9911796707
TMI Blog2016 (4) TMI 1452X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is not a case of completing regular assessment without making inquiries or verification, which should have been made [clause (a) of Explanation-2 to section 263(1) of the Act is relevant]. The clause (a) reads as - 'The order is passed without making inquiries or verification which should have been made'. The above provisions apply only to the cases of orders passed by AO without making inquiries or verification at all, which should have been done. Unlike in the case of Marigold Nariman Pvt Ltd [ 2015 (8) TMI 174 - ITAT KOLKATA] heavily relied by the AO, in the instant case, AO made inquiries on the matter of transactions leading to short term capital loss. Therefore, in our opinion, the order passed u/s 263 of the Act on this issue is invalid. Generation of long term capital gains and assessee s claim of the same u/s 10(38) - Assessee became the owner of such shares resultantly. These shares were traded involving the SE platform electronically and de-mat accounts of the parties involves evidences the same. There is no sustainable unfavourable finding of the fact by the Principle CIT on the rates / shares involved and payments. The allegation of the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obviously not the case of lack of inquiries by the AO during the assessment. The documentation cited above in this order suggest the above finding. We cannot understand why the AO should travel into zone of purchase price of the shares of CFC, Saregama RPGCITHL as they were acquired in the past. Any addition on the account of purchase price in this year is unsustainable in law. It is a settled legal principle. Any addition relating to investment should be made in the year of investment. Regarding sale price also, the same are competitive qua the prices quoted in BSE and the financials, as the case may be. No adverse data is placed by the CIT on records. CIT also failed to demonstrate the loss of revenue as required when he assumes jurisdiction u/s 263 - We also noticed that both the Principal CIT and CIT-DR have not listed / elaborated the meaning of the expression all aspects used by them while commenting on the AO s failure to carryout inquiries. Thus, it is the case of AO conducting the inquiries during the regular assessment proceedings, forming an opinion in the matter with due application of his mind and not making any addition after due inquiries. With so much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) The appellant prays that it be held that the CIT has no jurisdiction to exercise revisionary power u/s 263 of the Act with respect to issue in appeal before the first appellate authority in view of clause (c) of the Explanation to section 263(1) of the Act. Ground no. 3: On the facts and in the circumstances of the case and in law, the Hon ble CIT erred in setting aside the appellant s case back to the Ld AO for making a fresh assessment by holding that the assessment order dated 23.3.2013 made by the AO is erroneous and prejudicial to the interest of the Revenue. Further, the Ld AO erred in making various observations and giving various findings without any corroborative evidence and / or contrary to such evidence and / or without any basis in reaching the above conclusions. The appellant prays that the order of the CIT u/s 263 of the Act may kindly be quashed and the assessment order of the AO dated 23.3.2013 be restored. All the above grounds are without prejudice to each other. 2. Before going to the brief facts of the case, we find it relevant to place certain facts that took place before the date of this hearing by us. This is a case where the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble High Court and the shares were freshly allotted. However, while allotting, the shares were transferred to a trust ie RIFL Beneficial Trust. The benefit relatable to the shares in the trust is recognised as a beneficial interest . The beneficial interest is the subject matter of above purchases by the assessee. Net cost of the said shares as per the books is Rs. 45,31,16,989/-. The said amount is arrived at after considering the diminution in value of some shares which amounts to Rs. 1,81,67,311/-. Thus, RIFL has beneficial interest, which was sold to the assessee for a sum of Rs. 45.31 Crs. The cost of these shares as per the Fair Market Value (FMV) in the Stock Exchange is only Rs. 6.83 Crs (rounded off). Subsequently, the said Rs. 45.31 Crs worth of beneficial interest was sold by the assessee to a company named M/s. Offshore India Ltd after 35 days of its acquisition. The same was sold for Rs. 27.63 Crs. Therefore, the assessee claimed short term capital loss of Rs. 17.68 Crs (the difference between Rs.45.31 Crs and Rs. 27.63 Crs). As stated above, in the assessment, AO disallowed the said short term capita loss of Rs. 17.68 Crs while making assessment. AO is of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the case of utter lack of application of mind of the AO. Further, drawing attention to the sales transactions of the said beneficial interest to M/s. Offshore India Ltd, Principal CIT was critical of the AO s decision in accepting the assessee s claim that the sale price of the impugned shares is Rs. 27.63 Crs, when the market value was only Rs.6-7 Crs, wherein the transaction was done within the time gap of 35 days from the date of purchase on 6.2.2010. With the gap of 35 days, the value of beneficial interest cannot fall from Rs 45.31 Crs to 27.63 Crs. The Principal CIT reasoned why any buyer should buy the shares at Rs. 27.63 Crs when they are available in the Stock Exchanges for Rs. 6.83 Crs (rounded off). Principal CIT was critical of the AO s decision in accepting the sale price at Rs. 27.63 Crs, as claimed by the assessee. He further commented that the AO should have carried on deeper inquiries, more so, when the buyer ie M/s. Offshore India Ltd as an unrelated person as per AO. On the AO s finding about the relationship between the assessee and M/s. Offshore India Ltd, Principal CIT, as held in para 2.2.4 of his order, is of the opinion that M/s. Offshore India Ltd b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention to pages 98; 86; 100; 170 etc. Further, he submitted that this is a case where AO applied his mind to purchase and sale transactions before disallowing Rs. 17.68 Crs in the assessment. Therefore, the order of the AO is not erroneous in so far as it is prejudicial to the interest of Revenue. Further, it is the argument of the Ld Counsel for the assessee that the issue of short term capital gains was already considered by the AO and the same is the subject matter of adjudication by the CIT (A). Ld AR is of the view that the AO could not disallow the loss of Rs. 17.68 Crs without going into the closely connected transaction of purchase and sale of beneficial interest, more so, when there is inquiry and data furnished by the assessee in the assessment. 8. On the other hand, Shri B.C.S. Naik, CIT-DR for the Revenue has heavily relied on the order of the Principal CIT. Further, Ld DR filed written submissions in support of the revision order of the Principal CIT. Regarding the said amended provisions, bringing our attention to clause (c) to Explanation-1 to sub-section (1) of section 263 of the Act, Ld DR submitted that the matter in question was not considered and decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the difference between the sale price (Rs. 27.63 Crs) and the quoted price (Rs. 6.83 Crs) of the shares, Ld CIT-DR submitted that the loss of Revenue should be worked out considering the difference between Rs. 45.31 Crs and Rs. 6.83 Crs etc. In any case, this is the case where no loss was quantified by the Principal CIT in the revision order. Further, CIT-DR underlined the AO s failure to conduct inquiries in the matters relating to the nature of beneficial interest in the shares. He is of the opinion the beneficial interest is not a capital asset of the previous owner. Further, Ld CIT-DR listed out the inquiries the AO should have conducted in order to conclusively examine the impugned transactions relating to the purchase and sale of the beneficial interest . Since, these inquiries were not done, from the Ld CIT-DR s point of view, the inquiries conducted by the AO amounts to perfunctory inquiries . As per the Ld CIT-DR, the order of the AO is not a speaking order and not based on any meaningful inquiries. He relied on various decisions in support of the valid jurisdiction by the Principal CIT u/s 263 of the Act, when there is lack of inquiry, inadequate inquiry, improp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which eventually led to the fact of disallowance of short term capital loss of Rs. 17.68 Crs, the difference between Rs. 45.31 Crs and Rs. 27.63 Crs (ie the difference between purchase price and sale price of beneficial interest ). Various correspondence / documents filed by the assessee during the preceedings u/s 143(3) of the Act were relied. 10. Per contra, the case of the Revenue is that the AO utterly failed to apply his mind and failed to conduct meaningful inquiries to the issue of correctness of purchase and sale prices of beneficial interest . Of course, Ld DR s case additionally is that the AO erred in accepting the existence of beneficial interest and gave list of inquiries, the AO should have undertaken in the regular assessment and mentioned various judgments / orders in favour of the valid jurisdiction of CIT u/s 263 of the Act, when AO failed to undertake proper / adequate / reasonable inquiries. On the revenue loss aspect, which the twin condition of section 263 of the Act, the case of the Ld DR, if not the view of the CIT, AO should have disallowed entire amounts of Rs. 45.31 Crs and Rs. 27.63 Crs (purchase and sale prices of beneficial interest ) respectfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was not considered in the decision of the Tribunal in the case of Crompton Greaves Ltd (supra). It is also the Ld Counsel s argument that the decision of the Tribunal in the case of Crompton Greaves Ltd (supra) did not deal with the issue ie whether the said amendment is in retrospective or prospective in nature. Ld Counsel for the assessee also mentioned that a favourable decision should be considered when contrary / divergent decisions exist on the issue. 12. On considering the arguments of both the parties as well as the cited decisions on this issue, we find the same is relevant only if the AO passed an order without making inquiries or verification which should have been made. In our view, the adjudication of these arguments becomes irrelevant if the AO s order is found passed after making due inquiries / verification, which should have been made. Otherwise, our decision on retrospectivity of amendment becomes an academic exercise only. Decision of the Tribunal on amended clause (c) to Explanation-1 to section 263(1) of the Act 13. Firstly, we shall deal with the arguments relating to lack of jurisdiction for the Principal CIT in view of the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. 17. We shall now take up the Principal CIT s core conclusions on utter lack of application of mind of the AO on the issues of purchase and sale prices of beneficial interest . In this regard, we perused the contents of the assessment order of the AO and the documents placed before him. From the same, we find the disallowance of Rs. 17.68 Crs made by the AO in the regular assessment relates to the short term capital loss arose out of transactions of purchase and sale of beneficial interest. Further, we find lot of correspondence in this regard on the record. From various pages of the said correspondence available before the AO, Shri Vijay Mehta, Ld Counsel for the assessee listed out various pages of the assessee s paper book to display the fact of placing relevant data / information relating to purchase price sale price of beneficial interest ie relevant invoices; payment details; basis for arriving at the said purchase price and reasons adopting such basis (may be or not sustainable) etc. From the said, we need to decide, if the AO failed to verify the details of purchase and sale price of beneficial interest , while disallowing Rs. 17.68 Crs. Basic transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment? It is difficult to accept the Ld DR s argument on lack of application of mind by AO to the issues of purchase / sale price. 21. Therefore, we find that it is the case of thrusting opinion of CIT on the AO. We are of the opinion that the AO is in know of the issues relating to purchase, sale, loss which was finally disallowed by the AO in regular assessment. As such, Principal CIT failed to make up the revenue loss and specify / quantify such revenue loss either in any vogue or clear terms. Therefore, we cannot appreciate Principal CIT s decision to quash the AO s order without fulfilling the twin conditions of error revenue loss in the AO s order. Obviously, his revision order is deficient on this aspect of revenue loss. In our opinion, it is the case of hit and run . Principal CIT should have demonstrated in his order the revenue loss is clearly expressed language / figures. It s not the duty of the Ld DR to do it. He does not have such jurisdiction. No such figures appear in this order. Principle CIT is duly bound in this regard and it is not the duty of the Ld CIT DR to interpret / to extract / cull out some figures before us to add up to the omissions of the Princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Principal CIT observed that the transaction of share trading took place between the group related concerns. As per the CIT, the impugned share / sale transactions are collusive, synchronous and suspicious. AO accepted the claim without making relevant meaning inquiries into the cost of shares acquisitions / holding period and above issues. 24. Before us, Ld Counsel for the assessee submitted that the AO called for various details relating to the said M/s. BNK Securities (the broker), contract notes, transactional dates etc (pages 114 to 118 and 119 to 160 of the assessee s paper book are relevant) and examined the relevant issues. They include the aspects of acquisition of shares in question in earlier AYs and issue of holding period of shares. Eventually, AO accepted the fact that the gains in question are long term capital gains. The claim of the assessee u/s 10(38) was accepted. Ld Counsel for the assessee took objection to the finding of the Principal CIT and mentioned that the trading of transactions was done electronically and seller does not know the identity of the faceless buyer at the time of online e-contracting. He, further, argued that the Principle CIT has no tangi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes / shares involved and payments. The allegation of the Principal CIT and Ld DR is that the AO should have done more probing into the transactions and the allegation of collusive / synchronous transactions. We also find that the AO undertook the cross verification exercise in order to verify the claims with broker. The proceedings initiated by the AO u/s 133(6) of the Act evidences the same. In our opinion, it is very clear that allegations by the Principal CIT are based on suspicion, which is unsustainable in law. There is no iota of evidence against the assessee that supports the collusiveness. Regarding ....based allegations, we find that the principles of probability should take care. As such, we find there is no sustainable revenue loss reported by the Principal CIT. Actually, assessee gained in the process. In our opinion, as per the claim of assessee u/s 10(38) of the Act cannot constitute a revenue loss as it is otherwise a legitimate one. Thus, it is a case of suspicion of the Principal CIT rather than any allegations with substance. Therefore, we dismiss the finding of the Principal CIT and hold that the CIT has wrongly assumed jurisdiction III. Assessee s claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing sale price were furnished to the AO during the course of the assessment proceedings. i) The assessee sold shares of CFL capital Financial Services Ltd at the rate of Rs. 0.50 per share since this company had eroded its networth. The assessee had furnished the balance sheet along with notes of such company to the AO. ii) Although the shares of Saregama India Ltd were sold off-market, the assessee sold it at the price prevailing on the BSE. In this connection the assessee had filed the screenshot of the prevailing price on BSE on the date of sale. iii) The assessee sold the preference shares at Face Value. Further, the following documents were submitted with the AO while filing replies to his questionnaire / oral queries raised during the course of assessment proceedings:- 1) Computation of income which shows LTCL of Rs. 15.93 Crs (pg 1 of PB); 2) Details of LTCL which ought to be c/f along with a note (pg 2 of PB); 3) Statement showing LTCL of Rs. 15.93 Crs (pg 4 of PB); 4) Note on c/f of losses (pg 21-22 of PB); 5) Copy of Balance Sheet of KEC Holdings Ltd reflecting shares sold as long term appearing as at 31.3.2008 (pg 102 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the regular assessment proceedings etc. We have also examined the details of shares, cost and sales price and the break-up of the said loss of Rs. 15.93 Crs. For the sake of completeness, we extract the said details as under:- 31. We have also examined the written submissions made before us and find that the following is relevant:- The CIT states that the sale price was decided on an arbitrary basis. The assesse submits that details regarding sale price of above shares were furnished to the AO during the course of assessment proceedings. i) The assessee sold shares of CFL capital financial services ltd at the rate of Rs. 0.50 per share since this company had eroded its networth. The assessee had furnished the Balance Sheet along with notes of such company to the AO. ii) Although the shares of Saregama India Ltd were sold off-market, the assessee sold it at the price prevailing on the BSE. In this connection the assessee had filed the screenshot of the prevailing price on BSE on the date of sale. iii) The assessee sold the preference shares at face value. 32. Considering the inquiries by the AO and pages filed before him by the assessee, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any addition after due inquiries. With so much of evidence on records in support of the above, we cannot hold AO failed to make meaningful inquiries . Thus, we dismiss the arguments of Ld DR and allow the views of the Ld Counsel for the assessee. Accordingly, we hold, Principal CIT erroneously assumed jurisdiction on this issue too. 34. Before parting on the issue of application of mind , we would like to mention that that, while describing the order of the AO in matters of jurisdiction of CIT u/s 263, the Department used the following expressions. They are; (i) Lack of inquiry; (ii) Inadequate inquiry; (iii) Improper inquiry and (iv) Perfunctory inquiry 35. Regarding lack of inquiry , we are of the opinion that the same is relevant to case of no inquiry at all by AO in the regular assessment. No questions raised on the matter discussed by the CIT in revision proceedings. The same should not be used in cases of some or full inquiries into such matter. Regarding inadequate inquiry , we are of the opinion that the expression inadequacy is not defined and it is a matter of subjective and relative item. What is the deciding item between the adequacy and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
