that the notice issued u/s 143(2) of the Act provided for the 'Limited Scrutiny'. The issues stated to be identified for examination were: i. Whether refund claim is justified. ii. Whether investment and income relating to foreign bank account are duly disclosed. 4.2 Finally, after taking into consideration the submission of the assessee, the AO, while passing the assessment order under section 143(3) of the Act, treated the transaction of purchase and sale of BEL shares as an adventure in the nature of trade. The AO stated that the purchase of BEL shares was made with a premeditated intention to sell 87,000 BEL shares upon allotment of bonus shares. The BEL shares (original and....
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....ovides that the scope of 'Limited Scrutiny' may be expanded only if the matter is placed before the PCIT/CIT and his approval is obtained. The notice under section 143(2) of the Act issued to the assessee provides for 'limited scrutiny'. The ld. A.R. submitted that the notice was meant to verify refund of Rs. 23,78,460/- claimed in the return. It was not meant to confer jurisdiction to scrutinize the transactions in BEL shares. 7.2 He further submitted that the AO has expanded the scope of 'limited scrutiny' without obtaining prior approval of the PCIT/CIT as provided in the CBDT order. As prior approval was not taken, the expansion of the scope of limited scrutiny is bad in law. The impugned variations arising as a result of the expanded scope, sans prior approval, are without jurisdiction. The assessment order as passed is therefore liable to be quashed. 8. The ld. D.R. on the other hand although admitted the fact that the case of the assessee was identified for limited scrutiny to verify whether refund claim is justified & whether investment and income relating to foreign bank account are duly disclosed. However, as the refund arises out of all the item....
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....ssues shall be forthwith communicated to the assessee concerned. b) The questionnaire under section 142(1) of the Act in "limited scrutiny" cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the "limited scrutiny" issues. c) These cases shall be completed expeditiously in a limited number of hearings. d) During the course of assessment proceedings in "limited scrutiny" cases, if it comes to the notice of the AO that there is potential escapement of income exceeding Rs. 5 lakhs (for Metro Rs. 10 lakhs) requiring substantial verification on any other issues then, the case may be taken up for complete scrutiny with the approval of the Principal CIT/CIT concerned. e) The Principal CIT/CIT shall accord the approval in writing after being satisfied about the merits of the issue necessitating "complete scrutiny". f) Further, such cases shall be monitored by the Range Head concerned and the procedure indicated at point No.(a), (b) & (c) above shall no longer remain binding in such cases. 9.4 Further the instruction No. 5/2016 dated 14.7.2016 state that in order to en....
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....ce u/s 142(1) of the Act dated 31.5.2018 had asked to submit details only with regard to high ratio of refund to TDS (part B-TTI of ITR) and large balance in foreign bank account (Schedule FA of ITR) along with the copy of Return, Computation of Income, Audited accounts & report as identified for the examination under 'limited scrutiny.' However, after the change in incumbency, on going through the notice u/s 142 (1) of the Act dated 5.10.2018 issued by the new AO, we find that AO has asked detailed questionnaire relating to number of shares purchased and sold along with the details of bonus shares and cost of acquisition as well as the details of dividend received, which in our view was not the issues identified for examination under the notice u/s 143(2) of the Act under the "limited scrutiny". We are further of the opinion that the AO has over stepped his jurisdiction without duly recording the reasons for expanding the scope of 'Limited Scrutiny'. The same also not placed before the Pr. CIT/CIT concerned for his approval & the assessee had also not been intimated that additional issue would also be considered during the course of pending assessment proceeding. If we consider th....
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....ze the transaction in BEL shares are not covered in the any of the issues identified for the examination under the "limited scrutiny". The examination of refund claim in a limited scrutiny cannot be construed as giving jurisdiction to a complete scrutiny. The AO has expanded the scope of "limited scrutiny" without following due procedure as directed under various instructions/orders. Therefore we are inclined to hold that the AO has exceeded his jurisdiction in disallowing the capital loss of Rs. 20,24,90,717/- and further determining the business loss of Rs. 44,91,482/- by allowing the assessee to set off against capital gain from acquisition of smartplay startup by aricent and accordingly we set a-side the order of the AO being without jurisdiction & bad in law. 9.12 As the additional grounds raised by the assessee are allowed and accordingly other ground of appeal on merits of the case are not adjudicated and are kept open. 10. In the result the appeal filed by the assessee is allowed. ITA No.2060/Bang/2024 (AY 2017-18): 11. Now, we take up ITA No.2060/Bang/2024 for the AY 2017- 18, wherein the assessee has the raised following grounds of appeal: 1. GENERAL 1.1. The or....
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.... the assessment proceedings; (iii) not appreciating that an objection to such jurisdiction was raised by the Appellant during the assessment proceedings. 4. GROUNDS RELATING TO PROCEEDINGS UNDER SECTION 147: 4.1. The learned CIT(A) has erred in confirming the order passed under section 147 consequent to the notice under section 148 issued by the JAO without any tangible material that suggests income has escaped assessment. 4.2. The learned CIT(A) has erred in not appreciating that (i) notice under section 148 was issued solely on the basis on the assessment order of AY 2016-17 and such borrowed satisfaction is not sufficient to confer power to initiate proceedings under section 147. (ii) the learned AU did not consider all objections filed by the Appellant against the reasons recorded for issuance of notice under section 148. 5. GROUND RELATING TO THE CONTINUANCE OF PROCEEDINGS UNDER THE ERSTWHILE REGIME OF REASSESSMENT UNDER SECTION 147: 5.1. The learned CIT(A) has erred in confirming the order passed by the learned AU under section 147 based on the notice under section 148 without appreciating that (i) reassessment in the Appellant's case should have been ....
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....t denies its liability to pay any interest under section 234A, section 234B and section 234C. The Appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute, or amend the above grounds of appeal, at any time before or at the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. 11.1 The assessee has raised the following additional grounds of appeal: 1. The learned Additional/Joint/Deputy/Assistant Commissioner of Income-tax, National Faceless Assessment Centre ['AO' for brevity] has erred in passing the final order under section 147 of the Income-tax Act ['Act' for brevity] without complying with the mandatory requirement of issuing a draft assessment order ('DAO') under section 144C(1) of the Act. 2. The assessment order under section 147 of the Act and the notice of demand under section 156 issued by the learned AO in violation of the mandatory procedure laid in section 144C are bad in law and liable to be quashed. 12. We have heard both the parties on admission ....
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....e were supplied and additional information were sought by the AO. The Assessee complied with the notices issued by the AO. Finally, the AO recharacterized the LTCG from sale of bonus shares to business income and denied the exemption claimed under section 10(38) of the Act and treated the same as business income amounting to Rs. 22,55,37,300/- & assessed on a total Income of Rs. 23,20,46,310/- 13.1 The AO passed the final assessment order on 29/03/2022 under section 147 of the Act without issuing a draft order under section 144C(1) of the Act to the Assessee. A notice under section 156 of the Act for demand of Rs. 12,94,74,425/- was also issued on the same date. 14. Aggrieved by the order of the AO, the Assessee preferred an appeal before the learned CIT(A)/NFAC. 15. The learned CIT(A)/NFAC upheld the action of AO in treating the transaction of sale of bonus shares of BEL as taxable under head Profits and Gains of Business. 16. Aggrieved by the order of the learned CIT(A)/NFAC, the assessee filed the appeal before this Tribunal. The assessee has also filed paper book & case law compilations in two volumes along with other material comprising 1039 pages. 17. Now first we take u....
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....sment order u/s 147 of the Act. Section 144C of the Act is a machinery provision which has been incorporated for the benefit of the assessee including the "eligible assessee". The non-resident Indian has been included in the definition of 'eligible assessee' u/s 144C (15)(b)(ii) of the Act w.e.f. 1st April, 2020 and therefore, the assessment proceeding in respect of a non-resident Indian undertaken after the said date are to be governed under the provisions of section 144C of the Act. Further, we are of the opinion that failure on the part of AO to follow procedure u/s 144C(1) is not merely a procedural or inadvertent error but a breach of a mandatory provision. The AO by not following the procedure laid down in section 144C(1) of the Act to pass and furnish a draft assessment order to the assessee and directly passing a final assessment order without giving assessee an opportunity to raise objection before the DRP is not mere a procedural irregularity but an incurable illegality and even provisions of section 292B of the Act would not protect such order as section 292B of the Act cannot be read to confer jurisdiction on assessing officer where none-exist as held by the Hon'ble Hig....
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....sessing Officer as it thinks fit for his guidance to enable him to complete the assessment in case the assessee has raised an objection. Under subsection (7) of Section 144C, it is open for the Dispute Resolution Panel to make further inquiries or have such inquiries made before issuing the directions referred to in sub-section (5). Sub- section (8) of Section 144C recognizes wide powers of the DRP to confirm, reduce or enhance the variations proposed in the draft order subject to the limitation that it shall not set aside any proposed variation or issue any direction under sub- section (5) for further inquiry. As per subsection (10) of Section 144C, every direction issued by the DRP would be binding on the Assessing Officer. Sub-section (13) of Section 144C further provides that upon receipt of the directions issued by the DRP under sub-section (5), the Assessing Officer shall in conformity with the directions complete the assessment without providing any further opportunity of being heard to the assessee. 6. These statutory provisions make it abundantly clear that the procedure laid down under Section 144C of the Act is of great importance and is mandatory. Before the Assessin....
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....on of income on the basis of transfer pricing mechanism. Such opportunity cannot be taken away by treating it as purely procedural in nature. 8. Reference by the Revenue to the circulars dated 03.06.2010 and 19.11.2013 in this regard would be of no avail. First of these circulars was an explanatory circular issued by the Finance Ministry in which it was provided that these amendments (which included Section 144C of the Act) are made applicable with effect from 01.10.2009 and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. In the latter clarificatory circular dated 19.11.2013, it was provided that in the earlier circular there was an inadvertent error and Section 144C would apply to any order which is being passed after 01.10.2009 irrespective of the concerned assessment year. The latter circular was thus merely in the nature of a clarificatory circular and clarified which all along was the correct position in law. Sub-section (1) of Section 144C itself in no uncertain terms provides that the Assessing Officer shall forward a draft order to the eligible assessee, if he proposes to make any variation in the income or loss which is pre....
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.... directions, as it thinks fit, for the guidance of the AO to enable him to complete the assessment. 28. Sec. 144C(6) provides that the DRP shall issue the directions referred to in sub-s. (5), after considering the following : (a) draft order; (b) objections filed by the assessee; (c) the evidence furnished by the assessee; (d) the report, if any, of the AO, Valuation Officer or TPO or any other authority; (e) records relating to the draft order; (f ) evidence collected by, or caused to be collected by, it; and (g) result of any inquiry made by or caused to be made by, it. 29. Sec. 144C(7) provides that the DRP may, before issuing any directions referred to in sub-s. (5), make such further inquiry, as it thinks fit; or cause any further inquiry to be made by any IT authority and report the result of the same to it. 30. Sec. 144C(8) provides that the DRP may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-s. (5) for further enquiry and passing of the assessment order. 31. In this case, there is no dispute that the provisions of s. 14....
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....also taken a view that special rights are made available to an eligible assessee under s. 144C of the said Act. These special rights contemplate the making of a draft assessment order under s. 144C by the AO before he makes a final assessment order under s. 143(3) of the said Act. Such a draft assessment order bestows certain rights upon an eligible assessee, such as to approach the DRP with its objections to such a draft assessment order. This is for the reason that an eligible assessee's grievance can be addressed before a final assessment order is passed and appellate proceedings invoked by it. However, these special rights were made available to eligible assessee under s. 144C of the said Act are rendered futile, if directly a final order under s. 143(3) of the said Act is passed, without being preceded by a draft assessment order. In such a situation, the assessment order made by the AO 'is completely without jurisdiction'. The Division Bench of this Court followed the decision of Andhra Pradesh High Court in M/s Zuari Cement Ltd. (supra) and based on the same, not only set aside the assessment order but also consequential order on rectification application, as well as the pen....