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TMI Blog2016 (4) TMI 1452X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 Principal CIT and Ld DR is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of evidence on records in support of the above, we cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was adjourned from time to time around 20 times before it is finally heard on 19th February, 2016. There was a noting in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IFL 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 view that the sale price @ 27.63 Crs is not proper. He reasoned that wt the gap of 35 days, the value of beneficial interest co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 belongs to the RPG Cellular Investments & Holding Pvt. Ltd (RPG group entity) and it tantamount to a "related", if not, a "specified per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 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 by the CIT (A) in the appeal, therefore, the said provisions of clause (c) will not help the assessee. Regarding lack of inquiry and appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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, improper inquiry, perfunctory inquiry on an issue. The order of the AO becomes erroneous, when there are no such inquiries conducted by the AO. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 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") respectfully. Alternatively, AO should have disallowed Rs. 45.31 Crs (purchase price) minus Rs. 6.83 Crs (fair market value of the shares) accepting the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision 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 the said clause (c) of Explanation-1 to section 263(1) of the Act. In this regard, we have perused the relevant provisions of clause (c) of Explanation-1 to sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 relating to earning of short term capital loss is as follows:- Purchase price of "beneficial interest" - sale price of "beneficial interest" = short term capital loss Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment. 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 Principal CIT in the revision order passed u/s 263 of the Act. Principal CIT should clearly demonstrate the errors and revenue loss and not tax loss alone. Principal CIT is not allowed to assume jurisdiction u/s 263 under the guise of AO's failure to conduct adequate inquiries. In principle, the aspect of AO's failure is an unending process and it is difficult to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 tangible evidence to demonstrate that the transactions are collusive and synchronous. They are suspicion based only. Principle CIT did not find any mistake with the said documents placed at pages 114 to 160 of the paper book. Ld Counsel for the assessee relied on the decision of the ITAT, Mumbai in the case of M/s. A.V. Industries vs. ACIT in ITA No. 3469/M/2010 (AY 2005-06), d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idences 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 long term capital loss of Rs. 15.93 Crs: 27. The third issue raised by the Principal CIT in his order relates to the claim of long term capital loss of Rs. 15.93 Crs. On facts, assessee submitted that the assessee owns certain equity shares of CFL Capital Financial Services Ltd; Saregama India Ltd and non-cumulative preference shares of RPGCITH (P) Ltd. There were sold for loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket, 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 102-103 of PB); 6) Copy of investment schedule of Instant Holdings Ltd showing shares sold as long term appearing as at 31.3.2008 (pg 104 of PB); 7) Copy of invoices showing sale of shares (pg 105, 106, 110, 111, 112 of PB); 8) Copy of balance sheet of CFL Capital Financial Services Ltd along with notes to accounts showing negative networth (pg 107 to 109 of PB); 9) Copy of stock price of equity share of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails 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 find that the inquiries of the AO cannot be considered "perfunctory or inadequate". We need to consider the time limitation to the AO / the work load on any AO of this period. On merits also, it is not the case of Principal CIT that preferential shares of RPG-CITHL are sold below price. There were sold at face values. Of course, after indexation benefits were claimed, the capital losses are reported. Regarding shares of Saregama, we find that they are "quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 "inadequacy", similar is the expression of "improper inquiry". What is the deciding live between proper and improper inquiries? These expressions need to be understood from the point of view of AO accepting erroneous claims of erroneous assumption of law (failure to follow law / precedents on the matter) or fact after gathering them. Finally, on the issue of "perfunctory inquiry" also, we find this expression means "an action to carry out without real interest / feel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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