Ravi Kannan, CHENNAI V. ACIT, CHENNAI

ITA 112/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7787 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 28-12-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 20-01-2016
• Court: TRIBUNAL
• Department Lawyers: JAIRAM RAIPURA
• Assessee Lawyers: R SIVARAMAN
• Keywords: Capital asset; Share purchase agreement; Principle of natural justice
• Section: 143(3); 54F; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI , ! ' ! # . $% & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.112/MDS/2016 / ASSESSMENT YEAR : 2011-12 SHRI RAVI KANNAN, L & T EDEN PARK 0A4 0801 MR RADHA NAGAR, SIRUSERI CHENNAI 603 103 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX BUSINESS CIRCLE IV CHENNAI [PAN AENPR 4937 G] ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : SHRI R.SIVARAMAN,ADVOCATE /RESPONDENT BY : SHRI JAIRAM RAIPURA, CIT DR / DATE OF HEARING : 28 - 12 - 2016 / DATE OF PRONOUNCEMENT : 17 - 02 - 2017 - / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE PRINCIPAL COMMISSIONER OF INCOME-TAX, CHENNAI, DATED 27.11.2015 IN C.NO.6119(14)/PR CIT-6/2014-15 PASSED U/S 263 O F THE INCOME-TAX ACT, 1961, FOR ASSESSMENT YEAR 2011-12. ITA NO.112/16 :- 2 -: 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS FO R OUR ADJUDICATION. 1. THE ORDER OF THE PRINCIPAL COMMISSIONER OF INCOM E TAX (PCIT) DATED 27.11.2015 FOR THE ASSESSMENT YEAR 2011-12 IS ERRONEOUS, CONTRARY TO LAW, EQUITY, FACTS AND CIRCU MSTANCES OF THE PRESENT CASE AND THE MATERIALS AVAILABLE ON REC ORD. 2. THE LEARNED PCIT ERRED IN SETTING ASIDE THE ASSE SSMENT ORDER OF THE ASSESSING OFFICER (A.O) DATED HOLDING THAT THE A MENT FRAMED BY THE A.O FOR THE PRESENT ASSESSMENT YEAR 2 011-2 IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE 3. THE LEARNED PCIT ERRED IN DIRECTING THE A.O TO E XAMINE AS TO WHETHER THE ELIGIBILITY UNDER SECTION 54FOF THE ACT PROVIDED TO THE APPELLANT IS TO BE DISQUALIFIED ON THE GROUND T HAT THE RESIDENTIAL PROPERTY WAS NOT COMPLETED BEFORE THE D UE DATE, EVEN THOUGH THE SAID DIRECTION DOES NOT PERTAIN TO THIS ASSESSMENT YEAR 4. THE LEARNED PCIT FAILED TO CONSIDER THAT FOR AN ASSESSEE TO CLAIM EXEMPTION UNDER SECTION 54F, IT IS SUFFICIENT TO SHOW TO THE A.O THAT HE HAS DEPOSITED THE CAPITAL GAINS AMO UNT ARISING OUT OF TRANSFER OF LONG TERM CAPITAL ASSET TO A CAP ITAL GAINS SCHEME ACCOUNT AND HAS STARTED THE PROCESS OF CONST RUCTION OF THE RESIDENTIAL HOUSE. 5. THE LEARNED PCIT ERRED IN HOLDING THAT THE A.O H AD FAILED TO MAKE NECESSARY VERIFICATION AND ENQUIRY WITH RESPEC T TO THE SALE CONSIDERATION OF THE SHARES AS PER RBI NOTIFIC ATIONS AND THAT IT WASNT IN ACCORDANCE WITH THE CAPITAL GAINS SCHEME OF THE CENTRAL GOVERNMENT. 6. THE LEARNED PCIT FAILED TO REALIZE THAT THE TRAN SACTION PERTAINING TO SHARES WAS BETWEEN THE APPELLANT, WHO IS AN INDI VIDUAL AND A COMPANY AND THEREFORE THE SEBI GUIDELINES WILL NO T APPLY. 7. THE LEARNED PCIT FAILED TO APPRECIATE THAT THE P RESENT CASE IS NOT ONE OF LESS SUFFICIENT ENQUIRY BY THE A.O BUT IT IS A CASE OF ITA NO.112/16 :- 3 -: NO ENQUIRY AS ALL THE MATERIALS WERE AVAILABLE WI TH THE A.O DURING THE INITIAL ASSESSMENT UNDER SECTION 143(3) OF THE ACT. 8. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX FAILS TO UNDERSTAND THAT IN THE INSTANT CASE HAVING ACCEPTED THAT ENTIRE CAPITAL GAINS WERE NOT DEPOSITED IN CAPITAL GAIN SC HEME FOR THE RELEVANT CASE, OUGHT TO HAVE SEEN THAT THE APPELLAN T HAD COMPLIED WITH THE PROVISIONS OF SUB-SECTION (4) OF SECTION 54F AND THEREFORE THE ASSESSMENT ORDER IS NEITHER PREJU DICIAL NOR ERRONEOUS TO INVOKE THE JURISDICTION U/S. 263 OF TH E ACT. THE PRINCIPAL COMMISSIONER OF INCOME TAX OUGHT TO HAVE APPRECIATED THAT THE ENTIRE CASE WAS REVISED ONLY U NDER THE INSTRUCTIONS OF AUDIT PARTY REPORT AND THEREFORE IT IS LIABLE TO BE SET-ASIDE. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL, DERIVING INCOME FROM INVESTMENT IN SHARES AND MUTUA L FUNDS. FOR ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE H AD RETURNED AN INCOME OF ` 6,00,47,572/-. THE INCOME RETURN FROM THE LONG TERM CAPITAL GAINS WAS ` 5.80 CRORES WHEREAS THE INCOME FROM OTHER SOURCES WAS REFLECTED AT ` 20.15 LAKHS. ON EXAMINATION OF RECORDS, IT WAS NOTICED BY THE CIT THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SOLD IN THE CAPACITY OF AN INDIAN RESI DENT, TOTAL NUMBER OF 4,25,117 SHARES OF TUTOR GLOBAL PRIVATE LTD.,(CO MPANY) TO A NON- RESIDENT M/S.PEARSON (SINGAPORE) PVT LTD. AT A PRIC E OF ` 372.20 PER SHARE DURING FINANCIAL YEAR 2010-11 AND TOTAL VALUE OF ` 15.76 CRORES. THE ASSESSEE CLAIMED DEDUCTION OF ` 9.96 CRORES U/S.54F OF THE ACT ON THE GROUND THAT AN AMOUNT OF ` 10 CRORES OUT OF LONG TERM CAPITAL ITA NO.112/16 :- 4 -: GAINS WAS DEPOSITED IN THE CAPITAL GAIN ACCOUNT SCH EME WITH THE BANK OF MAHARASHTRA AND UCO BANK BEFORE THE DUE DATE OF FILING THE RETURN. IT WAS FURTHER NOTICED THAT HE HAD SPENT A SUM OF ` 7.31 CRORES OUT OF THIS CAPITAL GAINS ACCOUNT TOWARDS PURCHASE OF LAND AT MUTHUKADU AND THE CONSTRUCTION WAS SAID TO BE IN PROGRESS. IT WAS CLAIMED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT ONCE THE CON STRUCTION IS COMPLETE, THE ASSESSEE WILL PAY THE CAPITAL GAINS T AX FOR THE UNUTILIZED PORTION OF CAPITAL GAINS, IF ANY, WHILE FILING THE RETURN FOR ASSESSMENT YEAR 2014-15 AS THREE YEAR PERIOD LAPSED ON 01.01.2 014. THE BALANCE AMOUNT WAS INVESTED IN THE MUTUAL FUND. THE AO HAD ACCEPTED THE CLAIM WITHOUT ANY DISCUSSION, IN TWO SIMPLE PARAGRA PHS WHICH IS REPRODUCED AS UNDER:- 3. THE AUTHORISED REPRESENTATIVE OF ASSESSEE WAS REQUIRED TO PRODUCE INVESTMENT DETAILS, BANK ACCOUNT DETAILS AN D PROOF REGARDING SALES OF SHARES (I.E. SHARE CERTIFICATES) . THE AUTHORIZED REPRESENTATIVE OF ASSESSEE PROVIDED THE SAME AND VE RIFIED BY ME (AO). THE AUTHORIZED REPRESENTATIVE OF ASSESSEE ALSO CLARIFIED THAT THE ASSESSEE HAS STARTED THE CONSTRU CTION OF A RESIDENTIAL HOUSE IN THE PURCHASED LAND AND WILL BE COMPLETED BEFORE THE YEAR END. 4. THOUGH VERIFICATION OF ALL THE ABOVE DETAILS, IT IS FOUND CORRECT. THUS, THE ASSESSMENT IS COMPLETED BY ACCEP TING THE RETURN OF INCOME. ITA NO.112/16 :- 5 -: AS THE ASSESSMENT ORDER PASSED BY THE AO IS CRYPTI C AND ALSO WITHOUT ANY KIND OF DISCUSSION RELATING TO VALUATION OF SAL E VALUE OF THE SHARES SOLD ETC., THE LD. CIT ISSUED A SHOW CAUSE NOTICE U /S.263 OF THE ACT ON 27.10.2015 AND A FURTHER REMINDER ON 14.09.2015. IN RESPONSE, THE LD.A.R FILED WRITTEN SUBMISSIONS CHALLENGING THE AS SUMPTION OF JURISDICTION U/S.263 OF THE ACT. IN THE SHOW CAUSE NOTICE, IT IS CLEARLY POINTED OUT THE ASSESSMENT SO FRAMED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS A PRO PER VERIFICATION WAS NOT CARRIED OUT AND WAS SIMPLY ACCEPTED THE ASSESSE ES CLAIM U/S.54F OF THE ACT WITHOUT ANY DISCUSSION. 3.1. FURTHER, THE LD. CIT OBSERVED THAT THE AO HAD NEITHER APPLIED HIS MIND NOR CAUSED AN ENQUIRY AS TO WHETHER THE CONVER SION OF MONEY INTO FIXED DEPOSIT IN THE BANK ACCOUNT IS AS PER THE REL ATED ACT. AFTER EXAMINING THE RECORDS, IT IS ALSO SEEN THAT THE ASSESSEE HAD PURCHASED AGRICULTURAL LAND MEASURING 54,000 SQFT FOR A CONSIDERATION OF RS.7.3 1 CRORE ON 21-10-2011. A SWORN STATEMENT WAS RECORDED BY THE AO ON 13-08-201 4 AFTER THE ASSESSMENT ORDER WAS PASSED AND THE ASSESSEE HAD AD MITTED THAT THE THREE YEARS PERIOD TO CONSTRUCT A RESIDENTIAL HOUSE LAPSE D ON 21-01-2014 AND THE COMPLETION CERTIFICATE WAS NOT OBTAINED FROM THE MU THUKADU VILLAG PANCHAYAT ON OR BEFORE THE DUE DATE. ACCORDING TO L D. CIT, THE LAND PURCHASED WAS AGRICULTURAL LAND AND THE ASESSEE WAS NOT AWARE WHETHER THE MUTHUKADU PANACHAYAT HAD GIVEN APPROVAL FOR CONSTRU CTION OF A RESIDENTIAL HOUSE ON THIS AGRICULTURAL. FURTHER, LD. CIT OBSER VED THAT THESE FACTS ITA NO.112/16 :- 6 -: NARRATED ABOVE DO NOT PERTAIN TO THE ASSESSMENT YEA R IN QUESTION AND THE ALLOWABLE DEDUCTION U/S54F OF THE ACT WILL PERTAIN TO THE AY 2015-16. THEREFORE,THE AO IS DIRECTED TO EXAMINE THIS POINT IN THE RELEVANT ASSESSMENT YEAR AS TO WHETHER THE ELIGIBILITY FOR T HE CLAIM ULS 54F OF THE ACT IS DISQUALIFIED ON THE GROUND THAT THE RESIDENTIAL PROPERTY WAS NOT COMPLETED BEFORE THE DUE DATE AND TAKE NECESSARY REMEDIAL MEA SURES ON THIS COUNT. 3.2 FURTHER, LD. CIT OBSERVED THAT THE AO HAD FAIL ED TO APPLY HIS MIND AND CAUSE NECESSARY VERIFICATION AND AN ENQUIRY WITH RE SPECT OF THE VALUE OF SALE CONSIDERATION OF THE SHARES AS PER THE RBI NOTIFICA TION, WHETHER THE AMOUNT DEPOSITED IN THE BANK OF MAHARASHTRA WAS TRANSACTED IN ACCORDANCE WITH THE CAPITAL GAINS SCHEME OF THE CENTRAL GOVERNMENT. ACC ORDING TO CIT, THE SALE PROCESS DID NOT FOLLOW THE SEBI GUIDELINES IN FORCE AND COPIES OF AGREEMENTS ENTERED INTO WERE ALSO NOT DISCLOSED. SUCH TRANSACT IONS REQUIRE APPROVAL OF SEBI/RBI AND THE SAME HAS NOT BEEN EXAMINED BY THE AO. LD. CIT FOLLOWING THE PRINCIPLES LAID DOWN BY VARIOUS HIGH COURTS/SUP REME COURT OBSERVED THAT THE ASSESSMENT SO FRAMED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE, SET ASIDE THE ASSESSMENT ORDE R WITH A DIRECTION TO REDO THE ASSESSMENT ON THE SPECIFIC ISSUES HIGHLIGHTED I N THE ORDER U/S.263 OF THE ACT. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFOR E US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD.A.R SUBMITTE THAT AT THE TIME OF ASSESSMENT PROCEEDINGS, THE AO ISSUED A QUESTIONNAIRE VIDE LETTER DATED 26.06.2013 WHEREIN THE AO ASKED VARIOUS QUERIES AND THIS WAS DULY REPLIED BY THE AS SESSEE ON 03.10.2013 AND ITA NO.112/16 :- 7 -: THE AO PASSED THE ORDER AFTER ADEQUATE ENQUIRY, EVE N IF THERE IS INADEQUATE ENQUIRY, THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE CIT TO ASSUME JURISDICTION U/S.263 OF THE ACT, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER. ACCORDING TO LD.A.R, LD. CIT CAN DO TH IS ONLY WHEN THERE IS A LACK OF ENQUIRY BY THE AO. ACCORDING TO LD.A.R, IN THE PRESENT CASE THE ASSESSMENT ORDER MAY NOT BE A DETAILED ONE AND THE AO HAS NOT PUT ALL THE DETAILS OF ENQUIRY CAUSED AND HE PASSED A SHORT ORD ER, THAT ITSELF CANNOT BE A REASON FOR ASSUMING JURISDICTION U/S.263 OF THE ACT . FURTHER, HE CONTENDED THAT ON PERUSAL OF THE RECORD, CIT WAS OF THE OPINI ON THAT ASSESSMENT WAS MADE AT LOWER SIDE AND HAD IT LEFT TO THE COMMISSON ER, HE WOULD HAVE ASSESSED THE INCOME AT A HIGHER FIGURE, THEN THE ON E DETERMINED BY THE AO THAT WOULD NOT LEAD TO THE COMMISSIONER WITH A POWE R TO REVISE THE ASSESSMENT, AS THE AO HAS EXERCISED QUASI JURIDICAL POWER VESTED IN HIM. ACCORDING TO HIM, THE LD. ASSESSING OFFICER ARRIVE D AT A CONCLUSION, WHICH CANNOT BE DEEMED AS ERRONEOUS. SIMPLY BECAUSE THE C IT DOES NOT STILL SATISFY WITH THE CONCLUSION REACHED BY THE AO. ACC ORIDNG TO THE LD.A.R ASSESSEE HAD GIVEN A DETAILED EXPLANATION ON THE IS SUE DEALT BY THE CIT BEFORE THE AO AND AFTER DUE EXAMINATION, THE CLAIM OF ASSESSEE WAS ALLOWED BY THE ASSESSEE AND HE HAS SATISFIED WITH THE EXPLA NATION OFFERED BY THE ASSESSEE. SUCH DECISION OF THE AO CANNOT BE HELD TO ERRONEOUS SIMPLY BECAUSE IN HIS ORDER DID NOT MAKE AN ELABORATE DISC USSION IN THAT CATEGORY. FURHTER, HE SUBMITTED THAT IF THE ASSESSEE COMPLET ED THE CONSTRUCTION OF NEW HOUSE WITHIN THE FIXED PERIOD OF THREE YEARS, F ROM THE DATE OF TRANSFER OF THE ORIGINAL CAPITAL ASSET, THE EXEMPTION U/S.54 F TO BE GIVEN AND CAPITAL ITA NO.112/16 :- 8 -: GAINS HAD TO BE CHARGED IN THE PREVIOUS YEAR AFTER THE EXPIRY OF THREE YEARS FROM THE DATE OF TRANSFER OF CAPITAL ASSET. FOR THI S PURPOSE, HE RELIED ON THE ORDER OF VISAKHAPATNAM TRIBUNAL IN THE CASE OF VEGE SINA KAMALA VS. ITO (157 ITD 457)( VISAKHAPATNAM). HE ALSO RELIED ON TH E JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. REPORTED IN [2011] 332 ITR 167(DELHI) . 4.1 IN OUR OPINION, THE ORDER PASSED BY THE AO IN THIS CASE IS VERY CRYPTIC. THE AO BEING A QUASI JUDICIAL AUTHORITY CANNOT TAKE A VIEW, EITHER AGAINST OR IN FAVOUR OF ASSESSEE /REVENUE, WITHOUT MAKING PROP ER ENQUIRY AND WITHOUT PROPER EXAMINATION OF THE CLAIM MADE BY THE ASSESSE E IN THE LIGHT OF FACTS ON RECORD. THE COMMISSIONER HAS EMPOWERED TO INITIA TE THE SUO MOTO PROCEEDINGS U/S.263 OF THE ACT EITHER WHEN THE AO T AKES A WRONG DECISION WITHOUT CONSIDERING THE MATERIAL AVAILABLE ON RECO RD OR HE TAKES A DECISION WITHOUT MAKING AN ENQUIRY INTO MATTER WHERE SUCH E NQUIRY WAS PRIMA FACIE WARRANTED. IN OUR OPINION, ARBITRARINESS IN DECISIO N MAKING WOULD ALWAYS NEED CORRECTION REGARDLESS OF WHETHER IT CAUSES PRE JUDICES TO THE ASSESSEE OR THE REVENUE. 4.2 THE SCHEME OF THE IT ACT IS TO LEVY AND COLLEC T TAX IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO ERRONEOUS ORDER OF THE ASSES SING OFFICER, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. AS HELD IN THE CASE OF MALABAR INDUSTRIES CO. LTD., (243 ITR 82(SC)), THE COMMISSIONER CAN ITA NO.112/16 :- 9 -: EXERCISE REVISION JURISDICTIONAL U/S 263 IF HE IS S ATISFIED THAT THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS (I )ERRONEOUS; AND ALSO (II) PREJUDICIAL TO THE INTERESTS OF THE REVENUE. T HE WORD 'ERRONEOUS' HAS NOT BEEN DEFINED IN THE INCOME TAX ACT. IT HAS BEEN HOWEVER DEFINED AT PAGE 562 IN BLACK'S LAW DICTIONARY (SEVE NTH EDITION) THUS'; 'ERRONEOUS, ADJ. INVOLVING ERROR, DEVIATING FROM TH E LAW'. 4.2.1 THE WORD 'ERROR' HAS BEEN DEFINED AT THE SAM E PAGE IN THE SAME DICTIONARY THUS: 'ERROR NO. 1 : A PSYCHOLOGICAL STATE THAT DOES NOT CONFORM TO OBJECTIVE REALITY; A BRIEF THAT WHAT IS FALSE IS TRUE OR THAT WHAT IS TRUE IS FALSE'. AT PAGE 649/650 IN P. RAMANATHA AIYER'S LAW LEXICON REPRINT 2002, THE WORD 'ERROR' HAS BEEN DEFINED TO MEAN 'ERROR: A MISTAKEN JUDGEMENT OR DEVIATION FROM THE TRUTH IN MATTERS OF FACT, AND FROM THE LAW IN MATTERS OF JUDGEMENT 'ERR OR' IS A FAULT IN JUDGEMENT, OR IN THE PROCESS OR PROCEEDING TO JUDGE MENT OR IN THE EXECUTION UPON THE SAME, IN A COURT OF RECORD; WHIC H IN THE CIVIL LAW IS CALLED A NULLITYIE' (TERMES DE LA LEY). SOMETHING INCORRECTLY DONE THROUGH IGNORANCE OR INA DVERTENCE S.99 CPC AND S.215 CR.PC. 'ERROR, FAULT, ERROR RESPECTS THE ACT; FAULT RESPEC T THE AGENT, AN ERROR MAY LAY IN THE JUDGEMENT, OR IN THE CONDUCT, BUT A FAULT LIES IN THE WILL OR INTENTION.' ITA NO.112/16 :- 10 - : 4.2.2. AT PAGE 650 OF THE AFORESAID LAW LEXICON, T HE SCOPE OF ERROR, MISTAKE, BLUNDER, AND HALLUCINATION HAS BEEN EXPLAINED THUS: 'AN ERROR IS ANY DEVIATION FROM THE STANDARD OR COU RSE OF RIGHT, TRUTH, JUSTICE OR ACCURACY, WHICH IS NOT INTENTIONAL. A MI STAKE IS AN ERROR COMMITTED UNDER A MISAPPREHENSION OF MISCONCEPTION OF THE NATURE OF A CASE. AN ERROR MAY BE FROM THE ABSENCE OF KNOWLED GE, A MISTAKE IS FROM INSUFFICIENT OR FALSE OBSERVATION. BLUNDER IS A PRACTICAL ERROR OF A PECULIARLY GROSS OR AWKWARD KIND, COMMITTED THROUGH GLARING IGNORANCE, HEEDLESSNESS, OR AWKWARDNESS. AN ERROR M AY BE OVERLOOKED OR ATONED FOR, A MISTAKE MAY BE RECTIFIED, BUT THE SHAME OR RIDICULE WHICH IS OCCASIONED BY A BLUNDER, WHO CAN COUNTERAC T. STRICTLY SPEAKING, HALLUCINATION IS AN ILLUSION OF THE PERCE PTION, A PHANTASM OF THE IMAGINATION. THE ONE COMES OF DISORDERED VISION , THE OTHER OF DISCARDED IMAGINATION. IT IS EXTENDED IN MEDICAL SC IENCE TO MATTERS OF SENSATION, WHETHER THERE IS NO CORRESPONDING CAUSE TO PRODUCE IT. IN ITS ORDINARY USE IT DENOTES AN UNACCOUNTABLE ERROR IN JUDGEMENT OR FACT, ESPECIALLY IN ONE REMARKABLE OTHERWISE FOR AC CURATE INFORMATION AND RIGHT DECISION. IT IS EXCEPTIONAL ERROR OR MIST AKE IN THOSE OTHERWISE NOT LIKELY TO BE DECEIVED.' 4.3 IN ORDER TO ASCERTAIN WHETHER AN ORDER SOUGHT TO BE REVISED UNDER SECTION 263 IS ERRONEOUS, IT SHOULD BE SEEN W HETHER IT SUFFERS FROM ANY OF THE AFORESAID FORMS OF ERROR. IN OUR VI EW, AN ORDER SOUGHT ITA NO.112/16 :- 11 - : TO BE REVISED UNDER SECTION 263 WOULD BE ERRONEOUS AND FALL IN THE AFORESAID CATEGORY OF 'ERRORS' IF IT IS, INTER ALIA , BASED ON AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW OR NON- APPLICATION OF MIND TO SOMETHING WHICH WAS OBVIOUS AND REQUIRED APPLICATION OF MIND OR BASED ON NO OR INSUFFICIENT MATERIALS SO AS TO AFFECT THE MERITS OF THE CASE AND THEREBY CAUSE PRE JUDICE TO THE INTEREST OF THE REVENUE. 4.4 SECTION 263 OF THE INCOME-TAX ACT SEEKS TO RE MOVE THE PREJUDICE CAUSED TO THE REVENUE BY THE ERRONEOUS OR DER PASSED BY THE ASSESSING OFFICER. IT EMPOWERS THE COMMISSIONER TO INITIATE SUO MOTO PROCEEDINGS EITHER WHERE THE ASSESSING OFFICER TAKE S A WRONG DECISION WITHOUT CONSIDERING THE MATERIALS AVAILABLE ON RECO RD OR HE TAKES A DECISION WITHOUT MAKING AN ENQUIRY INTO THE MATTERS , WHERE SUCH INQUIRY WAS PRIMA FACIE WARRANTED. THE COMMISSIONER WILL BE WELL WITHIN HIS POWERS TO REGARD AN ORDER AS ERRONEOUS O N THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFF ICER SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE CLAIM M ADE BY THE ASSESSEE IN HIS RETURN. THE REASON IS OBVIOUS. UNLI KE THE CIVIL COURT WHICH IS NEUTRAL IN GIVING A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE IT, THE ROLE OF AN ASSESSING OFFICER UNDER T HE INCOME-TAX ACT IS NOT ONLY THAT OF AN ADJUDICATOR BUT ALSO OF AN INVE STIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN, WHICH IS AP PARENTLY IN ORDER BUT ITA NO.112/16 :- 12 - : CALLS FOR FURTHER ENQUIRY. HE MUST DISCHARGE BOTH T HE ROLES EFFECTIVELY. IN OTHER WORDS, HE MUST CARRY OUT INVESTIGATION WHE RE THE FACTS OF THE CASE SO REQUIRE AND ALSO DECIDE THE MATTER JUDICIOU SLY ON THE BASIS OF MATERIALS COLLECTED BY HIM AS ALSO THOSE PRODUCED B Y THE ASSESSEE BEFORE HIM. THE SCHEME OF ASSESSMENT HAS UNDERGONE RADICAL CHANGES IN RECENT YEARS. IT DESERVES TO BE NOTED THAT THE P RESENT ASSESSMENT WAS MADE UNDER SECTION 143(3) OF THE INCOME-TAX ACT . IN OTHER WORDS, THE ASSESSING OFFICER WAS STATUTORILY REQUIRED TO M AKE THE ASSESSMENT UNDER SECTION 143(3) AFTER SCRUTINY AND NOT IN A SU MMARY MANNER AS CONTEMPLATED BY SUB-SECTION (1) OF SECTION 143. BUL K OF THE RETURNS FILED BY THE ASSESSEES ACROSS THE COUNTRY IS ACCEPT ED BY THE DEPARTMENT UNDER SECTION 143(1) WITHOUT ANY SCRUTIN Y. ONLY A FEW CASES ARE PICKED UP FOR SCRUTINY. THE ASSESSING OFF ICER IS THEREFORE, REQUIRED TO ACT FAIRLY WHILE ACCEPTING OR REJECTING THE CLAIM OF THE ASSESSEE IN CASES OF SCRUTINY ASSESSMENTS. HE SHOUL D BE FAIR NOT ONLY TO THE ASSESSEE BUT ALSO TO THE PUBLIC EXCHEQUER. T HE ASSESSING OFFICER HAS GOT TO PROTECT, ON ONE HAND, THE INTEREST OF TH E ASSESSEE IN THE SENSE THAT HE IS NOT SUBJECTED TO ANY AMOUNT OF TAX IN EXCESS OF WHAT IS LEGITIMATELY DUE FROM HIM, AND ON THE OTHER HAND , HE HAS A DUTY TO PROTECT THE INTERESTS OF THE REVENUE AND TO SEE THA T NO ONE DODGED THE REVENUE AND ESCAPED WITHOUT PAYING THE LEGITIMATE T AX. THE ASSESSING OFFICER IS NOT EXPECTED TO PUT BLINKERS ON HIS EYES AND MECHANICALLY ITA NO.112/16 :- 13 - : ACCEPT WHAT THE ASSESSEE CLAIMS BEFORE HIM. IT IS H IS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED AND THE GENUINENESS O F THE CLAIMS MADE IN THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE S UCH AS TO PROVOKE INQUIRY. ARBITRARINESS IN EITHER ACCEPTING OR REJEC TING THE CLAIM HAS NO PLACE. THE ORDER PASSED BY THE ASSESSING OFFICER BE COMES ERRONEOUS BECAUSE AN ENQUIRY HAS NOT BEEN MADE OR GENUINENESS OF THE CLAIM HAS NOT BEEN EXAMINED WHERE THE INQUIRIES OUGHT TO HAVE BEEN MADE AND THE GENUINENESS OF THE CLAIM OUGHT TO HAVE BEEN EXAMINED AND NOT BECAUSE THERE IS ANYTHING WRONG WITH HIS ORDER IF ALL THE FACTS STATED OR CLAIM MADE THEREIN ARE ASSUMED TO BE CORR ECT. THE COMMISSIONER MAY CONSIDER AN ORDER OF THE ASSESSING OFFICER TO BE ERRONEOUS NOT ONLY WHEN IT CONTAINS SOME APPARENT E RROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT BUT ALSO WHE N IT IS A STEREO-TYPED ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS ST ATED IN HIS RETURN AND FAILS TO MAKE ENQUIRIES OR EXAMINE THE GENUINEN ESS OF THE CLAIM WHICH ARE CALLED FOR IN THE CIRCUMSTANCES OF THE CA SE. IN TAKING THE AFORESAID VIEW, WE ARE SUPPORTED BY THE DECISIONS O F THE HON'BLE SUPREME COURT IN RAMPYARI DEVI SARAOGI (SUPRA), SMT . TARA DEVI AGGARWAL V. CIT [1973] 88 ITR 323 (SC), AND MALABAR INDUSTRIAL CO. LTD'S (SUPRA). ITA NO.112/16 :- 14 - : 4.5. IN MALABAR INDUSTRIAL CO. LTD. CASE (SUPRA) T HE HON'BLE COURT HAS HELD AS UNDER: 'THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED B Y THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN I NCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BE ING ERRONEOUS. IN THE SAME CATEGORY FALL THE ORDERS PASSED WITHOUT APPLYI NG THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. 4.6 IN OUR HUMBLE VIEW, ARBITRARINESS IN DECISION -MAKING WOULD ALWAYS NEED CORRECTION REGARDLESS OF WHETHER IT CAU SES PREJUDICE TO AN ASSESSEE OR TO THE STATE EXCHEQUER. THE LEGISLATURE HAS TAKEN AMPLE CARE TO PROVIDE FOR THE MECHANISM TO HAVE SUCH PREJ UDICE REMOVED. WHILE AN ASSESSEE CAN HAVE IT CORRECTED THROUGH REV ISIONAL JURISDICTION OF THE COMMISSIONER UNDER SECTION 264 OR THROUGH AP PEALS AND OTHER MEANS OF JUDICIAL REVIEW, THE PREJUDICE CAUSED TO T HE STATE EXCHEQUER CAN ALSO BE CORRECTED BY INVOKING REVISIONAL JURISD ICTION OF THE COMMISSIONER UNDER SECTION 263. ARBITRARINESS IN DE CISION-MAKING CAUSING PREJUDICE TO EITHER PARTY CANNOT THEREFORE BE ALLOWED TO STAND AND STARE AT THE LEGAL SYSTEM. IT IS DIFFICULT TO C OUNTENANCE SUCH ARBITRARINESS IN THE ACTIONS OF THE ASSESSING OFFIC ER. IT IS THE DUTY OF ITA NO.112/16 :- 15 - : THE ASSESSING OFFICER TO ADEQUATELY PROTECT THE INT EREST OF BOTH THE PARTIES, NAMELY, THE ASSESSEE AS WELL AS THE STATE. IF HE FAILS TO DISCHARGE HIS DUTIES FAIRLY, HIS ARBITRARY ACTIONS CULMINATING IN ERRONEOUS ORDERS CAN ALWAYS BE CORRECTED EITHER AT THE INSTANCE OF THE ASSESSEE, IF THE ASSESSEE IS PREJUDICED OR AT THE I NSTANCE OF THE COMMISSIONER, IF THE REVENUE IS PREJUDICED. WHILE M AKING AN ASSESSMENT, THE ITO HAS A VARIED ROLE TO PLAY. HE I S THE INVESTIGATOR, PROSECUTOR AS WELL AS ADJUDICATOR. AS AN ADJUDICATO R HE IS AN ARBITRATOR BETWEEN THE REVENUE AND THE TAXPAYER AND HE HAS TO BE FAIR TO BOTH. HIS DUTY TO ACT FAIRLY REQUIRES THAT WHEN HE ENQUIR ES INTO A SUBSTANTIAL MATTER LIKE THE PRESENT ONE, HE MUST RECORD A FINDI NG ON THE RELEVANT ISSUE GIVING, HOWSOEVER BRIEFLY, HIS REASONS THEREF OR. IN S.N. MUKHERJEE V. UNION OF INDIA AIR 1990 SC 1984, IT HA S BEEN OBSERVED BY THE HON'BLE SUPREME COURT AS FOLLOWS: 'REASONS, WHEN RECORDED BY AN ADMINISTRATIVE AUTHOR ITY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDICIAL FUNCTIONS, WOULD NO DOUBT FACILITATE THE EXERCISE OF ITS JURISDICTIO N BY THE APPELLATE OR SUPERVISORY AUTHORITY. BUT THE OTHER CONSIDERATI ONS, REFERRED TO ABOVE, WHICH HAVE ALSO WEIGHED WITH THIS COURT I N HOLDING THAT AN ADMINISTRATIVE AUTHORITY MUST RECORD REASON S FOR ITS DECISION ARE OF NO LESS SIGNIFICANCE. THESE CONSIDE RATIONS SHOW THAT THE RECORDING OF REASONS BY AN ADMINISTRATIVE AUTHORITY SERVES A SALUTARY PURPOSE, NAMELY, IT EXCLUDES CHAN CES OR ARBITRARINESS AND ENSURES A DEGREE OF FAIRNESS IN T HE PROCESS OF DECISION-MAKING. THE SAID PURPOSE WOULD APPLY EQUAL LY TO ALL ITA NO.112/16 :- 16 - : DECISIONS AND ITS APPLICATION CANNOT BE CONFINED TO DECISIONS WHICH ARE SUBJECT TO APPEAL, REVISION OR JUDICIAL R EVIEW. IN OUR OPINION, THEREFORE, THE REQUIREMENT THAT REASONS BE RECORDED SHOULD GOVERN THE DECISIONS OF AN ADMINISTRATIVE AU THORITY EXERCISING QUASI-JUDICIAL FUNCTIONS IRRESPECTIVE OF THE FACT MAY, HOWEVER, BE ADDED THAT IT IS NOT REQUIRED THAT THE REASONS SHOULD BE AS ELABORATE AS IN THE DECISION OF A COURT OF LA W. THE EXTENT AND NATURE OF THE REASONS WOULD DEPEND ON PARTICULA R FACTS AND CIRCUMSTANCES. WHAT IS NECESSARY IS THAT THE REASON S ARE CLEAR AND EXPLICIT SO AS TO INDICATE THAT THE AUTHORITY H AS GIVEN DUE CONSIDERATION TO THE POINTS IN CONTROVERSY. THE NEE D FOR RECORDING OF REASONS IS GREATER IN A CASE WHERE THE ORDER IS PASSED AT THE ORIGINAL STAGE. THE APPELLATE OR REVI SIONAL AUTHORITY, IF IT AFFIRMS SUCH AN ORDER, NEED NOT GI VE SEPARATE REASONS IF THE APPELLATE OR REVISIONAL AUTHORITY AG REES WITH THE REASONS CONTAINED IN THE ORDER UNDER CHALLENGE.' 4.7 SIMILAR VIEW WAS EARLIER TAKEN BY THE HON'BLE SUPREME COURT IN SIEMENS ENGG. & MFG. CO. OF INDIA LTD. V. UNION OF INDIA AIR 1976 SC 1785. IT IS SETTLED LAW THAT WHILE MAKING ASSESS MENT ON ASSESSEE, THE ITO ACTS IN A QUASI-JUDICIAL CAPACITY. AN ASSES SMENT ORDER IS AMENABLE TO APPEAL BY THE ASSESSEE AND TO REVISION BY THE COMMISSIONER UNDER SECTIONS 263 AND 264. THEREFORE, A REASONED ORDER ON A SUBSTANTIAL ISSUE IS LEGALLY NECESSARY. THE JUDGMENTS ON WHICH RELIANCE WAS PLACED BY THE LEARNED COUNSEL FO R THE ASSESSEE ALSO POINTS TO THE SAME DIRECTION. THEY HAVE HELD THAT O RDERS, WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVENUE, MUST B E REGARDED AS ITA NO.112/16 :- 17 - : ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. IF THE ASSESSING OFFICERS ARE ALLOWED TO MAKE ASSESSMENTS IN AN ARBITRARY MANNER, AS HAS BEEN DONE IN THE CASE BEFORE US, THE ADMINISTRATION OF REVENUE IS BOUND TO SUFFER. IF WITHOUT DISCUSSING T HE NATURE OF THE TRANSACTION AND MATERIALS ON RECORD, THE ASSESSING OFFICER HAD MADE CERTAIN ADDITION TO THE INCOME OF THE ASSESSEE, THE SAME WOULD HAVE BEEN CONSIDERED ERRONEOUS BY ANY APPELLATE AUTHORIT Y AS BEING VIOLATIVE OF THE PRINCIPLES OF NATURAL JUSTICE WHIC H REQUIRE THAT THE AUTHORITY MUST INDICATE THE REASONS FOR AN ADVERSE ORDER. WE FIND NO REASON WHY THE SAME VIEW SHOULD NOT BE TAKEN WHEN A N ORDER IS AGAINST THE INTERESTS OF THE REVENUE. AS A MATTER O F FACT SUCH ORDERS ARE PREJUDICIAL TO THE INTERESTS OF BOTH THE PARTIE S, BECAUSE EVEN THE ASSESSEE IS DEPRIVED OF THE BENEFIT OF A POSITIVE F INDING IN HIS FAVOUR, THOUGH HE MAY HAVE SUFFICIENTLY ESTABLISHED HIS CAS E. 5. IN VIEW OF THE FOREGOING, IT CAN SAFELY BE SAID THAT AN ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS AND PREJ UDICIAL TO THE INTERESTS OF THE REVENUE UNDER SECTION 263 IN THE F OLLOWING CASES: (I) THE ORDER SOUGHT TO BE REVISED CONTAINS ERROR O F REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. (II) THE ORDER SOUGHT TO BE REVISED PROCEEDS ON INC ORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW. IN THE SA ME CATEGORY FALL ORDERS ITA NO.112/16 :- 18 - : PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL J USTICE OR WITHOUT APPLICATION OF MIND. (III) THE ORDER PASSED BY THE ASSESSING OFFICER IS A STEREOTYPE ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED I N HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQUIRIES OR E XAMINE THE GENUINENESS OF THE CLAIM WHICH IS CALLED FOR IN THE CIRCUMSTANCES OF THE CASE AND ASSUME JURISDICTION U/S.263 BY THE CIT IS JUSTIFIED. 6. NOW, COMING TO THE FACTS OF THE PRESENT CASE, T HE CLAIM OF ASSESSEE REGARDING THE CONSIDERATION RECEIVED ON SA LE OF SHARES WAS ACCEPTED BY THE AO. THE AO NEITHER ENQUIRED NOR AP PLIED HIS MIND TO THE NOTIFICATION APPLICABILITY ON SALE OF SHARES O F RESIDENT TO NON- RESIDENT. THE GUIDELINES CONTAINED IN NOTIFICATION ISSUED BY THE RBI WAS NOT AT ALL SEEN TO SAY WHETHER IT IS APPLICABLE OR NOT. AS PER THE NOTIFICATION, SHARES OF AN INDIAN COMPANIES ARE NOT LISTED ON A RECOGNIZED STOCK EXCHANGE IN INDIA, THE TRANSFER OF SHARES SHALL BE AT A PRICE NOT LESS THAN THE FAIR VALUE TO BE DETERMINED BY A SEBI REGISTERED CATEGORY-1- MERCHANT BANKER OR A CHARTERED ACCOUNTA NT AS EPR THE DISCOUNTED FREE CASH FLOW METHOD. FURTHER, THE CLAI M OF ASSESSEE REGARDING GRANTING OF EXEMPTION U/S.54F ALSO AND WA S ALSO NOT EXAMINED BY THE AO. IT IS ALSO TO BE NOTED THAT APP LICABILITY OF PROVISIONS REGARDING S.54F, NO ENQUIRY AS TO WHETHE R THIS AMOUNT WAS ITA NO.112/16 :- 19 - : PROPERLY DEPOSITED IN CAPITAL GAINS SCHEME OR NOT, WHETHER THE CONDITION LAID DOWN IN SEC.54F WAS COMPLIED WITH OR NOT SEEN BY THE AO. IN VIEW OF THIS, THE CIT BY INVOKING THE PROVIS IONS OF THE SECTION 263 OF THE ACT, DIRECTED THE AO TO EXAMINE THE ISSU E RAISED BY HIM IN HIS ORDER AFRESH AND DECIDE IN ACCORDANCE WITH LAW. IN THIS FINDING OF THE CIT, WE DO NOT FIND ANY INFIRMITY AND HE ACTION OF LD. CIT IS CONFIRMED. HENCE, THE AO WOULD EXAMINE THE ISSUE R AISED BY THE LD. CIT IN HIS ORDER U/S.263 AND DECIDE THE ISSUE IN AC CORDANCE WITH LAW. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED ON 17 TH FEBRUARY, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) & / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 17 TH FEBRUARY, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF