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TMI Blog2005 (4) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... 1996, 28th Oct., 1997, 31st Oct., 1998 and 29th Nov., 1999, respectively. All the returns were processed under s. 143(1)(a) of IT Act and subsequently the assessment for the asst. yr. 1997-98 was also completed under s. 143(3) of IT Act. Later on the AO received a copy of inquiry report in the case of Shri Ran Singh Kalsi, father of the assessee from DDIT (Inv), Patiala. On the basis of above said report, the AO reopened the case of the assessee under s. 147 of IT Act and issued notices to him under s. 148 of IT Act for the abovementioned assessment years. The assessments had been completed for all the assessment years under s. 143(3) of IT Act vide order dt. 1st March, 2004. The AO accepted the returned income for the asst. yr. 1996-97 and for asst. yr. 1997-98 the income already assessed under s. 143(3) in February, 1998 was accepted while additions of Rs. 14,000 and Rs. 40,000 had been made in the asst. yrs. 1998-99 and 1999-2000, respectively. In the asst. yr. 1998-99, addition was made on account of household expenses and for asst. yr. 1999-2000, addition was made on account of difference in the cost of construction of houses. In all the above said returns, the assessee had s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a broker whom he met in Delhi in a marriage party for the first time. Mr. Vohra, chartered accountant had introduced him. The assessee admitted that he did not know whether Mr. Vohra was chartered accountant or not. (iv) That the shares were sold by the assessee by going through the rates (that) appeared in the newspapers like The Economic Times, etc. (v) That the assessee did not know anything about the nature of the companies in respect of which he had purchased shares. According to the learned CIT, the assessee had no interest in sale and purchase of shares. His motive was capital formation through this route only to utilize the money in the construction of the house without giving a single penny towards tax to the Government. Learned CIT observed that it was strange that the person who was trading in sale and purchase of shares of non descript companies by going through the newspapers never suffered a loss. When the assessee was asked that Shri Mahesh Goenka in his statement had admitted that he had been only giving him accommodation entries and whether he wanted to say anything about this or wanted to cross-examine Shri Mahesh Goenka in this regard, the assessee flatly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s who had invested in construction of the house had shown long-term capital gains on sale of shares and such capital gain had been shown as exempt from income-tax by claming exemption under s. 54F of IT Act and that no return had shown loss ever incurred in trading of shares or in investment in shares and that the long-term capital gains had been shown in respect of shares of non descript companies and all the sales/purchases had been made through brokers at Jaipur/Delhi while the assessee and his family members were residing at Mandi Gobindgarh in Punjab. According to the learned CIT, the assessee and his family earned very substantial amount by way of long-term capital gains and sale of shares when they wanted to make the investment in the residential house and the major portion of the investment was coming out of tax-free funds so, it was a colourful device adopted by the assessee by which he managed to generate funds through dubious sale/purchase of shares without paying a single penny as income-tax and that the substantial gains had been made when there was a total slump in the stock market which was possible only when the transactions were pre-arranged. The learned CIT observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the reassessment proceedings were initiated on the basis of report of the DDIT (Inv) which was based on the statements of S/Shri Mahesh Goenka and R.K. Goenka recorded at the back of the assessee. It was contended that the AO completed assessments after making detailed inquiries by issuing various questionnaires to the assessee and after considering the detailed replies/other submissions, particularly the statements of brokers, S/Shri Mahesh Goenka and R.K. Goenka, which were recorded by him and wherein they had retracted from the earlier statements as given to the DDIT (Inv) and confirmed about the share dealing as made with the assessee. It was vehemently argued that during the course of reassessment proceedings, documents in support of purchase/sale of shares in the shape of contract note, statements of account, copies of share application, etc. were furnished and regarding sale of shares documents in the shape of broker's sale invoices, statement of account, form regarding confirmation of actual sales, delivery notes, copies of bank drafts, bank certificates regarding remittance of money, market report of the share prices had been furnished and examined by the AO. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the CIT was not justified in observing that the assessee and his family members earned long-term capital gains only during the period when the houses were constructed. It was emphasized that the learned CIT had never held that dealing in shares was not correct and also not stated what more inquiries were liable to be made by the AO. So, it was not correct on the part of the learned CIT to hold that the conditions precedent to issue of notice were satisfied particularly when while setting aside the assessment order he had not given any finding of loss of revenue. In fact, the learned CIT did not come to the firm conclusion while setting aside the well reasoned assessment order passed by the AO and merely setting aside the order in the manner as had been done by the CIT, was not proper. Therefore, the impugned order may be set aside. Reliance was placed on the following case laws : 1. Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) 2. V.G. Krishnamurthy vs. CIT (1985) 152 ITR 683 (Kar) 3. H.H. Maharaja Raja Pawer Dewas vs. CIT (1982) 138 ITR 518 (MP) 4. K.N. Agarwal vs. CIT (1991) 100 CTR (All) 170 : (1991) 189 ITR 769 (All) 5. Ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Asstt. CIT (2004) 82 TTJ (Jd) 450. 9. In his rival submissions, learned Departmental Representative for the Revenue strongly supported the impugned order passed by the learned CIT. He further submitted that the learned CIT had given reasons for setting aside the assessment order passed by the AO. He emphasized that the learned CIT had noticed that long-term capital gain shown by the assessee on sale and purchase of shares was not correct as the sale and purchase of shares were not found authentic and the finding of the AO was not based on cogent reason and evidence. He further submitted that the assessee adopted colourful device while adjusting the long-term capital gain towards the construction of the house and did not pay even a single penny of tax although earned a handsome money in the form of long-term capital gains. He further pointed out that the share brokers denied before the DDIT(Inv) that they were engaged in the transaction with the assessee which clearly shows that the assessee manipulated and adjusted his income from other sources and claimed exemption under s. 54F of IT Act. It was also stated that the so-called long-term capital gains earned by the assessee wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rokers denied for the transactions with the assessee when the matter was inquired by the DDIT (Inv). However, when the assessee filed the affidavits of the share brokers during the course of assessment proceedings, the AO summoned them and recorded their statements and after his satisfaction only, the AO accepted the version of the share brokers that the transactions involving purchase/sale of shares shown by the assessee were genuine transactions. In the instant case, it appears that the learned CIT relied on the report of the DDIT (Inv), however, ignored this vital fact that before the AO, both the share brokers admitted that the transactions were genuine transactions. Assessment order passed by the AO can only be a subject-matter of the revision under s. 263 but the learned CIT in the instant case had given weightage to the report of the DDIT (Inv) than the assessment order, in other words, the learned CIT set aside the assessment order by relying on the report of the DDIT (Inv) but had not appreciated this fact that the AO made inquiries twice, i.e., at the time of framing assessment under s. 143(3) and also reframing under s. 147/143 after issuing notice under s. 148 of IT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er making proper inquiries and verification came to the conclusion that the transactions in which the assessee was involved, were genuine transactions and he accepted the long-term capital gains shown by the assessee and also allowed exemption under s. 54F of IT Act which were allowable as per law for construction of new house. It is well-settled that the order passed by the AO cannot be erroneous or prejudicial to the interest of the Revenue when one of the possible view had been taken by the AO. In this regard Hon'ble apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT has held as under : "A bare reading of s. 263 of IT Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent—if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue—recours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of order of AO passed after proper verification and examination, cannot be treated as prejudicial to the interests of Revenue because the exemption had been claimed by the assessee which was permissible in law. Moreover, as per ratio laid down by the Hon'ble Supreme Court in the aforesaid referred to case, it cannot be said that while allowing exemption under s. 54F of IT Act for the long-term capital gains, the order of AO was not prejudicial to the interests of Revenue because deduction so claimed was permissible as per law. As such, the AO had taken one of the possible view which the learned CIT did not agree so the order passed by the AO cannot be treated as erroneous and prejudicial to the interests of Revenue. It is relevant to point out that Hon'ble Rajasthan High Court in the case of CIT vs. Girdhari Lal (2002) 176 CTR (Raj) 92 : (2002) 258 ITR 331 (Raj) held as under : "That when the AO after going through the material on record and after considering the explanation of the assessee, made some additions and rejected the books of account, it could not be said that he had not applied his mind. It is not always necessary that every assessee in the line of the business shou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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