Ravindrakumar Hiralal Shah Vs PCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that adoption of one of the courses permissible in law which resulted in to loss of revenue cannot be treated as erroneous order and accordingly invocation of revision proceedings u/s 263 unjustifiable.
Facts- The case of the assessee was taken for scrutiny assessment and after calling for information by issuing notice under Section143(2) and 142(1) of the Income Tax Act and the assessment has been completed. AO added Rs. 4,48,530/- as the business income and Rs. 2,27,945/- as the speculative profit for the relevant assessment year.
This assessment order was revised by Ld. PCIT by issuing a show cause notice that AO failed to verify the details or any supporting documents with regard to the amount of Rs. 56,06,360/- considered as contract receipt by the assessee. As there was no details of such contract receipt, persons from whom received, mode of receipt, etc. Thus in view of the Explanation 2(a) of section 263 of the Act, the order passed by the Assessing Officer u/s. 143(3) of the Act was erroneous in so far as it is prejudicial to the interest of revenue and requires to be revised u/s. 263 of the Act.
After considering the above reply, the Ld. PCIT held that the assessment order passed by the A.O. is without making proper inquires and verification, which should have been made, therefore the assessment order is erroneous and prejudicial to the interest of revenue.
Being aggrieved, the present appeal is filed by the assessee.
Conclusion- Held that PCIT has not demonstrated in his order how the order passed by the Assessing Officer as erroneous order. The Assessing Officer has adopted one of the courses permissible in law, if it has resulted in loss of revenue, the same cannot be treated as an erroneous order which requires revision u/s. 263 of the Act. Therefore in our considered view, the invocation of Revision proceedings u/s. 263 of the Act itself unjustifiable, against the provisions of law and therefore, the same is hereby quashed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee as against the Revision order dated 31.03.2021 passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the Principal Commissioner of Income Tax, Ahmedabad-3, relating to the Assessment Year (A.Y) 2016-17.
2. The Registry is noted that there is a delay of 2 days in filing this appeal before the Tribunal. This appeal is filed on 01.06.2021 during the Covid-19, Corona period. The Hon’ble Supreme Court in suo motu Writ Petition (C) No. 3 of 2020 and in M.A. No. 29 of 2022 dated 10.01.2022 extend by the period of limitation from 15.03.2020 till 28.02.2022. Thus, there is no delay in filing the appeal before the Tribunal.
3. The brief facts of the case is that the assessee is an individual and derive income from partnership firm, brokerage from Kirti R Shah Share & Stock Brokers Pvt. Ltd. as sub-broker and income from other sources. The assessee filed its original Return of Income for the Assessment Year 2016-17 on 28/02/2017 declaring total income of Rs. 4,98,460/-. The assessee’s case was taken for scrutiny assessment and after calling for information by issuing notice u/s. 143(2) and 142(1) of the Act, assessment has been completed. The assessee submitted trading statement vide letter dated 09/11/2018, showing gross payment of Rs. 1,76,83,099/-, wherein payout received of Rs. 1,20,76,469/- from main broker of Bombay, thus net receipt of Rs. 56,06,630/-. The assessee, to avoid further litigation, to obtain peace of mind, to maintain liquidity of business as well as to maintain the client, voluntarily offered 8% income on the above net receipt of Rs. 56,06,630/- which comes to Rs. 4,48,530/-. The Ld. A.O. on verification of detail of transaction were called for from the main broker Kirti R Shah Share & Stock Brokers Pvt. Ltd. by issuing summons u/s. 133(6) held that the assessee has made profit of Rs. 2,27,945/- from speculative transaction and incurred loss of Rs. 25,96,337/- in the delivery based share transaction. Thus the Ld. A.O. added Rs. 4,48,530/-as the business income and Rs. 2,27,945/- as the speculative profit for the relevant assessment year and determined the total income of Rs. 11,74,930/- and demanded tax thereon.
4. This assessment order was revised by Ld. PCIT by issuing a show cause notice that the Assessing Officer failed to verify the details or any supporting documents with regard to the amount of Rs. 56,06,360/- considered as contract receipt by the assessee. As there was no details of such contract receipt, persons from whom received, mode of receipt, etc. Thus in view of the Explanation 2(a) of section 263 of the Act, the order passed by the Assessing Officer u/s. 143(3) of the Act was erroneous in so far as it is prejudicial to the interest of revenue and requires to be revised u/s. 263 of the Act and requested the assessee to provide the following details:
i) Copy of statements of all bank accounts held during the year under consideration.
ii) Copy of demat account, P&L account, Summary, Settlement summary (scrip wise). Statement of transaction cum holding alongwith copies of contract notes/bills raised by brokers.
iii) Working of capital gain or business income on sale of shares etc.
iv) Form No. 10DB showing value of transactions and STT paid
v) Ledger account in respect of pay out made to broker Kirit R Shah & Stock Brokers Pvt. Ltd highlighting the transactions in the bank account statement explaining the source of such payout with corroborative documentary evidences thereof.
(vi) Confirmation account from the above brokers.
5. In response to the show cause notice, the assessee filed its submission on 15/03/2021 and 23/03/2021 as follows:
With reference to the aforesaid subject matter, I am in receipt of notice of proposal revision u/s. 263 of the ITA on the scrutiny assessment passed vide order dated 20/12/2018. In this regard, 1 humbly object to the proposed revision proceedings on the following facts and merits of the case as below:
(1) Your goodselfs kind attention is drawn to the various replies filed and available on record that I have been doing business as sub-broker of various clients in listed securities, apart from income from various partnership firms from where I earn interest on capital and remuneration as business income. The business modus operandi as sub-broker has been to enter into securities transactions on behalf of clients against payments received for stocks bought by them through licensed terminal supplied by Kirit R. Shah and Stock Brokers Private Limited. Hence, on basis of turnover effected, 1 have received sub-brokerage from Shri Yogeshbhai Dahyalal Patel, broker of Kirit R. Shah and Stock Brokers Private Limited.
(2) Further, your goodself will appreciate the fact that details of clients who have entered into equity transactions including name, address, pan and confirmation of accounts are already on record with submission dated 21/11/2018. Hence, notice alleging that details of contract receipts, person from whom such receipts received, mode of receipt etc. is not available in scrutiny records is devoid of merit and facts of our case. I therefore request to drop the proceedings if the sole reason for proposing revision is on this ground alone. The AO on the basis of detailed scrutiny and verification alone has assessed the income @8% of such receipts by application of mind. The transactions as entered into are supported by contract notes, certificate issued in Form 10DB, confirmation of clients and broker who has independently confirmed the transactions made. Hence, by no stretch of imagination, it can be regarded as undisclosed/unexplained income on the basis of scrutiny records available on file.
Your goodselfs kind attention is drawn to the contra confirmatory account of the assessee from the main broker Kirti R Shah Share and Stock Broker P. Ltd., submitted during the assessment proceedings by me on 06/10/2018, the details of the account run as under.
(i) Opening balance of assessee on 01/04/2015 Rs. Nil.
(ii)Total debit in the account Rs. 4,82,83,339/-
(which consists of trading Bills amount debit Rs.36206810/-;
and banks account transactions debit amount Rs.12076469/-)
Whereas on the other hand;
(iii)Total Credit in this account Rs. 4,82,83,358/-
(which consists of bills transaction credit Rs.30600259/-;
and bank transaction credit Rs.17683099/-)
(iv) Closing Balance of account Rs. 41/- Dr.
It is pertinent to note that during assessment proceedings vide notice dated 22/10/2018, the learned AO asked the assessee the source of the above payment of Rs.1,76,83,099/-considering it as an investment of the assessee, then assessee filled detailed reply regarding the issue with reply letter dated 01/11/2018 and thus the AO was made aware the fact regarding the above issue, by furnishing the cash book of the assessee as well as by furnishing the details of clients who have entered into equity transactions including name, address, pan and confirmation of accounts are already on record with submission dated 21/11/2018. Thus, it is evident beyond doubt that not only details regarding the amount of Rs.56,06,630/- but the entire amount details for Rs.1,76,83,099/- were provided to AO during the assessment proceedings. Besides, this amount Rs.1,76,83,099/- were recorded in the books of accounts of the assessee and it is fully explained with reference to source also and so it never be regarded as unexplained/undisclosed income of the assessee. Further, it is worthwhile to mention that in equity grading contracts on recognized stock exchange the TDS provisions are not applicable.
Your goodself will appreciate the fact that during the assessment proceedings, a copy of Bank account of the assessee having current bank account no 221120110000002 of BANK OF INDIA visnagar branch was filled as on 24/05/2018. It is evident from this account the entire payment of Rs.1,76,83,099/- was made to main broker Kirti R shah Stock Broker P. Ltd. as reiterated throughout the assessment proceedings that the assessee had simply worked as a share Sub broker for the main broker Kirti R Shah stock broker P. Ltd. Further, whatever payment received by him from his customers were transferred or ultimately credited in the Bank account of Kirti R Shah stock broker P. Ltd., and thus assessee had not made any investment from this or any other bank account or in cash as enquired by the AO in the notice letter dated 22/10/2018. It is pertinent to note that being a share sub broker the assessee was entitled to 1% commission on total volume of trading in equity from his main broker, instead, had shown this income at Rs.1,71,570/- and then again by reply letter dated 19/12/2018 he had offered 8% income for the figure Rs.56,06,630/- (difference between bank transaction credit Rs.17683099/- and banks account transactions debit amount Rs.12076469/-) to buy peace, to avoid further litigation and in the interest of his business and further more to co op with the department he had paid the demand of Rs.2,22,120/- on the assessed income in time. Hence, at no stretch of imagination the order passed is either erroneous or prejudicial to the interest of revenue.
[3] I may draw your goodselfs kind attention to the fact that all the records as called for vide para 5 of the notice is available with scrutiny submissions as per summary below:
