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TMI Blog2020 (1) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... conducted any enquiry. The revisional jurisdiction of Ld. Pr. CIT u/s. 263 cannot be used to conduct roving enquiries time and again or there will be no finality of the assessment proceeding and the Parliament would not have stipulated the condition precedents in sec. 263 of the Act to invoke the same. We find that before the order of assessment was passed, the AO had required the assessee to furnish transactional documents proving the purchase and sale of all shares held as investment during the year. On examination of the material placed before him by the appellant, the AO was satisfied that the short term capital loss was incurred by the appellant on sale of shares listed on the Bombay Stock Exchange. The appellant had filed before the AO the relevant details and also produced the time stamped contract notes issued by its broker. All the transactions were made through registered share broker at rates prevailing on the stock exchange on the relevant dates. The payment for acquisition of shares and the subsequent sale proceeds were also transacted through the appellant s regular bank account. It is noted that the listed shares were sold within a period of one year from the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of ₹ 15,49,658/- against other heads of income without enquiring into the allowability of such claim in terms of the CBDT Instruction No.287/30/2014-IT(Inv II)Vol. III dated 16.03.2016, which circular, according to him, debar from allowing short term losses arising from the transaction of penny stock. He accordingly issued a show cause notice calling upon the assessee as to why he should not exercise the revisional jurisdiction u/s. 263 of the Act and after hearing the assessee, the ld. Pr. CIT held that AO's order was erroneous and prejudicial to the revenue for lack of enquiry in respect of the claim of loss and was pleased to set aside the order of AO and directed him to pass order afresh after taking note of his observations in the impugned order passed u/s 263 of the Act. Aggrieved by the impugned revision order of the ld. Pr. CIT, the appellant has preferred this appeal before us. 4. We have heard both the parties and perused the paper book and case laws cited by both the parties. We note that the appellant company filed the return of income on 14.09.2014 declaring total income of ₹ 3,59,810/-. The case of the appellant was selected for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has been collected u/s. 133(6) of the Act from the broker in respect of investment made in shares as derived from the books of account vis- -vis bank statement. We also note that the AO had issued notice dated 01.08.2016 placed at page 5 of paper book wherein he has asked for the following information from the assessee: i) Name and address of the company in which investment is made ii) Copy of allotment letter iii) Copy of Contract Note in respect of quoted shares iv) Date of allotment of shares v) No. of shares vi) Value of shares vii) Source of payment made for obtaining shares viii) In this regard, you are also requested to furnish the evidence of mode of such payment along with the details of cheque number sand the copy of bank statement (FY 2013-14) highlighting the relevant entries therein showing the transaction. 6. We note that pursuant to the aforesaid notice, the assessee had replied vide letter dated 06.06.2016 which is found placed at page 6 of the paper book wherein the assessee had filed the details of trading i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment u/s 143(3) of the Act on 26.12.2016. So, according to Ld. AR, after detailed enquiry, the AO being satisfied has not drawn any adverse inference in respect of the transaction which resulted in short term capital loss of ₹ 19,70,000/- which was duly disclosed in the return of income for AY 2014-15. He therefore submitted that it was not a case of lack of enquiry as alleged by the Ld. Pr. CIT in his order u/s 263 of the Act and, therefore, the very assumption of jurisdiction u/s 263 was on an erroneous premises and so is bad in law and consequently the impugned order deserves to be quashed. 8. Per contra, the Ld. CIT, DR, supported the order of the Ld. Pr. CIT, and contended that since the AO did not follow the instruction of the CBDT on the subject as per the Explanation 2(c) of sec. 263 the order of the AO is deemed to be erroneous as well as prejudicial to the interest of the revenue and does not want us to interfere in the order of the Ld. Pr. CIT. 9. With the aforesaid factual background, let us examine whether the finding of the Pr.CIT that the AO's order is erroneous and prejudicial to Revenue on account of lack of enquiry on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further show that as a result of an erroneous order some real and tangible loss is caused to the interest of the revenue. Their Lordship in the said judgment therefore held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. 10. In the given facts of the present case the only fault found by the ld. Pr. CIT to interfere with the order of AO was the alleged lack of enquiry in respect of short term capital loss and for which he held the assessment order to be erroneous and prejudicial to interest of the Revenue. In the opinion of the Pr. CIT, before completing the assessment the AO did not conduct the enquiries which he was expected to conduct in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted by the AO before passing of the order was not as per the standards expected by the Ld. Pr. CIT. The question that arises on the foregoing facts therefore is whether it was indeed a case of lack of enquiry or alleged inadequate enquiry. The settled position of law is that lack of enquiry on the part of the AO on an issue makes his order erroneous on that issue whereas inadequate enquiry does not make the order erroneous unless, the ld. Pr.CIT after himself conducting the inquiry on the issue, demonstrates with tangible material that the finding of fact of AO in the order passed on the issue, was factually or legally wrong or view followed by him in the order was unsustainable in law. In such an event only the ld. Pr.CIT would be able to satisfy the jurisdictional fact which is required to interdict and exercise revisional jurisdiction u/s 263 of the Act. 12. In order to understand the difference between lack of inquiry and inadequate inquiry and when it can be termed as erroneous, let us look at the following case laws wherein their Lordships explained the difference between the two as follows:- INCOME TAX OFFICER vs. DG HOUSING PROJECT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under s. 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under s. 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged inadequate investigation , it will be difficult to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries Ltd. reported in 288 ITR 322 (SC), not applicable; Malabar Industrial Co. Ltd. v. CIT reported in 243 ITR 83, relied on. (Para 72) As regard the third question as to whether the assessment order was passed by the Assessing Officer without application of mind, it was held that the Court has to start with the presumption that the assessment order was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as reported to be suspicious by the Investigation Wing. After examining the specific details furnished by the appellant vide its letter dated 08/08/2016 that the AO issued another questionnaire dated 15.09.2016 wherein he once again called for the following details : 2. Details of Investment in Equity Shares of ₹ 8606987/- during the year under consideration. (i) Name address of the company in which investment is made (ii) Copy of allotment letter (iii) Copy of Contract Note in respect of quoted shares (iv) Date of allotment of shares (v) No. of shares (vi) Value of shares (vii) Source of payment made for obtaining shares (viii) In this regard, you are also requested to furnish the evidence of Mode of such payment along with the details of cheque numbers and The copy of bank statement (F.Y. 2013-14) highlighting the relevant Entries therein showing the transaction. 3. Please furnish the following details in respect of Short Term Capital Loss (i) N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n report of the Kolkaia Investigation Directorate. The functionality also contains a guidance note for the Assessing Officers. Such details are visible to the AOs of those assessees whose particulars have emanated out of the investigation report of Kolkata Investigation Directorate and whose cases have been considered actionable, at this stage. The details are also visible to supervisory officers of such AOs. 4. In case of any difficulty in viewing the information on ITS, Shri Vipul Agarwal, JDIT (Sys) 2(1) could be contacted on 0120-2770052 or email at [email protected] 5. The undersigned is directed to request that necessary directions may kindly be issued to the officers working under your jurisdiction to access this functionality and ensure that information available in the 'Penny Stock' functionality which may be useful for the purpose of cases presently under scrutiny, is examined and considered while finalizing assessments and considering reopening of cases under section 148 of the IT Act, 1961.(Emphasis supplied) 6. This issues with the approval of Member (Inv), CBDT . 15. On perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his standards/depth as suggested (supra), then he ought to have conducted enquiry and recorded a factual finding to show that the AO s investigation was erroneous. Without doing so, in our opinion, the Ld. Pr. CIT cannot hold the assessment order to be erroneous for the reason that AO s investigation was inadequate. When the AO has investigated as in the present case, then the Ld. Pr. CIT without recording a factual finding after enquiry cannot upset the decision of AO as erroneous when he has not himself conducted any enquiry. The revisional jurisdiction of Ld. Pr. CIT u/s. 263 cannot be used to conduct roving enquiries time and again or there will be no finality of the assessment proceeding and the Parliament would not have stipulated the condition precedents in sec. 263 of the Act to invoke the same. We find that before the order of assessment was passed, the AO had required the assessee to furnish transactional documents proving the purchase and sale of all shares held as investment during the year. On examination of the material placed before him by the appellant, the AO was satisfied that the short term capital loss was incurred by the appellant on sale of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k. On the other hand the ld. DR relied in the order of the lower authorities. 4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. 18. We note that in order to create a tax liability in a case of this nature, the AO has to prove and establish the cash trail and the allegations, particularly in respect of the appellant, which is yet to be proved in the instant case. Similar view has been pronounced by Hon ble Delhi High Court in the case of Pr. CIT vs Jatin Investment (P) Ltd. wherein it was observed A transaction cannot be treated as fraudulent if the appellant has furnished the documentary proof and proved the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary ITA Nos. 93 to 99/RPR/2014 C.O. Nos. 12 to 18/RPR/2014 . A.Y. 2004-05 10 produced to establish the genuineness of the claim. From the documents produced, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were offmarket transactions cannot be a ground to treat the transactions as sham transactions. The statement of the broker P that the transactions with the H Group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he material on record, held that purchase contract note, contract note for sates, distinctive numbers of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. The purchase of shares was made on 28th April, 1993 i.e.. asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in that year. It was also placed before the relevant AO as well as before the Tribunal that the sale proceeds have been accounted for in the accounts of the assessee and were received through account payee cheque. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI s action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. 28. CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) In this case the Hon ble Calcutta High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the AO disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also found that the AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the AO s conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed. 29. CIT V. Bhagwati Prasad Agarwal [2009- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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