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TMI Blog2023 (1) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... is a clear fault on the part of the AO in not referring the matter of converting the limited scrutiny case into complete or comprehensive scrutiny and this inaction is without application of the mind which bring the assessment order under the category of order erroneous insofar as it is prejudicial to the interest of the Revenue without enquiring and accepting the claims blindly, which resulted in loss to Revenue. Taxation of whole of the sale consideration on sale of shares as against long term capital gain on such sale of shares or penny stock considered by the AO - We have already held in preceding paragraphs that the issue of sale of penny stock is germane to the issue of limited scrutinty of examining increase in capital of the assesee during the year. PCIT has held that the Assessing Officer has given erroneous finding on this issue of limited scrutiny. In the case in hand before us, the assessing Officer has treated the amount of long-term capital gain arising from sale of penny stock only as unexplained cash credit for section 68 of the Act, which was computed by way of reducing cost of acquisition of penny stock out of sale consideration of those penny stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on this issue without providing opportunity of being heard - HELD THAT:- In our opinion, the submission of the Ld. Counsel of the assessee are justified. Before holding the order of the Assessing Officer as erroneous insofar as it is prejudicial to the interest of the Revenue on any particular issue, it is sine qua non to issue notice to the assessee and the action of the Ld.PCIT is in violation of the principles of natural justice. To this extent, we are of the opinion that the order of the Ld.PCIT cannot be sustained. Issues which were not covered under limited scrutiny - We are of the opinion that under the mandate of Limited Scrutiny , the Assessing Officer was not authorised to enquire on the issues other than the reasons for which it was taken for scrutiny purpose unless approved so by higher authorities. Since no approval was taken for converting the case from Limited Scrutiny to comprehensive or complete scrutiny , the Assessing Officer was not authorised for enquiry on the issues challenged by the assessee in ground Nos. 8 to 15. The Ld. PCIT can find fault for not referring the matter of converting Limited Scrutiny case to Comprehensive Scrutiny case, but n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Pr. CIT has erred in not following the judicial prudence when the Coordinated ITAT bench decision should have been followed and when there is no high court order against the above issue. TAXATION OF WHOLE SALE CONSIDERATION ON SALE OF SHARES AS AGAINST CAPITAL GAIN ON SUCH SALE 3. The learned Pr. CIT has erred to hold that the assessment order was erroneous and prejudicial to the interest of revenue on issue of the taxation of whole (full) sale consideration on sale of shares as against capital gain on such sale ) and should have been added full u/s 68 of the I.T. Act including cost of acquisition to the extent of Rs.63,07,552/- (Rs.55972000-Rs.49664448) and failed to appreciate that there is adequate inquiry on the same issue and the learned AO has passed the order after application of mind and after considering relevant material and after his satisfaction. 4. In the facts and in the circumstances of the case, the learned Pr. CIT has erred to give the direction for revision u/s 263 on issue when the matter for the same issue is pending before the CIT appeals and the order cannot be revised under section 263 on this issue specially when the issues is the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nducted sufficient inquiry and applied his mind. 12. In the facts and in the circumstances of the case The learned Pr. CIT has failed to appreciated that The assessee has been charged with full consideration and even cost has not been allowed as deduction irrespective of head of income and the assessee has been over taxed The learned Pr. CIT has passed the order mechanically . 13. In the facts and in the circumstances of the case, the learned Pr. CIT has erred to give the direction for revision u/s 263 on issue when the matter for the same issue is pending before the CIT appeals and the order cannot be revised under section 263 on this issue specially when the issues is the subject matter of appeal and failed to appreciate that The issue of not allowing cost of acquisition and head of income has been appealed before cit( a) as apparent from appeal memo and failed to appreciate that The proceedings under section 263 are invalid during the pendency of an appeal as held in Aerens Infrastructure Technology Ltd. v. CIT [2004] 271 ITR 15 (Delhi) (HC) The learned Pr. CIT has erred to hold that the assessment order was erroneous and prejudicial to the interest of reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of assessment proceedings show that while making the assessment, the Assessing Officer has failed to examine the issues properly and has not applied his mind to facts and circumstances of fhe case for the purpose of determining the genuineness of the claims and failed to appreciate that It is a subjective finding subjective satisfaction not based on any objective materiara of apparent from revision order. 18. The learned CIT failed to appreciate the fact that even if there was any inquiry, even inadequate, that would not by itself give occasion to the CommissioneT To pass orders under section 263 of the Income-tax Act, 1961, merely because he had a different opinion except the inquiry mandated as per law has not been conducted .The learned Pr. CIT failed to appreciate the fact that where the assessment order has been passed by the AO after taking into account the assessee1 submissions and documents furnished by him and no material what so ever has been brought on record by the Pr. CIT which showed that there was any discrepancy or falsity in evidences furnished by the assessee, the order of the AO cannot be set aside for making deep inquiry only on the presumption an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tworthiness of creditors in general without specifying nay name when the evidence were on record in respect of the genuineness/identity/capacity of the cash creditors and once this factual completely wrong and the Pr cit has not discussed this issue at all in the revision order nor the order has been set aside on such issues. 20. In the facts and in the circumstances of the case, the learned Pr. CIT has erred to rely upon EXPLANATION 2 when basis conditions of 263 provisions are not fulfilled. 2. Briefly stated, facts of the case are that the assessee filed its return of income electronically on 08th April, 2017 declaring total income of ₹76,26,110/-. The case of the assessee was selected for limited scrutiny purpose and statutory notices under the Income-tax Act, 1961 (in short, the Act ) were issued and complied with. The assessment under section 143(3) of the Act was completed on 28/12/2018 wherein the Assessing Officer disallowed interest on loan amounting to ₹41,27,302/-; held long term capital gain amounting to ₹47,28,200/- liable as taxable under the head Income from other sources and added unexplained cash credit arising out of sale of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessee is that this is also a case of limited scrutiny and the order can be revised only for the issue which were before the AO. This contention is also not tenable as detailed below. Circular No.20/2015 dated 29.12.2015 and Instruction No.5/2016 dated 14.07.2016 are relevant with regards the jurisdiction of assessment proceedings in cases under Limited Scrutiny. It clearly states that even on issues other than selected under CASS, the Assessing Officer has the power to take up the assessment for comprehensive scrutiny with the approval of the Pr. CIT/DIT concerned. Therefore, in the present case also the Assessing Officer could have converted the limited scrutiny assessment into a complete scrutiny assessment by obtaining approval from the Pr. CIT/DIT concerned. The Assessing Officer having failed to convert the limited scrutiny into a complete scrutiny in itself renders the order of the Assessing Officer erroneous and prejudicial to the interest of revenue for invoking the jurisdiction u/s 263 of the IT. Act. 9.1 Section 263 of the Income-tax Act leeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y that in this case, the judgement in Sonali M Bhavsar Vs. Pr.CIT ITA 742/M/2019), relied upon by the assessee, has also been considered before giving the judgement. 7. Before us, the Ld. Counsel of the assessee referred to page 99 of the paper book and submitted that the case was selected under limited scrutiny for examination of two issues, firstly, whether the deduction against income from other sources had been correctly shown in the return of income and secondly, whether the share capital was genuine and from disclosed sources. The Ld. Counsel of the assessee submitted that In view of those two limited issues available for enquiry by the Assessing Officer, the Assessing Officer was not empowered to carry out enquiries on the other issues including penny stock, brought forward losses, provisions of section 115BBE, taxation of entry operator charges, allowance of speculation loss, taxation of property rights and sale of property and genuineness of unsecured loans and creditworthiness of creditors, which have been raised by the Ld. PCIT.In view of the Ld.Counsel of the assessee, the Ld.PCIT has exceeded in his jurisdiction in holding the assessment order as erroneous inso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot being able to concur with the view taken by the Pr. CIT that the order passed by the A.O under Sec. 143(3), dated 10.10.2016 is erroneous, therefore, set aside his order and restore the order passed by the A.O. As we have quashed the order passed by the Pr. CIT under Sec. 263 on the ground of invalid assumption of jurisdiction by him, therefore, we refrain from adverting to and therein adjudicating the contentions advanced by the Id. A.R on the merits of the case, which thus are left open. 8. Further, the Ld. Counsel also relied on the decision of the Delhi Bench of Tribunal in the case of Pawansut Media Services vs PCIT in ITA No.534/Del./2021 for A.Y. 2015-16 wherein it is held that if the Assessing Officer had made enquiries as per the reasons for which the case was selected for limited scrutiny and the case was not converted to full scrutiny, the Ld. PCIT was not justified in assuming the jurisdiction under section 263 of the Act. 9. The Ld.DR, on the other hand, relied on the order of the lower authorities and submitted that in the case, Ld. PCIT has held the order erroneous in view of the reason that despite being sufficient grounds for converting the case from l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said parties. (iii) Ledger extract of these parties in your Bank Account as on 31.03.2015 and 31.03.2016. (iv) Bank statement for the period 01.04.2014 to 31.03.2015 and 01.04.2015 to 31.03.2016. 10.2 The Assessing Officer further issued reminder by way of notice dated 15/11/2018, a copy of which is available at pages 105 106 of the paper book. In response, the assessee filed details, a copy of which is available on pages 26 to 36 of the paper book. The relevant reply on page 34 of the paper book is reproduced as under:- RE: NAGJI KESHAVJI RITA-AADPR7934H SUB: Notice u/s142(1)dt 29/10/2018 dt. 15/11/2018 for AY16-17 In response to your notice No.lTBA/AST/F/142(1)/2018-19/1013387138 (1) dated 29/10/2018 notice No. ITBA/ASST/F/142(1 )/2018-19/1013641330 (1) dated 15/11/2018, we submit as under: 1. Expenses claimed u/s 57 of the Act is with respect to Interest paid to various parties from whom loans have been availed. .Details of Interest paid is annexed. Confirmations from the parties to whom interest paid is annexed and marked in the list and serially numbered. Only two confirmations are awaited and will be filed at the earliest. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penny stock was not covered under the scope of limited scrutiny is not justified because long term capital gain on sale of the shares of Inventure Growth Securities Ltd constitute one of the items of increase in share capital of the assessee which was one of the issues for examination under the limited scrutiny. Hence, we reject the contention of the assessee , that the issue of sale of penny stock orsale of shares of Inventure Growth Securities Ltd was not part of limited scrutiny assessment. 10.4. As far as issues other than the issue of sale of shares in of Inventure Growth Securities Ltd, the Ld.PCIT has referred to the Instruction No.20 /2015 dated 29/12/2015 and instruction No.5/2016 dated 14th July, 2016 regarding the jurisdiction of Assessing Officer in assessment proceedings in cases under limited scrutiny and held that the Assessing officer turned a blind eye towards those instructions of CBDT. The relevant Instruction dated 14th July, 2016 referred by the Ld. PCITis reproduced as under: - Instruction No.5 / 2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 14th of July, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Limited Scrutiny . The AO shall also expeditiously intimate the taxpayer concerned regarding Complete Scrutiny in such cases. 5. It is also clarified that once a case has been converted to Complete Scrutiny , the AO can deal with any issue emerging from ongoing scrutiny proceedings notwithstanding the fact that the reason for such issue have not been included in the Note. 6. To ensure proper monitoring in cases which have been converted from Limited Scrutiny to Complete Scrutiny , it is suggested that provisions of section 144A of the Act may be invoked in suitable cases. To prevent possibility of fishing and roving enquiries in such cases, it is desirable that these cases should invariable be picked up while conducting Review or Inspection by the administrative authorities. 7. The above Instruction shall be applicable from the date of its issue and would cover the cases selected under CASS 2015 which are pending scrutiny cases as well as cases selected / being selected under the CASS 2016. 8. The contents of this Instruction may be brought to the notice of all for necessary compliance. 9. Hindi version to follow. Sd/- (Rohit Garg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 4th April, 2017, and notice under section 143(2) of the Act for selecting the case under Limited Scrutiny was issued on 24/07/2017. The CBDT has further issued directions vide letter dated 28/112/2018 which applies to all pending cases of Limited Scrutiny selected under CASS cycle of 2017. The case of the assessee falls under the category of cases mentioned in the instruction dated 28/11/2018. The relevant part of Instruction is reproduced as under: F. No. 225/402/2018/ITA.II Government of India Ministry of Finance Department of Revenue (CBDT) North Block, New Delhi, the 28th of November, 2018 To All Principal Chief-Commissioners of Income-tax/All Principal Director-Generals of Income-tax Sir/Madam, Subject: Scope of enquiry in Limited Scrutiny cases selected under CASS cycles 2017 and 2018 in the context of information provided by any law-enforcement/ intelligence/regulatory authority or agency -regd.- Under CASS cycles 2017 and 2018, some of the cases were selected for scrutiny as a 'Limited Scrutiny' case. In 'Limited Scrutiny' cases, Assessing Officer cannot travel beyond the issue(s) for which the case was selec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in para 2 and 3, above; ii. The same shall be placed before the Pr. CIT/CIT concerned and upon his approval, further issue can be considered during the assessment proceeding; iii. The Assessing Officer shall issue an intimation to the assessee concerned that additional issue would also be considered during the course of pending assessment proceeding; iv. To ensure proper monitoring in these cases, provisions of section 144A of the Income-tax Act, 1961 may be invoked in suitable cases. Further, to prevent fishing and roving enquiries in these cases, it is desirable that these cases are invariably picked up for Review/Inspection by the administrative authorities. 6. The above directive shall be applicable from the date of its issue and shall apply to the pending 'Limited Scrutiny' cases which were selected under the CASS 2017 and 2018 cycles. It is reiterated that the grounds mentioned in para 3 above are the only grounds on which a 'Limited Scrutiny' case of CASS 2017 and 2018 cycles can be expanded in its scope and that too only to the extent of the issues referred to by the law enforcement / intelligence/regulatory authority or age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1.3 Further, It is also seen from the case records that speculation loss of Rs. 75,47,956/- has been shown which has not been examined at all by the AO. 1.4 On perusal of the records, it is seen that rights in property at A-1006 Paramount Properties were sold during the year. This transaction has not been examined from the possibility of under declaration of income u/s 50C. Apparently, the property was not registered in the name of the assessee, in which case the rights were required to be taxed as Short Term Capital Gains. Neither of these issues has been examined by the AO. 1.5 As per capital Account, Short Term Capital Gain has been shown for sale of land at Mandvi. The AO has not examined the details of this transacvtion for the purpose of correct determination of taxable income. 1.6 During theyear, the assessee has taken unsecured loans, for example, Rs. 16 Lakhs from Shri Vinod Gada. The genuineness of this transaction and the financial capacity of Shri Vinod Gada to give such a loan to the assessee has not been examined by the AO. 10.8 In view of the above issues pointed out by the LD PCIT , we are of the opinion that an Assessing Officer havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gain. This is one of the plausible views and not unsustainable in law. Therefore, action of Ld.PCIT in revising the order on this issue is not valid in law. 14. Contra, the Ld.DR relied on the order of the Ld.PCIT. 15. We have heard rival submissions of the parties on the issue under dispute and perused the relevant materials on record. We have already held in preceding paragraphs that the issue of sale of penny stock is germane to the issue of limited scrutinty of examining increase in capital of the assesee during the year. The Ld PCIT has held that the Assessing Officer has given erroneous finding on this issue of limted scrutiny. The Ld.Counsel of the assessee has relied on the decision of the Tribunal in the case of Tanish Dealers Pvt Ltd vs PCIT in ITA No.1153/Kol/23019 (Kolkata) for A.Y. 2014-15 wherein the Tribunal observed that the Assessing Officer had discharged his duty as an investigator as well as an adjudicator and applied his mind on the issue before him and taking into consideration the explanation tendered by the appellant, had taken a reasonable and plausible view to allow the claim of short term capital loss, as made by the appellant in the return of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The conjunction and (emphasized above) is very crucial. It is very clear that the matter should not only be considered but also decided by the CIT(A) to preclude the jurisdiction u/s 263. There should be no ambiguity regarding this from the clear reading of the provision. Thus merely filing an appeal before the CIT(A) does not barthe assumption of jurisdiction u/s 263. This has been spelled out in the ITAT, Pune Bench 'A in the case of RankaJewellers v. Additional Commissioner of Income-tax (117 TTJ 522) wherein it was held that, 6.1 Reverting back to the question of merger, Expln. (c) to s. 263 is to be looked into wherein the words considered and decided are conjoined with a conjunction and . It means it is not suffice that the matter should only be considered by CIT(A) but it is equally necessary that learned CIT(A) should decide the matter by giving his appropriate finding. Both the conditions, thus, have to be fulfilled. (emphasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 above, there are several issues for consideration u/s 263 apart from the issues before the CIT(A). Thus the assumption of jurisdiction u/s 263 cannot be challenged on the basis of explanation 1(c) in the present case. 16.1 We have heard rival submissions of parties on the issue in dispute and perused relevant materials on record. We find that the Ld.PCIT has held that the particular issue will be out of the jurisdiction of the Ld.PCIT if the Ld.CIT(A) has considered and decided the matter by giving his finding. The Ld.PCIT has relied on the decision cited above in the case of ITAT, Pune Bench in RankaJewellers vs Addl.CIT(supra) wherein the Tribunal has held that in view of Explanation (c) of section 263, the assessment considered and decided are conjoined with a conjunction and therefore, both the conditions have to be fulfilled. The Ld.PCIT has also referred to the judgement of Hon ble Gujarat High Court in the case of Panna Knitting Industries (supra)wherein it is held that if part of the claim was considered by the Ld.CIT(A) and rest of the part undecided, then portion of the claim cannot be said to be merged with the order of the Ld.CIT(A) and order of the revision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nging the fining of the Ld.PCIT that Assessing Officer has failed to examine the issue properly and applied his mind. 19.1. Before us, the Ld.Counsel of the assessee has referred to various questionnaire issued by the Assessing Officer and, replies / responses submitted by the assessee. The Ld.Counsel of the assessee relied on the decision of the Coordinate bench of Tribunal (Jaipur Bench) in the case of Shri Vinay Kumar Sogani in ITA No. 444/JP/2018 for AY 2013-14 ,wherein it is held that assessee has produced evidences which establish the genuineness of transaction being holding of shares by the assessee in demat account and purchase of the shares against the consideration paid through banking channel, then in absence of bringing any contrary fact or disapproving the evidence produced by the assessee, the mere setting aside of issue by the Ld.PCIT for de novo consideration was not sustainable. However, we find that in the instant case, the finding of the Assessing Officer for assessing only the quantum of long term capital gain as against the whole sale consideration is erroneous in law and there are no two possible views on this issue. Therefore, the decisions relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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