Income Tax Appellate Tribunal - Delhi
Krishna Shriram , New Delhi vs Assessee
ITA NO. 1649/Del/2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "D", NEW DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. No. 1649/Del/2011
A.Y. : 2006-07
Krishna Shriram, Commissioner of
D-46, Malcha Marg, Income Tax,
New Delhi Delhi-XI,
(PAN:AABPS4899L) New Delhi
(APPELLANT) (RESPONDENT)
Assessee by : Sh. Ajay Vohra, & Sh. Rohit Garg,
Advocates
Department by : Sh. Adhir Jha, CIT(DR)
ORDER
PER SHAMIM YAHYA: AM This appeal by the Assessee is directed against the order of the Ld. Commissioner of Income Tax, Delhi-XI, New Delhi dated 17.2.2011 passed under section 263.
2. In this case the Assessing Officer has passed the order under section 143(3) of the I.T. Act for asstt. year 2006-07 dated 8.12.2008 as under:-
"The assessee filed his return of income on 25.7.2006 declaring income of Rs. 833,48,262/-. The case was processed u/s. 143(1) of the I.T. Act on 28.10.2006. Subsequently, the case was selected for scrutiny through CASS on the basis of information received on AIR. Notice u/s. 143(2) of the I.T. Act, 1961 dated 26.7.2007 was 1 ITA NO. 1649/Del/2011 issued requiring the assessee to furnish the details along with necessary evidences in respect of investment made during he year under consideration. In compliance to the notice, Sh. Summit Kumar, CA and AR of the assessee appeared and file the details called for which is placed on records.
After consideration of the details/evidences furnished, the returned income is accepted.
Assessed at Rs. 833,48,262/-. Issue necessary forms. Give credit to prepaid taxes. Charge interest as per the provisions of the I.T. Act."
3. The above order was found by the Ld. CIT to be erroneous so far as the same was prejudicial to the interest of the revenue due to the following reasons recorded in the show cause notice in this regard.
"As per AIR information the assessee invested total of Rs. 25.50 crores in SIEL Holding Ltd., where he is the CEO as indicated in the certificate in Form No. 16 enclosed with the return of income. The source of this investment has been explained out of the Long Term Capital Gains of Rs. 59.11 Crores and Short Term Capital Gains of Rs. 8.26 crores on Sales of shares. The LTCG has been claimed exempt and tax @ 10% has been paid on the STCG. From the details of working of these Capital Gains, it is observed that these Gains have been made only in respect of the purchases and sales of the shares of Mawana Sugars Ltd. The assessee belongs to the Sri Ram Group and Mawana Sugars Ltd., is one of the Group Companies. From the transactions on which Capital Gains 2 ITA NO. 1649/Del/2011 have been earned, it is evident that the assessee was well aware about the activities of the company. This is evident from the fact that LTCG to the extent of Rs. 59.11 crores has been earned on investment of Rs. 6.83 crores only and STCG to the extent of Rs. 8.26 crores has been earned on investment of Rs. 0.17 crores only. Therefore, the activity of the assessee is not a normal investment activity. This Is certainly a business activity and such income should have been considered to be taxed accordingly.
The investment of Rs. 6.83 crores in the shares on which LTCG has been claimed was made in the A Ys 2004-05 and 2005-.06. The genuineness and the source of investment should have been verified which is not done. Even the assessment records for these years have not been made available despite of request made. It has been indicated by the AO that such records were not made available to him on transfer of this case to his Circle. Therefore, the AO did not examine this aspect at all.
As far as STCG is concerned, it is observed at out of the total number of shares of 7,00,000, the cost of 6,79,000 shares is being shown as zero. It should have been verified from where these shares have come.
During the year under consideration the assessee has also received gifts of Rs. 7.92 crores from his mother and Rs. 1.83 lacs from father. Although a confirmation from mother has been obtained, there is nothing to indicate about the source of her income from where 3 ITA NO. 1649/Del/2011 these gifts were allowed. This aspect should have been examined further."
4. Assessee submitted that no action under section 263 is called for. Assessee's submission in this regard are as under:-
Your goodself have stated in the notice that the assessee belongs to Shriram Group and Mawana Sugars Limited is one of the group companies and therefore, assessee was well aware about the activities of the company. Therefore, long term as well as short term capital gain earned on sale of investments in the form of shares of Mawana Sugars Limited was from business activities and accordingly, chargeable to tax as business income. It is respectfully submitted that Shri Krishna Shriram was not directly connected with Management of Mawana Sugars Limited. He was neither a Director nor an employee of above company. Moreover, it is humbly submitted that there is no provision in the Income Tax Act in accordance with which income earned on sale of shares held by a person, even if connected with management, is chargeable to tax as business income and not as capital gain. The assessee was holding the shares admittedly as investment and, therefore, capital gain earned on sale of shares was in the nature of long term and short term capital depending upon period of holding of shares as per details duly submitted with the return of income. Hence, there is no error in the order of assessment which can invite invocation of action under Section 263 of the Act. In any case, the income earned on sale of shares was considered and accepted as capital gain by the Assessing Officer after due application of mind. Even if it is 4 ITA NO. 1649/Del/2011 assumed that there is a possibility of taxing the income as business income, it is a debatable issue and two views are possible. As per the well settled legal position propounded by the Supreme Court vide decisions in the cases of Malabar Industrial Co. Ltd. v. CIT, 243 ITR 83 (SC) and CIT v. Max India Limited, 295 ITR 282 (SC), no action under Section 263 of the Act can be taken in the cases where two views are possible.
It has been stated in the notice that source of investment made in shares in A.Yrs 2004-05 and 2005- 0.6, on which LTCG has been earned has not been examined by the Assessing Officer. In this regard, it is stated that action under Section 263 of the Act is not called for the purpose of verification of a particular fact and that too relatable to an earlier year. Further, it is an admitted position that investment had been made in A. Yrs. 2004-05 and 2005-06. This fact has been duly accepted by the Assessing Officer. It is submitted that order of assessment passed for A. Y. 2006-07 cannot be said to be erroneous and prejudicial to the interest of revenue on the ground that investments made in earlier years had not been verified,. In any case there can be no impact resulting from verification of source of investment made in earlier years on the income assessable in A. Y. 2006-07.
It has been further stated in the notice issued u/s 263 of the Act that out of 7 lacs shares on which STCG. was earned, cost of 6,79,000 shares was shown as zero and this fact should have been verified. It is stated in this regard that the assessee had shown total sale 5 ITA NO. 1649/Del/2011 consideration as chargeable to tax and tax thereon has been duly paid. There could be no position of the assessee adverse than showing total sale consideration as taxable capital gain. Hence, the order passed by the Assessing Officer cannot be said to be erroneous and prejudicial to interest of revenue. It is further stated in this regard that assessee had duly submitted details regarding computation of capital gain and value of shares was shown as. Nil and position as such was accepted by the Assessing Officer after examining the return of income and the details submitted to him. Therefore, there is no error in the order of assessment inviting action under Section 263 of the Act.
Lastly, it has been stated in the notice that the assessee had received gifts of Rs. 7.92 crores from his mother and Rs. 1.83 lacs from his father. In regard to gifts from mother it has been mentioned that, though confirmation from the mother was obtained, there was nothing to indicate about the source of her income from where gifts were made. This aspect needs to be examined. It is submitted in this regard that order of assessment passed in the case of the assessee cannot be alleged to be erroneous and prejudicial to the interest of revenue on the ground that source in the case of mother from which gift was made to the assessee had not been examined. As per the well settled legal position, an assessee is not obliged to explain source of the source of any receipt. Admittedly gift was received from the mother and confirmation in respect thereof had been duly submitted to the Assessing Officer. Accordingly, the 6 ITA NO. 1649/Del/2011 Assessing Officer had accepted the position after due verification. Therefore, no action under Section 263 of the Act is called for on this ground also in the case of assessee.
5. However, the Ld. CIT was not satisfied. He held that there was no enough time to make the AO to examine the details. However, the AO decided to complete the case without making the detailed examination. Ld. CIT further held that all these facts clearly indicate that the AO was in a haste to complete the assessment without making the detailed enquiry. He referred the decision of the Hon'ble High Court of Karnataka in the case of Thalibai F. Jain vs. ITO 101- ITR-1(Kar.). The assessments were made in undue haste and without enquiry are prejudicial to the interest of the revenue, and what is prejudicial to the interest of the revenue must be held to be erroneous. Ld. CIT further observed that similarly in a decision in the case of Bismillah Trading Co vs Intelligence Officer 248-ITR- 292(Ker.) the Hon'ble Kerala High Court held that "prejudicial to the interests of the revenue" does not necessarily mean loss of revenue, but must be given a dignified construction. There must be grievous error in the order passed by the ITO which might set a bad trend or pattern which might be thought to be prejudicial to the revenue administration. The above said views are also supported by judgments in the case of G. V. Enterprises 99 ITR 375 (Del.), Swarup Vegetable Pdts. India. Ltd. 187 ITR 412 (All.), Mukur Corporation 111 ITR 312 (Guj.) and Seshai papers Board Ltd. 242 ITR 490.
6. Considering the above, Ld. CIT concluded as under:-
"that the major issues involved in this case have not at all be taken up for examination which has resulted into complete failure of the purpose of 7 ITA NO. 1649/Del/2011 taking up the case for scrutiny assessment. Therefore, the assessment order made in the case is held to be erroneous so far as it is prejudicial to the interests of revenue. Although the replies on the issues have been submitted during the proceedings u/s 263 of the IT Act, 1961, the details can not be verified since the proceedings are for the limited purpose of examining whether the provisions of this section are applicable in the case or not. Accordingly, the assessment completed u/s 143(3) of the IT Act, 1961 ill the case is hereby set aside with the directions to the AO that all the major issues, as above, should be examined in detail by giving opportunity to the assessee and to make a fresh assessment in the case as per law."
7. Against the above order the assessee is in appeal before us.
8. We have heard both the counsel and perused the records.
9. As regards the issue of capital gain, it has been noted by the Ld. CIT that long term capital gain of Rs. 59.11 crores and short term capital gain of Rs. 8.26 crores have been earned by the assessee on sale of shares. Ld. CIT has noted that from the details of working of this capital gain it was observed that these gain have been made only in respect of purchase and sale of shares of Mawana Sugar Ltd. Ld. CIT noted that the Mawana Sugar Ltd. belongs to the same group to which the assessee belongs. It has been noted by the Ld. CIT that assessee was well aware of the activities of the company. This is evident from the fact that long term capital to the extent of Rs. 59.11 crores has been earned on investment of Rs. 6.83 crores only and short term capital gain to the extent of Rs. 8.26 crores has been 8 ITA NO. 1649/Del/2011 earned on investment of Rs. 0.17 crore only. Ld. CIT opined that the activities of the assessee is not a normal investment activity. This was a business activity and such income should have been considered to be taxed accordingly.
10. In this regard, it was submitted that the assessee is neither a Director nor an employee of the above company. Moreover, it has been submitted that there is no provision in the Income Tax Act, in accordance with which income earned on sale of shares held by a person even if connected with the management is chargeable to tax as business income and not as capital gain. It has been submitted that assessee was holding the shares as investment. Therefore, capital gain earned has been properly returned. Hence, it has been submitted that there is no error in the order of the assessment which may need invocation of action under section 263 of the Act. It has further been submitted in any case the income earned on sale of shares was considered as capital gains by the AO, after due application of mind. If it assumed, there was possibility taxing the income of the business income, it is a debatable issue and two views and possible. In this regard, Ld. Counsel of the assessee has placed reliance upon a catena of case laws for the proposition that where enquiry has not been done by the AO, Ld. CIT cannot direct for detailed enquiry. Furthermore, when two views are possible and the AO has adopted one of the views, action u/s. 263 cannot be invoked.
11. We have carefully considered the submissions. We have also gone through the assessment records. We find that AO has not asked any query whatsoever with regard to the capital gains. Hence, it cannot be said that some enquiry was done by the AO. The assessment order is also very short and does not contain any reference to such enquiry. Hence, it cannot be said that AO has 9 ITA NO. 1649/Del/2011 formed any opinion. From the details attached with the return of income, we find that the long term and short term capital gains have arisen only in respect of dealing of shares of Mawana Sugar Ltd. The long term capital gain has arisen on account of 15 transactions in the shares of the said company during the financial year. Again the short term capital gain has arisen on account of three transactions of acquisition of shares and one transaction of sale of shares.
11.1 It is settled law that that frequency and magnitude of transaction are also important factor to decide whether the transaction is business transaction or investment transaction. Now in our considered opinion, the magnitude of share transaction in this case does call for any enquiry on the part of the AO as to whether these are investments transactions or business transactions. A.O. is not only an adjudicator but also an investigator. We find that AO has totally failed to make any enquiry. In these circumstances, we find that the invocation of section 263 by the Ld. CIT is correct and accordingly we hold that the Ld. CIT has rightly asked the AO to examine this aspect.
12. Another aspect referred by the Ld. CIT is that investment of RS. 6.83 crores in the shares in which long term capital gain have been earned was made in the asstt. year 2004-05. Ld. CIT has opined that AO should have verified the genuineness of source of investment which has not been done. We find that this direction of the Ld. CIT is not sustainable. Action u/s. 263 is not called for verification of a particular fact relatable to earlier year. In the previous year the position submitted by the assessee has been accepted. That proposition cannot be enquired into in the subsequent assessment year u/s. 263.
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13. Further, Ld. CIT has observed that short term capital gain has arisen out of total number of shares of 700,000/-. Cost of 679000 shares is being shown Zero. It should have been verified from where these shares have come. In this regard, it has been submitted that assessee has shown total sale consideration chargeable to tax and tax thereon has been duly paid. Hence, there could be no position of the assessee adverse than showing total sale consideration as taxable capital gain. It has further been submitted that when the acquisition value of shares was shown as NIL, no prejudice is caused to revenue.
14. We have carefully considered the submissions, we find that in the details regarding the computation of short term capital gain, assessee has shown 6,79,000 shares acquired on 12.11.2005 for which no rate per unit or cost price has been mentioned. This means that these shares were acquired for no cost. In our considered opinion, Ld. CIT is correct in holding that this matter needed an enquiry from the AO and AO has not made any enquiry whatsoever as noted above in the above paragraphs. Under the circumstances, we hold that the direction of the Ld. CIT for making an enquiry in this regard is quite justified under section 263 of the I.T. Act.
15. Ld. CIT has further observed that during the year under consideration the assessee has received gift of Rs. 7.92 crores from his mother and Rs. 1.83 lacs from father. Although the confirmation from the mother has been obtained. There is nothing to indicate the source of income from where these gifts were received. This aspect should have been examined further.
16. In this regard, it has been submitted by the assessee that order cannot be considered to be erroneous or pre-judicial on the 11 ITA NO. 1649/Del/2011 ground that source of source has not been examined. The gift was received from the mother and confirmation in respect thereof has been submitted to the AO. The AO has accepted the position after due verification. Therefore, no action u/s. 263 of the Act is called for on this ground also. In this regard, also Ld. Counsel of the assessee has relied upon the case for the proposition that Ld. CIT cannot direct for making further enquiries. If the AO has adopted one view of the possible view, the same cannot be considered to be liable for action under section 263.
17. We have carefully considered the submissions and perused the records. We find that vide order sheet entry dated 6.11.2008 the AO has asked the assessee for evidence of gift received. In this regard, assessee has submitted only confirmation from the mother, copy of bank statement in which the amount of gift is reflected and the copy of telegraphic transfer credit advice. We find that these documents submitted in support of the gifts from the mother for the magnitude of Rs. 7.92 crores are not at all cogently proving receipt of gift by the assessee. In such situation it is settled law that creditworthiness of the donor is also to be established by the assessee. No document in this regard has been submitted, nor the AO has made any enquiry. Similarly, with regard to Rs. 1.83 lacs from father, not even a confirmation was produced. In these circumstances, we find that AO has not made any enquiry whatsoever in this regard and the same is not at all reflected in the enquiries made and the entries of the order sheet. The same is also not reflected in the assessment order. In these circumstances, Ld. CIT is correct in holding that this aspect needs further examination. It can also not be said that AO has adopted one of the two possible views when no enquiry has been made, when the same was required.
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18. Thus, we find that assessment order as reproduced above is very laconic and therefore, it does not reflect that AO has applied his mind on the aspect referred in the order of the Ld. CIT u/s. 263. The order sheet entries and the letters issued to the assessee also do not elicit enquiry by the AO as mentioned hereinabove. In these circumstances, we find that Ld. Counsel of the assessee's contention that AO cannot be asked to make further enquiry is not tenable as the AO has been found to have made no enquiry. Similarly, it can also not be said that AO has formed an opinion which was one of the possible opinion. Hence, the case laws relied upon by the Ld. Counsel of the assessee do not fructify the assessee's case.
19. In this regard, we accept the Ld. CIT's observation that AO has made the assessment in haste without applying his mind properly.
In this regard, the case law relied upon by the Ld. CIT also support his action. In this regard, we would like to place reliance upon the decision in the case of Hon'ble Jurisdictional High Court in the case of GV Enterprises 99 ITR 375 (Del). In this case the Jurisdictional High Court has expounded that ITO is not only an adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order to call for further enquiry in the facts and circumstances of the case. The word 'erroneous' in section 263 includes failure to make such an enquiry. We find that the above case law applies to the facts and circumstances of the case squarely. In these circumstances, we hold that Ld. CIT's direction to make enquiry on the issue of capital gain earned by the 13 ITA NO. 1649/Del/2011 assessee as discussed above and the gift received by the assessee is sustainable. Accordingly, we uphold this aspect of the directions of the Ld. CIT under section 263.
20. In the result, the Appeal filed by the Assessee stands dismissed.
Order pronounced in the Open Court on 29/1/2014.
Sd/- Sd/-
[BHAVNESH SAINI]
SAINI] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 29/1/2014
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
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ITA NO. 1649/Del/2011
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