R V Deshpande HUF Vs PCIT (ITAT Bangalore)
ITAT Bangalore held that invocation of provisions of section 263 justifiable as AO failed to reconcile the claim of long term capital gain exemption with the amounts furnished in Form 10DB
Facts-
AO called on various details from time to time and concluded the assessment by making an addition of Rs.14,90,000 as unexplained money u/s.69A. The PCIT on verification of assessment records noticed that the assessee has set off Rs.2,04,83,780 being STCG against the brought forward short term capital loss. The PCIT was of the view that the AO has not examined the veracity of the brought forward short term capital loss which is set off against the current year’s short term capital again. Further, the assessee has claimed long term capital gain exempt income to the tune of Rs.5,74,00,974 on which STT is paid. The PCIT stated that no details of any transaction are available in the SFT data under ITS details in 360 degree view of the assessee and the AO did not verify the exempt income claim of the assessee. The PCIT issued a show cause notice to the assessee in this regard.
PCIT set aside the order of AO. Being aggrieved, the assessee preferred the present appeal.
Conclusion-
Held that the PCIT in the order u/s 263 has noted the fact that the assessee has submitted the details of STT paid in form 10DB and hence there is no dispute with regard to the fact that the details are furnished before the AO. However, there is nothing noted in the order of the AO that he has verified the details furnished and has reconciled the long term capital gains claimed as exempt by the assessee with the amount furnished in Form 10DB. The PCIT for this specific reason has invoked the provisions of section 263 and to this extent, we are of the considered view that the action of the PCIT is justified. We therefore uphold the order of the PCIT setting aside the order of the AO to the limited extent of verification of long term capital gain claimed exempt on STT being paid.
In view of the above discussion the order of the PCIT u/s. 263 is modified to the extent that order u/s.143(3) is set aside with regard to allowing the claim of exemption of long term capital gains based on payment of STT.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is against the order of the Principal Commissioner of Income Tax, Bengaluru-1, [‘PCIT’] passed u/s. 263 of the Act dated 4.3.2022 for the AY 2017-18. The assessee raised the following grounds:-
“1. The impugned Order of the learned Principal Commissioner of Income-tax, Bangalore-1, (in Short PCIT) passed under section 263 of the Act in so far as it is against the Appellant is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant’s case.
2. The learned Principal Commissioner of Income-tax, Bangalore 1, has grossly erred in ordering revision of the order passed by the learned assessing officer without appreciating the fact that there is no error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the learned Principal Commissioner of Income-tax, Bangalore 1, is ultra vires the scope of Section 263 and requires to be cancelled under the facts and circumstances of the Appellant’s case.
3. The learned Principal Commissioner of Income-Tax is not justified in invoking the provision u/s 263 and holding that the order passed by the Assessing Officer u/s 143 (3) dated 5/11/2019 as erroneous and pre-judicial to the interest of the revenue by ignoring the fact that the Assessing Officer had applied his mind on the issues and had taken the view accepting and following judicial discipline. Therefore, the order u/s 263 does not survive and deserves to be cancelled.
4. The learned Principal Commissioner of Income-tax, Bangalore failed to appreciate the fact that the direction to make fresh assessment, tantamount to ordering for making fishing and roving enquires without any material in support thereof and consequently the impugned order u/s 263 of the Act passed by the authorities is bad in law is liable to be cancelled.
5. The learned PCIT is not justified in invoking the provision u/s 263 and passing the order u/s 263 of the Income Tax Act, 1961 holding that assessing officer passed an order without application of mind.
6. The learned PCIT failed to appreciate the fact that, once the AO has applied his mind and passed an order u/s 143(3) after making full enquiries into the subject matter, the order cannot be said to be erroneous.
7. Order u/s 263 of the Income Tax Act, 1961 has not satisfied the conditions as laid down in the provision of the Income Tax Act, 1961 and failed to appreciate the fact that before passing an order u/s 263, the basic twin conditions namely
(i) the order of the assessing officer sought to be revised is erroneous and
(ii) it is prejudicial to the interest of the revenue and even one of the two requirement is absent, recourse cannot be had to section 263 of the Income Tax Act, 1961. Reliance placed in the case of Malabar Industrial Co. Ltd., (2000) 243 ITR 83 (SC).
8. The Principal Commissioner of Income Tax failed to appreciate the fact that when the Assessing Officer made proper enquiry and examined accounts, it could not be said that there was non-application of mind by him. Hence, the action under Section 263 was held invalid. Held in the following cases.
i. Fine Jewellery (India) Ltd. v. ACIT [2012] 19 ITR 746 (Mum.)(Trib).
ii. Roshan Lal Vegetable Products (P) Ltd. v. ITO, 51 SOT 1 (URO) (Asr.)(Trib.)
iii. Antala Sanjaykumar Ravjibhai v. CIT [2012] 135 ITD 506 (Rajkot) (Trib.)
9. The learned Commissioner of Income Tax erred in arriving at conclusion that the short-term losses carried forward from the previous years has not been examined by the AO, The Learned Principal Commissioner of Income-tax failed to appreciate the fact that the appellant has bona fide carried forward losses carried forward since 2009-10 which are eligible to set off against subsequent short term capital gains and hence the question of disallowance of set off of losses does not arise.
10. Without prejudice, assuming even for argument sake without conceding, when the assessment was carried out the only way the correctness of the loss brought forward would have been the filed returns or any assessment carried out for the preceding assessment years. The assessing officer during the course of assessment cannot carry out another assessment for the year 2009-10 to verify the correctness of the claim.
11. If the claim for brought forward losses are to be verified the learned AO ought to have reopened the assessment for such year and could have verified the claim. Hence even at this juncture, during the revisory proceedings, the assessing officer can only verify if the loss is validly claimed and carried forward. The learned AO cannot carry out another assessment to verify the claim for 2009-10 to establish the genuinity of the claim of brought forward losses. Hence the order is bad in law.
12. Without prejudice, even assuming for the argument sake, without conceding now the Assessing officer does not have powers to conduct fresh assessment for assessment for AY 200910 and AY 2014-15. For verification of the veracity of the losses, the only thing that can be done is to see if the returns are filed on time and validly carried forward. The Assessing officer shall not have powers to verify if the claim is correct or wrong. If done so, will tantamount to fresh assessment and will defeat the purpose of specifying limitation and time period allowed under the law in contrary to the established position.
13. The learned Commissioner of Income Tax erred in directing the Assessing Officer to verify the STT paid on account of LTCG claimed exempt for A.Y. 2017¬18 and to determine allowability of same as per law which has already been duly examined by the AO before making the assessment order passed u/s 143(3) of the Act. The reason for carrying out the assessment was “Capital gains/loss u/s 111A” , Also copies of 142(1) have been submitted before the Hon’ble CIT in which it is clearly seen that the various documents on LTCG has been sought and details furnished.
14. Without prejudice to the above the learned CIT ought to have appreciated the fact that the aforesaid issue on which the learned CIT had sought to revise the assessment order is a conscious view adopted by the learned assessing officer, which is not shown to be erroneous and consequently, the jurisdiction under section 263 of the Act stands ousted and accordingly the impugned order passed deserves to be cancelled.
15. The learned Principal Commissioner of Income Tax despite the fact that the assessment proceeding was completed after thorough scrutiny, erred in holding that, the Assessing Officer has failed to redraw the brought forward losses. set off allowed and carry forward losses being allowed. The Assessing Officer has also not verified the STT paid data and thus allowability of LTCG being claimed as exempt on account of STT paid is not verified. Therefore, the assessment order passed u/s. 143(3) of the Act dated 05-11-2019 is erroneous and in so far as it is prejudicial to the interest of Revenue u/s 263 of IT Act.
16. Reliance placed by the learned Principal Commissioner of Income Tax, Bangalore on the decision of the Hon’ble Supreme Court in the case of M/s Deniel Merchants P. Ltd. Vs Income Tax Officer is misplaced, in the case of the appellant the assessing officer has made proper enquires before passing the assessment order u/s 143(3) of the Act.
17. The appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds urged above.
18. In view of the above and any other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeals may be allowed in the interest of justice and equity.”
2. The assessee is a HUF and had filed the return of income for the AY 2017-18 on 28.7.2017 declaring a total income of Rs.1,22,72,360. The case was selected for limited scrutiny under CASS and the assessment proceedings were initiated by serving notice u/s. 143(2) of the Act. The AO called on various details from time to time and concluded the assessment by making an addition of Rs.14,90,000 as unexplained money u/s.69A. The PCIT on verification of assessment records noticed that the assessee has set off Rs.2,04,83,780 being short term capital gain against the brought forward short term capital loss. The PCIT was of the view that the AO has not examined the veracity of the brought forward short term capital loss which is set off against the current year’s short term capital again. Further, the assessee has claimed long term capital gain exempt income to the tune of Rs.5,74,00,974 on which STT is paid. The PCIT stated that no details of any transaction are available in the SFT data under ITS details in 360 degree view of the assessee and the AO did not verify the exempt income claim of the assessee. The PCIT issued a show cause notice to the assessee in this regard.
3. The assessee furnished year-wise details of brought forward loss from AY 2009-10 to 2017-18. The assessee also submitted the details of STT paid based on which the long term capital gain was claimed as exempt. After considering the submissions of the assessee the PCIT set aside the order of the AO by stating that
“3.4 Thus, the assessee has only submitted complete set of return of income only for A.Y. 2015-16. However, in order to verify the brought forward losses, it is necessary to analyze the brought forward losses in the year of set off. Accordingly, the returns of income filed by assessee for A.Y. 2009-10 to A.Y. 2017-18 have been perused from e-filing portal and the observations as discussed above in para 2.3 & 2.4 have been noticed. Hence, the Assessing Officer has failed to redraw the brought forward losses, set off allowed and carry forward losses being allowed. The Assessing Officer has also not verified the STT paid data and thus allowability of LTCG being claimed as exempt on account of STT paid is not verified. Therefore, the assessment order passed u/s. 143(3) of the Act dated 05-11-2019 is erroneous and in so far as it is prejudicial to the interest of Revenue u/s 263 of IT Act.”
4. Aggrieved, the assessee is in appeal before the Tribunal.
5. The ld. AR submitted that during the course of hearing, the assessee has submitted the computation of capital gains along with the details of brought forward loss which is set off against the current year capital gains. The ld. AR also drew our attention to the ITR filed for the AY 2017-18 (pg.2 of PB) where the year-wise break-up of brought forward loss is furnished. The ld. AR also drew our attention to the fact that the income tax return filed for AY 2009-10 (pg.98 of PB) has the details of the loss carried forward to future years is furnished. The ld. AR submitted that all these details have been submitted before the AO who has verified the same and has applied his mind in allowing the set off of brought forward loss against the current year short term capital gain. The ld. AR also submitted that the PCIT has set aside the order by stating that the AO failed to redraw the brought forward losses from AY 2009-10 which is beyond the scope of assessment u/s. 143(3) for the year under consideration. The ld AR also submitted that for the AY 2015-16, the assessment u/s. 143(3) was conducted for the limited purpose of verification of securities transaction wherein the losses including the brought forward losses were verified and accepted by the revenue.
6. The ld.DR supported the order of the PCIT.
7. We have considered the rival submissions and perused the material on record. The ld. AR also submitted a chart containing the details of brought forward and set off of losses from AY 2009-10 to 2017-18 (page 124 of PB) which is the summary of brought forward loss of the assessee as per the return of income filed which is reproduced below:-
