Case Law Details
Narendra Aggarwal Vs PCIT (ITAT Delhi)
Conclusion: AO had applied his mind to the information and details furnished by the assessee and after considering the information, he was of the view that the short term capital gains had been correctly computed by assessee and accordingly accepted the claim, and, which was a possible view. Only in a very gross case of inadequacy in inquiry or where inquiry was per se mandated on the basis of record available before AO and such inquiry was not conducted, the revisional power so conferred could be exercised to invalidate the action of AO.
Held: In the present case it was an undisputed fact that the return of income for the year under consideration was selected for limited scrutiny under CASS for making inquiries on four issues including the Short Term Capital Gain u/s 111. The issues for which the case of assessee was selected for limited scrutiny, notice u/s 143(2) and 142(1) was issued by AO along with questionnaire and assessee was also asked to submit the various details contained therein. Assessee had inter alia filed the computation of capital gains, details from whom the shares were purchased, their PAN numbers, copies of purchase bills, copies of bank account evidencing payment to sellers, contract note for sale of shares, PAN number and SEBI registration number of the broker, copy of the DMAT account, copy of notice for listing of shares by BSE ledger account in the books of sellers, bank account evidencing payment to sellers, contract note for sale of shares. It was also a fact that the purchasing of shares being off market was also informed to the AO and the complete details from whom they were purchased by assessee was also furnished to AO. AO after examining the aforesaid details and on being satisfied with the queries raised, had accepted the contentions of the assessee and had made no addition on that count. AO had applied his mind to the information and details furnished by the assessee and after considering the information, he was of the view that the short term capital gains had been correctly computed by assessee and accordingly accepted the claim, and, which was a possible view. No material had been placed by the Revenue to demonstrate that the view taken by the AO was wholly unsustainable in law. Further, it was a settled law that the order of the AO could not be branded as erroneous if the Commissioner was not satisfied with the conclusion arrived by AO. The order could be brought within the purview of an erroneous order only if it involved an error by deviating from law or upon erroneous application of the legal principle. PCIT had observed that the present case was a case where it was a clear case of lack of inquiry. It was a settled law that the power of revision could be exercised only where no inquiry as required under the law was done. In the present case, AO had raised various queries and the same were also replied by assessee. In such a situation it could not be said that there was lack of inquiry from the end of AO. Only in a very gross case of inadequacy in inquiry or where inquiry was per se mandated on the basis of record available before AO and such inquiry was not conducted, the revisional power so conferred could be exercised to invalidate the action of AO.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the assessee is directed against the order dated 31.03.2021 of the Pr. Commissioner of Income Tax – Delhi – 7, (PCIT) New Delhi relating to Assessment Year 2015-16.
2. The relevant facts as culled from the material on records are as under :
3. Assessee is an individual who electronically filed his return of income for A.Y. 2015-16 on 20.08.2015 declaring total income of Rs.6,20,97,150/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dated 27.12.2017 and the total income was determined at Rs.6,20,97,150/-, being the returned income. Subsequently, PCIT called for the assessment records of the assessee and after examination of the assessment records, he was of the view that assessment order passed by AO u/s 143(3) on 27.12.2017 was erroneous and prejudicial to the interest of Revenue. PCIT thereafter issued a show-cause notice u/s 263 of the Act on 24.02.2021. Subsequently another notice dated 03.03.2021 was issued to the assessee u/s 263 of the Act and the assessee was asked to show cause as to why the assessment order passed by the AO u/s 143(3) not be set aside in terms of provisions of s. 263 of the Act.
4. In response to the show-cause notice assessee inter alia objected to the initiation of proceedings u/s 263 of the Act and on the merits submitted that during the assessment proceedings various questions were raised by the AO on the issue of short term capital gain and after receiving the reply of the assessee and on being satisfied with the explanations offered by the assessee, AO passed assessment order u/s 143(3) of the Act without making any adjustment to the total income. On the merits of the computation of short term capital gain, assessee filed the necessary details before PCIT and for the reasons stated therein it was submitted that the provision of Section 263 of the Act were not applicable.
5. The PCIT did not accept the contentions of the Assessee. He thereafter vide order dated 31.03.2021 concluded that the order passed by AO u/s 143(3) of the Act on 27.12.2017 to be erroneous and prejudicial to the interest of Revenue. The reason for PCIT to come to the aforesaid conclusion of the order being erroneous and prejudicial to the interest of Revenue was that Assessee had shown Short Term Capital Gain of Rs.4,25,20,207.44 on sale of shares of M/s. K. D. Trendwear Ltd. and Rs.39,82,739.74 on sale of shares of M/s. Pranav Sports Apparels Ltd. He was of the view that claim of the assessee of the short term capital gains was accepted by the AO and the AO had failed to conduct necessary field enquiry/third party verification to examine the genuineness of short term capital gain offered by the assessee. PCIT accordingly set aside the assessment order passed by the AO u/s 143(3) dated 27.12.2017 and directed the AO to frame fresh assessment after considering the observations of PCIT in the order passed u/s 263 of the Act.
6. Aggrieved by the order of PCIT, Assessee is now in appeal and has raised the following grounds:
1. “That having regard to facts & circumstances of the case, Ld. Pr.CIT has erred in law and on facts in assuming jurisdiction u/s 263 of Income Tax Act, 1961 and has erred in holding the assessment order dated 27-12-2017 as erroneous as well as prejudicial to the interest of revenue and that too by recording incorrect facts and findings and in violation of principles of natural justice.
2. That having regard to facts & circumstances of the case, Ld. Pr.CIT has erred in law and on facts in setting aside the impugned assessment order dated 27-12-2017 and directing the assessing officer to make the assessment afresh and that too by recording incorrect facts and findings and without observing the principles of natural justice and more particularly when all the details/information/evidences were available on the record at the time of assessment proceedings.
3. That having regard to facts & circumstances of the case, Ld. Pr.CIT has erred in law and on facts in passing the impugned order u/s 263 and that too without providing the opportunity of being heard and in violation of principles of natural justice.”
7. Before us, at the outset the Ld AR submitted that though the assessee has raised various grounds but the sole issue is that the assessee is challenging the assumption of jurisdiction of PCIT u/s 263 of the Act.
8. Before us, the Ld. A.R. submitted that in the present case the pre-requisite conditions specified u/s 263 of the Act for invoking the revisionary proceedings were not satisfied and therefore the proceedings initiated u/s 263 of the Act lacks jurisdiction and are bad in law. He submitted that u/s 263 of the Act, the Ld. CIT/PCIT can revise an order passed by the AO only on the satisfaction of twin conditions namely (i) the order is erroneous and (ii) it is prejudicial to the interest of Revenue. If one of them is absent i.e. if either the order of the Revenue is erroneous but is not prejudicial to the interest of the Revenue or if it is not erroneous but is prejudicial to the interest of Revenue – recourse cannot be had to Sec.263(1). He further submitted that the error envisaged by Sec.263 is not one which depends on possibility or guesswork but it should be an actual error either of facts or of law. He further submitted that when two views are possible and the AO has taken one view with which the Ld. CIT/PCIT does not agree, the order of the AO cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the AO is unsustainable in law.
9. Learned AR thereafter pointing to the notice issued u/s 143(2) of the Act dated 20.09.2016, the copy of which is placed in the paper book, submitted that return of income of the assessee was selected for limited scrutiny under CASS for making inquiries on four issues namely; (i) Short Term Capital Gain u/s 111 of the Act; (ii) details of assets and liabilities; (iii) mismatch in Income/Capital on sale of land and building and (iv) deduction claimed under the head “Capital Gains”.
10. With respect to the issue of short term capital gains for which the powers u/s 263 have been invoked by ld PCIT, Ld AR submitted that during the course of assessment proceedings, AO had issued notice u/s 143(2) and thereafter vide the notices issued u/s 142(1) issued questionnaire and called for various details from the assessee and those details were furnished from time to time by the assessee. He pointed to the copy of assessee’s reply dated 01.09.2017 placed in the paper book showing computation of Capital Gain and the supporting documents that were furnished before the AO. He also pointed to the assessee’s reply dated 05.12.2017 which is placed at Page 25-33 of the paper book wherein assessee had given the details of the parties from whom the shares of K. D. Trendwear Ltd. and Pranav Sports Academy Ltd. were purchased, the PAN number of the parties from whom shares were purchased, copies of purchase bills, copies of bank account evidencing payment made, contract note of the sale bill. He thereafter pointed to the copy of the letter dated 13.12.2017 addressed to the AO wherein the details of the purchase and sales of the shares were submitted along with the necessary evidences. He pointed that the copy of the D-mat Account, contract note for sale of shares were also filed before the AO. Thereafter Learned AR pointed to the copies of assessee’s reply dated 18.12.2017 wherein on the observation of the AO to the effect that the parties with whom the transactions were undertaken were not verifiable or they had not responded to the notice u/s 133(6) was also replied to. Learned AR therefore submitted that the AO after being satisfied with the submissions and explanations offered by the assessee, passed order u/s 143(3) of the Act without making any adjustment to the total income and computed the total income at Rs 6,20,97,150/-.
11. Learned AR submitted that Learned PCIT thereafter issued two notices u/s 263, one on 20.4.2021 and the other on 1.3.2021, to which the assessee made the submissions. The submissions of the assessee were not found acceptable to PCIT. He thereafter set aside the order passed by AO u/s 143(3) of the Act dated 27.12.2017 and directed the AO to make afresh assessment after considering the observations of Pr. CIT in his order.
12. Learned AR submitted that notices issued by PCIT to be bad in law. He submitted that assessee received two notices from Learned PCIT u/s 263 of the Act. He pointed to the first notice dated 24.02.2021 which is placed at Page 111 of the paper book and pointing to the aforesaid notice, he submitted that notice was general in nature which only fixed the appointment for hearing on 01.03.2021 and it was vague in terms of the provisions contained in Section 263 of the Act as no cause of action has been disclosed in the notice. He pointed to the notice wherein the assessee was directed to “produce supporting documents/ information in support of the issues involved as mentioned below” but there was no detail about the issue for which the assessee was required to file the information. He submitted that under section 263 a show-cause notice has to be sent to the assessee and the notice should contain reasons as to how the order is erroneous and prejudicial to the interest of the Revenue. He submitted that in the case of CIT vs. Sattan Dass Mohan Dass Sidhi 230 ITR 591, 594 (MP), it was held that the order passed by CIT(A) u/s 263 of the Act was invalid for want of issuance of detailed show cause notice. He submitted that in the case of Garden Silk Mill Ltd. 221 ITR 861, 867-868 (Guj) it was held that when the show cause notice u/s 263 of the Act was without indicating anything which could justify the withdrawal and was vague the invocation of powers u/s 263 of the Act was liable to be quashed in the absence of material indicated therein. He thereafter submitted that in the case of CIT vs. G. K. Kabra 211 ITR 336, 339-341 (AP) it has been held that it is necessary for CIT to point out the exact error in the order which he proposed to revise so that assessee would have an adequate opportunity of meeting that error before the final order is made. He therefore, relying on the aforesaid decisions submitted that since the notice did not specify the issue, the reasons for which it could be said that the assessment order was erroneous and prejudicial to the interest of revenue, the notice was vague and therefore should be quashed.
13. He thereafter pointed to the second notice dated 03.03.2021 which is placed at Page No.112 & 113 of the paper book. He submitted that the aforesaid notice mentions that on the analysis of the bank accounts, D-mat account and broker’s note the shares of K. D. Trendwear Ltd. and Pranav Sports Ltd are likely to be bogus in nature and those shares may be classified as penny stock and therefore the capital gains earned from the sale of those shares not be treated as unexplained income and taxed accordingly. He submitted that on the contrary, the documents like bank statements, D-mat account, brokers note show that the transactions were genuine and there is nothing on record to demonstrate that the aforesaid companies are bogus. He therefore submitted that the conclusion of PCIT that the capital gains being bogus and constitutes unexplained income does not flow from the facts mentioned therein and therefore the notice is vague and bad in law.
14. Learned AR thereafter submitted that PCIT vide order dated 31.03.2021 concluded that the assessment order passed by the AO u/s 143(3) to be erroneous and prejudicial to the interest of Revenue. He submitted that the summary of the reasons which led the PCIT to conclude that the assessment order passed u/s 143(3) being erroneous and prejudicial to the interest of the Revenue are as under:
(i). AO had failed to conduct any field enquiry and/or third party verification to examine the genuineness of the short term capital gain offered by the assessee at 15% u/s 111A of the Act.
(ii) The shares of K. D. Trend Wear Ltd. was purchased offline.
(iii) DCIT, Circle-1, Faridabad had conducted enquiries during the course of assessment proceedings in the case of Shri Ankit Aggrawal, son of the assessee, where it was found that at the given address of K. D. Trendwear Ltd. no company could be located.
(iv) The fundamentals of K. D. Trendwear Ltd. did not justify the movement of its price in the stock exchange. Further, the scrip was delisted in December 2017 as the company had opted for voluntary delisting. Thus according to PCIT, K. D. Trendwear Ltd. was apparently a penny stock.
(v). The order passed by AO was a cryptic and non-speaking order.
15. Learned AR pointed to the query raised by the AO on the impugned issue and the various replies which were submitted during the course of assessment proceedings. He submitted that AO after considering the replies furnished by the assessee and after application of mind on the issue concluded that no addition was required on the issue and accordingly accepted the short term capital gains offered by the assessee. In such a situation, he submitted that the AO has taken a view which was a possible view in accordance with law and therefore the order of AO cannot be considered to be erroneous and prejudicial to the interest of revenue for invoking the provisions of Section 263 of the Act.
16. With respect to Learned PCIT’s observation of the assessment order being cryptic, he submitted that the assessment order cannot be seen in isolation and it has to be seen along with the record of proceedings. He submitted that during the course of proceedings, AO had made the necessary inquiries and had verified the required material and after being satisfied with the explanation of the assessee, he did not find anything adverse accordingly passed the assessment order by making no addition was made by the AO. He submitted that the brief or cryptic order by itself cannot be a sufficient reason to brand the assessment order as erroneous and prejudicial to the interest of Revenue. In the context of exercising of power under Section 263 of the Act he submitted that various high courts have held that that if a query is raised during the assessment proceedings and responded to by the assessee, the mere fact that it has not been dealt with in the assessment order would not lead to a conclusion that the Assessing Officer has not applied his mind to the issues.
17. With respect to the case laws relied upon by PCIT, he submitted that the case laws relied upon by PCIT are distinguishable on facts and therefore not applicable to the facts of the present case. He submitted that in the case of Gee Vee Enterprises vs. Addl. CIT 99 ITR 375 (Del), Hon’ble Delhi High Court has held that the revisionary powers are not confined to correct errors of facts and law but also extend to such orders where the claim of the assessee has been accepted without making inquiry with a view to bring the requisite evidence on record. He submitted that in the case of the assessee, it is not a case where no inquiries were made but on the contrary extensive inquires were made by the AO and thereafter the order was passed by AO. He submitted that the case of the assessee is not that of non inquiry or lack of inquiry by AO. He therefore submitted that the ratio of the aforesaid decision and other decisions relied upon by PCIT are not applicable to the facts of the assessee. He therefore submitted that the order of PCIT be set aside.
18. Learned DR on the other hand took us to the observations of PCIT in the order passed u/s 263 of the Act and submitted that considering the observations made by PCIT, the order of the AO was a fit case for invocation of provisions of Section 263 and PCIT had rightly set aside the order of AO. She thus supported the order of PCIT.
19. We have heard the rival submissions and perused the materials available on record. The issue in the present case is about the invoking of provisions of Section 263 by Ld. PCIT. Section 263(1) of the Act, the powers under which Learned PCIT has assumed power for revision reads as under :
“(1) The Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.”
20. The reading of the above provision makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous, prejudice has been caused to the interests of the Revenue.
21. Hon’ble Apex Court in the case of Malabar Industrial Co., Ltd., Vs CIT reported in (2000) 243 ITR 83 (SC) has held that PCIT has to be satisfied of twin conditions, namely, (i) the order of the AO 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 ITO 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 Sec. 263(1). It was further held that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law.
22. In the present case it is an undisputed fact that the return of income for the year under consideration was selected for limited scrutiny under CASS for making inquiries on four issues including the Short Term Capital Gain u/s 111 of the Act. We find that to examine the issues for which the case of the assessee was selected for limited scrutiny, notice u/s 143(2) and 142(1) of the Act was issued by AO along with questionnaire and the assessee was also asked to submit the various details contained therein. The paper book filed by the assessee reveals that in response to the notice issued by AO, assessee had made submissions on various dates namely on 1.9.2017, 5.12.2017, 13.12.2017, 18.12.2017 and on 21.12.2017. On the aforesaid dates, assessee had inter alia filed the computation of capital gains, details from whom the shares were purchased, their PAN numbers, copies of purchase bills, copies of bank account evidencing payment to sellers, contract note for sale of shares, PAN number and SEBI registration number of the broker, copy of the DMAT account, copy of notice for listing of shares by BSE ledger account in the books of sellers, bank account evidencing payment to sellers, contract note for sale of shares. It is also a fact that the purchasing of shares being off market was also informed to the AO and the complete details from whom they were purchased by the Assessee was also furnished to the AO. The AO after examining the aforesaid details and on being satisfied with the queries raised, had accepted the contentions of the assessee and had made no addition on that count. In view of the aforesaid facts, we are of the view that AO had applied his mind to the information and details furnished by the assessee and after considering the information, he was of the view that the short term capital gains has been correctly computed by the assessee and accordingly accepted the claim, and, which according to us is a possible view. Before us, no material has been placed by the Revenue to demonstrate that the view taken by the AO was wholly unsustainable in law. Further, it is a settled law that the order of the AO cannot be branded as erroneous if the Commissioner is not satisfied with the conclusion arrived by the Assessing Officer. The order can be brought within the purview of an erroneous order only if it involves an error by deviating from law or upon erroneous application of the legal principle. We also find that PCIT has observed that the present case was a case where it was a clear case of lack of inquiry. It is a settled law that the power of revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry. In the present case, as noted above, the AO had raised various queries and the same were also replied by the Assessee. In such a situation it cannot be said that there was lack of inquiry from the end of AO. We further find that PCIT at the end of para 8 of the order has also not given any conclusive finding about the shares of K. D. Trendwear Ltd. that it is a penny stock as his observation is “apparently K. D. Trendwear Ltd. is a penny stock” which shows that he is not sure about the shares of K. D. Trendwear Ltd. being a penny stock.
23. On the submission of the Ld AR that the first notice dtd 24.2.2021 was general in nature, we find force in the argument of Ld AR. On the perusal of the aforesaid notice (the copy of which is placed at page 111 of the paper book), we find that vide the notice the assessee was asked to produce supporting documents/information in support of the issues involved but there was no details about the issue for which the assessee was required to file the details. Sec. 263 of the Act confers powers on the CIT/PCIT to revise the assessment order after giving the assessee an opportunity of being heard, and after making and causing such enquiry to be made, as may be deemed necessary. The Hon’ble MP High Court in the case of CIT v. Sattandas Mohandas Sidhi [1998] 230 ITR 591 (MP) has observed that the issuance of a valid notice is not a mere procedural requirement and that the notice should state reason for exercising revisional jurisdiction.
24. On the issue of the order of AO being cryptic and therefore the order being passed by non application of mind resulting into justification of the invocation of powers u/s 263 being justified, we are of the view that if a query is raised during the assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied to it. Here it would be relevant to refer to the decision of Hon’ble Allahabad High Court in the case of CIT vs. Goyal Private Family Specific Trust (1988) 171 ITR 698 (All) where the Hon’ble High Court has observed as under:
“The orders of the Income Tax Officer may be brief and cryptic, but that by itself is not sufficient reason to brand the assessment orders as erroneous and prejudicial to the interest of the Revenue. Writing an order in detail may be a legal requirement, but the order not fulfiling this requirement cannot be said to be erroneous and prejudicial to the interest of the Revenue. It was for the Commissioner to point out as to what error was committed by the Income-tax Officer.”
25. As far as the invocation of Explanation 2 to Section 263 by PCIT in the present case is concerned, we are of the view that only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO.
26. In view of the aforesaid facts, and relying on the decisions cited hereinabove, we are of the view that in the present case, Learned PCIT was not justified in invoking the provisions of Section 263 of the Act to set aside the assessment order passed by AO u/s 143(3) of the Act. We therefore set aside the order of PCIT. Thus the grounds of the assessee are allowed.
27. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 04.04.2022
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