Sri. Shailesh Laxmichand Chheda Shah, Vijayapura V. The Principal Commissioner Of Income Tax, Hubballi

ITA 279/BANG/2023

AI Insights

The case involves an appeal by Shri Shailesh Laxmichand Chheda Shah against the order of the Principal Commissioner of Income Tax, Hubballi, which set aside the original assessment order for the Assessment Year 2016-17. The PCIT's order under Section 263 of the Income Tax Act was based on the grounds that the original assessment was erroneous and prejudicial to the interests of the revenue, as the sources of the assessee's investments in securities were not adequately verified by the Assessing Officer. The Tribunal examined the submissions and evidence presented by both the assessee and the revenue, and upheld the PCIT's order, emphasizing the need for thorough verification of the sources of investments.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124302 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-05-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 04-04-2023
• Other Referred Cases: Malabar Industrial Co. Ltd. vs. CIT, Gabriel India Ltd. vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: NIMESH KESARIMAL
• Keywords: Gift; Principle of natural justice; Transactions in derivatives; Speculation loss; Difference of opinion; Revenue expenditure
• Section: 263; 142(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 279/Bang/2023 Assessment Year : 2016-17 Shri Shailesh Laxmichand Chheda Shah, Plot No. 27, Laxmi- Leela Ashraya, Desai Layout, Station Road, Vijayapura – 586 101. PAN: AGLPC8728J Vs. The Principal Commissioner of Income Tax, Hubballi. APPELLANT RESPONDENT Assessee by : Shri Nimesh Kesarimal, CA Revenue by : Shri D.K. Mishra, CIT DR Date of Hearing : 29-05-2023 Date of Pronouncement : 06-06-2023 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the order dated 20.02.2023 passed by Ld.Pr.CIT, Hubli for A.Y. 2016-17 on following grounds of appeal: “Without prejudice to each other, 1. The order of the learned Principal Commissioner of Income tax, Hubballi passed under Section 263 of the Act in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case. Page 2 ITA No. 279/Bang/2023 2. The learned Principal Commissioner of Income tax is not justified in setting aside the assessment order dated 21/11/2018 and direct the assessing officer to make a de novo assessment as per specific directions of the Pr. CIT which amounts to fishing and roving enquires on the facts and circumstance of the case. 3. The learned Principal Commissioner of Income tax was not justified in passing an order under section 263 of the Act, as the order passed under section 143[3] of the Act, was pursuant to through enquiry conducted by the learned assessing officer in the regular assessment proceedings on the facts and circumstances of the case. 4. The learned Principal Commissioner of Income tax has grossly erred in revising the order passed by the learned Assessing officer without appreciating that there is no error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the learned PCIT is ultra vires to the scope of Section 263 and requires to be cancelled under the facts and circumstances of the Appellant's case. The direction to make thorough verification amounts to ordering fishing and roving enquires without any material in support thereof and consequently the impugned order passed is bad in law and is liable to be cancelled. 5. The learned Principal Commissioner of Income tax failed to appreciate that the Assessing Officer before completing the assessment order under section 143[3] of the Act on 21/11/2018 had made detailed enquiries and merely due to difference in opinion as to how assessment should have been conducted, no action can be taken under section 263 of the Act as the action of the Assessing Officer is in accordance with law on the facts and circumstances of the case. 6. The Appellant craves leave of this Hon'ble Tribunal to add, alter, substitute and delete any or all of the grounds of appeal urged above. 7. For the above and other grounds to be urged during the hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.” 2. Brief facts of the case are as under: 2.1 Assessee filed its return of income for year under consideration on 09.07.2016 declaring total income of Rs.2,46,150/-. The Ld.AO mentioned in the assessment order that the, assessment was selected for limited scrutiny for Page 3 ITA No. 279/Bang/2023 verification of investment and income relating to securities (derivatives transaction). Accordingly notice u/s. 142(1) was issued to assessee on 26.10.2018. Subsequently, another notice was issued u/s. 142(1) dated 12.11.2018 that reads as under: 2.2 Thereafter the Ld.AO passed the assessment order by observing as under: 3. The assessee is not engaged in any type of business. He has traded in future and options in the share market. During the year under consideration, the assessee has shown a capital Page 4 ITA No. 279/Bang/2023 loss from shares at Rs. 2,72,8671-. The income from salary at Rs.3,00,000/- and income from other source at Rs. 2,66,437/-. Further, he has also shown speculation loss of Rs. 18,58,337/-. In the consolidated P&L account the net loss is shown at Rs.25,53,719/-. The assessee submitted a copy of bank account and account of trading in shares of various brokers. The funds are routed through the saving bank of the assessee maintained at Axis bank. The assessee has filed account extract in respect of all the transactions. 4. Subject to the above remarks, the returned income filed by the assessee is accepted. The computation as under: Returned Income Rs. 2,46,150/- Assessed Income Rs. 2,46,150/- Loss carried forward Rs. 25,60,150/- Demand Rs. Nil/- 2.3 The Ld.AO accepted the returned income filed by the assessee. Subsequently, the Ld.PCIT, Hubli issued notice u/s. 263 for following reasons. Page 5 ITA No. 279/Bang/2023 Page 6 ITA No. 279/Bang/2023 Page 7 ITA No. 279/Bang/2023 2.4 The Ld.PCIT was of the opinion that the sources of investments made by the assessee has not been verified by the Ld.AO during these scrutiny assessment. It is the observation of the Ld.PCIT that, no notice has been issued in respect of the same and calling for various details to verify the sources of investments as stated by the assessee. The Ld.PCIT thus observed and held as under: “8. The submissions of the assessee have been considered. On verification, the following discrepancies have been noticed in the aforesaid submissions: 8.1 Although the assessee averred that he had submitted the bank statements vide enclosure -12 of his reply but due to typographical error, it was mentioned as enclosure- 15, but the fact remains that the same could not be verified thoroughly by the then assessing officer. The subsequent paras 9.3 and 9.4 depict the failure on the part of the AO in verification of bank statements. 8.2 As regards assessee's explanation that family expenses and other personal expenses are being met out of drawings made by assessee's wife. Mrs. Sangeeta Shailesh Chheda from her business firm M/s. Heera Cotton Co. for current year, it is observed that the assessee has not furnished any documentary evidence establishing that the sources of investment were out of the accumulated salary income of all the previous years. Page 8 ITA No. 279/Bang/2023 Therefore, in absence of any documentary evidence, the sources of the investment remain unexplained. 8.3 The assessee stated that he has taken unsecured loan of Rs.4,00,000/- and repaid Rs.12,30,000/- resulting in net payment of Rs.8,30,000/-. The assessee, on the issue of source of repayment, stated that he had opening cash balance of Rs.8,12,500/- as on 01.04.2015 which was deposited into his bank account and this was used to repay the amount to the Heera Cotton Co. The assessee, however, failed to provide copy of cash book & bank book to prove that cash had indeed been deposited in his bank account and thereafter utilized for making payment to the above lender. Moreover, in absence of ledger and confirmation of accounts, the unsecured loan amounting to Rs.4.00.000/- claimed to have been taken by the assessee also remains unexplained. Further, while the assessee stated that he had earned commission income of Rs.2,64,000/- (in cash) and the same was deposited in bank account for repayment of loan, however, the assessee failed to provide any documentary evidence in respect of the same. In absence of the supporting documents, the source of repayment as stated by the assessee cannot be considered as explained. The AO is directed to verify the genuineness of the same. 8.4 In regard to gift of Rs.11,32,000/- from his mother, the assessee has provided copy of bank statement of his mother. On perusal of the bank statement, it is noticed that various amounts totalling Rs.11,32,000/- have been paid to the assessee. It is, however, seen that the assessee's mother had deposited Rs.1,50,000/- in cash in her bank account on 19.12.2015 and the same was transferred to the assessee on the same date, the source of which are unexplained. It is also noticed that assessee's mother had received amounts totalling to Rs.16,61,500/- on various dates from Heera Cotton Co. which is a proprietary concern of assessee's wife. These funds were thereafter immediately transferred to the account of the assessee. The assessee has not provided copy of gift deed and ITR to prove the creditworthiness & genuineness of the transactions with his mother. It has not been verified whether the mother of the assessee possessed the means to gift Rs.11,32,000/- to her son or whether it was the unexplained money of the son that had been given to the Page 9 ITA No. 279/Bang/2023 mother to be routed back to the assessee in the form of gift(s) from the mother. Hence, the source & genuineness of gift of Rs.11,32,000/- remains unexplained and the frequent transactions of money between asessee's mother account, the account of M/s. Heera Cotton i.e. wife of assessee and the assessee's account needs to be verified. 8.5. In regard to loans of Rs.10,78,000/-, the assessee has furnished confirmations from the parties. However, the creditworthiness and genuineness of the transactions keeping in view the financial status of the parties remains unverified. 9. In view of the above factual position, I am of the view that the above issues need further verification on the part of the AO and the order is erroneous in so far as it is prejudicial to the interest of revenue. Therefore, the assessment order dated 21.11.2018 passed by the erstwhile ACIT, Circle-1, Vijayapura is set aside under section 263 of the IT Act, 1961 on the points discussed above with a direction to the AO to decide the case on merits after giving opportunity of being heard to the assessee.” 2.5 Aggrieved by the order of Ld.PCIT, the assessee is in appeal before this Tribunal. 3. The Ld.AR vehemently submitted that various details were filed before the Ld.AO on 27.06.2018 and 14.09.2018. It is also submitted by the Ld.AR that, reply was also filed on 14.11.2017 which is placed in the file at pages 57-58. The Ld.AR emphasised that, all the details that were called for by the Ld.AO during the assessment proceedings has been filed before the Ld.AO. He also referred to the notice issued on 07.07.2017, wherein specific query was raised that reads as under: Page 10 ITA No. 279/Bang/2023 3.1 He thus submitted that all the details required for completing the limited scrutiny by the Ld.AO were filed by the assessee. On a query being raised by this bench regarding any further enquiries carried out by the Ld.AO by issuing any further notices to the assessee, the Ld.AR submitted that all the notices issued to assessee dated 07.07.2017, 27.06.2018, 14.09.2018 and 12.11.2018 has been responded by the assessee by filing the Page 11 ITA No. 279/Bang/2023 relevant details. He submitted that thereafter the assessment order was passed on the even date accepting the return of income filed by the assessee. 3.2 The Ld.AR relied on the replies that has been e-filed on 14.11.2017, 05.07.2018, 14.11.2018 and 16.11.2018 at pages 144-152 and 157-158. He submitted that the Ld.PCIT was prima facie wrong to invoke the provisions of section 263 in the present case. He thus submitted that the assessing officer after verifying each source of investment passed the assessment order, and therefore revisionary proceedings initiated by the Ld.PCIT is bad in law. 3.3 On the contrary, the Ld.DR contends that, the Ld.AO while passing the original assessment order had not applied his mind and no verification has been carried out during the assessment proceedings. He sought recourse to Explanation 2 to (c) of section 263 in support of this contention. 3.4 The Ld.DR submitted that, the issue considered by the Ld.PCIT in 263 proceedings has not been verified by the Ld.AO while passing the assessment order dated 21/11/2018. He submitted that non-verification of the issue would lead to the assessment order being erroneous insofar as prejudicial to the interest of revenue. He thus supported the order passed by the Ld.PCIT. The Ld.DR also placed reliance on the decision of Hon’ble Supreme Court in case of Malabar Industrial Co. Ltd. vs. CIT reported in 243 ITR 83 in support of his submissions. We have perused the submissions advanced by both sides in the light of records placed before us. Page 12 ITA No. 279/Bang/2023 4. We note that the Ld.AO during the assessment proceedings had only called for information regarding investment made by the assessee in securities transactions / derivatives transaction. The notice dated 07.07.2017 is very clear on this. However, the Ld.AO has not verified the sources of such investments. The Ld.AO did not conduct enquiry based on the return filed in lieu of the notices issued post search action. We note that the assessing officer has not verified into the details and examined the documents filed by the assessee. 4.1 Provisions of section 263 can be invoked if the assessment order so passed by the Ld.AO is erroneous and insofar as prejudicial to the interest of the revenue. This view must be based on the materials on record of the proceedings before the Ld.PCIT. Admittedly, in the present facts of the case, assessee filed details that was called for, however no verification has been made by the Ld.AO based on the details / documents filed by the assessee. 4.2 The Ld.PCIT has alleged for lack of enquiry by the Ld.AO in the scrutiny proceedings. From the documents and evidences filed by the assessee before this Tribunal, we also note that apart from the notices issued u/s. 142(1) mentioned hereinabove, calling for various details, no other verification has been carried out by the Ld.AO. 4.3 In Malabar Industrial Co. Ltd. vs. CIT reported in 243 ITR 83, the Hon'ble Supreme Court held that the revision jurisdiction under section 263 of the IT Act cannot be invoked to correct each and every type of mistake or error committed by the Ld.AO. It is only when an order is erroneous that the section will be Page 13 ITA No. 279/Bang/2023 attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. Further, where the Ld.AO adopts one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Ld.AO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Ld.AO is unsustainable in law. 4.4 Hon'ble Supreme Court in Malabar Industrial Co. Ltd. (supra), noted that, the Ld.AO passed the order of nil assessment without application of mind. Hon’ble Court also recorded a finding that the Ld.AO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. The Ld.AO in Malabar Industrial Co. Ltd. (supra), accepted an entry in the statement of the account filed by the assessee therein, in the absence of any supporting material and without making any inquiry. Hon'ble Supreme Court, then held that on such facts, the conclusion that the order of the Ld.AO was erroneous was irresistible. 4.5 This decision, according to us, assists the case of the Revenue, since, in the present case, there was no inquiry by the Ld.AO on the investments made by the assessee and its source. The mere seeking of information but thereafter, not even looking into the same is not the same thing as inquiring into the matter. Further, the Ld.AO has to consider the information so furnished Page 14 ITA No. 279/Bang/2023 and after applying the mind, arrive at a decision one way or the other on the issue before him. 4.6 In Gabriel India Ltd. reported in (1993) 71 Taxman 585, Hon’ble Bombay High Court held that, the decision of the Ld.AO cannot be regarded as erroneous simply because the Ld.AO did not make an elaborate discussion in the order. In the present facts of the case as noted earlier, there is no discussion whatsoever, much less any inadequate discussion. Moreover, in Gabriel India Ltd. (supra), the Ld.P.CIT after initiating proceedings for revision, could not himself say that the allowance of the claim of the assessee therein, was erroneous and that the expenditure was not revenue expenditure, but an expenditure of capital nature. It is in these circumstances that the exercise of revision jurisdiction was interfered with by this Court. 4.7 In our view, none of the above cases support the assessee in the present facts and circumstances. As per para 3 of the notice dated 12.11.2018, not only the securities transactions, but also the investment in securities transactions were the subject matter of scrutiny. The assessee submitted before the authorities that, the sources of investments were:- a) Savings out of accumulated salary income of all previous years b) Unsecured loans outstanding of Rs.12,31,061/- from employer M/s. Heera Cotton Co. c) Unsecured loans of Rs.10,78,000/- obtained from parties. d) Gift received from mother of Rs.11,32,000/- Page 15 ITA No. 279/Bang/2023 As, these are the source of investments by assessee in securities transactions, we agree with the Ld.PCIT that this is a fit case of no enquiry and the provisions of section 263 has been invoked. 4.8 Respectfully following the ratio laid down by Hon’ble Supreme Court in case of Malabar Industries (supra), we do not find any error in the revisionary proceedings initiated in the present facts of the case and the same is upheld. However the Ld.AO is directed to consider the issue having regards to the evidences filed by the assessee. The assessee is thus directed to file all the details / evidences in support of its contention which shall be verified by the Ld.AO by granting proper opportunity of being heard in accordance with law. Accordingly, the grounds raised by the assessee stands dismissed. In the result, the appeal filed by the assessee stands dismissed. Order pronounced in open court on 06 th June, 2023. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 06 th June, 2023. /MS / Page 16 ITA No. 279/Bang/2023 Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore