Income Tax Appellate Tribunal - West Bengal
Ashoke Kumar Parasramka vs Assistant Commissioner Of Income Tax on 29 November, 1996
ORDER
R. V. Easwar, J.M.
1. This appeal by the assessee is directed against the order passed by the CIT under s. 263 of the IT Act on 29th March, 1996.
2. In the assessment made under s. 143(3) on 29th January, 1996, the ITO referred to the assessee's explanation with regard to the speculative transactions in shares. He also referred to the statement of speculation profits/losses in shares during the period from 1st April, 1992, to 31st March, 1993, which was filed by the assessee in response to his enquiry. It has to be stated here that there was a search in the premises of the assessee wherein certain papers were seized. One such seized document is referred to as AP-2. This paper showed details of certain shares purchased and sold by the assessee as well as family members. It also showed certain other share transactions in shares between the assessee and Magnum Investments of Old China Bazar Street, Calcutta. By letter dt. 9th October, 1995, the AO called upon the assessee to explain the source of investment in the shares, the profit earned therefrom and also the explanation with regard to the transactions which he referred to as share speculative transaction. The assessee explained the papers by letter dt. 24th November, 1995. With regard to certain transactions in shares, he stated that they were actual purchase and sale. These details were furnished in Annexure-I to the letter. The assessee also furnished certain other details in Annexure-II which was described by him as a summary statement of speculation profit/loss in shares during the accounting period. According to this statement there was a net loss of Rs. 4,468.50 p. In the assessment order the ITO referred to both the annexures. With regard to the actual transactions in shares, the assessee's explanation for the source of money was also referred to in the assessment order. However, beyond a reference to Annexure-II there was no other reference with regard to what the assessee claimed as speculative transaction in shares. The assessment was finally completed on a total income of Rs. 85,980.
3. By notice dt. 14th March, 1996, the CIT took proceedings under s. 263 of the Act for the following reasons :
"(a) The AO has accepted the claim of the assessee in respect of share dealing to be treated as speculation transaction without being satisfied about the correctness of the claim.
(b) The AO has accepted the claim of the assessee as noted in para (a) where the assessee himself could not discharge his onus of proving that the share transactions were speculative."
For the aforesaid reasons the CIT was of the view that the assessment made on 29th January, 1996, was erroneous and prejudicial to the interests of the Revenue. He called upon the assessee to furnish his objection.
4. By letter dt. 18th March, 1996, the assessee objected to the proceedings under s. 263. The gist of the objections was that the assessee had filed complete details with regard to the share transactions with Magnum Investments, that the assessee had also deposed before the ITO under s. 131, that the ITO was satisfied with the assessee's explanation for the speculative transactions and, therefore, it was not correct on the part of the CIT to say that the assessee's claim was accepted without the same being put to enquiry.
It was also submitted that the documents seized did not show that the assessee effected any payment or received any payment against the shares, that no contract note, bill, or vouchers which are normally supplied if the transactions were real transactions were found in the course of the search, that the share scrips were also not found and, therefore, there was no material to support the theory that the transactions noted in the papers relating to Magnum Investments contained details of actual purchase and sale of shares.
5. The CIT was not convinced with the assessee's reply. According to him the assessee had not substantiated the claim that the loss of Rs. 4,468.50p. represented loss on speculative transaction in shares. He observed that the assessee ought to have produced the books of accounts relating to Magnum Investments and should have established the identity of the concern and the nature of the transactions. According to him, the mere assertion of the assessee in the deposition under s. 131 had been accepted by the ITO without further enquiry. He was of the opinion that the ITO had failed to apply his mind to the case in all its perspective and this itself made the order erroneous and prejudicial to the interests of the Revenue. He referred to the decision of the Supreme Court in Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC) and Smt. Tara Devi Aggarwal vs. CIT (1973) 88 ITR 323 (SC), and set aside the assessment with directions to the AO to reframe the same after making enquiries and after allowing the assessee adequate opportunity of being heard.
6. In the order the CIT also referred to a note kept by the AO in the record wherein, in the words of the CIT, the AO had "mentioned that he tried to verify the transactions by sending an Inspector to the address of Magnum Investments and in spite of his best efforts the said company or its owner could not be traced out. He has also mentioned that no evidence could be collected by him to counter the claim of the assessee and hence he has accepted the assessee's version".
7. The assessee is in appeal before us. The contentions taken before the CIT were repeated with great vehemence before us. It was contended that the seized material as well as the statement made by the assessee under s. 131 together with the explanation furnished by him in the course of the assessment clearly indicated that the transactions were only speculative transactions and it was only after satisfying himself about the correctness of the assessee's claim that the assessment was completed under s. 143(3). It was argued that merely because detailed reasons were not given as to how the ITO was satisfied with the assessee's explanation, it did not follow that the order was erroneous and prejudicial to the interests of the Revenue. It was further pointed out that the seized material ex facie indicated that the transactions were speculative but in spite of that the AO had made further enquiries and, therefore, the CIT was not justified in his criticism of the assessment order that it did not indicate any application of mind by the AO. Reliance was placed on the following judgments :
(1) CIT vs. Goyal Private Family Specific Trust (1988) 171 ITR 698 (All), and (2) CIT vs. Kanda Rice Mills (1989) 178 ITR 446 (P&H).
8. The learned Departmental Representative submitted that by not making further enquiries regarding the genuineness of the claim that the transactions with Magnum Investment represented speculative transactions involving no outlay of funds, the AO had committed an error which resulted in prejudice to the interests of the Revenue. He contended that under the circumstances the AO ought to have embarked on a further enquiry into the claim which he failed to do and a mere failure to make further enquiries has been held to be an error causing prejudice to the interests of the Revenue in the following cases :
(1) Addl. CIT vs. Mukur Corpn. (1978) 111 ITR 312 (Guj);
(2) Kanhaiyalal vs. CIT (1982) 136 ITR 243 (Raj);
(3) CIT vs. Emery Stone Mfg. Co. (1995) 213 ITR 843 (Raj), and (4) Gee Vee Enterprises vs. Addl. CIT (1975) 99 ITR 375 (Del).
9. On a careful consideration of the facts in the light of the rival contentions, we are of the view that grounds have been made out for cancelling or setting aside the order of the CIT. In the Gujarat and Delhi High Courts' decisions cited by the learned Departmental Representative it has been held that mere failure to make any enquiry would itself be an error committed by the ITO resulting in prejudice to the interests of the Revenue. The question in the present case is whether the ITO had made enquiries regarding the genuineness of the assessee's claim. The records show that he has. The enquiry made by him by letter dt. 9th October, 1995 indicates that he had come to the prima facie conclusion that the seized material indicated speculative transactions done by the assessee. Nevertheless he had called upon the assessee to explain the transactions and show that they have been declared in the accounts of the assessee and to further explain the source of funds employed in those transactions. This is clear from para 14 at p. 2 of the letter. The same is reproduced below :
"(14) Pages 54 to 60 of AP-2 shows various share trading/speculation transactions done by you. Explain these transactions and show that these transactions have been declared in your accounts. Explain the source of funds employed in these transactions and also the profit earned on these transactions."
The reply of the assessee which we have referred to is dt. 24th November, 1995. para. 13 at p. 3 of the reply says that p. No. 54(AP-2) shows the transactions of share trading showing the deliveries made and received. The details were enclosed in Annexure-I to the letter. So far as pp. 55 to 64 are concerned, the assessee's explanation was contained in para. 19 of the letter. In this paragraph it was stated that these pages shows transactions of speculative nature and reconciliation of the same with Magnum Investments. The details of these transactions were enclosed in Annexure-II. Annexure-II is captioned as a "summary statement of speculation profit/loss in share dealings" during the relevant period. It is a columnar statement showing the name of the company, number of shares, purchase and sale prices and the resultant profit or loss. This is stated to have been prepared from the seized material itself. The seized material itself is compiled in the paper-book. The ITO did not stop with this. He probed the matter, further. A statement was recorded from the assessee on 27th November, 1995, a copy of which is placed at pages 20 to 35 of the paper book. In question No. 3 the AO asked the assessee to explain the seized documents page wise. The assessee did so. The AO then asked (in question No. 4) the assessee to explain his source of investment in the shares and the resultant profit from the share transactions. To this, the assessee answered that he was actively associated in share transactions, that he was involved in share business in both ways-share trading and share speculation, that Annexure II along with his letter dt. 24th November, 1995 gave the details of speculation profit/loss in share dealings, that actually he suffered speculation loss of Rs. 4,468.50 p. and that the entire share speculation business was done through Magnum Investments. In question No. 10 the AO asked the assessee as to why the real share transactions and the speculative transactions did not find place in the accounts attached with the return and also asked the assessee to show cause why these transactions should not be treated as transactions kept outside the regular accounts. To this question the assessee pointed out to certain sources in respect of the actual share transactions in the share trading account but when he came to the speculative transactions, he stated that they "did not require any funds". Thereafter he went on to explain why the transactions were not shown in the accounts. In the course of the deposition the assessee has also stated, in answer to question No. 6 that he will not be able to produce the books of accounts of Magnum Investments since that firm closed its business operations after suffering huge losses some time in the last quarter of 1993 and that the proprietor of the firm Shri Ajay Srinamkar had left Calcutta, according to his information. Apparently in a bid to verify the statement the ITO had sent his Inspector to the address of Magnum Investments but in spite of the best efforts the firm or the owner could not be traced. The ITO has left a note in the record to the above effect and this note has also been adverted to by the CIT in the second new paragraph in p. 2 of his order. This we have already extracted. The note goes on to say that no evidence could be collected by him (the ITO) to counter the claim of the assessee and hence he has accepted the assessee's version.
10. The above discussion clearly shows that a detailed enquiry had been made by the ITO into the claim of the assessee that the transactions with Magnum Investments represented speculative share transactions where no outlay of funds was involved. He has examined the seized material, he has asked for the assessee's explanation with regard to them, he has also taken a statement from the assessee under s. 131 of the Act and has put searching questions and has also made an effort to verify the assessee statement with Magnum Investments. It may be that Magnum Investments or its proprietor could not be traced but that is not the point for consideration.
11. The point for consideration is whether the CIT is right in his view that no enquiry had been conducted before the assessee's claim had been accepted. His view cannot be accepted. To repeat, the discussion in the preceding paragraphs shows that extent of enquiry made by the ITO. The CIT is also not justified in saying that the AO has failed miserably to apply his mind to the case in all its perspectives. This criticism of the AO's action is not justified. In Gouri Prasad Bagaria & Ors. vs. CIT (1961) 42 ITR 112 (SC) it was held that where the assessee's statement made before the IT authorities is believed, the statement was obviously material upon which the finding of the authorities could be based and merely because there was no valid material on which the finding could be given. The statement was held to be good material upon which a finding of fact could be based. If the assessee's statement before the ITO has been accepted by him, it cannot be stated that he has acted improperly or that his order is erroneous. It is not the case of the CIT that there is any oblique or ulterior motive on the part of the ITO in accepting the statement. There can be no such suggestion since the statement has been accepted only after the ITO made enquiries through his Inspector regarding the existence of Magnum Investments. It must be remembered that even the assessee had stated that Magnum Investments had closed its business in 1993. The assessee made the statement in November, 1995. Nevertheless the ITO had taken steps to verify the assessee's statement. Now if the assessee's statement that Magnum Investments had closed its business and its proprietor had left Calcutta for good turned out to be true on enquiry made through Inspector, it can hardly be suggested that the AO was at fault. It has also got to be remembered that this is not a case where the assessee's statement made in the return was merely accepted by the ITO without any enquiry, as happened in the decision of the Supreme Court cited by the CIT towards the end of his order. That was also the case in the Delhi and Gujarat High Courts' decisions cited by the learned representative before us. In all those cases the statement made in the return had been accepted without any enquiry and this was considered by the CIT to be erroneous and prejudicial to the interests of the Revenue and the High Courts and the Supreme Court upheld the view taken by the CIT. The present case is not covered by the ratio laid down in these decisions. We have before us a case where the ITO has carried out such an enquiry as the circumstances warranted and permitted. It is an entirely different matter that the CIT did not agree with the conclusion derived by the ITO from the enquiries made. Failure to carry out any enquiry is one thing and in such cases the CIT would be justified in saying that the mere failure to make any enquiry was erroneous and prejudicial to the interests of the Revenue. But it would not be open to him to hold that the assessment order was erroneous and prejudicial to the interests of the Revenue merely because he could not agree with the conclusion derived by the ITO from the enquiries made. The revisionary jurisdiction exercised by the CIT under s. 263 has been held by the Madras High Court in Venkatakrishna Rice Co. vs. CIT (1987) 163 ITR 129 (Mad), was in the nature of a supervisory power and the CIT acting under s. 263 was not "however", an appellate authority, by any means ... Sec. 263, however, is a special power, which, so far as we know, has no parallel in any other statute or legal system. It is an extraordinary revisional power. It is also sui generis, in its nature, and in the occasion for its exercise, it is to employ not as a jurisdictional corrective or as a review of a subordinate's order in exercise of supervisory power. Such power cannot in any manner, be equated to, or regarded as approaching in anyway the appellate jurisdiction or even the ordinary revisional power conferred on the CIT under s. 264 of the Act".
A similar view has been taken by the Bombay High Court in CIT vs. Gabriel Indian Ltd. (1993) 203 ITR 108 (Bom), in the conspectus of facts which are more or less similar to the present case. The assessee had claimed a deduction. While examining the facts relating to the claim, the ITO asked for an explanation from the assessee in regard to the nature of the claim. The assessee furnished an explanation by a letter dt. 19th September, 1995. It was on a consideration of the explanation and on being satisfied that it was a revenue expenditure that the ITO allowed the claim for deduction. In fact in that case also the ITO did not make any discussion in the assessment order with regard to his query or the assessee's explanation. The CIT took proceedings under s. 263 and set aside the order of the ITO on the ground that it did not disclose any application of mind, which is also the view taken by the CIT in the case before us. The Tribunal did not approve the action of the CIT. On a reference, it was held by the Bombay High Court that the power under s. 263 was not an arbitrary or unchartered power. The CIT cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. It was further held that if this is permitted there would be no end to litigation because there can always be new views and new versions as to what should be the inference from the facts or proper inference from the facts brought on record or from the weight of the circumstances. At pp. 114-115 it was held that if the ITO acting in accordance with law makes a certain assessment it cannot be branded as erroneous simply because according to the CIT the order should have been written more elaborately. The section does not visualise a case of substitution of the judgment of the CIT for that of the ITO, unless the decision is held to be erroneous. There may be cases where the ITO may examine the accounts, make enquiries, and apply his mind to the facts and determines the income either by accepting the accounts or by rejecting them and making an estimate. On a perusal of the records the CIT may be of the opinion that the estimate made by the ITO was on the lower side and that left to himself he would have estimated the income at a higher figure. According to the Bombay High Court that would not vest the CIT with power to reexamine the accounts and determine the income himself at a higher figure. It was held that "It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the CIT the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the CIT with the power suo motu revision because the first requirement, viz., that the order is erroneous, is absent". According to the High Court, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded as per law. The observations of the Madras and Bombay High Courts with regard to the nature and content of the power of the CIT under s. 263 are applicable with full force to the facts of the present case. It has not been suggested by the CIT that the assessment was completed in undue hurry or haste. Nor has it been suggested that there was any ulterior or oblique motive on the part of the ITO. The facts of the case which have been discussed earlier clearly show that the ITO had carried out ample enquiries as the circumstances of the case justified or permitted. Under the circumstances therefore it is impossible to accept the view taken by the CIT that there was no enquiry by the AO or that the AO has failed miserably to apply his mind to the case in all its perspectives. It has not been suggested either by the CIT or by the learned Departmental Representative before us that the ITO was not entitled to draw the inference which he drew from the enquiry which he had conducted. If that be so, the mere fact that the CIT did not approve of the inference does not authorise him to substitute his opinion for that of the ITO. Though the CIT has only set aside the assessment for being reframed after making enquiries and after allowing opportunity to the assessee of being heard, such a course cannot be upheld if due regard is had to the principles laid down by the Madras and Bombay High Courts in the decisions cited above. It is significant to note that in his order running to three pages the CIT has not referred to any material from which it could be said that the acceptance of the assessee's version by the ITO was not warranted neither in law nor on facts. This is so in spite of the existence of a note in the record by the ITO that no evidence could be collected by him to counter the claim of the assessee and therefore, he had perforce to accept the assessee's version. One would have expected the CIT, under such circumstances, to atleast point out to some materials or evidence which would contradict the assessee's version and which has not been adverted to by the ITO while completing the assessment; this has not been done. Under these circumstances the CIT was not justified in branding the assessment order as erroneous and prejudicial to the interests of the Revenue.
12. For the above reasons we cancel the order of the CIT and allow the appeal.