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TMI Blog2007 (10) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT has erred in invoking the provisions of section 263 of the Income-tax Act, 1961 holding the order of Deputy Commissioner of Income-tax, Mumbai as erroneous and prejudicial to the interest of the revenue. It is submitted that the Assessing Officer has correctly set off short term capital loss of Rs. 2,70,00,000 (Rs. 2,02,50,000 in the case of Smt. Rashna N. Talati) against long term capital gain of Rs. 2,69,53,817 vide order under section 143(3) dated 22-1-2004. It is prayed that order of the Assessing Officer be restored as proceedings under section 263 in this case are illegal and cannot be said that order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue. Ground-3On the facts and circumstances of the case the CIT has wrongly held that the short term capital loss suffered cannot be held to be a loss incurred in the course of share transaction." 3. In both the cases, the original assessment was completed on 22-1-2004. On perusal of records, CIT noticed, assessees were allowed short-term capital loss of Rs. 2,70,00,000 and Rs. 2,02,50,000 in the case of Mr. Noshir D. Talati and Smt. Rashna N. Talati respectively for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of stamp duty is a pre-requisite condition for allotment and subsequent sale of shares. On the above facts he formed the opinion that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue, also for lack of enquiry. 4. In response to the notice under section 263(1), assessee s representative appeared and made the following submissions : First of all, assessees submitted, initiation of proceedings is erroneous, illegal and without jurisdiction and there is nothing wrong with the assessment order. Assessees sold the equity shares of a limited company; incurred loss, against which the claim was made. The shares have been duly and legally allotted by the company, which is not disputed nor challenged. Mere non-filing of some forms does not vitiate the allotment of equity shares in assessees favour nor it leads to an inference that the shares could not have been allotted to the assessees. The shares have been sold to outside parties. The consideration has been received by account payee cheques. It is true, assessees have incurred loss; hence, the claim of set off of loss. The assessment order is neither prejudicial to the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well. The said property was situated within 500 mts. of Coastal Regulation Zone (CRZ). For quite some time, Municipal Corporation was not accepting the plans in respect of properties located in CRZ. A Court Receiver was appointed. The possession was handed over to the Court Receiver. In fact, Ispat Group of companies not only claimed Rs. 11.9 crores but interest thereon at the rate of 36 per cent/21 per cent per annum. The property was locked in litigation, so property incapable of being developed. It was under these circumstances that the assessees thought it fit to involve some partners and accordingly sold part of the project by selling part of share capital of Ankush Properties Pvt. Ltd. The purchaser paid the market value, which was in fact below the acquisition cost, because of litigations and within CRZ etc. Thus the assessees made a loss by selling the shares, which was disclosed subsequently in the assessment year under consideration. Whatever information called for by the Assessing Officer during the course of assessment proceedings was furnished by Smt. Rashna N. Talati (one of the assessee). After verification of the details and proper scrutiny, the claim of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing decisions: CIT v. Bhagwan Das [2005] 272 ITR 367 (All.). Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC). Gabrial India Ltd. s case ( supra ). Aggrieved by the above order, assessees are in appeal before the Tribunal. 7. Assessees representative submitted, the entire case of the learned CIT is based on the hypothesis that the company, Ankush Properties Pvt. Ltd. was not entitled to issue the shares in question and, therefore, the shares allotted to the assessees could not be said to be the shares of that company. As the assessees did not acquire any capital asset, hence, the subsequent transfer made by the assessees was and it could not be said that the assessees had incurred any loss. Assessees representative submitted, the finding of the learned CIT is based on incorrect inference of law that for want of legal sanction to increase the authorized capital and the issue of fresh capital, Ankush Properties Pvt. Ltd. could not be said to have issued any shares at all and the assessees could not be said to have acquired the shares of that company. Assessees representative invited our attention to Paper Book Page 276, the Balance Sheet of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er this section, the company has to give notice of increase in the share capital within thirty days of passing of the resolution, authorising the increase and Form Nos. 5 and 23 are to be filed. Assessees representative submitted, this section is procedural in nature and does not invalidate the transaction of increasing the authorized capital in case of company s default in filing the relevant forms with the Registrar of Companies. He submitted, this is evident from the fact that sub-section (3) to section 97 stipulates that if default is made in complying with this section, then every officer of the company who is in default is liable to be punished with a fine, which may extend to Rs. 500 per day of default. The company subsequently filed Form Nos. 5 and 23 and also paid additional fees by way of fine. 9. Assessees representative again brought our attention to section 75 of the Companies Act, which deals with return as to allotment of shares. It reads as under : "75. Return as to allotments (1)Whenever a company having a share capital makes any allotment of its shares, the company shall, within thirty days thereafter ( a )file with the Registrar a return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t correct under the Companies Act. The loss incurred by the assessees on sale of shares of Ankush Properties Pvt. Ltd. was correctly allowed by the Assessing Officer. Assessees representative further submitted, for taking any action under section 263, the order passed by the Assessing Officer should not only be erroneous but also prejudicial to the interest of the revenue. In the instant case of the assessees, the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of the revenue. In support of the above contention, assessees representative relied upon the following decisions : (1) Malabar Industrial Co. Ltd. s case ( supra ) (2) Gabriel India Ltd. s case ( supra ) (3) Girdharilal B. Rohra v. CIT [2004] 86 TTJ (Mum.) 177. (4) Triveni Engineering Works Ltd. [2004] 87 TTJ (Delhi) 93. (5) Khatiza S. Oomerbhoy v. ITO [2006] 100 ITD 173 (Mum.) (6) Bongaigaon Refinery Petrochemicals Ltd. v. Union of India [2006] 287 ITR 120 (Gauhati). (7) J.K. Industries Ltd. v. Asstt. CIT [2006] 283 ITR 101 (Kol.) (AT). 11. Thus, assessees representative summed up the contentions, briefly, that one of the objections of the learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper and therefore there cannot be set off of loss. Hereinabove, we have reproduced sections 97 and 75 of Companies Act, vide Paras 8 and 9 of our order, which are relevant. We have held that reading of section 97 makes it clear that filing of relevant forms with the Registrar of Companies is not mandatory and it is only procedural. If it is mandatory, as presumed by the learned CIT, then by paying additional fees in the form of fine etc. it could not be regularized. But the provision makes it clear that by paying late fee and/or other fines etc. it would be regularized. 15. Coming to the objection of the learned CIT that the Assessing Officer has not conducted proper enquiry, the decision of the jurisdictional High Court relied upon by the learned CIT in the case of Gabriel India Ltd. ( supra ) does not support the case of the CIT. The Hon ble High Court observed in this case as under : "An order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been writt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for and examined by such authority". [Emphasis supplied] 16. In the case of Malabar Industrial Co. Ltd. ( supra ), the Hon ble Supreme Court had also expressed the same view that unless the order is erroneous and prejudicial to the interest of the revenue, the CIT could not invoke the jurisdiction vested in him under section 263 suo motu. We have seen, in the instant case of the assessees, since the assessees had regularized all the proceedings by complying with the law and by paying fine, the order passed by the Assessing Officer cannot be treated as erroneous. Even if it is erroneous, it is not prejudicial to the interest of the revenue and unless both the ingredients are present to gather CIT has no jurisdiction under section 263, in view of the decision of the jurisdictional High Court in the case of Gabriel India Ltd. ( supra ) 17. Coming to the finding of the learned CIT that the Assessing Officer should have conducted more enquiries and only because of this the order passed becomes prejudicial to the interest of the revenue, is without merit, particularly in the light of the decision of the jurisdictional High Court in the case of Gabriel India Ltd. ( supra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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