2022 (3) TMI 882 - AT - Income Tax

Penalty u/s 271B - applying the tax audit as per provisions of Section 44AB read with Section 44AD - HELD THAT - Ground taken before the learned CIT(Appeals) reads as under 4. That the AO has erred in law and facts in initiating proceedings u/s 271B of the act. The provisions of sec. 44AB of the act are applicable on business whereas the appellant is an investor and not a share trader. Even if, it is considered as business the loss was incurred in F O segment where the net result is considered for turnover purpose and not the total transaction. However, this ground of assessee s appeal was not adverted by the learned CIT(Appeals). Ground no. 2 before the learned CIT(Appeals), the assessee had filed certain evidences, which the learned CIT(Appeals) did not admit. Before this Tribunal the assessee has filed an order by the Hon ble Allahabad High Court in the matter of Sterla (India) Limited 2013 (9) TMI 1285 - ALLAHABAD HIGH COURT . Therefore, looking to the order of the Hon ble Allahabad High Court and the submissions of the assessee, the impugned order on the issue of addition made on account of buy back of shares is set aside and restored to the learned CIT(Appeals) for decision afresh. We find merit into the contention of the assessee on the ground raised against initiating proceedings u/s 271B and applying the tax audit as per provisions of Section 44AB read with Section 44AD of the Act. On both the issues the learned CIT(Appeals) would pass a speaking order after giving reasonable opportunity to the assessee. Assessee s appeal is allowed for statistical purposes.

Summary

Issues:
1. Challenge to the order of learned CIT(Appeals) as biased and not based on true facts and figures.
2. Non-discussion of important points in the judgment by the CIT(Appeals).
3. Addition of ?77,325 on account of buy-back of shares.
4. Allegation of unlawful manner by AO in adopting a "Pick and Choose" policy.
5. Request for alteration of grounds of appeal.

Issue 1:
The appellant challenged the order of the learned CIT(Appeals) as biased and not based on true facts and figures, alleging gross injustice. The appellant argued that certain important points of fact and law were overlooked, resulting in the order being bad in law and unsustainable. Specifically, the appellant contended that the CIT(Appeals) ignored "Ground No.4" which was a key point in the appeal, related to the applicability of Section 44AB and Section 44AD of the Income Tax Act. The appellant argued that these provisions were not applicable to the case due to the turnover being below the "Applicability Limit" and the absence of profit in the business. The appellant sought a favorable decision on this ground.

Issue 2:
The appellant disputed the addition of ?77,325 on account of buy-back of shares, contending that it was not a case of buy-back but a reduction in capital as per provisions of the Companies Act, 1956. The appellant argued that the amount distributed to shareholders was not taxable in their hands due to the payment of Dividend Distribution Tax by the company and exemption under Section 1150 of the Income Tax Act. The appellant provided evidence in the form of a communique from the company to support this claim, which was not considered by the CIT(Appeals). The appellant emphasized the issue of double taxation and exemption under the Income Tax Act.

Issue 3:
The appellant raised concerns about the AO's adoption of a "Pick and Choose" policy, alleging that the AO selectively considered only profitable entries in the share business and disregarded losses incurred. The appellant argued that the net result of the entire share business should have been taken into account or discarded as a whole, criticizing the AO's approach as unlawful. The appellant sought a fair consideration of the entire share business rather than selective treatment of profitable entries.

Issue 4:
The Tribunal, after hearing the submissions, set aside the impugned order on the issue of the addition of ?77,325 and restored it to the CIT(Appeals) for a fresh decision. The Tribunal found merit in the appellant's contention regarding the initiation of proceedings under Section 271B and the application of tax audit provisions under Section 44AB read with Section 44AD of the Act. The Tribunal directed the CIT(Appeals) to pass a speaking order on both issues after providing a reasonable opportunity to the appellant. The appeal was allowed for statistical purposes.

Issue 5:
The appellant requested permission to add, amend, or alter any grounds of appeal and to dispense with the filing of certified copies of documents temporarily. The appellant undertook to provide certified copies when required. The Tribunal granted the appellant leave to make changes to the grounds of appeal and emphasized the importance of following due process in submitting necessary documents when requested.

This detailed analysis covers the challenges raised by the appellant against the order of the learned CIT(Appeals) and the subsequent decision of the Tribunal, addressing each issue comprehensively and highlighting the key arguments and outcomes of the judgment.