Income Tax Appellate Tribunal - Mumbai
Anand Jain, Mumbai vs Cit Cen-Iii, Mumbai on 5 May, 2017
आयकर अपील
य अ धकरण "H" यायपीठ मंब
ु ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI
BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No.3895/Mum/2013
( नधा रण वष / Assessment Year : 2005-06)
Anand Jain, बनाम/ The Commissioner of
A-13, Sterling Apartments, Income Tax , Central - III,
v.
38, Peddar Road , Room No. 109,
Mumbai - 400 026. Aayakar Bhavan,
Mumbai 400 020.
थायी ले खा सं . /P AN : AABP J1890J
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Assessee by : Shri Vijay Mehta
Revenue by : Shri Rahul Raman, CIT-DR
ु वाई क तार ख / Date of Hearing
सन : 09-03-2017
घोषणा क तार ख /Date of Pronouncement : 05-05-2017
आदे श / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being ITA No. 3895/Mum/2013, is directed against the order dated 25th March, 2013 passed by the learned Commissioner of Income Tax (Central) - III, Mumbai (hereinafter called "the CIT), for the assessment year 2005-06 passed by learned CIT u/s 263 of the Income-tax Act,1961 (Hereinafter called "the Act").
2. The grounds of appeal raised by the assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under:-
"The Appellant objects to the order under Section 263 of the Income Tax Act, 1961 dated 25/3/2013 passed by the learned Commissioner of 2 ITA 3895/Mum/2013 Income-tax (Central)-III, Mumbai (hereinafter referred to as "CIT") for the Assessment Year 2005-06 on the following among other grounds:
1. The order passed by the learned CIT u/s.263 of the Act is illegal, bad in law, ultra vires and contrary to the provisions of law and facts of the case and without appreciating the facts of the case in their proper perspective.
2. On the facts and circumstances of the case and in law, the learned CIT erred in holding that the assessment order passed by the Assessing Officer under section 143(3) r.w.s.153A dated 29/12/2010 for the Assessment Year 2005-06 is erroneous in so far as it is prejudicial to the interest of revenue and thereby setting aside the assessment order passed by the Assessing Officer under section 143(3) r. w.s.153A.
3. On the facts and circumstances of the case and in law, the learned CIT erred in directing the Assessing Officer to re-verify the details and sources from which the Appellant had made the investment in immovable properties without appreciating that in response to the enquiry, the Appellant had filed complete details of immovable properties including sources for making such investments and the same were duly reflected in the Balance Sheets filed with the Assessing Officer.
4. On the facts and circumstances of the case and in law, the learned CIT erred in directing the Assessing Officer to re-verify the details regarding the difference in stamp duty paid and also the details of the properties.
5. On the facts and circumstances of the case and in law, the learned CIT erred in directing the Assessing Officer to re-verify the nature, regularity and amount of transactions in shares and securities involved and ascertain whether the same comes within the ambit of Circular 4 issued by the CBDT.
6. The learned CIT failed to appreciate that the Appellant, on specific query from the Assessing Officer, during the course of assessment proceedings, had filed all the requisite details of advances and deposits, Balance Sheet, possession letter for occupying various premises by the Appellant, purchase consideration, stamp duty, registration fees, sources of investments etc. and the Assessing Officer, after due satisfaction, had allowed the claim of the Appellant on verification of all documents.
7. The Appellant further submits that the income or loss in question arising out of purchase and sale of shares and securities was in the nature of capital gain and the appellant treated the same
3 ITA 3895/Mum/2013 accordingly as per the provisions of the Income tax Act and as per the decision of Bombay High Court in the case of Gopal Purohit v. JCIT (228 ITR 582) as affirmed by the Hon'ble Supreme Court and therefore, the order of the learned CIT directing the Assessing Officer to make enquiries on the above lines and pass fresh assessment order be quashed.
3. The brief facts of the case are that this appeal of the assessee has arisen against the order dated 25th March 2013 passed by learned CIT u/s 263 of the 1961 Act. The assessee e-filed the original return of income on 31-08-2005 declaring total income at Rs. 1,26,04,661/- which return of income was processed u/s 143(1) of the 1961 Act. The assessment in this case was originally framed by the learned Assessing Officer (hereinafter called "the AO") u/s 143(3) of the 1961 Act on 19-12-2007 accepting the returned income. Thereafter, the assessment was framed by the AO vide assessment order dated 29th December 2010 passed u/s 143(3) r.w.s. 153A of the 1961 Act , wherein the expenses of Rs. 2500/- which were claimed on account of professional tax were disallowed by the A.O. and the income was assessed at Rs. 1,26,07,160/-. The background of the case are that search and seizure action u/s 132 of the 1961 Act was carried on by the Revenue on 05-03-2009 in the case of Jai Corp Group, its employees and close associates. The Jai Corp Group has extended its operation to realty sector. The group is partner along with RIL in two major upcoming SEZ namely Navi Mumbai Special Economic Zone(NMSEZ) and Mumbai Special Economic Zone(MSEZ). The assessee is Chairman of both NMSEZ and MSEZ.
It was observed by ld. CIT from the records of assessment proceedings u/s 143(3) of the 1961 Act that the assessee had shown advances and deposits amounting to Rs. 16,05,41,233/- in the Balance Sheet as on 31-03-2005 as per schedule F which includes "stamp duty of Rs. 40,80,500/-" . The learned CIT submitted that as per balance sheet the stamp duty charges were shown of Rs. 40,48,500/- whereas the receipts of the stamp duty submitted were of 4 ITA 3895/Mum/2013 Rs. 32,65,500/- and the difference between the two establishes that there were certain properties other than those disclosed by the assessee. The ld. CIT observed that certain property which were purchased by the assessee had not been disclosed to the Revenue. The source of investment in these properties of aggregate value of Rs. 7,54,02,860/- remained unexplained, were the observation of the learned CIT. It was also observed that the A.O. has not obtained details of the remaining amount of stamp duty of Rs. 7,73,000/-. The third ground for invoking Section 263 of the 1961 Act is with respect to the short term capital gain of Rs. 71,07,855/- declared by the assessee on the sale and purchase of shares which in the opinion of the ld. CIT, should have been declared as business income instead of short term capital gains and be charged at maximum marginal rate.
The assessee was given opportunity by learned CIT vide notice dated 15.2.2013 to explain why the assessment order dated 29-12-2010 passed by the AO u/s 143(3) r.w.s. 153A of the 1961 Act should not be held to be erroneous so far as it is prejudicial to the interest of Revenue. The assessee in response submitted the following reply :-
"At the outset, it is humbly submitted that the order passed by the Assessing Officer u/s.143(3) r.w.s 153A is neither erroneous nor prejudicial to the interest of revenue as all the details relating to the issues stated by your honour in your letter have been dealt with and have been duly explained and after due consideration of the same, the Assessing Officer has passed the assessment order by applying his mind. This is evident from the facts given hereunder:
The assessee had filed the return of income for assessment year 2005-06 in response to notice received u/s. 153A of the Act. The assessment was taken up for scrutiny and during the course of the scrutiny assessment proceedings, the assessee had filed all the details required by the Assessing Officer from time to time. In the letter dated 15/2/2013 issued by your honour, it has been 5 ITA 3895/Mum/2013 stated that the assessee has failed to disclose the details of immovable properties and has failed to give the details / explanation about the properties purchased by the assessee on which stamp duty was paid has been furnished. According to your honour, the total value of the properties purchased amounting to Rs. 7,54,02,860/- has escaped assessment as the source of investment is unexplained. The assessee would like to humbly submit that during the course of scrutiny assessment proceedings. the assessee was asked to explain the details of immovable properties and the sources of funds. In response to the same, the assessee had filed a letter with the Deputy Commissioner of Income Tax. Central Circle 39, Mumbai giving the required details, which read as under:-
"Shri Anand Jain (assesse) had acquired 20 flats at Central Garden Complex, Swadeshi Mill Compound, Chunabhatti, Kurla. Mumbai from Surela Investments & Trading P Ltd. As per the details given in the attached statement. The said flats were acquired during the financial year 2004-05 for a total consideration of Rs.7,54,02,860/-. The consideration was paid as under.
Rs.
Upto A.Y. 2005-06 4,56,00,000
A.Y. 2006-07 1,15,00,000
A.Y. 2007-08 1,00,00,000
A.Y. 2008-09 83,02,860
Total 7,54,02,860
Since the accounting in respect of the above flats was on cash basis, the assesse had accounted for all the payments made against them and the same was reflected as advances in the respective years. Accordingly, as on 31.03.2005, the amount of Rs. 4,56,00,000/- was shown under the head "Advances and Deposits". In respect of these flats, during the assessment year 31/3/2005, the assesse had made payment of stamp duty amounting to Rs.34,48,500 and registration charges of Rs.6,00,000 aggregating to Rs.40,48,500/-. The said amount of Rs.40,48,500 has been reflected under the head "Advances and Deposits". In Schedule F to the Balance Sheet filed with your along with the return of income.
6 ITA 3895/Mum/2013 A copy of the Balance Sheet together with the relevant schedules are enclosed herewith for your ready reference. The assesse had received possession of the aforesaid premises on 4th day of April, 2008 i.e. assessment year 2009-10. Accordingly, these flats have been capitalized and shown as immovable property at Rs.9,71,18,660 as on 31/3/2009 as per the details given hereunder:
Particulars Amount (Rs)
(a) Agreement value 7,54,02,860
(b) Stamp duty 34,48,500
(c) Registration charges 6,00,000
(d) Documentation 11,600
charges/scanning charges
(e) Renovation expenses 1,76,55,700
Total 9,71,18,660
The assessee had acquired these flats out of his own sources as can be seen from the Balance Sheet for various years filed with the return of income."
The Assessing Officer vide letter dated 12.11.2010 called for the details of stamp duty and related assets as also the details of all share transactions. The assessee had submitted its reply as under:
"We refer to your letter No.DCIT/CC-39/Jai Corp Group/AJ/Details/2010-11 dated 12th November, 2010 in connection with assessment proceedings for the Assessment year 2005-06 in the case of our aforesaid client.
In this connection, under the instructions of our client, we would like to submit as under:
1. Reconciliation statement of stamp duty reflected in Balance Sheet with actual stamp duty paid for purchase of premises is enclosed. The stamp duty and registration was 7 ITA 3895/Mum/2013 paid to register the agreement in respect of purchase of residential flats at Central Garden Complex. Swadeshi Mill Compound, Chunabhatti, Kurla, Mumbai. The possession was not received. A sum of Rs.4,56,00,000/- was paid to Surela Investments and Trading P. Ltd. And Rs.
40,48,500/- paid for stamp duty and registration has been shown as advance. The balance amount of Rs.2,98,02,860/- was payable to Surela Investments And Trading P. Ltd. As on 31st March, 2005. Copies of agreements in this respect have already been submitted to you earlier.
2. Capital gain working statements of Units of Mutual Funds and Shares are enclosed giving the details of all transactions like name of scrip, date of purchase, quantity, amount and capital gain along with supporting evidences/contract notes.
We hope the above will meet with your requirements."
The assessee had also filed premises-wise details of purchase consideration, stamp duty & registration fees. The assessee had also filed Balance Sheet and the relevant details of advances and deposits for the year ending 31/3/2005 to 31/3/2009. A copy of the said letter submitted by the assessee together with all the supporting evidences are enclosed for the kind perusal of your honour. During the course of the scrutiny assessment proceedings, the assessee had also filed a letter from Surela Investments and Trading Pvt Ltd handing over the possession of the various premises at Central Garden Complex to the assessee. Thus, your honour's contention that the immovable properties acquired by the assessee have not been reflected in the Balance Sheet is without any basis.
The Assessing Officer had verified the details filed by the assessee in respect of immovable properties and all the relevant supporting evidences filed with him before passing the assessment order u/s.143(3) r.w.s. 153A. It may further be stated that in respect of these premises, the Assessing Officer had recomputed the annual letting value u/s. 23(1)(a) for assessment year 2009-10 i.e. the year in which the assessee received the possession of the premises. Thus, by no stretch of imagination, the order passed 8 ITA 3895/Mum/2013 u/s. 153A can be considered as erroneous or prejudicial for the interest of revenue on this issue.
Your honour has stated in your aforesaid letter that as per Circular 4 issued by the CBDT, the Assessing Officer has to look into the nature and regularity of the transactions irrespective of whether the assessee has shown the shares as investment in the Balance Sheet or not. According to your honour, the Assessing Officer has not dealt with this issue and has accepted the stand of the assessee and accordingly the Assessing Officer should have treated the income from short term capital gain as business income and taxed accordingly. To this extent, according to your honour, the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue.
In this connection, at the outset, it is submitted that during the course of scrutiny assessment proceedings, the assessee was asked to explain the justification of treating the profits/surplus arising out of purchase and sale of shares/securities as capital gain and not as 'business income'. In this respect the assessee had filed its submissions which are reproduced below:-
"We refer to the assessment proceedings u/s. 153A for assessment year 2003-04 to 2009-10 in the case of our client Shri Anand Jain.
As regards treatment given to the profit/surplus arising from purchase and sale of equity shares and securities as capital gain and not as income from business, we have to submit as under.
1. Shri Anand Jain (the assessee) is an investor in shares and securities. He has been investing in shares and securities since last many years. The assessee has been treating the shares and securities as investment from the time they are acquired. The shares and securities acquired by him have always been kept as investment and not as stock in trade in the books of account and the same has shown as investment in the Balance Sheet filed with the Department alongwith the return of income.
9 ITA 3895/Mum/2013
2. The assessee has not borrowed any funds for the purpose of making investment in shares and securities in any of the years under consideration. Moreover, no interest expenditure has been incurred or claimed by the assessee against the income arising from such investments. The assessee has always utilized its own surplus funds or family funds accumulated over a period of time and has not resorted to borrowing for the purpose of investments. This is borne out by the details fifed with you during the course of the assessment proceedings.
3. The assessee does not have administration set up and has not engaged or employed any person for investment in shares or securities and the same is being carried out by the assessee himself which goes to prove that the investment in shares is not an organized activity.
4. During the period under consideration, the assessee had also made investment in the units of various mutual funds. The assessee has received dividend on the said mutual fund units. The investment in the mutual funds can, by any stretch of imagination, be considered only as investment and not as business assets more particularly, since the units of mutual fund cannot be traded on the market at all, the units can only be repurchased by the mutual funds concerned and cannot be sold to any other person.
5. During the period under consideration the assessee has earned capital gain both by way of long term and by way of short term. The period of holding shares ranges from two years to twenty years. Similarly, even in the case of short term capital/loss the period of holding ranges from three months to eleven months in most of the cases. The holding period of less than two months is only an exception. For example, the assessee has held the shares of Jai Carp Ltd from more than twenty years and they have been held even today. Some of these scrips have been sold after holding it for more than fifteen years. During the period under consideration, the assessee has earned capital gain from sale of long term investments as given hereunder:
10 ITA 3895/Mum/2013 Sr No. Assessment Long term capital gain year on shares & securities.
1 2003-04 Rs. 1,98,05,875 2 2004-05 89,84,495 3 2006-07 36,13,840 4 2008-09 44,42,656
6. The assessee has earned income by way of dividend on the investments made from year to year as also capital appreciation on the sale of shares. The details of dividend received in each of the seven year is given as under:
Sr No. Assessment Income by way of
year dividend received on
shares & securities
1 2003-04 45,91,394
2 2004-05 4,54,07,085
3 2005-06 1,68,07,472
4 2006-07 3,67,599
5 2007-08 8,12,450
6 2008-09 85,685
7 2009-10 75,742
From the above, it is proved beyond doubt that the dividend was the prime motive for making investment in shares and securities.
7. The assessee has taken delivery of shares against the purchases made and the same are credited to his demat account. Similarly, the assessee has given delivery of shares against sales made from the demat account. Hence, all the transactions of purchase and sale are delivery based.
8. The treatment given by the assessee in respect of shares and investments has been accepted by the Department year after year. The Department has in all the years accepted the income of the assessee as short term capital gain or long term capital gain as the case may be. The facts and the circumstances are not different from the year years and hence there is no justification 11 ITA 3895/Mum/2013 on the part of the department to treat the same as business income. It may be relevant to state here that the department has accepted the treatment given by the assessee even in these seven years either u/s. 143(3)/143(1) of the Act.
9 The frequency and volume of the transaction entered into by the assessee in all these years has not been huge. Moreover, the volume and the frequency should be considered vis-a-vis the availability of the funds and the size of the balance sheet of the assessee.
10. Moreover, every investment is a capital asset within the meaning of section 2(14) of the Act. Thus the profit arising on transfer of such investments being capital assets is necessarily to be taxed under the head "capital gain". The assessee has been showing the income airing on transfer of shares/securities under the head capital gain either short term or long term depending on the period of holding. The department, following the statutory provisions, has accepted the heads of income under which the income was offered i.e. capital gain in the earlier years and even in these years in earlier assessment proceedings as stated above. The shares have been purchased and sold through recognized stock exchange and securities transaction tax has been paid wherever applicable. The assessee has also received dividend for all the years under consideration and as already stated above, no amount has been borrowed.
11. For the aforesaid propositions, the assessee relies on the decision of Bombay High Court in the case of Gopal Purohit v JCIT - 228 CTR 582. The Special Leave Petition filed by the Department has been dismissed by the Hon'ble Supreme Court vide its order dated 15th November, 2010.
12. The Mumbai ITAT in the case of DCIT v SMK Shares & Stock Broking held that the AO's conclusion that since the sale and purchase had been determined in the volatility in the market, the same is against the basic picture of investor is not based on sound rational reasoning. A prudent investor always keeps a watch on the market trends and, therefore, is not barred under law from liquidating his investments in shares. The law itself has recognized these facts by taxing such transactions under the head "short term capital gains" and if the AO's reasoning is accepted, then it would be against the legislative intent itself The 12 ITA 3895/Mum/2013 Hon'ble ITAT further held that the fact that the assessee did not borrow funds for investment in shares is an important aspect which cannot be lost site of while deciding the true intention of the assessee. It further held that though the principles of res judicata do not apply to Income tax proceedings it is well settled law that the principles of consistency should not be ignored.
13. The Delhi High Court in the case of CIT v Rohit Anand (327 ITR 445) has held that where the assessee holding shares after taking delivery and making full payment for investments the transactions are to be treated as giving rise to capital gain and cannot be branded as trading in shares.
In view of the above, it is submitted that the income or loss arising out of purchase and sale of shares and securities is in the nature of capital gain and the assessee has treated the same accordingly as per the provisions of the Act and hence the same cannot be treated as business income."
From the above, it is amply clear that the issue under consideration was also raised by the Assessing Officer for which the detailed explanation has been given. After considering the explanation made by the assessee, the details filed by the assessee in this respect, the facts of the case, the provisions of law and the various case laws relied upon by the assessee, the Assessing Officer was satisfied that the profit on sale of shares has rightly been offered as income under the head "capital gain". According to the Assessing Officer, after considering the submissions of the case, there was no justification in taxing the income on sale of shares as business income. It is only after due consideration that the Assessing Officer has chosen to tax the surplus on sale of shares as income under the head "capital gain". The Assessing Officer has applied his mind while dealing with the issues under consideration. Thus, it cannot be said that no application of mind has been made by the Assessing Officer on the issue while passing the assessment order u/s. 143(3) r.w.s. 153A. In view of this, the order passed u/s. 143(3) r.w.s. 153A is neither erroneous nor prejudicial to the interests of the revenue in so far as this issue is concerned.
It may also be noted here that the assessee had, inter alia, relied on the decision of Bombay High Court in the case of Gopal Purohit v JCIT (228 ITR 582) which was held in favour of the assessee. The Special Leave Petition filed by the Revenue against the said order of the Bombay High 13 ITA 3895/Mum/2013 Court has been dismissed by the Hon'ble Supreme Court vide its order dated 15th Nov. 2010. The assessee had also relied on the Mumbai ITAT decision in case of DCIT v SMK Shares & Stock Broking. The Assessing Officer has considered the facts of the case and the decision of the Jurisdictional High Court and also the order of Hon'ble Supreme Court in the case of Gopal Purohit (supra) before coming to the conclusion that the assessee is an investor and not a trader. It is required to be noted that the decision reached by the Tribunal or the High Court are binding upon the Assessing Officer. Thus, the Assessing Officer has not made any error by passing the order which is based on the facts of the case and binding decision of the Jurisdictional High Court. The acceptance of the decision of the Jurisdictional High Court and the Supreme Court, the Assessing Officer cannot be said to be in error in making the assessment while following the judgments. It would not be open to the Commissioner of Income Tax to proceed with the setting aside of the order of the Assessing Officer which is passed after considering the facts of the case, provisions of law and various judicial pronouncements.
The error envisaged under section 263 is not one which depends on possibility or guesswork, but it should be actually an error either of fact or of law . In the instant case, the order passed by the Assessing Officer is based on the facts of the case and the provisions of law. It is not the case of your honour that the assessment order passed by the Assessing Officer is against the provisions of the Income-tax Act. Erroneous assessment refers to an assessment that deviates from the law and accordingly an order cannot be termed as erroneous unless it is not in accordance with law.
It is further submitted that at the time of passing the assessment order, the Assessing Officer was fully satisfied about the immovable properties acquired by the assessee and the sources thereof The Assessing Officer was also aware of the decision of the Jurisdictional High Court and the Supreme Court in case of Gopal Purohit v JCIT - 228 CTR 582. In such circumstances, it cannot be said that the order of assessment passed by the Assessing Officer after considering all the factual positions, details filed and various judicial pronouncements is erroneous or prejudicial to the interests of the revenue.
The assessee relies on the decision of Gujarat High Court in Garden Silk Mills Ltd v CIT - 221 ITR 861 in which it was held that the Commissioner is not empowered to ignore the binding decisions of the 14 ITA 3895/Mum/2013 Supreme Court or a Jurisdictional High Court considered by the Assessing Officer while passing the Assessment order.
The assessee also relies on the decision of Supreme Court in the case of CIT v. G.M. Mittal Stainless Steel Pvt. Ltd. (263 ITR page 255) wherein it was held as under:
"Held, affirming the decision of the High Court, that the Commissioner had not recorded his reasons for coming to the conclusion that the Assessing Officer was erroneous in deciding that power subsidy was a capital receipt. Given the fact that the decision of the jurisdictional High Court was operative at the material time, the Assessing Officer could not be said to be wrong. The fact that the Supreme Court had subsequently held in Sahney Steel and Press Works' case [1997] 228 ITR 253, that power subsidy was revenue in nature would not justify the Commissioner's treating the decision of the Assessing Officer as erroneous. The power of the Commissioner under section 263 had to be exercised on the basis of the material that was available to him when he exercised the power. At that time, there was no dispute that the issue whether power subsidy could be treated as a capital receipt had been concluded against the Revenue. The satisfaction of the Commissioner was, therefore, not based on material either legal or factual, which alone would give him the jurisdiction to take action under section 263.
Decision of the Madhya Pradesh High Court affirmed."
We further submit that your proposed action under section 263, in treating the assessment order passed by the AO as erroneous in so far as it is prejudicial to the interest of revenue is not justified as the AO has passed the order as per the law. The AO has taken one possible view of the matter which is more logical and supported by various judicial pronouncements while passing order u/s 143(3) r. w s. 153A of the Act. Hence the order passed by the AO could not be termed as erroneous for invoking the provisions of section 263 of the Income Tax Act, 1961.
In support of our above submission, we rely upon the Bombay High Court judgment reported in 203 ITR 108 in the case of CIT vs Gabriel lndia Ltd. The Hon'ble Court while dealing with the provisions of section 263 of the I. T. Act, has observed as under :-
15 ITA 3895/Mum/2013 "The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income of a higher figure than the one determined by the Income-tax Officer . That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. This is because the Income-tax Officer 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 Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself would not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, that the order is erroneous is absent."
The ITAT, Bombay in the case of Jhuleal Land Development Corpn. v. DCIT (56 ITD 345) following Gabriel India's judgment, also held that when Assessing Officer's view was also a possible view, it could be incorrect to hold assessment order to be erroneous merely because Commissioner held a different view.
The Assessing Officer has rightly allowed the claim of the assessee company after considering the facts of the case. The order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the revenue. The claim has been accepted by the Assessing Officer in accordance with law. Moreover, an order cannot be termed as erroneous unless it is not in accordance with the law. If an Assessing Officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the Assessing Officer should have taken a different view than what he has taken. The error should be an error in applying the relevant law or facts. Just by resorting a different method a larger tax could have been levied, cannot be the sole consideration to attract section 263, as prejudicial to the interest of the Revenue, unless the said method is the only mode legally applicable."
The ld. CIT after considering the replies of the assessee directed the A.O. to verify the source from where the assessee had made investments in the properties and whether the said income was offered for taxation in the relevant assessment years as well as to verify the genuineness of the claim of 16 ITA 3895/Mum/2013 the assessee regarding reflection of the investment in the respective years. The ld. CIT also directed the AO to verify the difference in the payment of stamp duty of Rs. 7,73,000/- between the amount of Rs. 40,48,500/- as reflected in Balance Sheet and an amount of Rs. 32,65,500/- reflected in the reply submitted before the AO during the assessment proceedings , while the assessee claimed before learned CIT that the assessee has paid Rs.34,48,500/- towards stamp duty and Rs. 6,00,000/- was paid towards registration charges . The learned CIT directed the AO to verify the details of the properties and its sources of acquisition. The learned CIT also directed A.O. to verify whether the gains arising from sale of shares/units of Mutual funds should be charged to tax as business income in accordance with the CBDT Circular No. 4, vide order dated 25-03-2013 passed by learned CIT u/s 263 of the 1961 Act.
4. Aggrieved by the order dated 25-03-2013 passed by the ld. CIT u/s 263 of the 1961 Act, the assessee filed an appeal before the Tribunal.
5. At the outset, the ld. counsel submitted that the A.O. has framed the assessment vide assessment order dated 30.3.2014 passed u/s 143(3) r.w.s. 263 of the Act which is placed on record vide page No. 26 to 31/paper book wherein the A.O. has accepted the contention of the assessee with respect to the first two grounds which has been invoked by the ld. CIT u/s 263 of the 1961 Act namely to verify the investments made by the assessee in immovable properties and its sources of acquisition as well to verify the difference in stamp duty as reflected in the Balance Sheet and as submitted in reply before the learned AO during the course of assessment proceedings u/s 143(3) r.w.s. 153A of the 1961 Act wherein no additions were made in assessment proceedings by the A.O. u/s 143(3) r.w.s. 263 of the 1961 Act vide assessment orders dated 30-03-2014, and the AO confined the additions only by bringing to tax gains arising on sale of shares of Rs. 71,07,855/- as 17 ITA 3895/Mum/2013 business income instead of capital gains declared by the assessee, vide assessment order dated 30-03-2014 passed u/s 143(3) r.w.s. 263 of the 1961 Act. The ld. counsel submitted that the genesis of the assessment order dated 29-12-2010 passed by the AO u/s 143(3) r.w.s. 153A of the Act was the search conducted by Revenue in the case of the assessee u/s 132 of the Act on 05.03.2009. It is submitted that the afore-said assessment order dated 29- 12-2010 passed by the AO u/s 143(3) r.w.s. 153A of the 1961 Act did not mention that any incriminating material was found during the course of search . Thus, it was submitted that no additions could have been made in the assessment order dated 29-12-2010 passed by the AO u/s 143(3) r.w.s. 153A of the 1961 Act in the absence of any incriminating material as the assessment for the assessment year 2005-06 was an unabated assessment keeping in view provisions of Section 153A of the 1961 Act as date of search was 05-03-2009 , the original assessment having being framed by the AO for assessment year 2005-06 u/s 143(3) of the 1961 Act vide assessment orders dated 19-12-2007, which is placed in paper book at page 21-22. The ld. counsel relied upon the decision of Hon'ble Bombay High Court in the case of All Cargo Global Logistics, 374 ITR 645 (Bom) and decision of Hon'ble Delhi High Court in the case of CIT v. Kabul Chawla, 380 ITR 573 (Del) . It was submitted that what could not be achieved directly cannot be achieved indirectly as no incriminating material were found during the course of search and hence it was submitted that invocation of provisions of Section 263 of the 1961 Act is bad in law when there is no reference to the material found during the course of search in the assessment framed by the AO vide assessment order dated 29-12-2010 passed u/s 143(3) r.w.s. 153A of the 1961 Act and no addition could have been made in the absence of incriminating material found during the course of search and thus invocation of provisions of section 263 of the Act is bad in law. The ld. counsel also relied upon the decision of the Mumbai Bench of this Tribunal in the case of Mrs. Shweta Avarsekar v. Principal Commissioner of Income Tax in ITA No. 3186 18 ITA 3895/Mum/2013 and 3187/Mum/2016 for assessment years 2006-07 and 2009-10, vide common order dated 1st August, 2016 as well as in the case of M/s Hanspro.com Pvt Ltd. v. Pr. Commissioner of Income Tax in ITA No. 3573/Mum/2016 for assessment year 2006-07 vide order dated 31st January, 2017 and decision of Mumbai-tribunal in the case of Jitendra J. Mehta v. CIT in ITA No. 1872/Mum/2015 for assessment year 2006-07 vide orders dated 24th June, 2015, copies of the orders are placed in the file and contended that since invocation of provisions of section 263 of the Act has no reference to the incriminating material, no additions could have been made and hence it is bad in law.
6. The ld. D.R., on the other hand, relied on the order of the ld. CIT.
7. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee e-filed the original return of income on 31-08-2005 declaring total income at Rs. 1,26,04,661/- which return of income was processed u/s 143(1) of the 1961 Act. The assessment on this case was originally framed by the AO u/s 143(3) of the 1961 Act on 19-12-2007 accepting the returned income. Thereafter the assessment was framed by the AO vide assessment order dated 29th December 2010 passed u/s 143(3) r.w.s. 153A of the 1961 Act, wherein the expenses of Rs. 2500/- which were claimed on account of professional tax were disallowed by the AO and the income was assessed at Rs. 1,26,07,160/-. The background of the case are that search and seizure action u/s 132 of the 1961 Act was carried on by the Revenue on 05-03-2009 in the case of Jai Group, its employees and close associates. The Jai Corp Group has extended its operation to realty sector. The group is partner along with RIL in two major upcoming SEZ namely Navi Mumbai Special Economic Zone(NMSEZ) and Mumbai Special Economic Zone (MSEZ). The assessee is Chairman of both NMSEZ and MSEZ. We have observed that ld. CIT observed from the 19 ITA 3895/Mum/2013 records CIT observed from the records of assessment proceedings u/s 143 (3) of the 1961 Act that the assessee had shown advances and deposits amounting to Rs. 16,05,41,233/- in the Balance Sheet as on 31-03-2005 as per schedule F which includes "stamp duty of Rs. 40,80,500/-" . The learned CIT observed that as per balance sheet the stamp duty charges were shown of Rs. 40,48,500/- whereas the receipts of the stamp duty submitted were of Rs. 32,65,500/- and the difference between the two in the opinion establishes that there were certain properties other than those disclosed by the assessee. The Id. CIT observed that certain properties which were purchased by the assessee had not been disclosed to the Revenue. The source of investment in these properties of aggregate value of Rs. 7,54,02,860/- remained unexplained, were the observation of the learned CIT. It was also observed by learned CIT that the A.O. has not obtained details of the remaining amount of stamp duty of Rs. 7,73,000/-. The third ground is with respect to the short term capital gain of Rs. 71,07,855/- declared by the assessee on the sale and purchase of shares which in the opinion of the Id. CIT, should have been declared as business income instead of short term capital gains and be charged at maximum marginal rate. The assessee gave detailed replies explaining that all the issues were duly explained in the assessment proceedings u/s 143(3) r.w.s. 153A of the 1961 Act which culminated into an assessment order dated 29-12-2010. The replies filed before learned CIT explaining the explanations offered during the course of assessment proceedings u/s 143(3) r.w.s. 153 A of the 1961 Act is reproduced in the preceding para's of this order, (which relies before the AO were incorporated in replies filed by the assessee before Id. CIT in proceedings vi] s 263 of the 1961 Act) and are not repeated again by us. The learned CIT was not satisfied and held that assessment order dated 29-12-2010 passed by the AO was erroneous so far as it is prejudicial to the interest of revenue vide orders dated 25-03-2013 passed by learned CIT u/s 263 of the 1961 Act. Thus, the Id. CIT after considering the replies of the assessee directed the A.O. to verify 20 ITA 3895/Mum/2013 the source from where the assessee had made investments in the properties and whether the said income was offered for taxation m the relevant assessment years as well as to verify the genuineness of the claim of the assessee regarding reflection of the investment in the respective years. The Id. CIT also directed the AO to verify the difference in the payment of stamp duty of Rs. 7,73,000/- between the amount of Rs. 40,48,500/- as reflected in Balance Sheet and an amount of Rs. 32,65,500/- reflected in the reply submitted before the AO during the assessment proceedings , while the assessee claimed before learned CIT that the assessee has paid Rs.34,48,500/- towards stamp duty and Rs. 6,00,000/- was paid towards registration charges . The learned CIT directed the AO to verify the details of the properties and its sources of acquisition. The learned CIT also directed A.O. to verify whether the gains arising from sale of shares/units of Mutual funds should be charged to tax as business income in accordance with the CBDT Circular No. 4, vide orders dated 25-03-2013 passed by learned CIT u/s 263 of the 1961 Act. We have observed from the records before us that it is not brought on record by Revenue before us whether any incriminating material was found during the course of search u 1 s 132 of the 1961 Act and we have observed that while framing assessment order dated 29-12-2010 u/s 143(3) r.w.s 153A of the 1961 Act no additions have been made by the AO based on any incriminating material found during the course of search. In any case, we have observed that the AO has made proper enquiries in proceedings u/s 143(3) r.w.s. 153 A of the Act with respect to all the three issues which were invoked by the CIT in proceedings u/s 263 of the 1961 Act and the AO had arrived at a conclusions on all the three issues after enquiries, which are plausible view both on facts and on law. It is not a case where no enquiries have been made by AO or an inadequate enquiry were made by the AO. In case of differential in stamp duty of Rs. 7,73,000/- as pointed out by learned CIT, the assessee duly explained that the value reflected as stamp duty in Balance Sheet comprised of stamp duty of Rs.
21 ITA 3895/Mum/2013 34,48,500/- and registration charges of Rs. 6,00,000/- and there is no difference in the value as reflected in Balance Sheet in the replies filed by the assessee before the AO during proceedings u/s 143(3) r.w.s. 153A of the 1961 Act. The said amounts were duly reflected in the Balance Sheet of the assessee. With respect to the investments in properties, the assessee has duly explained in proceedings u/s 143(3) r.w.s. 153 A of the 1961 Act that the assessee account for the amounts as investment in properties based on payments actually made before the end of the relevant financial year which were to the tune of Rs. 4,56,00,000/- and were duly reflected in balance Sheet of the assessee. The assessee duly reconciled the total investments of Rs. 7,54,02,860/- made in the properties in different assessment years during assessment proceedings u/s 143(3) r.w.s. 153 A of the 1961 Act with what is reflected in its books of accounts, which duly in-fact reconciled with the total investments in properties sought for explanation by CIT in its orders u/s 263, as under:
Rs.
Upto A.Y. 2005-06 4,56,00,000
A.Y. 2006-07 1,15,00,000
A.Y. 2007-08 1,00,00,000
A.Y. 2008-09 83,02,860
Total 7,54,02,860
These investments were reflected in the Balance Sheet of the assessee. The evidences for above assessment years were filed before the AO in proceedings u/s 143(3) r.ws. 153 A of the 1961 Act which were verified by the AO. Hence, it could not be said that the said view is erroneous so far as prejudicially to the interest of revenue so as to be covered under the mandate of Section 263 of the 1961 Act which is fortified further by the AO itself dropping both the grounds of invocation of Section 263 of the 1961 Act by learned CIT in an assessment order dated 30-03-2014 framed u/s 143(3) r.w.s. 263 of the 1961 Act, wherein no additions were made on grounds of differential in stamp duty
22 ITA 3895/Mum/2013 as well investments in properties and its sources. Further, with respect to treatment of short term capital gains on sale of shares of Rs. 71,07,855/- as business income invoked as one of the grounds by learned CIT for applying Section 263 of the 1961 Act also lacks merit as' the AO had while framing assessment order dated 29-12-2010 passed u/s 143(3) r.ws. 153A of the 1961 Act had made proper and detailed enquiries against which the assessee submitted detailed replies and arrived at conclusion to treat the gains arising from sale of share as capital gains which is a plausible view both on facts and on law. The replies filed by the assessee on this ground in proceedings before the AO u/s 143(3) r.w.S 153A of the 1961 Act is reproduced in preceding para's of this order and are not repeated again for sake of brevity. Thus, the order dated 25-03-2013 passed by learned CIT u/s 263 of the 1961 Act is even not sustainable on this ground. We have noted that the AO did treated the short term capital gains on sale of shares of Rs. 71,07,855/- as business income in an assessment order dated 30-03-2014 passed u/ 143(3) r.w.s. 263 of the 1961 Act but it is clearly a change of opinion by the AO as against the consistent stand taken for last several years by Revenue by accepting the gains on sale of shares as capital gains instead of business income which is against the principles of consistency which is not permissible in proceedings under the 1961 Act as the facts are similar in preceding years. Reliance is placed on decision of Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC). More-so, that AO itself in original assessment framed u/s 143(3) of the 1961 Act vide assessment orders dated 19-12-2007 and also in assessment orders dated 29-12-2010 passed u/s 143(3) r.w.s. 153A of the Act has accepted gains on sale of shares as capital gains while it is brought on record that detailed enquiry was made by the AO before passing assessment order dated 29-12-2010 passed u/s 143(3) r.w.s. 153A of the 1961 Act. Even keeping in view the newly inserted explanation 2 to Section 263 of the 1961 Act, in our considered view this order dated 25-03- 23 ITA 3895/Mum/2013 2013 of the learned CIT u/s 263 of the 1961 Act is not sustain able in the eyes of law and we have no hesitation in quashing the order dated 25-03- 2013 passed by learned CIT u/s 263 of the 1961 Act. We order coordingly.
8. In the result, appeal filed by the assessee in ITA No. 3895/Mum/2013 for assessment year 2005-06 is allowed.
Order pronounced in the open court on 5th May, 2017. आदे श क घोषणा खुले #यायालय म% &दनांकः 05-05-2017 को क गई ।
Sd/- sd/-
(C.N. PRASAD) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
मंब
ु ई Mumbai; &दनांक Dated 05-05-2017
व.9न.स./ R.K., Ex. Sr. PS
आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आय:
ु त(अपील) / The CIT(A)- concerned, Mumbai
4. आयकर आयु:त / CIT- Concerned, Mumbai
5. =वभागीय 9त9न?ध, आयकर अपील य अ?धकरण, मुंबई / DR, ITAT, Mumbai H" Bench
6. गाडC फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या=पत 9त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai