Case Law Details
Sh. Sanjay Jain Vs PCIT (ITAT Chandigarh)
In the present set of cases, AO asked the assessees to furnish the relevant details relating to Long Term Capital Gain, Short Term Capital Gain, exemption u/s 10(36) of the Act, deduction u/s 57 of the Act and unsecured loans and the assessees furnished all the relevant documents which were examined by the AO who has taken a possible view. Therefore, it is our considered view that there was a due application of mind on the part of the AO in all the four cases and adequate and proper enquiries had been conducted by the AO in this regard and, therefore, the impugned orders passed u/s 263 of the Act have no feet to stand on. We are also in agreement with the argument of the Ld. Counsel that in the cases of Sanjay Jain & Sons and Shri Tarun Jain bearing ITA No. 141/Chd/2021 and 144/Chd/2021 no show cause notice u/s 263 was issued on account of unsecured loan and hence the Ld. PCIT could not have exercised his jurisdiction to set aside the case on the issues of unsecured loan in these two cases. Accordingly, we hold that the proceedings u/s 263 of the Act were bad in law in all the captioned four appeals and we quash the revisionary proceedings for the reason that the AO had made adequate enquiries is all the four cases and further the Ld. PCIT had not conducted any independent enquiry on his own before coming to an incorrect conclusion that the assessment orders were erroneous as being prejudicial to the interest of the revenue and were liable to be set aside.
Since we, have quashed the impugned orders passed u/s 263 of the Act for the reasons as given in the preceding paragraphs, we are not inclined to comment/adjudicate on the issue of requirement of revision of approval/s obtained under section 153D of the Act. We are also not inclined to comment/adjudicate on the issue of the Ld. PCIT having initiated the impugned proceedings on proposal/s initiated by the Assessing Officer.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
The above captioned four appeals are of the same family and by way of these appeals, the respective assessees have challenged the correctness of the order of Ld. Principal Commissioner of Income Tax, Central, Ludhiana (PCIT) pertaining to Assessment Year 2016-17, wherein, the Ld. PCIT has set aside the assessment orders passed by the Assessing Officer (AO) u/s 143(3) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) in respect of the captioned assessees and has held that the assessments, as framed by the Assessing Officer, were erroneous and prejudicial to the interest of revenue as the Assessing Officer had allegedly framed the assessments without making the requisite enquiries/verifications and without due application of mind by the Assessing Officer. Since, the four appeals involve a common issue; they were heard together and are being disposed of by this common order for the sake of convenience.
2.0 At the request of the Ld. AR, the case of Shri Sanjay Jain, (ITA NO.140/CHD/2021) is being taken as lead case. The following grounds have been raised in this appeal by the assessee:
1. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has erred in assuming jurisdiction under section 263 of the Income Tax Act and thereby setting aside the order of AO completed under section 143(3) of the Act with the direction to make the assessment de novo.
2. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has erred in assuming the jurisdiction under section 263 of the Income Tax Act by invoking the explanation 2 of section 263 of the Act without pointing out in which manner the inquiries or verification should have been made.
3. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has failed to consider the fact that before allowing exemption on account of long term capital gain on sale and purchase of shares, the AO has made detailed inquiries as required under law and also made inquiry regarding genuineness of the companies. As such, the observations of the learned Principal Commissioner of Income Tax (Central), Ludhiana that the assessment has been made without making any inquiry regarding allowability of exemptions on account of long term capital gain is against the facts and circumstances of the case.
4. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has failed to consider the fact that the assessment was made under section 143(3) of the Act by the AO after verifying the claim under section 57 of the Income Tax Act on account of payment of interest and also considering the history of the case that similar deduction has been allowed in the preceding six years for which the assessment has been made after search. Therefore, the finding of the learned Principal Commissioner of Income Tax (Central), Ludhiana that the assessment has been made without making any independent inquiries or investigation regarding the claim as per material on record shows that these expenses have no direct nexus with the taxable income is against the facts and circumstances of the case.
5. That the learned Principal Commissioner of Income Tax (Central),Ludhiana has failed to appreciate the fact that the assessee declared short term capital gain of Rs. 5,580/- on purchase and sale of gold coins on the same day and taxable at the maximum rate of income tax. As such, the assessment made by the AO is not erroneous and prejudicial to interest of revenue as observed by the learned Principal Commissioner of Income Tax (Central), Ludhiana.
6. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has not appreciated the fact that the assessee is old one, properties owned are also old, assessed year to year in the past and assessed accordingly. As such the assessment made on net annual value declared as per history of the case is not erroneous or prejudicial to interest of revenue as observed by the learned Principal Commissioner of Income Tax (Central), Ludhiana.
7. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has failed to consider the fact that the assessment was made under section 143(3) of the Act by the concerned AO after verifying the unsecured loans and making detailed inquiries. The loans were also verified by the Investigating Wing during post search inquiry made after the search. As such, the observations of the learned Principal Commissioner of Income Tax (Central), Ludhiana that the loans were not examined as per section 68 of the Income Tax Act are against the facts and circumstances of the case.
8. That the appellant craves to add or amend the grounds of appeal.
2.1 The Ld. AR submitted that in this case the return of income was filed on 13.07.2016 along with the computation of income showing Salary Income, Income from House Property, Short term capital gain on sale of gold coin/s and on the sale of shares of ‘Spice Jet Ltd.’, Long term gain on transfer of eligible equity shares of Virtual Global Education Ltd., {for which, the exemption has been claimed u/s 10(36) of the Income Tax Act} and Income from other sources, such as bank interest and interest from Royal Lifestyle Jewellers, etc. It was further submitted that based on this computation of Income, the Assessing Officer issued a notice u/s 142(1) of the Act along with a detailed questionnaire and in response thereto the assessee had filed a detailed reply. Our attention was drawn to the relevant pages in the Paper Book wherein the copy of the ITR, Computation of Income, questionnaire issued by the AO and the reply of the assessee along with the relevant annexures were placed. It was submitted that in response to the questionnaire, the assessee had filed copy of the ‘Demat Account”, details of loans and advances received and given and Capital gain report, etc.
2.2 It was further submitted by the Ld. AR that, thereafter, the AO issued another questionnaire wherein there was a specific query with regard to the ‘Long term capital gain’ on sale shares of Virtual Global Education Ltd., for which, the exemption had been claimed and also the justification of unsecured loans was asked for. The Ld. AR submitted that again a detailed reply was given by the assessee and it was brought to the notice of the Assessing Officer that, though, the long term capital gain was surrendered during the course of search for earlier assessment years, later on, it was retracted. Also, the ‘Annual Return’ of the company, namely Virtual Global Education Ltd. for Assessment Years (AY) 2014-15 and 2015-16 had been submitted to the Assessing Officer along with certain other connected documents, like ‘Demat Account’. It was submitted that details of unsecured loans had also been furnished for the period 01.04.2009 to 31.03.2016 i.e. from AY 2010-11 to AY 2016-17, and the ledger account of ‘Gold Coin’ for financial year 2015-16, showing the purchases, sales and payment had also been submitted before the Assessing Officer. It was submitted that all these transactions were through the banking channels.
2.3 It was further submitted by the Ld. AR that as regards the claim of deduction u/s 57 of the Act, the same has been regularly claimed from AY 2011-12 to AY 2017-18 and in this regard our attention was drawn to copies of the various assessment orders u/s 143(3) of the Act (which have been placed on record as per pages 182 to 305 of Paper Book, along with computations of Income in Paper Book-III). Our attention was drawn to the copy of computation of Income for AY 2017-18, wherein, the deduction u/s 57 has been allowed, after raising a specific query.
2.4 Our attention was also drawn to the copy of the order sheet entries to substantiate that specific queries were raised by the AO in respect of long term capital gain with the proceedings starting from 16.05.2017 and concluding on 17.10.2017 and that the assessment was completed after due application of mind by the AO and only after seeking the necessary approval u/s 153D of the Act as mandatorily required.
2.5 It was submitted by the Ld. AR that subsequently, the Ld. PCIT issued a show cause notice wherein he raised the issue with regard to the long term capital gain on Gold Coin for Rs. 5580/- and also on unsecured loan and income from house property. It was submitted that again the assessee submitted the required details along with documentary evidences before the Ld. PCIT and also demonstrated before him that the relevant information had been called for by the AO in this regard too, which had been duly and satisfactorily responded to by the assessee which would go to prove the assessee’s claim of deduction u/s 57 of the Act and would also establish the identity, genuineness and creditworthiness of the transactions relating to unsecured loans but Ld. PCIT merely set aside the issues without specifying what more details were required. Our attention was drawn to pages 162 to 174 of Paper Book-II, in order to substantiate that all such details were perused by the Assessing Officer. Similarly, for the Income from house property and Gold Coin, it was submitted that each and everything was borne out from the computation of income and the details submitted therein. The Ld. AR argued that the Ld. PCIT had merely set aside the original assessment without assigning any reason and by ignoring the voluminous details submitted before the AO and also subsequently before him. Thus, in nutshell, it was argued that the assessment had been framed after making due and dedicated enquiries and that the Assessing Officer has raised specific queries, which proves application of mind by the AO and, therefore, the proceedings u/s 263 were bad in law.
3.0 With respect to second assessee in the captioned appeals i.e. M/s Sanjay Jain & Sons in ITA 141/CHD/2021, the Ld. AR referred to the grounds of appeals which read as under:
1. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has erred in assuming jurisdiction under section 263 of the Income Tax Act and thereby setting aside the order of AO completed under section 143(3) of the Act with the direction to make the assessment de novo.
2. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has erred in assuming the jurisdiction under section 263 of the Income Tax Act by invoking the explanation 2 of section 263 of the Act without pointing out in which manner the inquiries or verification should have been made.
3. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has failed to consider the fact that before allowing exemption on account of long term capital gain on sale and purchase of shares, the AO has made detailed inquiries as required under law and also made inquiry regarding genuineness of the companies, therefore, the observations of the learned Principal Commissioner of Income Tax (Central), Ludhiana that the assessment has been made without making any inquiry regarding allowability of exemptions on account of long term capital gain is against the facts and circumstances of the case.
4. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has failed to consider the fact that the assessment was made under section 143(3) of the Act by the AO after verifying the claim under section 57 of the Income Tax Act on account of payment of interest and also considering the history of the case that similar deduction has been allowed in the preceding six years for which the assessment has been made after search. Therefore, the finding of the learned Principal Commissioner of Income Tax (Central), Ludhiana that the assessment has been made without making any independent inquiries or investigation regarding the claim as per material on record shows that these expenses have no direct nexus with the taxable income is against the facts and circumstances of the case.
5. That the appellant craves to add or amend the grounds of appeal.
3.1 The Ld. AR submitted that in this case also, identical issue is involved. It was submitted that in this case the return of income was filed by the assessee on 13.07.2016 along with the computation of income as well as the balance sheet and other particulars. It was submitted that in the computation of Income at pages 2 & 3, long term capital gain on shares of ‘Hind Securities’ and ‘Virtual Global Education Ltd.’ have been duly disclosed and the exemption has been claimed u/s 10(36) of the Act. It was submitted that details with regard to date of acquisition, date of transfer, full value of consideration and exemption having been claimed u/s 10(36) of the Act were given therein.
3.2 The Ld. AR further submitted that the. Assessing Officer had issued notice u/s 142(1) along with detailed questionnaire as per evidence placed at pages 7 to 9 of the ‘paper book’ including the issue with regard to deduction u/s 57 of the Act. It was submitted that a specific query had been raised by the AO requiring details of shares and Demat account for the purpose of verifying capital gain. The Ld. AR drew our attention to the reply filed by the assessee in response to the queries raised by the AO and submitted that all the requisite information including copy of Demat Account, ‘capital gain report’ and ledger accounts of shares of Hind Securities and of Virtual Global Education was filed before the AO.
3.3 The Ld. AR further submitted that, thereafter, the AO issued another questionnaire specifically requiring the assessee to explain the long term capital gain for which exemption had been claimed u/s 10(36) of the Act and in response thereto the assessee had again submitted voluminous documents including copy of shares dealt in by the assessee. Our attention was drawn to copy the said reply which was placed in the paper book. With respect to the AO’s specific query regarding unsecured loans, it was submitted that details of ‘unsecured loans’ for the AY 2016-17 had been filed along with confirmed copy of account and the bank statement of one fresh credit in the name of Sh. Jaideep Nayyar. It was also submitted that the annual report of the Company ‘M/s Virtual Global Education Ltd.’, for AY 2014-15 and AY 2015-16 had also been submitted.
3.4 Our attention was also drawn to the copy of the order sheet entries to substantiate that specific queries were raised by the AO in respect of long term capital gain with the proceedings starting from 16.05.2017 and concluding on 17.10.2017 and that the assessment was completed after due application of mind by the AO and only after seeking the necessary approval u/s 153D of the Act as mandatorily required. Our attention was also drawn to the comments of the Ld. Additional Commissioner of Income Tax, who, while granting approval u/s 153D had mentioned that the seized records were discussed from time to time and also full enquiry was conducted.
3.5 It was submitted that after the passing of the Assessment Order, subsequently, the Ld. PCIT issued show-cause notice wherein he raised the issue with regard to the ‘Long Term Capital Gain’ for which, the exemption u/s 10(36) had been claimed as well as the issue of deduction claimed u/s 57 of the Act. The Ld. AR submitted that the assessee gave a detailed response to the show cause notice demonstrating that the AO had conducted adequate enquiries on both the issues mentioned in the show cause notice but the Ld. PCIT did not give any thoughtful consideration to the submissions made by the assessee but passed the impugned order in a summary manner, without any evidence on record and on the basis of the fact that the assessee had been claiming exemption u/s 10(36) of the Assessee in the earlier years and on the basis of the surrender made in the earlier years (which was factually incorrect) setting-aside the issue to the file of the Assessing Officer. It was submitted that on the issue of unsecured loans as well as deduction claimed u/s 57 of the Act, the Ld. PCIT set aside the issues to the file of the AO without appreciating the queries raised by the AO in this regard as well as the replies filed by the assessee along with the relevant evidences before the AO.
3.6 Similar arguments as in the case of Shri Sanjay Jain were advanced before us and on the issue of unsecured loans, it was argued that no show cause notice was given on the issue and, as such, the finding recorded by the Ld. PCIT deserved to be quashed as without issuing show cause notice, no adverse finding could have been given by the Ld. PCIT. Thus, in nutshell, it was argued that the assessment had been framed after making due and dedicated enquiries and that the Assessing Officer has raised specific queries, which proves application of mind by the AO and, therefore, the proceedings u/s 263 were bad in law.
4.0 With respect to the third assessee in the captioned appeals i.e. Smt. Rajni Jain in ITA 142/CHD/2021, the Ld. AR referred to the grounds of appeals which read as under:
1. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has erred in assuming jurisdiction under section 263 of the Income Tax Act and thereby setting aside the order of AO completed under section 143(3) of the Act with the direction to make the assessment de novo.
2. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has erred in assuming the jurisdiction under section 263 of the Income Tax Act by invoking the explanation 2 of section 263 of the Act without pointing out in which manner the inquiries or verification should have been made.
3. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has failed to consider the fact that before allowing exemption on account of long term capital gain on sale and purchase of shares, the AO has made detailed inquiries as required under law and also made inquiry regarding genuineness of the companies, therefore, the observations of the learned Principal Commissioner of Income Tax (Central), Ludhiana that the assessment has been made without making any inquiry regarding allowability of exemptions on account of long term capital gain is against the facts and circumstances of the case.
4. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has failed to consider the fact that the assessment was made under section 143(3) of the Act by the AO after verifying the claim under section 57 of the Income Tax Act on account of payment of interest and also considering the history of the case that similar deduction has been allowed in the preceding six years for which the assessment has been made after search. Therefore, the finding of the learned Principal Commissioner of Income Tax (Central), Ludhiana that the assessment has been made without making any independent inquiries or investigation regarding the claim as per material on record shows that these expenses have no direct nexus with the taxable income is against the facts and circumstances of the case.
5. That the appellant craves to add or amend the grounds of appeal.
4.1 The Ld. AR submitted that in this case the return of income was filed by the assessee on 13.07.2016 along with computation of income including the balance sheet. He drew our attention to the computation wherein the Long Term Capital Gain on sale of shares of ‘Hind Securities’ and ‘Virtual Global Education Ltd.’ and the exemption claimed u/s 10(36) of the Act has been mentioned. He pointed out that all relevant details with regard to date of acquisition, date of transfer, full value of consideration and exemption having been claimed u/s 10(36) have been given therein.
4.2 The Ld. AR further submitted that the Assessing Officer had issued notice u/s 142(1) of the Act along with detailed questionnaire requiring the assessee to explain the deduction u/s 57 of the Act as well as provide copies of the Demat account, shares traded and the evidences in respect of capital gain exemption and in response the assessee had submitted the required details. Our attention was drawn to copy of the questionnaire as well as the reply thereto placed in the paper book. It was submitted that the detailed reply of the assessee along with the evidences was duly perused by the AO during the course of assessment proceedings.
4.3 It was further submitted by the Ld. AR that subsequently, the AO issued another questionnaire wherein a specific query regarding Long Term Capital Gain was raised and the exemption claimed u/s 10(36) of the Act was also required to be explained further.. The AO also required the assessee to justify the ‘unsecured loans’. The Ld. AR submitted that in response, again a detailed reply was given wherein it was mentioned to the Assessing Officer that the offer was made for surrender of the capital gain for AYs 2013-14 & 2014-15 had been retracted. Also the specific information called for by the AO was also provided. Our attention was drawn to the copy of the second questionnaire and the reply thereto which had been placed in the paper book.
4.4 Our attention was also drawn to the copy of the order sheet entries to substantiate that specific queries were raised by the AO and it was submitted that the assessment was completed after due application of mind by the AO and only after seeking the necessary approval u/s 153D of the Act as mandatorily required. Our attention was also drawn to the comments of the Ld. Additional Commissioner of Income Tax, who, while granting approval u/s 153D had mentioned that the seized records were discussed from time to time and also full enquiry was conducted.
4.5 Thereafter, our attention was drawn to the impugned order wherein the copy of the show cause notice issued u/s 263 of the Act has been reproduced and it was submitted that in the said reproduction only two issues were mentioned that being Long Term Capital Gain and deduction u/s 57 of the Act whereas in the original show cause notice issued and placed at Pages 71 to 73 of the Paper Book there were two more issues i.e. one with regard to unsecured loan raised from Swagat Trading and the other on account of ‘Income from House Property’. It was submitted that, the Ld. PCIT has not given any adverse finding with regard to the Income from House Property while passing the order u/s 263. The Ld. AR submitted that the assessee gave a detailed response to the show cause notice demonstrating that the AO had conducted adequate enquiries on the issue of Long Term Capital Gain, exemption u/s 10(36) of the Act, deduction u/s 57 of the Act as well as on unsecured loans but the Ld. PCIT did not give any thoughtful consideration to the submissions made by the assessee but passed the impugned order in a summary manner, without any evidence on record and on the basis of the fact that the assessee had been claiming exemption u/s 10(36) of the Assessee in the earlier years and on the basis of the surrender made in the earlier years (which was factually incorrect) setting-aside the issue to the file of the Assessing Officer. It was submitted that on the issue of unsecured loans as well as deduction claimed u/s 57 of the Act, the Ld. PCIT set aside the issues to the file of the AO without appreciating the queries raised by the AO in this regard as well as the replies filed by the assessee along with the relevant evidences before the AO.
5.0 With respect to the fourth assessee in the captioned appeals i.e. Shri Tarun Jain in ITA 144/CHD/2021, the Ld. AR referred to the grounds of appeals which read as under:
1. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has erred in assuming jurisdiction under section 263 of the Income Tax Act and thereby setting aside the order of AO completed, under section 143(3) of the Act with the direction to make the assessment de novo.
2. That the learned Principal Commissioner of Income Tax (Central)) Ludhiana has erred in assuming the jurisdiction under section 263 of the Income Tax Act by invoking the explanation 2 of section 263 of the Act without pointing out in which manner the inquiries or verification should have been made.
3. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has failed to consider the fact that before allowing exemption on account of long term capital gain on sale and purchase of shares, the AO has made detailed inquiries as required under law and also made inquiry regarding genuineness of the companies, therefore, the observations of the learned Principal Commissioner of Income Tax (Central), Ludhiana that the assessment has been made without making any inquiry regarding allowability of exemptions on account of long term capital gain is against the facts and circumstances of the case.
4. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has failed to consider the fact that the assessment was made under section 143(3) of the Act by the AO after verifying the claim under section 57 of the Income Tax Act on account of payment of interest and also considering the history of the case that similar deduction has been allowed in the preceding six years for which the assessment has been made after search. Therefore, the finding of the learned Principal Commissioner of Income Tax (Central), Ludhiana that the assessment has been made without making any independent inquiries or investigation regarding the claim as per material on record shows that these expenses have no direct nexus with the taxable income is against the facts and circumstances of the case.
5. That the learned Principal Commissioner of Income Tax (Central), Ludhiana has failed to appreciate the fact that the assessee declared short term capital gain of Rs. 4,650/-on purchase and sale of gold coins on the same da\ and taxable at the maximum rate of income tax. As such, the assessment made by the AO is not erroneous and prejudicial to the interest of revenue as observed by the learned Principal Commissioner of Income Tax (Central), Ludhiana
6. That the appellant craves to add or amend the grounds of appeal.
5.1 The Ld. AR submitted that the facts of this case are identical to the facts in the case of Shri Sanjay Jain. It was submitted that in this case the return of income was filed by the assessee on 13.07.2016 along with computation of income including the balance sheet. He drew our attention to the computation wherein the Short Term Capital Gain in respect of Gold Coin and Long Term Capital Gain on sale of shares of ‘Spice Jet Ltd’, ‘Hind Securities’ and ‘Virtual Global Education Ltd.’ and the exemption claimed u/s 10(36) of the Act has been mentioned. He pointed out that all relevant details with regard to date of acquisition, date of transfer, full value of consideration and exemption having been claimed u/s 10(36) have been given therein.
5.2 The Ld. AR further submitted that the Assessing Officer had issued notice u/s 142(1) of the Act along with detailed questionnaire requiring the assessee to explain the deduction u/s 57 of the Act as well as provide copies of the Demat account, shares traded and the evidences in respect of capital gain exemption and in response the assessee had submitted the required details. Our attention was drawn to copy of the questionnaire as well as the reply thereto placed in the paper book. It was submitted that the detailed reply of the assessee along with the evidences was duly perused by the AO during the course of assessment proceedings.
5.3 It was further submitted by the Ld. AR that subsequently, the AO issued another questionnaire wherein a specific query regarding Long Term Capital Gain was raised and the exemption claimed u/s 10(36) of the Act was also required to be explained further.. The AO also required the assessee to justify the ‘unsecured loans’. The Ld. AR submitted that in response, again a detailed reply was given wherein it was mentioned to the Assessing Officer that the offer as made for surrender of the capital gain for AYs 2013-14 & 2014-15 had been retracted. Also the specific information called for by the AO was also provided. Our attention was drawn to the copy of the second questionnaire and the reply thereto which had been placed in the paper book.
5.4 Our attention was also drawn to the copy of the order sheet entries to substantiate that specific queries were raised by the AO and it was submitted that the assessment was completed after due application of mind by the AO and only after seeking the necessary approval u/s 153D of the Act as mandatorily required. Our attention was also drawn to the comments of the Ld. Additional Commissioner of Income Tax, who, while granting approval u/s 153D had mentioned that the seized records were discussed from time to time and also full enquiry was conducted.
5.5 Thereafter, our attention was drawn to the show cause notice issued u/s 263 of the Act wherein the Ld. PCIT has raised the issues of Short Term Capital Gain, Long Term Capital Gain, exemption u/s 10(36) of the Act and deduction claimed u/s 57 of the Act. The Ld. AR submitted that the assessee gave a detailed response to the show cause notice demonstrating that the AO had conducted adequate enquiries on the issue of Long Term Capital Gain, exemption u/s 10(36) of the Act, deduction u/s 57 of the Act as well as on unsecured loans but the Ld. PCIT did not give any thoughtful consideration to the submissions made by the assessee but passed the impugned order in a summary manner, without any evidence on record and on the basis of the fact that the assessee had been claiming exemption u/s 10(36) of the Assessee in the earlier years and on the basis of the surrender made in the earlier years (which was factually incorrect) setting-aside the issue to the file of the Assessing Officer. It was submitted that on the issue of unsecured loans as well as deduction claimed u/s 57 of the Act, the Ld. PCIT set aside the issues to the file of the AO without appreciating the queries raised by the AO in this regard as well as the replies filed by the assessee along with the relevant evidences before the AO.
6.0 It was submitted by the Ld. AR that the factual matrix in all the cases was identical in as much as the Ld. PCIT completely chose to ignore the fact that the AO, in all the cases, had made proper and adequate enquiries and the assessee had given proper responses in all the cases which were duly supported by evidences and that it was only after considering theses evidences and responses, the AO had completed the assessments and that too after obtaining the necessary approval under the scheme of the Act. It was argued that in all these appeals, the Ld. PCIT had merely acted on surmises and conjectures and had completely ignored the record before him and, therefore, the proceedings u/s 263 of the Act were bad in law and were liable to be quashed. It was argued by the Ld. AR that where the Assessing Officer has specifically raised queries during the assessment proceedings, which proves the application of mind, then, such assessment proceedings cannot be held to be erroneous and prejudicial to the interest of revenue in terms of section 263 of the Act. Reliance was placed on the order of the Chandigarh Bench of this Tribunal in the case of Shri Surinder Pal Singh in ITA No. 57/Chd/2021, vide order dated 31.01.2022, wherein after examining the various case laws and the latest judgments, the order as passed by the PCIT u/s 263 was set aside. The Ld. AR also placed reliance on the following judicial precedents:
(i) Venkatesh Technokraft Pvt. Ltd., in ITA No. 1464/Chd/2018
(ii) Manisha Ajay Shah in ITA No. 3001/MUM/2019
(iii) Pramod Kasharichand Shah in ITA No. 43/SRT/2018
(iv) CIT vs. Anil Kumar Sharma reported in 335 ITR 83 Delhi-HC
(v) CIT vs. Hindustan Marketing & Advertising Co. Ltd. reported in 341 ITR 180 Delhi-HC
(vi) CIT Vs Late Shri Vijay Kumar Koganti reported in 195 DTR 428 Madras High Court.
(vii) M/s DTE Exports Pvt. Ltd. Vs Pr. CIT (ITAT Visakhapatnam).
6.1 Reliance was placed on numerous other judicial precedents copies of which have been enclosed in the paper book and the same have been taken on record.
6.2 It was further contended by the Ld. AR that proceedings u/s 263 can be invoked only on the personal satisfaction of the Ld. PCIT and it was brought to our notice that in the present cases the proposals u/s 263,were moved by the AO to Ld. PCIT for invoking provision of Section 263 (copies of which have been placed in the paper books of each assessee) and, thereafter, the Ld. PCIT, on the basis of the said proposals, issued a notice u/s 263, and, thus, it was argued that the observation of the Ld. PCIT in the impugned order that he had occasion to peruse the assessment record is not correct. Reliance was placed on the order of the ‘Amritsar Bench’ of the ITAT in the case of ‘Ambey Construction’ in ITA No. 208/Asr/2017 vide order dated 07.05.2019, wherein the order of the Ld. PCIT u/s 263 was quashed as having been passed on the basis of the proposal given by the AO. Similar reliance was placed on the following judicial precedents:
-Manish Chirani vs. PCIT in ITA No. 1161/Kol/2019
-John Galt International vs. PCIT in ITA No. 2155/Mum/2017
-Span Overseas Ltd. vs. CIT in ITA No. 1233/PN/2013
– Priyank Sharma vs. CIT in ITA No. 347/JP/2013
-Alfa Laval Lund AB Vs CIT (International Taxation) reported in 210 DTR 313.
6.3 The Ld. AR also argued that the impugned orders were liable to be set aside on another ground also for the reason that the orders of assessment had been passed on the basis of ‘approval’ given by the Addl. Commissioner of Income Tax u/s 153D of the Act and that as per the order of the ‘Delhi Bench’ of ITAT in the case of .Pankaj Bansal in ITA No. 383/Del/2021 & Ors. it has been held that without revising the order of the Addl. Commissioner of Income Tax u/s 153D of the Act, no valid order u/s 263 could be passed by the Ld. PCIT.
6.4 The Ld. AR concluded his arguments by submitting that the orders of assessment in all cases were passed after making due enquiries, verification and due application of mind by the Assessing Officer and, therefore, the orders, as passed u/s 263 of the Act, by the Ld. PCIT deserved to be set-aside.
7.0 Per contra, the Ld. CIT (DR) at the very outset stated that no balance sheet, trading account and profit & loss account have been filed in respect of the companies whose shares have been traded by the assessees and on which long term capital gain has been claimed to have been earned and, therefore the genuineness of the transactions was doubtful. Further, the Ld. CIT (DR) also submitted that no STT had been paid by the assessees. With respect to the deduction u/s 57 of the Act and genuineness of unsecured loan/s, he relied upon the order of the Ld. PCIT. With respect to the approvals u/s 153D of the Act not having been revised, reliance was placed on the order in the case of Kapil Mehta passed by the Delhi Bench of ITAT, bearing ITA No. 533/2021 vide order dated 11.10.2021 wherein, after considering the judgment in the case of Pankaj Bansal (supra), finding has been given in favour of the revenue. While supporting the order of the Ld. PCIT, the Ld. CIT DR vehemently argued that the AO had failed to make the requisite enquiries in all the four cases and, therefore, the assumption of jurisdiction u/s 263 of the Act and subsequent setting aside of the assessments was legally valid and justified.
8.0 In rejoinder, the Ld. AR submitted that what more enquiries were required to be made by the Assessing Officer has not been mentioned by the Ld. PCIT and that he has merely set-aside the assessments in a summary manner and nothing adverse has been pointed out by the Ld. PCIT of the details furnished before the Assessing Officer. It was further brought to our notice that STT stands paid as per the evidence/s furnished in the paper book and, thus, the argument of the Ld. CIT (DR) on this context was not correct. Further, it was argued that the Ld. CIT (DR) cannot substitute, what has not been mentioned in the order u/ s 263 and that there was nothing in the show-cause notice/s issued by the Ld. PCIT with regard to providing balance sheet/s, trading account/s, profit & loss account/s of the companies whose shares have been traded by the assessees.
9.0 We have heard the rival contentions and have also perused records as well as the paper books filed by the assessees in support of their contention that the AO had made adequate enquiries during the course of assessment proceedings and further in support of their claim that the assesses had submitted all relevant documents and evidences in response to the queries raised by the AO in all the four cases. Undoubtedly, the four cases are identical on facts in as much as the returns filed by the assessees were filed showing identical transactions, the AO issued similar questionnaires, the Ld. PCIT also issued similar show cause notices and the impugned orders were also passed on identical reasoning. We have duly considered the assessment orders in all the four cases and at the very outset it can be seen that all the issues which were the subject matter of the show cause notices issued by the Ld. PCIT had already enquired into by the Assessing Officer and he, after duly considering the voluminous documents and evidences furnished by the assessees, reached a conclusion after due application of mind. It is a matter of record that specific queries were raised by the AO and voluminous details were filed in respect of ‘Long Term Capital Gain’. Complete details regarding unsecured loans were also called for and duly furnished by the assessees. Similarly, details with regard to sale and purchase of gold coin, income from house property and deduction u/s 57 of the Act were duly called for by the AO and the assessees made due compliance in this regard too. It is also not the case of the Department that the assessees did not discharge their onus before the AO. It is also seen that the claim/s u/s 57 of the Act have consistently been allowed in the earlier as well as later assessment years by raising specific queries and no specific reasons have been given for setting aside this issue to the file of the Assessing Officer. It is also borne out from records that the offer for surrender on account of Long Term Capital Gain for AY 2013-14 and 2014-15 had been retracted as is evident from the Order of the ITAT in ITA Nos. 625 & 626/Chd/2019, placed at Paper Book pages 1 to 40. Therefore, we are unable to concur with the view taken by the Ld. PCIT that the AO had not conducted necessary enquiries prior to the passing of the assessment orders. We also do not agree with the argument advanced by the Ld. CIT DR that there was a non-application of mind on the part of the AO.
9.1 At this juncture, it would be relevant to make a reference to the judgment of the Hon’ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd reported in [2011] 332 ITR 167 (Del.) wherein the Hon’ble Delhi High Court has ruled that one has to keep in mind the distinction between ‘lack of inquiry’ and ‘inadequate inquiry’ and further if there was any inquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass orders u/s 263 of the Act, merely because he has a different opinion in the matter. It was further held by the Hon’ble Delhi High Court that if any Assessing officer, acting in accordance with law, makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately.
9.2 Similar were the observation of the Hon’ble Delhi High Court in the case of ITO Vs. DG Housing Projects Ltd [2012] 343 ITR 329 (Del). In this case, the Hon’ble Delhi High Court went on to observe that in case where there is in-adequate inquiry but no lack of inquiry, the CIT must give and record a finding that the order/enquiry made is erroneous and that this can happen only if an inquiry and verification is conducted by the CIT. The Hon’ble Delhi High Court in the case of ITO Vs. DG Housing Projects Ltd (supra) also held that in most cases of alleged ‘inadequate inquires’ it will be difficult to hold that the order of the Assessing officer, who had conducted enquiries and had acted as a Investigator, is erroneous, without the CIT conducting verification /inquiry himself. However, in the present cases, no such inquiry has been carried out by the Ld. PCIT and he has simply directed the Assessing officer to carry out detailed inquires. In our considered opinion, the Ld. PCIT, without making further inquiries on his own account, has simply stated in the impugned orders that the Assessing officer was required to make more inquiries. The Ld. PCIT has not pointed out as to what further inquiries was the Assessing officer required to make and as to how without those inquires the ordesr of the Assessing officer were erroneous in so far as prejudicial to the interest of the Revenue.
9.3 Similarly, the Hon’ble Delhi High Court in the case of DIT Vs. Jyoti Foundation [2013] 357 ITR 388 (supra) held as under:
“that inquiries were certainly conducted by the Assessing Officer. It was not a case of no inquiry. The order under section 263 itself recorded that the Director felt that the inquiries were not sufficient and further inquiries or details should have been called for. The inquiry should have been conducted by the Director himself to record the finding that the assessment order was erroneous. He should not have set aside the order and directed the Assessing Officer to conduct the inquiry.”
9.4 In the present cases also, the A.O. made the requisite enquiries, therefore, these are not cases of no enquiry and if the Ld. Pr. CIT was not satisfied with the enquiries made by the AO, he should have conducted the enquiries himself to record the findings that the assessment orders were erroneous and he should not have simply set aside the orders passed by the AO directing him to conduct the further enquiries.
9.5 On identical issue, the Hon’ble Jurisdictional High Court in the case of CIT vs. M/s Unique Autofelts (P) Ltd (2009) 30 DTR 231 (P&H) held as under:
“5. From the finding of the Tribunal, it is clear that the assessee had given proper explanation by filing the necessary confirmations. In view of such a finding, the Tribunal rightly held that power under Section 263 of the Act could be exercised where view taken by an Assessing Officer was erroneous. While exercising such power, the Commissioner was bound to take into account all relevant facts. If order invoking the said power proceeds on an erroneous assumption, the same could be set aside by the Tribunal. Finding of the Tribunal is not shown to be perverse. No substantial question of law arises.”
9.6 Similarly, the Hon’ble Supreme Court in the landmark judgment reported in the case of Malabar Industries vs. CIT (2000) 243 ITR 83 (SC) has held as under:
“A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, if is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase “prejudicial to the interests of the Revenue” is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase “prejudicial to the interests of the 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 interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.”
9.7 In the present set of cases, as we have already pointed out, the AO asked the assessees to furnish the relevant details relating to Long Term Capital Gain, Short Term Capital Gain, exemption u/s 10(36) of the Act, deduction u/s 57 of the Act and unsecured loans and the assessees furnished all the relevant documents which were examined by the AO who has taken a possible view. Therefore, it is our considered view that there was a due application of mind on the part of the AO in all the four cases and adequate and proper enquiries had been conducted by the AO in this regard and, therefore, the impugned orders passed u/s 263 of the Act have no feet to stand on. We are also in agreement with the argument of the Ld. Counsel that in the cases of Sanjay Jain & Sons and Shri Tarun Jain bearing ITA No. 141/Chd/2021 and 144/Chd/2021 no show cause notice u/s 263 was issued on account of unsecured loan and hence the Ld. PCIT could not have exercised his jurisdiction to set aside the case on the issues of unsecured loan in these two cases. Accordingly, we hold that the proceedings u/s 263 of the Act were bad in law in all the captioned four appeals and we quash the revisionary proceedings for the reason that the AO had made adequate enquiries is all the four cases and further the Ld. PCIT had not conducted any independent enquiry on his own before coming to an incorrect conclusion that the assessment orders were erroneous as being prejudicial to the interest of the revenue and were liable to be set aside.
9.8 Since we, have quashed the impugned orders passed u/s 263 of the Act for the reasons as given in the preceding paragraphs, we are not inclined to comment/adjudicate on the issue of requirement of revision of approval/s obtained under section 153D of the Act. We are also not inclined to comment/adjudicate on the issue of the Ld. PCIT having initiated the impugned proceedings on proposal/s initiated by the Assessing Officer.
In the final result, all the four appeals of the captioned assessees are allowed.
Order pronounced on 23.03.2022.
