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TMI Blog2021 (1) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... neither erroneous nor prejudicial to the interest of revenue. In the instant case also the litigation before us may not have erupted if in the proceedings u/s 263 by Ld.. PCIT have mentioned that the audited financial statements are similar to the unaudited financial statement placed before Ld. A.O and the same has been examined by him and there is no change in valuation of the fair market value of the equity shares as per rule 11UA of I.T. Rules. Since proper enquiry was conducted by the Ld. A.O with regard to the issue mentioned in the impugned order u/s 263 of the Act in the case of assessee(s) M/s Dhirendra International Pvt. Ltd and M/s Charitra Gold Pvt. Ltd, the assessment order u/s 143(3) of the Act of the Ld. A.O are neither erroneous or prejudicial to the interest of revenue. Thus Ld. PCIT erred in assuming jurisdiction u/s 263 - Decided in favour of assessee. - ITA.No.632/Ind/2019, ITA No.634/Ind/2019, ITA No.635/Ind/2019, ITA No.637/Ind/2019, ITA No.750/Ind/2019, ITA No.517/Ind/2019 - - - Dated:- 13-1-2021 - Hon ble Kul Bharat, Judicial Member And Hon ble Manish Borad, Accountant For the Assessee : Shri S.S. Deshpande, CA For the Revenue : Shri S.S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing statutory provisions may kindly be restored. 2. The appellant crave liberty to add, amend, alter, modify or delete any of the ground of appeal on or before its hearing before its hearing before your honour. 5. With regard to ITA. No.517/Ind/2019, M/s Charitra Gold Pvt Ltd for Assessment Year 2014-15 assessee has raised following grounds of appeal:- 1. From the facts and on the circumstances of the case order passed by the Hon'ble Pr. CIT u/s 263 of IT Act, 1961, is illegal and bad in law. 2. From the facts and on the circumstances of the case order passed by the Hon'ble Pr. CIT wrong in considering order dated 09.12.2016 passed by the ACIT is erroneous and prejudicial to the interest of revenue. 3. From the facts and on the circumstances of the case all the facts has been discussed during the assessment proceeding regarding FMV of 54000 shares as on 01.10.2013 and appellant has filled share valuation details as per Rule 11UA(2)(a) for the purpose of Section 56(2)(viib) Exp. (a)(i) as option given in the Act and the same has been accepted by the A.O. 4. The appellant further craves to leave to add, alter/or amend any of the foregoing grounds o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or after the 1st day of June, 1988, the powers of the Principal Commissioner or] Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plates that the order of assessment itself should be prejudicial to the interests of the revenue and this prejudice has to be proved by reference to the assessment order only. It cannot be argued that there is some possibility of the assessment order being challenged or revised in appeal and, therefore, on account of this contingency, the order becomes prejudicial to the interests of the revenue. [emphasis supplied] 10. Hon ble Apex Court in the case of Malabar Industrial Co. Ltd. [2000] 243 ITR 83 order pronounced on 10.02.2000 HEAD NOTE Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1983-84 - Whether in order to invoke section 263 Assessing Officer's order must be erroneous and also prejudicial to revenue and if one of them is absent, i.e., if order of Income-tax Officer is erroneous but is not prejudicial to revenue or if it is not erroneous but is prejudicial to revenue, recourse cannot be had to section 263(1) - Held, yes - Whether if due to an erroneous order of ITO, revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to interests of revenue - Held, yes - As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inter-linked and the authority exercising powers under section 263 is under an obligation to consider the entire material about the existence of income and the tax which is realizable in accordance with law and further what tax has in fact been realised under the alleged assessment orders.[emphasis supplied] 12. Hon ble Karnataka High Court in the case of V. G. Krishnamurthy [1985] 20 Taxman 65 order pronounced on 19.03.1984 Para 10 Section 263 can be invoked by the Commissioner only when he prima facie finds that the order made by the ITO was erroneous and was prejudicial to the interests of the revenue. Both these factors must simultaneously exist. An order that is erroneous must also have resulted in loss of revenue or prejudicial to the interests of the revenue. Unless both these factors co-exist or exist simultaneously, the Commissioner cannot invoke or resort to section 263. It cannot be exercised to correct every conceivable error committed by an ITO. Before the suomoto power of revision can be exercised, the Commissioner must at least prima facie find both the requirements of section 263, namely, that the order sought to be revised is prima facie erroneous and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income-tax, before exercising his jurisdiction under section 263 must have material on record to arrive at a satisfaction. (ix) If the Assessing Officer has made enquiries during the course assessment proceedings on the relevant issues and the assessee has detailed explanation by a letter in writing and the Assessing allows the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 14. By exercising such power u/s 263the Ld. PCIT can himself pass an order determining taxable income of the assessee. He can enhance income or he can cancel the assessment order with a direction to pass fresh assessment order. Thus, it is not a mere continuation of original proceedings. It is a proceeding which is assumed for determining/recomputation of income of an assessee. Hence unless a valid jurisdiction is being assumed by the Commissioner, he cannot redo an act done by his subordinate authorities. His direction would give fresh dimension to the determination of income of an assessee. Therefore, the power exercised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is prejudicial to the assessee rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. In the present case, Principal CIT has revised the order on the ground that the A.O. has failed to make enquiries or verification, which should have been made. Ld. Principal CIT has not specified that what enquiries the A.O. has not made. There is no material suggesting that the Principal CIT has expressed his view about insufficiency of enquiry on the material placed on record. The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgement of ITO Vs. DG Housing Projects Ltd. (2012) 20 Taxmann.com 587, which has been followed by this Tribunal in various cases. Hon'ble High Court while adverting to the issue held that in cases of wrong opinion for finding on merit, the CIT has to come to the conclusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the A.O. will be erroneous because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is erroneous the jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further observed that the material, which the CIT can rely includes not only the records as it stands at the time when the order in question was passed by the A.O. but also record as it stands at the time of the examination by the CIT. Nothing appears/prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the A.O. is erroneous. We find that Ld.CIT in the present case has not carried out any enquiry of his own has merely set aside the assessment to the file of the A.O. to re-examine issue of source of cash deposited by the assessee. Therefore, it is contrary to the guidelines as mandated in the Hon'ble Delhi High Court in the case of ITO Vs. DG Housing Projects Ltd. (supra) coupled with the fact that the assessee during the assessment proceedings had submitted evidences in support of sale of jewelleries and receipt of gift. Moreover, the issue of examination of Rakesh Khandelwal 69 ITA No.204 of 2019 source of gift was not subject matter of the scrutiny. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon the assessee. The assessment was completed u/s 143(3) on 22.12.2016 at total income of ₹ 12,08,010/- after making addition of ₹ 48,800/- being net profit difference. Subsequently Ld. Pr.CIT, Ujjain assuming his jurisdiction u/s 263 of the Act initiated the proceedings u/s 263 of the Act against the assessee by issuing following show cause notice dated 25.02.2019:- In this case, the assessee filed return of income for the A.Y 2014-15 on 30.09.2014 declaring total income of .11,60,010/- and agricultural income of .10,000/-. The case was selected for scrutiny through CASS. The assessment was completed u/s 143(3) on 22.12.2016 by the AO [ITOl, Dewas] at total income of .12,08,010/-, which is considered erroneous and prejudicial to the interest of revenue for the following reasons :- On perusal and examination of records, it is noticed that the assessee had sold 5000 shares of Kappac Pharma Ltd. for an amount of .35,73,945/-, which was purchased by the assessee for an amount of .60,000/-. The capital gain arising on such sale transaction of .35,13,945/- is claimed to be exempted u/s 10(38) of the I T Act. On perusal and verification of record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early shows the date of purchase. The assessee has filed complete details of sale and purchases of shares and assessment records along with financial statement. After seeing the documents the Ld. Assessing Officer has accepted after scrutinized the documents. The Ld. Assessing Officer has elaborated his view in the assessment order also. In view of above submission and on the facts and circumstances the order of the Assessing officer is not prejudicial to the interests of the revenue. Also your honour an order cannot be termed as erroneous that the order should have been written more elaborately. It is humbly submitted your honour that relying on the following decisions of Hon'ble Courts both conditions must co-exit for proceedings under section 263 of Income Tax Act, 1961. Tara Devi Aggarwal (Smt.) vs. CIT 88 ITR 323 (SC). CIT vs. Max India Ltd. 295 ITR 282 (SC) CIT vs. Ratlam Coal Ash Co. 171 ITR 141 (MP). CIT vs.'Shri Govindram Seksariya Charity Trust 166 ITR 580 (MP) CIT vs. Gabrial India Ltd. 203 ITR 109 (Bom). CIT vs. Smt. Minalben S.Parikh 215 ITR 81 (Guj). CIT vs. Sohana Woollen Mills 296 ITR 238 (P H). It is therefore prayed you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue, if in the opinion of the Principal Commissioner or Commissioner. (a) The order is passed without making inquiries or verification which should have been made; (b) The order is passed allowing any relief without inquiring into the claim; As such the provisions of section 263 are applicable on the issue of the case. 5. Thus, the order is erroneous and prejudicial to the interest of revenue in respect to the above issue. 6. The order of the AO is, therefore, set aside to the file of the AO with direction to examine the issue, as discussed above, and after affording proper opportunity to the assessee. The order dated 22.12.2016 passed u/s 143(3) is, accordingly, set aside. 24. Now the assessee is in appeal before the Tribunal. 25. Ld. Counsel for the assessee submitted at length referring to the written submissions and relying on the jurisdictional pronouncements as reproduced below:- The assessee is an individual deriving income from Salary, rent, interest and capital gain and agricultural income. The return of income was filed declaring the income of ₹ 11,60,010/-. During the course of the assessment proceedings, the Ld. A.O. asked t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uly recorded in the books and have been shown in the statement of affairs as on 31/03/2013. It was further submitted that the debit note with the ledger copy of the broker have been filed which shows the date of purchase and complete details of sales. The amounts of sale was duly received through banking channel. After considering all these details the Ld. A.O. has accepted the claim of the assessee. Thus, the order cannot be said to be erroneous and it is a mere change of opinion and as such provisions of section 263 are not applicable. The Ld. PCIT in para 3.2 reiterated the reasons given in the notice. The Ld. PCIT discussed the modus operandi of the shares transaction and opined that the scrip of Kappac Pharma Ltd. was a penny stock as per the report of Investigation Wing, Calcutta. The Ld. PCIT in para 3.5 observed that the A.O. has not made any enquiry regarding the nature of security traded by the assessee. He therefore, set aside the assessment order, being erroneous and prejudicial to the interest of the revenue. It is humbly submitted that since the assessment has been framed after due verification of the facts and material on record, the action u/s. 263 is bad in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions referred and relied by Ld. Counsel for the assessee. Through these four bunch of appeal of Shri Aditya Mundra, Shri Govind Das Mundra, Manish Mundra and Manoj Mundra vide ITA Nos. 632, 634, 635 637/Ind/2019 the common issued raised is challenging the jurisdiction assumed by Ld. PCIT invoking revisionary powers u/s 263 of the Act and setting aside the order u/s 143(3) of the Act holding it to be erroneous and prejudicial to the interest of revenue as Ld. A.O has not conducted sufficient enquiry for the transaction of purchase/sale of equity share of Kappac Pharma Ltd. 28. We note that Ld. PCIT in the show cause notice dated 25.02.2019 has referred to the transaction of Long Term Capital Gain arising from sale of 5000 equity shares of Kappac Pharma Ltd which took place on 24.2.2014 05.03.2014 and sale consideration amounting to ₹ 35,73,945/-. These 5000 equity shares were purchased on 25.06.2012 @ ₹ 12/- per share. The observation of Ld. PCIT is that the date of purchase is not verifiable and detailed Investigation by DG (Inv.),New Delhi has revealed that the transactions were fraudulent. Ld. PCIT has also referred to the information received from Principal DI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d towards the sale of 5000 equity shares of Kappac Pharma Limited, financial ledger of Fair Wealth Securities Ltd, copy of share certificate of Kappac Pharma Limited and copy of purchase bill issued by Shah Sons Propon Private Limited, Ahmedabad. In the copy of balance sheet of assessee as on 31.3.2013 the investment in equity shares of Kappac Pharma Limited is shown under the head Investment in shares . 31. The Ld. A.O after having analyzed all the information referred herein above and submissions filed by the assessee on various dates completed the assessment on 22.12.2016 after making addition of ₹ 48,000/- to the income disclosed by the assessee in the return. In the body of assessment order Ld. A.O has given complete details of purchase and sale of equity share of Kappac Pharma Limited and the relevant finding is extracted below:- 3. Assessee derived income from Salary, rent interest,Capital Gain Agricultural During the course of assessment proceeding the assessee asked to explained about capital gain on sale of share. In connection with long term capital gain assessee submitted that the Long Term Capital Gain on sale of shares is exempted u/ s 10 (38). Also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a or company based in Kolkatta had any role in this transaction, has finally accepted the transaction. 34. In so far as the assessee s facts reveal that it is not a case that of NO ENQUIRY . Against the specific question asked by Ld. A.O detailed reply has been filed along with supporting documents. Ld. A.O has examined those documents and has taken one of the possible view while completing the assessment and has also given a detailed observation in the assessment order. So far as the above facts are concerned the same are analyzed in the light of the above judgments and the action of the Ld. PCIT cannot be held to be justified. 35. In the above referred decisions it has been held that Ld. PCIT/CIT cannot set aside the assessment to the file of the Ld. A.O without making any enquiry on his own. In other words the matter cannot be remitted for afresh decision to the Ld. A.O to conduct further enquiries without finding that an order is erroneous and the same is to be arrived at by Ld. PCIT/CIT by conducting necessary verification/enquiry. 36. In the instant case we find that the Ld. PCIT has referred to the investigation by DG(Inv.), Bhopal but the revenue authorities ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from record that it was selected for scrutiny for examining the transaction of capital gain. Even then the Ld. A.O has made all necessary efforts to examine the fair market value of purchase and sale price of all the equity shares purchased and sold. Ld. Departmental Representative could not rebut this fact that the purchase and sale price paid and received by the assessee and similar to the price appearing on the respective dates on the portal of recognized stock exchange controlled by Securities and Exchange Board of India (In short SEBI ). The optimum enquiry which the Ld. A.O could have conducted has been done in the instant case with regard to the transaction giving rise to Long Term Capital Gain. 39. We also observe that this transaction of dealing the shares M/s Kappac Pharma Ltd is not solitary in itself. During the period when such public companies are listed at stock exchange there are continuous transaction of purchase and sale. Till the controlling authority of stock market suspends the activity of such scrips the transaction are carried out on auto mode. Ld. Departmental Representative before us could not place any such evidence to show that any action at the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wilful default, the benefit of continuation of registration may not be denied. In the instant case, the Tribunal was right in law in holding that there was no error in the order of the income tax officer and therefore the commissioner had no jurisdiction u/s.263 in respect thereof. 43. Hon ble Bombay High Court in the case of CIT V/s. CIT V/s Gabriel (India) Ltd 203 ITR p.108 (Bom) held that:- The income tax officer had made enquiries in regard to the nature of the expenditure incurred by the assessee, the assessee had given a detailed explanation in that regard by a letter in writing, evidently the claim was allowed by the ITO on being satisfied with the explanation of the assessee. The decision of the Income tax officer could not be held to be erroneous simply because in his order he did not made an elaborate discussion. The Tribunal was justified in setting aside the order passed by the CIT u/s.263. 44. Recently the Co-ordinate Bench Jaipur in the case of Shri Om Prakash Badaya V/s Pr. CIT (supra) adjudicating similar issue wherein also the Ld. PCIT directed the Ld. A.O to examine the transaction of Long Term Capital Gain from sale of equity shares was under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he recognized stock exchange have been applied to the purchase and sale transaction and further Ld. PCIT while conducting the proceedings u/s 263 of the Act has not conducted any specific enquiry on merit nor has found any new information to rebut the facts shown by the assessee in the alleged transaction of earning Long Term Capital Gain. Therefore the assessment order of Ld. A.O dated 22.12.2016 cannot be held to be erroneous in so far as prejudicial to the interest of revenue. We thus quash the impugned orders u/s 263 of the Act as the action of Ld. PCIT is contrary to the ratio laid down by the binding precedence and restore the assessment order u/s 143(3) of the Act dated 22.12.2016 and allow the ground raised by the assessee in ITA No.632/Ind/2019. 46. As regards the grounds raised in the appeals by three assessee(s) namely Shri Govind Das Mundra, Shri Manish Mundra and Shri Manoj Mundra in Appeal Nos. 634, 635 637/Ind/2019 respectively since the facts and issues remain the same as agreed by both the parties. We therefore apply our decision in ITA No.632/Ind/2019 mutandis mutandis in the remaining appeals also and quash the respective orders of Ld. PCIT u/s 263 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued a notice to invoke the provision u/s 263 with the reasons that the certificate by a Chartered Accountant has not been filed and as such the Fair Market Value of the shares is to be calculated as per the last Balance Sheet as on 31.03.2013. If this is considered the value of the shares comes to ₹ 77 per share. The assessee has issued the shares at a premium of ₹ 90. Therefore, the excess premium received at ₹ 82,21,070/- is taxable U/S 56(2)(viia). On this basis the order u/s 143(3) has been held to be erroneous and prejudicial to the interest of the revenue. 50. Before the Ld. PCIT it was submitted that the shares are valued as per Rule 11 UA and thus, the order is not erroneous. It was specifically submitted in para 7 of the submissions that the audited Balance Sheet and P L A/c duly certified by the Chartered Accountant is filed and should be considered. Thus, it was submitted that the value of the shares is determined as per Rule 11 UA. It was further submitted that the Ld. A.O. issued the query letter and asked for application of section 56(2)(viib) in respect of share premium and the same has been examined by him. After discussion and reproducing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date immediately preceding the valuation date which has been approved and adopted in the AGM of the shareholders of the company. In any other case, the balance sheet of such company as drawn up on the valuation date which has been audited by the auditor appointed u/s 224 of the Companies Act. Thus, the Rule does not lay down that the balance sheet which is drawn up and audited as on the valuation date need not be approved and adopted in the AGM. The Ld. PCIT has mislead himself about the interpretation of the Rule that the balance sheet drawn up and audited by the auditors should be approved in the AGM. The assessee has valued the value of the shares as per Rule 11 UA. The audited balance sheet was submitted before the Ld. CIT(A). The remark that the books are not audited as on the valuation date is contrary to the evidence. The Ld. PCIT also did not consider Clause( c) of Rule 11 UA which clearly states that the Fair Market Value of unquoted shares may be estimated to be the price it would fetch if sold in the open market and the assessee may obtain a report from an accountant in respect of such valuation. The assessee has got the books audited on 14/10/2013 and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uery asking as to why disallowance u/s 56(2)(viib) of the Act in respect of share premium in excess of fair market value of shares on the date of allotment be made. The assessee company filed a detailed calculation of the share premium as per Rule 11 UA of Income Tax Rules attaching there with balance sheet as on 14.10.2013 and other necessary details. These details were examined by the Ld. A.O in detail and in para 8,9 and 10 of the assessment order has given a categorical finding which is extracted below:- 8. The assessee has furnished computation of fair market value of shares of the company as on 15.10.2013 prepared on the basis of balance sheet as on that date. While submitting the calculation stated above, the assessee has taken into consideration proportionate net profit derived by the company till the date of allotment i.e. 15.10.2013. Fair market value of the shares of the company as on 31.03.2014 is more than ₹ 100/- (rate of shares allotted on that date) and hence no addition in respect of shares allotted on 31.03.2014 is made. 9. The assessee has claimed that fair market value of the shares allotted on 15.10.2013 is more than that determined under Rule 11UA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee giving all the necessary details in order to compute the value of shares as per rule 11UA which was found to be correct out by the Ld. A.O. In this case also there was a complete enquiry completed by the Ld. A.O. 59. The only common reason for which the Ld. PCIT has directed the Ld. A.O to examine the issue of fair market value of shares was that during the course of assessment proceedings assessee submitted unaudited financial statements prepared for the dates on which allotment took place. As per Ld. PCIT it should have been audited by a Chartered Accountant as provided in rule 11UA(b) of the Income Tax rules and in the alternative last audited balance sheet should be taken as the basis. Further the same should have been approved in the Board of Directors in the annual general meeting. It is brought to our notice by Ld. Counsel for the assessee and the same have not been controverted by Ld. CIT(DR) is that when the proceedings u/s 263 of the Act were undergoing, the audited financial statements i.e. duly certified by Chartered Accountant as on the day before the day of date of allotment of equity shares as provided in Rule 11UA(b) of the Act were placed on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mply because in his order he did not made an elaborate discussion. The Tribunal was justified in setting aside the order passed by the CIT u/s.263. 61. Our view is also supported by the judgment of ITO V/s D.G Housing Projects Ltd (supra) wherein the Hon ble Court has observed that if the Assessing Officer has not examined the issue properly, the said finding will be correct if the CIT had examined and verified the said transaction himself and given a finding on merit . 62. The above judgment is applicable on the instant case also wherein also the Ld. PCIT has mentioned that though the issue of valuation of equity share had come up before Ld. A.O during the assessment proceedings but he need to examine the issue in detail. Before directing so, Ld. PCIT should have made an enquiry and examination of the facts which would have certainly landed up in computing the same fair market value of equity share as was adopted by Ld. A.O. Here we would also like to mention that the proceedings initiated u/s 263 of the Act may not always result into outcome of setting aside the assessment order or giving direction to examine certain issues. It is fairly possible that once the show cau ..... X X X X Extracts X X X X X X X X Extracts X X X X
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