Shanker Tradex Pvt. Ltd., Delhi V. Pr. CIT- 8, New Delhi

ITA 2999/DEL/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5519 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2007-2008
• Appeal Filed On: 15-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: RAM AVTAR BANSAL
• Keywords: Unexplained cash credit; Opportunity of being heard; Difference of opinion; Accommodation entries; Procedural lapse; Change of opinion
• Section: 143(3); 133(6); 147; 131; 148; 263; 63; 139

Judgement Text

1 ITA NO. 2999/DEL/2017 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI MS SUCHITRA KAMBLE, JUDICIAL MEMBER AND SH. PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 2999/DEL/201 7 ( A.Y 2007-08) SHANKER TRADEX PVT. LTD. 3552, 105-106, RAVI RAJ MARKET, CHAWRI BAZAR DELHI AAICS8635G (APPELLANT) VS PR. CIT - 8 ROOM NO. 397, C. R. BUILDING, I. P. ESTATE NEW DELHI (RESPONDENT) APPELLANT BY SMT. PREM LATA BANSAL, SR. ADVOCATE & SH. RAM AVTAR BANSAL, ADV RESPONDENT BY SH. S. S. RANA, CIT DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 23/03/2017 PASSED BY PR. CIT-8, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT THE LD. PR. CIT HAS ERRED IN INVOKING THE PROV ISIONS OF SECTION 263 OF THE INCOME TAX ACT ON THE GROUND THAT THE RE-ASSESS MENT ORDER PASSED BY THE ASSESSING OFFICER FOR AY 2007-08 IS NOT ONLY PREJUD ICIAL TO THE INTEREST OF REVENUE BUT IS ALSO ERRONEOUS IN SO FAR AS THE ASSE SSING OFFICER HAS FAILED TO LOOK INTO THE SEIZED MATERIAL. 2. THAT THE APPRAISAL REPORT, ON THE BASIS OF WHICH ASSESSING OFFICER HAD INITIATED THE PROCEEDING U/S 147 OF THE ACT, WAS PR EPARED ONLY ON THE BASIS OF SEIZED MATERIAL. THEREFORE, THE LD. CIT HAD ERRED I N OBSERVING THAT THE DATE OF HEARING 08.03.2018 DATE OF PRONOUNCEMENT 16.04.2018 2 ITA NO. 2999/DEL/2017 ASSESSING OFFICER HAD NOT LOOKED INTO THE SEIZED MA TERIAL AND THEREFORE, THE PROVISIONS OF SECTION 263 ARE OF THE ACT ARE ATTRAC TED. 3. THAT THE LD. PR. CIT HAS ERRED IN INVOKING THE P ROVISIONS OF SECTION 263 OF THE ACT IN THE PRESENT CASE ON THE GROUND THAT NO P ROPER INQUIRY WAS MADE BY THE ASSESSING OFFICER DURING THE PROCEEDING U/S 147 OF THE ACT WHEREAS THE EXTENSIVE INQUIRY HAD BEEN MADE BY THE ASSESSING OF FICER. 4. THAT THE LD. PR. CIT HAS NOT CONSIDERED THAT INA DEQUATE INQUIRY DOES NOT AMOUNT TO LACK OF INQUIRY SO AS TO ATTRACT THE PROV ISIONS OF SECTION 263 OF THE INCOME TAX ACT IN VIEW OF EVEN NEWLY INSERTED PROVI SIONS OF EXPLANATION 2 TO SECTION 263 OF THE ACT. 5. THAT THE LD. PR. CIT HIMSELF HAD NOT EXAMINED AS TO WHETHER THERE WAS ANY NEXUS BETWEEN THE CASH DEPOSITED & CHEQUES ISSU ED TO THE ASSESSEE SO AS TO MAKE THE ORDER PASSED BY THE ASSESSING OFFICE R ERRONEOUS WITHIN THE AMBIT OF SECTION 263; HENCE THE DIRECTIONS GIVEN BY THE PR. CIT TO FRAME THE FRESH ASSESSMENT IS CONTRARY TO LAW. 6. THAT THE ORDER PASSED BY THE LD. PR. CIT IS NOT SUSTAINABLE IN LAW AS IT AMOUNTS TO CHANGE OF OPINION. 7. THAT THE LD. PR. CIT HAS ERRED IN INVOKING THE P OWERS U/S 263 OF THE ACT ON THE BASIS OF DIARY FOUND FROM THE POSSESSION OF SHR I S K JAIN WHEN IT IS TIME AND AGAIN HELD BY VARIOUS COURTS INCLUDING THE SUPR EME COURT IN CBI VS V C SHUKLA (1998) 3 SCC 410 THAT THE ENTRIES RECORDED I N JAIN DIARY WERE NOT ADMISSIBLE IN EVIDENCE. 8. THAT THE LD. PR. CIT HAS ERRED IN HOLDING THAT T HE JUDGEMENT OF SUPREME COURT IN THE CASE OF SAHARA INDIA I.E. COMMON CAUSE VS UNION OF INDIA IS NOT APPLICABLE TO THE FACTS OF PRESENT CASE. 9. THAT THE ORDER PASSED BY LD. PR. CIT U/S 263 OF THE ACT IS BAD IN LAW AS NO SUFFICIENT OPPORTUNITY HAS BEEN AFFORDED TO THE ASS ESSEE TO DEFEND HIS CASE PARTICULARLY WHEN THE ASSESSEE HAD REQUESTED FOR TH E PERSONAL HEARING. 10. THAT THE PROCEEDING AND THE ORDER PASSED BY THE LD. PR. CIT U/S 263 IS PERVERSE AS IT IS BASED ON GENERAL OBSERVATION AND NOT SPECIFIC TO THE FACTS OF THE CASE. 11. THAT THE LD. PR. CIT HAS PASSED THE ORDER U/S 2 63 OF THE ACT ON SURMISES AND CONJECTURES AND THEREFORE IS LIABLE TO BE SET A SIDE. 3 ITA NO. 2999/DEL/2017 12. THAT THE APPELLANT SEEKS LEAVE TO ADD, AMEND, A LTER, ABANDON OR SUBSTITUTE ANY OF THE ABOVE GROUNDS DURING THE HEAR ING OF THE APPEAL. 3. THE RETURN OF INCOME DECLARING INCOME OF RS.21,6 00/- WAS FILED ON 19.10.2007. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961. THE CASE WAS REOPENED U/S 148 WITH THE PRIOR APPROV AL OF THE CIT AND NOTICE U/S 148 DATED 25.03.2014 WAS ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE VIDE LETTER DATED 09.06.2014 REQUESTED TO TREAT THE RETURN ALREADY FILED U/S 139 (1) BE TREATED AS FILED IN RESPONSE T O NOTICE U/S 148. THE REASONS RECORDED IN THE CASE WERE PROVIDED TO THE ASSESSEE. SUBSEQUENTLY, NOTICE U/S 143(2)/142(1) WERE ISSUE AND SERVED UPON THE ASSESS EE. IN RESPONSE, THE CHARTERED ACCOUNTANT AND AUTHORIZED REPRESENTATIVE OF ASSESSEE ATTENDED ASSESSMENT PROCEEDINGS FROM TIME TO TIME AND FURNIS HED THE DETAILS. THE ASSESSING OFFICER EXAMINED THE SAME AS MENTIONED IN THE ASSESSMENT ORDER DATED 31.03.2015 AND ACCEPTED THE RETURNED INCOME O F THE ASSESSEE AT RS.21,600/-. DURING THE COURSE OF THE REVIEW OF AS SESSMENT WORK OF SOME OF THE CHARGES, THE PRINCIPLE CIT-8, NEW DELHI, NOTICE D THAT THOUGH THE ASSESSMENT WAS REOPENED UNDER SECTION 148 OF THE IN COME TAX ACT ON THE ALLEGATION OF ACCOMMODATION ENTRY TAKEN FROM S K JA IN GROUP OF CONCERNS WHO WERE SEARCHED ON 14.09.2010 BY THE INVESTIGATION WI NG OF THE INCOME TAX DEPARTMENT, SOME OF THE ASSESSING OFFICERS DID NOT EXAMINE THE SEIZED MATERIAL IN THE FORM OF CASH BOOK AND THE BOOKS CONTAINING T HE DETAILS OF CHEQUES ISSUED BY SUCH CONCERNS SEIZED FROM THE PREMISES OF SHRI S K JAIN DURING THE COURSE OF SEARCH. A SHOW CAUSE NOTICE UNDER SECTION 263 OF THE INCOME TAX ACT WAS ISSUED TO THE ASSESSEE ON 19.01.2017. THE PR. C IT VIDE ORDER DATED 23.03.2017 PASSED U/S 263 OF THE INCOME TAX ACT, 19 61 HELD THAT THE REASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS NOT ONLY PREJUDICIAL TO THE INTEREST OF THE REVENUE BUT IS ALSO ERRONEOUS I N SO FAR AS THE ASSESSING OFFICER HAS FAILED TO LOOK INTO THE SEIZED MATERIAL . THEREFORE, THE SAID ORDER WAS SET ASIDE WITH A DIRECTION TO THE AO TO EXAMINE THE SEIZED MATERIAL AND CONFRONT THE SAME TO THE ASSESSEE. THE ASSESSING OF FICER WAS FURTHER DIRECTED 4 ITA NO. 2999/DEL/2017 TO EXAMINE THE REASONS FOR TRANSFERRING SUCH SHARES , IF ANY, AT A NOMINAL RATE TO THE DIRECTORS OR THEIR RELATIVES OR THE CONCERNS IN WHICH THE ASSESSEE COMPANY IS INTERESTED AND PASS A SPEAKING ORDER AFT ER AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. THE PR. CIT FURTHER HEL D THAT IF AFTER VERIFICATION OF THE SEIZED MATERIAL AND THE EXPLANATION REGARDING T HE TRANSFER OF SHARES IN THE NAME OF THE DIRECTORS OR THEIR RELATIVES OR THE CON CERNS IN WHICH THE DIRECTORS ARE INTERESTED, IT IS FOUND BY THE ASSESSING OFFICE R THAT THERE IS NEXUS BETWEEN THE CASH DEPOSITS AND THE CHEQUES ISSUED BY THE GRO UP COMPANIES OF S K JAIN OR NO VALID EXPLANATION IS GIVEN FOR THE TRANSFER O F SHARES AT LOWER PRICE IN THE NAME OF DIRECTORS, RELATIVES AND THE CONCERNS IN WH ICH THE ASSESSEE COMPANY IS INTERESTED, THEN THE SAME MAY BE CONSIDERED AS A N ACCOMMODATION ENTRY AND TAXED ACCORDINGLY AS PER PROVISIONS OF THE INCO ME TAX ACT. 4. BEING AGGRIEVED BY THE ORDER U/S 263 OF THE ACT, THE ASSESSEE IS BEFORE US. 5. THE LD. AR SUBMITTED THAT IN RESPECT OF SHARE CA PITAL FOR WHICH THE SHARES WERE ALLOTTED BY THE ASSESSEE COMPANY, THE A SSESSEE FILED THE FOLLOWING DOCUMENTS WHICH INCLUDED THE DOCUMENTS OF ALL THE 0 4 COMPANIES FROM WHOM THE SHARE APPLICATION MONEY WAS RECEIVED : (I) COMPANY MASTER DATA FROM ROC WEBSITE, (II) SHARE APPLICATION FORM, III) BOARD RESOLUTION AUTHORIZING THE SHARE APPLICATION , IV) CONFIRMATION REGARDING RECEIPT OF SHARERS, V) CONFIRMATION FROM THE COMPANY, VI) MEMORANDUM AND AOA OF THE APPLICANT COMPANY, VII) COPY OF ITR RETURN ACKNOWLEDGMENT, VIII) COPY OF AUDITED BALANCE SHEET AS ON 31.03.2006 IX) COPY OF BANK STATEMENT REFLECTING THE AMOUNT OF SH ARE APPLICATION X) AFFIDAVIT FROM THE THEN DIRECTOR OF THE COMPANY XI) COPY OF THE CHEQUE RECEIVED FOR SHARE APPLICATION. THE LD. AR FURTHER SUBMITTED THAT APART FROM THESE DETAILS, THE ASSESSING OFFICER ALSO MADE INDEPENDENT INQUIRY BY ISSUING NO TICES U/S 133(6) OF THE 5 ITA NO. 2999/DEL/2017 INCOME TAX ACT TO THE SHARE APPLICANT COMPANIES. TH E LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER MADE FURTHER I NQUIRY TO HIS SATISFACTION BY SUMMONING THE OFFICERS OF THE SHAREHOLDER COMPAN IES (INVESTOR COMPANIES) U/S131 OF THE INCOME TAX ACT AND RECORDED THE STATE MENT OF THE REPRESENTATIVE / DIRECTOR OF SUCH COMPANIES WHO ALSO SUBMITTED VAR IOUS DOCUMENTS ABOUT THEIR IDENTITY AS WELL AS RELATING TO THE FINANCIAL S OF THE INVESTOR COMPANIES ON 24.03.2015 AND 26.03.2015. THE STATEMENTS WERE RECO RDED BY THE ASSESSING OFFICER IN THE PRESENCE OF INCOME TAX INSPECTOR. TH E LD. AR FURTHER SUBMITTED THAT AFTER MAKING PROPER INQUIRIES AND AFTER SATISF YING HIMSELF ABOUT THE SHARE CAPITAL AND SHARE APPLICANT COMPANIES, THE ASSESSIN G OFFICER FRAMED THE ASSESSMENT ORDER ON 31.03.2015 AT AN INCOME AS DECL ARED BY THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT THEREAFTER, SURPR ISINGLY, ASSESSEE RECEIVED A SHOW CAUSE NOTICE ISSUED BY THE PR. CIT U/S 263 OF THE ACT ON 19.01.2017, REQUIRING THE ASSESSEE TO EXPLAIN AS TO WHY THE RE- ASSESSMENT ORDER FRAMED BY THE ASSESSING OFFICER ON 31.03.2015 FOR AY 2007-08 BE NOT SET ASIDE AS THE SAME IS NOT ONLY ERRONEOUS TO THE EXTENT THAT THE A SSESSING OFFICER HAD NOT EXAMINED THE SEIZED MATERIAL (PERTAINING TO THE ASS ESSEE COMPANY) IN THE CASE OF S K JAIN GROUP OF CASES BUT ALSO PREJUDICIAL TO THE INTEREST OF REVENUE AS THE ASSESSING OFFICER HAD FAILED TO TAX THE SAME AMOUNT OF RS. 20 LAKH AS UNEXPLAINED CREDITS IN THE BOOKS OF ASSESSEE. SINCE APPARENTLY THE AMOUNT OF RS. 20 LAKH RECEIVED FROM M/S HILLRIDGE INVESTMENTS LTD. M/S VOGUE LEASING & FINANCE (P) LTD., M/S PITAMBRA SECURITIES PVT. LTD. AND M/S PELICON FINANCE & LEASING LTD. IS AN ACCOMMODATION ENTRY TAKEN IN LIE U OF CASH OF RS. 20 LAKH GIVEN BY THE ASSESSEE AS THE SAME CHEQUE NUMBERS FR OM THE SAME BANK AS MENTIONED IN THE NOTICE WERE FOUND CREDITED IN THE BANK ACCOUNT OF ASSESSEE. THE PR. CIT ALSO ENCLOSED COPIES OF SEIZED MATERIAL RELATING TO THE ASSESSEE, TO THE SAID NOTICE. THE LD. AR FURTHER SUBMITTED THAT A DETAILED REPLY WAS FILED BY THE ASSESSEE TO THIS SHOW-CAUSE NOTICE ISSUED BY TH E PR. CIT U/S 263 OF THE ACT, POINTING OUT THAT THE ASSESSING OFFICER HAD MA DE A DETAILED INQUIRY INCLUDING INQUIRY U/S 133(6) OF THE ACT AND HAD ALS O RECORDED THE STATEMENTS OF REPRESENTATIVE /DIRECTORS OF SUCH SHARE APPLICAN T COMPANIES FROM WHOM THE 6 ITA NO. 2999/DEL/2017 SHARE APPLICATION MONEY WAS RECEIVED BY THE ASSESSE E. IT WAS ONLY AFTER MAKING PROPER INQUIRIES AND AFTER SATISFYING HIMSEL F THAT THE ASSESSING OFFICER HAD FRAMED THE ASSESSMENT U/S 143(3) / 147 OF THE A CT ON 31.03.2015. ASSESSEE ALSO RELIED UPON CERTAIN CASE LAWS AND REQ UESTED THAT THE PROCEEDING INITIATED U/S 263 MAY KINDLY BE DROPPED IN THE INTE REST OF JUSTICE. ASSESSEE ALSO REQUESTED FOR THE PERSONAL HEARING IF THE PR. CIT WAS STILL NOT SATISFIED WITH THE SUBMISSIONS PUT FORTH BY THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT HOWEVER WITHOUT AFFORDING ANY OPPORTUNITY TO THE AS SESSEE, THE PR. CIT PASSED AN ORDER U/S 263 OF THE ACT, OBSERVING THAT THE REA SSESSMENT ORDER WAS PASSED BY THE ASSESSING OFFICER WITHOUT MAKING PROPER VERI FICATIONS AND INQUIRIES AND THEREFORE, THE ASSESSMENT ORDER FRAMED BY THE ASSES SING OFFICER WAS NOT ONLY PREJUDICIAL TO THE INTEREST OF REVENUE BUT ALSO ERR ONEOUS IN SO FAR AS THE ASSESSING OFFICER HAD FAILED TO LOOK INTO THE SEIZE D MATERIAL. THE LD. AR FURTHER SUBMITTED THAT THE PR. CIT HAS ERRED IN INVOKING TH E JURISDICTION U/S 263 OF THE ACT. IN FACT THE JURISDICTION HAS BEEN INVOKED BY T HE PR. CIT FOR MAKING ROVING AND FISHING INQUIRY. THE LD. AR FURTHER SUBMITTED T HAT IN-FACT DURING THE RE- ASSESSMENT PROCEEDING U/S 147 OF THE ACT, THE ASS ESSING OFFICER HAS MADE A SPECIFIC QUERY IN RESPECT OF ACCOMMODATION ENTRIES FROM 04 COMPANIES WHICH HAD BEEN DULY REPLIED BY THE ASSESSEE FURNISHING VA RIOUS DOCUMENTS. IT WAS ONLY AFTER SATISFYING HIMSELF THAT THE ASSESSING OF FICER HAD FRAMED THE RE- ASSESSMENT ORDER. THEREFORE, NOW TO INVOKE POWERS U /S 263 OF THE ACT IS NOTHING BUT A CHANGE OF OPINION ON THE SAME SET OF FACTS WHICH IS NOT PERMISSIBLE IN LAW. THE LD. AR FURTHER SUBMITTED TH AT THE PR. CIT HAS ERRED IN OBSERVING THAT THE ASSESSING OFFICER HAD NOT LOOKED INTO THE SEIZED MATERIAL HE HAD MERELY LOOKED INTO THE APPRAISAL REPORT FORWARD ED BY THE INVESTIGATION WING. THE PR. CIT HAS IGNORED A MATERIAL FACT THAT THE APPRAISAL REPORT HAD BEEN MADE BY THE INVESTIGATION WING ON THE BASIS/OF SEIZED MATERIAL ONLY. FURTHER AS STATED BY THE PR. CIT HIMSELF ON PAGE 6 & 7 OF THE ORDER U/S 263 OF THE ACT, THE APPRAISAL REPORT HAD SUMMARIZED THE DE TAILS OF BENEFICIARIES AND THE SHELL COMPANIES ALONG WITH THE DETAILS OF CHEQU ES ISSUED AS PER THE SEIZED MATERIAL IN ONE OF THE ANNEXURES IN THE FORMAT AS R EFLECTED A PAGE 7 OF THE 7 ITA NO. 2999/DEL/2017 ORDER. THIS CHART REVEALED THE NAME OF THE MEDIATOR ALSO. THE DETAILS INCORPORATED IN VARIOUS ANNEXURES WERE TABULATED IN THE APPRAISAL REPORT. ACCORDINGLY, THE OBSERVATION OF PR. CIT THAT THE AS SESSING OFFICER HAD NOT LOOKED INTO THE SEIZED MATERIAL IS INCORRECT ON THE FACE OF RECORD. THE LD. AR FURTHER SUBMITTED THAT THE PR. CIT HAS MISDIRECTED HIMSELF IN IGNORING THE MATERIAL FACT & THAT ALL POSSIBLE INQUIRIES HAD BEE N MADE BY THE ASSESSING OFFICER DURING THE RE-ASSESSMENT PROCEEDING. A SPEC IFIC QUERY HAD BEEN MADE BY THE ASSESSING OFFICER WHICH HAD BEEN DULY REPLIE D WITH BY THE ASSESSEE ALONG WITH VARIOUS EVIDENCES AS STATED IN THE PRECE DING PARAS. ASSESSING OFFICER HAD ALSO MADE INDEPENDENT INQUIRIES BY ISSU ING NOTICES U/S 133(6) OF THE ACT WHICH HAD BEEN DULY COMPLIED BY THE 04 SHAR E APPLICANT COMPANIES. EVEN SUMMONS U/S 131 HAD BEEN ISSUED BY THE ASSESSI NG OFFICER IN RESPONSE TO WHICH REPRESENTATIVES/ DIRECTORS OF THE SHAREHOL DER COMPANIES WERE APPEARED AND THEIR STATEMENTS WERE RECORDED BY THE ASSESSING OFFICER IN THE PRESENCE OF INCOME TAX INSPECTOR. THEIR IDENTITY AN D CREDITWORTHINESS WAS EXAMINED BY THE ASSESSING OFFICER AND GENUINENESS O F THE TRANSACTIONS WERE ALSO EXAMINED. IN SUCH CIRCUMSTANCES TO INVOKE THE POWERS U/S 263 OF THE ACT IS NOTHING BUT A CHANGE OF OPINION. THEREOF, NO ERR OR OF LAW OR FACT IN THE ASSESSMENT ORDER WHICH CAN BE REVISED BY THE PR. CI T BY INVOKING POWERS U/S 263 OF THE ACT. THE LD. AR FURTHER SUBMITTED THAT I N THE PRESENT CASE, THE ASSESSING OFFICER HAD INQUIRED AND CONSIDERED ALL T HE ASPECTS OF THE MATTER, HE HAD EXAMINED AND VERIFIED ALL THE DOCUMENTS FURNISH ED BY THE ASSESSEE AND AFTER SATISFYING HIMSELF AFTER MAKING INQUIRY U/S 1 33(6) AND 131 OF THE ACT THAT HE HAD FRAMED THE ASSESSMENT ORDER, ALLOWING SHARE CAPITAL IN THE HANDS OF THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT THIS IS NOT THE CASE WHERE NO INQUIRY HAD BEEN MADE BY THE ASSESSING OFFICER. TH E GRIEVANCE OF THE PR. CIT U/S 263 OF THE ACT IS THAT NO PROPER INQUIRY HAD BE EN MADE BY THE ASSESSING OFFICER IN RESPECTED OF THE ISSUES STATED IN THE NO TICE. THERE IS A DISTINCTION BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. TH E FORMER CONFER POWER ON THE PR. CIT TO INVOKE JURISDICTION U/S 263 BUT THE LATER NOT. THE LD. AR RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN MALABAR INDUSTRIAL 8 ITA NO. 2999/DEL/2017 COMPANY LTD. VS. CIT (243 ITR 83)(SC) WHEREIN IT IS HELD THAT THE COMMISSIONER HAS TO SATISFY HIMSELF OF BOTH THE CON DITIONS, ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. IT IS ALSO HELD THAT THE PROVISIONS CANNOT BE INVOKED TO CORRECT EACH AND EV ERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. THE PHRASE PREJUDIC IAL TO THE INTEREST OF REVENUE IS NOT AN EXPRESSION OF ART AND IS NOT DEFINED IN T HE ACT UNDERSTOOD IN ITS ORDINARY MEANING, IT IS OF WIDE IMPORT AND IS NOT C ONFINED TO LOSS OF TAX. THE SAID PHRASE HAS TO BE READ IN CONJUNCTION WITH AN E RRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A C ONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF REVENUE, FOR EXAMPLE, 'WHEN AN INCOME TAX OFFICER ADOPTED ON E OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF R EVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME TAX OFFICER HAS TAKEN O NE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED A S AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF REVENUE UNLESS THE V IEW TAKEN BY THE INCOME -TAX OFFICER IS UNSUSTAINABLE IN LAW. IN THE PRESENT CA SE, AFTER CONSIDERING ALL THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICE R HAS TAKEN A VIEW WHICH IS PERMISSIBLE IN LAW AND THEREFORE, THE PR. CIT CANNO T SUBSTITUTE HIS OWN VIEW TREATING THE VIEW TAKEN BY THE ASSESSING OFFICER AS ERRONEOUS. IT IS THE LACK OF INQUIRY ON THE PART OF ASSESSING OFFICER WHICH CONF ERS JURISDICTION THE PR. CIT TO ASSUME JURISDICTION U/S 263 OF THE ACT. FOLLOWIN G CASES ARE RELIED UPON: (1) CIT VS ASHISH RAJPAL (2010) 320 ITR 674 (DEL) (2) ITO VS. D G HOUSING PROJECTS LTD. (2012) 343 ITR 3 29 (DEL) (3) DIT VS JYOTI FOUNDATION ITA NO.267/2013 DECIDED ON 09.07.2013 (4) CIT DELHI-V VS NEW DELHI TELEVISION 39 TAXMA NN.COM 135 (DEL) (5) CIT VS GALILEO INDIA (P) LTD. 41 TAXMANN.C OM 34 (DEL) THE LD. AR FURTHER SUBMITTED THAT WHERE THE ASSESSI NG OFFICER HAD MADE A QUERY WHICH HAD BEEN DULY EXPLAINED BY THE ASSESSEE TO THE SATISFACTION OF 9 ITA NO. 2999/DEL/2017 ASSESSING OFFICER THEN NO REVISION IS PERMISSIBLE B Y THE CIT ON THE GROUND THAT THERE IS NO DISCUSSION ON THE ISSUE IN THE ASSESSME NT ORDER WHICH LEAD TO ASSUMPTION THAT ASSESSING OFFICER DID NOT APPLY HIS MIND. THE LD. AR RELIED UPON THE DECISION OF CIT VS VODAFONE ESSAR SOUTH LT D. 212 TAXMANN 184 (DEL), 1 ITR - OL 526 (DEL) AND CIT VS VIKAS POLYMERS (341 ITR 537). AS REGARDS THE SCOPE AND AMBIT OF EXPRESSION ERRONEOUS, THE HON BLE DELHI COURT RELIED UPON THE JUDGMENT OF BOMBAY HIGH COURT IN CASE OF CIT VS GABRIEL INDIA LTD. (1993) 203 ITR 108, WHEREIN, AFTER DISCUSSING THE DICTIONARY MEANING OF THE TERM ERRONEOUS HAVE HELD THAT IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS AN ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. THE LD. AR SUBMITTED THAT THESE PRINCIPLES ARE AGAIN REITERATED BY THE I TAT DELHI BENCH IN THE CASE OF TECHNIC UK LTD. VS DIT INTERNATIONAL TAXATION IN (2 017) 81 TAXMANN.COM 311 (DEL) AND PRI. CIT VS MERA BABA REALITY ASSOCIA TES PVT. LTD. (ITA NO.637 OF 2007 DECIDED ON 21.08.2017) AS WELL AS THE HON'B LE SUPREME COURT DECISION IN CASE OF CIT VS KWALITY STEEL SUPPLIERS COMPLEX (2017) 84 TA XMANN.COM 234 (SC). THUS, THE LD. AR SUBMITTED THAT I T IS CLEAR FROM THE ABOVE THAT WHERE TWO VIEW ARE POSSIBLE AND THE ASSESSING OFFIC ER HAS TAKEN ONE VIEW AND THE COMMISSIONER AGAIN REVISED THE SAID ORDER ON TH E GROUND THAT HE DOES NOT AGREE WITH THE VIEW TAKEN BY THE ASSESSING OFFICER, IN SUCH CIRCUMSTANCES THE ASSESSMENT ORDER CANNOT BE TREATED AS AN ORDER ERRO NEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. REASON IS SIMPLE. WHILE EXERCI SING THE REVISIONARY JURISDICTION, THE COMMISSIONER IS NOT SITTING IN AP PEAL. THIS HAS BEEN ELOQUENTLY EXPLAINED BY THE HONBLE SUPREME COURT I N THE CASE OF MALABAR INDUSTRIAL COMPANY LTD. IN THE PRESENT CASE, THE FA CTS ON RECORD ARE EVIDENT THAT THE ASSESSING OFFICER HAD MADE THE QUERY TO WH ICH ASSESSEE HAD FILED THE DETAILED REPLY PRODUCING VARIOUS EVIDENCES. THE ASS ESSING OFFICER HAD MADE THE INTENSIVE INQUIRY BY ISSUING NOTICES TO THE CREDITO RS / SHARE APPLICANTS U/S 133(6) OF THE ACT AND HAD RECORDED THE STATEMENTS O F REPRESENTATIVES / DIRECTORS OF THE SHARE APPLICANT COMPANIES. IT IS O NLY AFTER SATISFYING HIMSELF THAT THE ASSESSING OFFICER HAD ACCEPTED THE STAND O F THE ASSESSEE. HENCE, THE CIT COULD NOT HAVE ASSUMED JURISDICTION U/S 263 OF THE ACT MERELY ON THE 10 ITA NO. 2999/DEL/2017 GROUND THAT THE ASSESSING OFFICER HAD NOT LOOKED IN TO THE SEIZED MATERIAL PARTICULARLY WHEN IN THE APPRAISAL REPORT (WHICH WA S THE BASIS FOR ISSUING NOTICE U/S 147) THE DETAILS OF SEIZED MATERIAL WAS DEPICTED IN THE TABULAR FORM. MOREOVER, PR. CIT HAS NOT ARRIVED AT A DEFINITE CON CLUSION THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS. RATHER HE HA S GIVEN DIRECTION TO THE ASSESSING OFFICER TO MAKE ROVING AND FISHING INQUIR Y OF GENERAL NATURE, SPECIALLY WHEN THE SHARE APPLICANT COMPANIES ARE ST ILL HOLDING THE SHARES AND HAVE NOT SOLD THE-SAME-TO THE DIRECTORS ORDER PASSE D BY PR. CIT U/S 263 REFLECTS THAT THE PR. CIT IS PREJUDICED BY THE GENE RAL FACTS EXISTING IN THE MARKET WHICH ARE NOT THE FACTS IN THE PRESENT CASE. HENCE, THE ORDER PASSED BY PR. CIT U/S 263 IS LIABLE TO BE SET ASIDE IN THE INTEREST O F JUSTICE. THE LD. AR FURTHER SUBMITS THAT SECTION 133(6) WAS ALSO ISSUED. THE LD . AR SUBMITTED THAT THE STATEMENT OF DIRECTORS WAS RECORDED AS SECTION 131 NOTICE WAS ISSUED AND DIRECTORS APPEARED BEFORE THE ASSESSING OFFICER. 6. THE LD. DR SUBMITTED THAT PR. CIT RIGHTLY PASSED ORDER U/S 263 OF THE ACT AS THE ASSESSING OFFICER HAS NOT TAKEN INTO CON SIDERATION THE MATERIAL SEIZED DURING THE SEARCH IN THE CASE OF SH. S. K. J AIN. THE LD. DR SUBMITTED THAT THE PRESENT CASE IS COVERED BY THE DECISION OF THE HONBLE APEX COURT IN CASE OF DENIEL MERCHANTS PRIVATE LIMITED & ANR. VS. INCOME TAX OFFICER (APPEAL NO. 2396/2017 ORDER DATED 29.11.2017). THE LD. DR A LSO RELIED UPON FOLLOWING DECISION OF THE VARIOUS HONBLE HIGH COURTS AND TRI BUNAL: (A) MALABAR INDUSTRIAL CO. LTD. VS. CIT (2000) 243 ITR 83 (SC) (B) RAJMANDIR ESTATES (P) LTD. VS. PCIT (2016) 386 ITR 162 (CAL.) (C) RAJMANDIR ESTATES (P.) LTD. VS. PCIT (2017) 245 TAXMAN 127 (SC) (D) SHREE MANJUNATHESWARE PACKING PRODUCTS & CAMPHO R WORKS VS. CIT (1998) 231 ITR 53 (SC) 11 ITA NO. 2999/DEL/2017 AS REGARDS THE ISSUE OF NOTICE U/S 143(2) AND REOPE NING OF CASES U/S 147 OF THE ACT, THE LD. DR RELIED UPON THE FOLLOWING DECIS IONS: (A) CIT VS. MADHYA BHARAT ENERGY CORPORATION LTD. 3 37 ITR 399 (DEL) (B) YOGENDRAKUMAR GUPTA VS. ITO (2014) 227 TAXMAN 3 74 (SC) (C) ANKIT FINANCIAL SERVICES LTD. VS. DCIT (2017) 7 8 TAXMANN.COM 58 (GUJ.) (D) PCIT VS. PARAMOUNT COMMUNICATION (P.) LTD. 2017 -TIOL-253-SC-IT (E) PCIT VS. PARAMOUNT COMMUNICATION (P.) LTD. (201 7) 392 ITR 444 (DEL) 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RECORDS. WE HAVE TAKEN CONGNIZANCE OF ALL THE CONTENTIONS OF THE LD. AR. WHEN WE ASKED THE SPECIFIC QUERY ABOUT WHETHER THE PRESENT DIRECTORS OF THOSE COMPANIES WERE CALLED FOR AND GIVEN A STATEMENT, THE LD. AR SUBMIT TED THAT MOST OF THE COMPANIES WHOM SHARES HAVE BEEN GIVEN THE CURRENT D IRECTORS WERE NOT GIVEN STATEMENTS BUT THE PAST DIRECTORS HAVE GIVEN STATEM ENTS. THE CASE LAWS CITED BY THE LD. AR WILL NOT BE APPLICABLE IN THE PRESENT CASE AS THE FACTS IN THE PRESENT CASE ARE DIFFERENT. IN FACT THE DECISION OF THE HONBLE SUPREME COURT IN MALABAR INDUSTRIAL COMPANY LTD. VS. CIT (243 ITR 83 )(SC) WHEREIN IT IS HELD THAT THE COMMISSIONER HAS TO SATISFY HIMSELF OF BOT H THE CONDITIONS, ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. BOTH THESE TEST HAVE BEEN SEEN BY THE PRINCIPAL COMMISSIONER OF INCOME T AX IN THE PRESENT CASE AND APTLY APPLIES IN THE PRESENT CASE. IT IS ALSO H ELD BY THE HONBLE APEX COURT THAT THE PROVISIONS CANNOT BE INVOKED TO CORRECT EA CH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. THUS, THE PRI. CIT HAS LOOKED INTO THE ASPECT OF THE ASSESSMENT ORDER IN THE PRESENT C ASE TO THE EXTENT OF ERRONEOUS AND THUS, SECTION 263 OF THE ACT IS ATTRA CTED IN THE PRESENT CASE. SECTION 263 OF THE ACT IS NOT INVOKED SIMPLY FOR CO RRECTING MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER IN THE PRESENT C ASE. IT CAN BE OBSERVED 12 ITA NO. 2999/DEL/2017 THAT THE PR. CIT HAS CONSIDERED ALL THE CONTENTIONS OF THE ASSESSEE AND THEREAFTER RIGHTLY COME TO THE CONCLUSION THAT THE ASSESSING OFFICER FAILED TO CONSIDER THE SEIZED MATERIAL. THE PR. CIT HELD AS U NDER VIDE ORDER DATED 23.03.2017 PASSED UNDER SECTION 263 OF THE ACT: 11. THERE IS ANOTHER POINT OF NOT MAKING PROPER EN QUIRY IN THIS CASE. SUBSEQUENT TO ISSUE OF SHARES TO THE CONCERNS OF SK JAIN GROUP, MOST OF THE BENEFICIARY COMPANIES GOT THE SHARES TRANSFERRE D AT A NOMINAL RATE IN THE NAME OF THEIR DIRECTORS OR THEIR RELATIVES ORIG INALLY ISSUED TO SUCH SHELL COMPANIES. EVEN THOUGH, THE SHARES WERE ISSUED AT A PREMIUM, IN MOST OF THE CASES SUCH SHARES WERE TRANSFERRED WITHIN ONE O R TWO YEARS IN THE NAME OF DIRECTORS OF THE BENEFICIARY COMPANY OR TO THE CONCERNS IN WHICH SUCH DIRECTORS WERE INTERESTED, AT VERY NOMINAL PRI CE. THE AO DID NOT MAKE ANY ENQUIRY WHATSOEVER ON THIS ASPECT. HE OUG HT TO HAVE ASKED THE BENEFICIARY COMPANY AS TO WHY THE SHARES ISSUED AT PREMIUM WERE TRANSFERRED BY THE INVESTOR COMPANIES (SHELL COMPAN IES) TO THE DIRECTORS OR THEIR RELATIVES OR CONCERNS OF THE BENEFICIARY COMP ANY AT A VERY DISCOUNTED PRICE. WHAT WAS THE FACE VALUE OF THE SHARES AT TH E TIME OF THE ALLOTMENT AND TRANSFER. WHAT HAPPENED SUDDENLY THAT THE VALU E OF SUCH SHARES WENT DOWN RANGING FROM 50% TO 90%. THIS UNUSUAL EV EN HAD TAKEN PLACE IN MOST OF THE CASES BEFORE THE AOS COMPLETED THE A SSESSMENT PROCEEDINGS DURING FINANCIAL YEAR 2014-15 BUT THE A O DID NOT MAKE ANY ENQUIRY WHATSOEVER ON THIS ASPECT. IN THIS CASE, T HE ASSESSEE DID NOT FURNISH THE DETAILS OF SHARES TRANSFERRED FROM THE ABOVE MENTIONED COMPANIES OF SK JAIN GROUP TO OTHER PERSONS DESPITE MY SPECIFIC QUERY IN THE SHOW CAUSE NOTICE. .. 16. IN VIEW OF THE ABOVE DISCUSSION, I AM SATISFIE D THAT THE REASSESSMENT ORDER PASSED BY THE AO ON 31/3/2015 FO R ASSESSMENT YEAR 2007-08, IS NOT ONLY PREJUDICIAL TO THE INTEREST OF THE REVENUE BUT IS ALSO ERRONEOUS IN SO FAR AS THE AO HAS FAILED TO LOOK IN TO THE SEIZED MATERIAL. THEREFORE, THE SAID ORDER IS SET ASIDE WITH A DIREC TION TO THE AO TO EXAMINE THE SEIZED MATERIAL AND CONFRONT THE SAME TO THE AS SESSEE. THE AO WOULD ALSO EXAMINE THE REASON FOR TRANSFERRING SUCH SHARE S, IF ANY, AT A NOMINAL RATE TO THE DIRECTORS OR THEIR RELATIVES OR THE CON CERNS IN WHICH THE ASSESSEE COMPANY IS INTERESTED AND PASS A SPEAKING ORDER AFTER AFFORDING ON OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IF AFTER VERIFICATION OF THE 13 ITA NO. 2999/DEL/2017 SEIZED MARTIAL AN THE EXPLANATION REGARDING T HE TR ANSFER OF SHARES IN THE NAME OF THE DIRECTORS OR THEIR RELATIVES OR THE CON CERNS IN WHICH THE DIRECTORS ARE INTERESTED, IT IS FOUND BY THE AO THA T THERE IS NEXUS BETWEEN THE CASH DEPOSITS AND THE CHEQUES ISSUED BY THE GRO UP COMPANIES OF SK JAIN OR NO VALID EXPLANATION IS GIVEN FOR THE TRANS FER OF SHARES AT LOWER PRICE IN THE NAME OF DIRECTORS, RELATIVES AND THE C ONCERNS IN WHICH THE ASSESSEE COMPANY IS INTERESTED, THEN THE SAME MAY B E CONSIDERED AS AN ACCOMMODATION ENTRY AND TAXED ACCORDINGLY AS PER TH E PROVISIONS OF THE INCOME TAX ACT. THUS, IT CAN BE SEEN THAT THE PR. CIT HAS PROPERLY INVOKED THE PROVISIONS OF SECTION 263 AND THERE IS NO PROCEDURAL LAPSE ON THE PART OF THE PR. CIT. IN FACT, THE ASSESSING OFFICER THOUGH REOPENED THE ASSESSMEN T PROCEEDINGS DID NOT MADE ANY INQUIRY AND THERE IS NO MENTION OF THE SAM E IN THE ASSESSMENT ORDER ITSELF WHICH PROVES THAT THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE BY THE ASS ESSING OFFICER. THUS, IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THER E IS LOSS OF REVENUE. THE PR. CIT AFTER ISSUING THE SHOW CAUSE NOTICE U/S 263 OF THE ACT GIVEN AMPLE OPPORTUNITY TO THE ASSESSEE FOR EXPLANATION AND DEA LT WITH THE REPLY/DETAILS FILED BY THE ASSESSEE IN PROPER MANNER. THUS, PROPE R OPPORTUNITY WAS GIVEN BY THE PR. CIT TO THE ASSESSEE DURING THE PROCEEDINGS U/S 263 OF THE ACT. THE PRESENT CASE IS COVERED BY THE DECISION OF THE HON BLE APEX COURT IN CASE OF DENIEL MERCHANTS PRIVATE LIMITED & ANR. VS. INCOME TAX OFFICER (APPEAL NO. 2396/2017 ORDER DATED 29.11.2017). THE HONBLE SUPR EME COURT HELD AS UNDER: IN ALL THESE CASES, WE FIND THAT THE COMMISSIONER OF INCOME TAX HAD PASSED AN ORDER UNDER SECTION 263 OF THE INCOME TAX ACT, 1 961 WITH THE OBSERVATIONS THAT THE ASSESSING OFFICER DID NOT MAKE ANY PROPER INQUIRY WHILE MAKING THE ASSESSMENT AND ACCEPTING THE EXPLANATION OF THE ASS ESSEE(S) INSOFAR AS RECEIPT OF SHARE APPLICATION MONEY IS CONCERNED. ON THAT BASIS THE COMMISSIONER OF INCOME TAX HAD, AFTER SETTING ASIDE THE ORDER OF THE ASSESSING OFFICER, SIMPLY DIRECTED THE ASSESSING OF FICER TO CARRY THOROUGH AND DETAILED INQUIRY. IT IS THIS ORDER WHICH IS UPH ELD BY THE HIGH COURT. WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE HI GH COURT. 14 ITA NO. 2999/DEL/2017 THE SPECIAL LEAVE PETITIONS ARE DISMISSED. THUS, IN THE PRESENT CASE THE ASSESSING OFFICER HAS THOUGH RIGHTLY RE-OPENED THE ASSESSMENT PROCEEDINGS HAS NOT PROPERLY ADJUDIC ATED THE ISSUE FOR RE- OPENING THEREFORE, THE PR. CIT HAS RIGHTLY INVOKED SECTION 263 OF THE ACT AND PASSED THE ORDER. THEREFORE, THE ORDER UNDER SECTIO N 263 OF THE INCOME TAX ACT, 1961 PASSED BY THE PRINCIPAL COMMISSIONER OF I NCOME TAX IS JUST AND PROPER. THERE IS NO NEED TO INTERFERE WITH THE SAME . THE APPEAL OF THE ASSESSEE IS DISMISSED. 8. IN RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16TH APRIL, 2018 . SD/- SD/- (PRASHANT MAHARISHI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 16/04/2018 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 15 ITA NO. 2999/DEL/2017 DATE 1. DRAFT DICTATED ON 12/03/2018 PS 2. DRAFT PLACED BEFORE AUTHOR 12/03/2018 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 16.04.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 1 6 .04.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.