M/s. Nishi Rampal, Nagpur V. Commissioner of Income Tax-I, Nagpur

ITA 71/NAG/2012

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3110 (ITAT-NAGPUR)
• Duration Of Justice: 7 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 01-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MILIND BHUSANI
• Keywords: Business income; Share purchase agreement; Opportunity of being heard; Principle of natural justice; Period of limitation; Reason to believe; Set aside
• Section: 143(3); 54F; 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D. T. GARASIA, HONBLE JUDICIAL MEMBER I.T.A. NO .71 / NAG / 12 ASSESSMENT YEAR: 2007 - 2008 MS. NISHI RAMPAL, VS. C.I.T. - I, ADV. SURESH TOLANI, NAGPUR. S - 6, 2 ND FLOOR, GIRISH HEIGHTS COMMERCIAL COMPLEX, BESIDES BHARAT TALKIES, LIC SQUARE, NAGPUR. PAN:ALBPR6822R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KAPIL A. HIRANI, C. A. SHRI SURESH TOLANI, ADVOCATE RESPONDENT BY : SHRI MILIND BHUSANI, CIT, D. R. DATE OF HEARING :19/10/2012 DATE OF PRONOUNCEMENT : 30/11/2012 ORDER PER P. K. BANSAL: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT - I, NAGPUR DATED 02/01/2012 BY TAKING THE FOLLOWING GROUNDS OF APPEAL: 1. THE NOTICE ISSUED U/S 263 DT. 4.1.2010 IS ILLEGAL AND WITHOUT JURISDICTION AS IT WAS ISSUED WITHOUT CONFORMING TO BASIC REQUIREMENTS OF SECTION 263. 2. THE 2 ND SHOW CAUSE NOTICE DT. 2.2.2010 IS ALSO ILLEGAL AND WITHOUT JU RISDICTION AS THE CIT HAD NO POWER TO CHANGE HIS STAND TO A NEW I.T.A. NO. 71/NAG/2012 2 PROPOSAL OF TREATING THE SURPLUS FROM SALE OF SHARES HELD AS LONG TERM INVESTMENT IN TO BUSINESS INCOME. 3. WITHOUT PREJUDICE TO ABOVE, THE NOTICE AND PROCEEDINGS ARE INVALID AS THE ORDER PASSED BY AO U/S 143(3) WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. 4. THAT THE HON'BLE COMMISSIONER OF INCOME TAX ERRED IN PASSING THE ORDER WITHOUT GIV ING PERSONAL HEARING TO THE APPELLANT. 5. IN ANY CASE WHETHER A TRANSACTION IS CAPITAL IN NATURE OR AN ADVENTURE IN THE NATURE OF TRADE IS PURELY A QUESTION DEPENDING ON THE PECULIAR FACTS OF THE CASE. THE AO WHILE PASSING HIS ORDER U/S 143(3) ADOPTED ONE OF THE POSSIBLE TWO VIEWS AND THEREFORE HIS ORDER CANNOT BE TERMED AS ERRONEOUS AND IS NOT AMENABLE TO BE REVISED U/S 263. 6. THE ORDER IS ALSO INVALID FOR THE REASON THAT THE ORDER WAS PASSED BY THE PERSON WHO DID NOT HEAR THE APPELLANT AT ALL AND ONLY ON THE BASIS OF RECORDS WRITTEN AND MAINTAINED BY THE MINISTERIAL AND ADMINISTRATIVE STAFF. 7. THE COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT THE DIFFERENCE REALIZED AS A RESULT OF SALE OF PART OF THE SHARES AS AN ADVENTURE IN NATURE OF TRADE INSTE AD OF LONG TERM - CAPITAL GAINS WITHOUT APPRECIATING THE VITAL FACTS THAT ASSESSEE ALL ALONG HELD HER INTEREST IN UNIQUE AS AN INVESTMENT. 8. THE COMMISSIONER OF INCOME TAX ERRED IN ADDING AN AMOUNT OF RS.2,46,09,871/ - AS INCOME. THE COMMISSIONER OF INCOME TAX ALSO ERRED IN HOLDING THAT THE POSSESSION OF THE PROPERTY AFTER SALE OF SHARES WAS NOT TAKEN WITHIN THE PERIOD OF TWO YEARS U/S 54F AND D ENYING THE CLAIM U/S 54F OF RS.2,46,09,871/ - . 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN OF LONG TERM CAPITAL GAIN AT RS.73,73,120/ - . THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I.T. ACT AT THE RETURNED INCOME ALLOWING EXE MPTION TO THE ASSESSEE U/S 54F FOR RS.2 , 46 , 09 , 87 1 / - . THE ASSESSEE IS A NON - RESIDENT. SUBSEQUENTLY, THE CIT INVOKED THE PROVISIONS OF SECTION 263 AND ISSUED THE SHOW CAUSE NOTICE TO THE I.T.A. NO. 71/NAG/2012 3 ASSESSEE DATED 04/01/2010 MENTIONING THAT THE ASSESSING OFFICER HAS COMMITTED THE FOLLOWING ERRORS: 1. THE ASSESSEE HAS SOLD SHARES OF A PRIVATE LIMITED COMPANY FOR RS.3,24,90,000/ - IN MARCH, 2007 WHICH WERE ACQUIRED IN FEB., 2006 FOR RS.4,85,520/ - . THE REASONS FOR THE HIGH RATE AT WHICH THE SHARES HAVE BEEN SOLD, THE DETAILS OF THE PERSONS TO WHOM THE SHARES HAVE BEEN SOLD AND THEIR SOURCE ETC HAVE NOT BEEN VERIFIED BY THE A.O. BEFORE ACCEPTING THE LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE. 2. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 54F OF RS.2,46,09,871/ - AND TH E SAME HAS BEEN ALLOWED WITHOUT FINDING OUT WHETHER THE INVESTMENT IN PROPERTY HAD MATERIALIZED INTO A DUPLEX FLAT OR NOT. 3. THE CAPITAL ACCOUNT OF THE ASSESSEE HAS NOT BEEN CALLED FOR AND VERIFIED. 4. SIMILARLY, THE S OURCE OF CREDIT ENTRIES IN THE BANK ACCOUNT ON 29/03/2007 AMOUNTING TO RS.5,59,80,000/ - HAS NOT BEEN VERIFIED. 3. SUBSEQUENTLY, THE CIT VIDE LETTER DATED 02/02/2010 AGAIN GAVE A SHOW CAUSE NOTICE STATING THEREIN , WHY THE TRANSACTION WITH REGARD TO SALE OF SH ARES SHOULD NOT BE TREATED ADVENTURE IN THE NATURE OF TRADE AND BROUGHT TO TAX. THE ASSESSEE PURCHASED THE SHARES IN THE MONTH OF FEBRUARY, 2006 FOR A SUM OF RS.4,85,520/ - @RS.10/ - EACH, WHICH WERE SOLD IN MARCH, 2007 FOR RS.3,24,90,000/ - RELATING TO UN IQUE WASTE PLASTIC MANAGEMENT & RESEARCH PVT. LTD. T O MRS. USHA S. SHAH . A SUM OF RS.2,50,00,000/ - WAS PAID FOR RESIDENTIAL PROPERTY FOR WHICH THE EXEMPTION WAS CLAIMED U/S 54F, WHICH WAS ALLOWED BY THE ASSESSING OFFICER. THE CIT TOOK THE VIEW THAT THE ENTIRE PURCHASE AND SALE OF SHARES, MADE BY THE ASSESSEE, IS ADVENTURE IN THE NATURE OF TRADE AND HENCE THE ASSESSEE IS NOT ELIGIBLE IN TREATING THE INCOME AS LONG TERM CAPITAL GAIN. THIS SHOULD HAVE BEEN TREATED BUSINESS INCOME SUBJECT TO NORMAL TAX. ULTIMATELY THE CIT ENHANCED THE ASSESSMENT BY COMPUTING THE INCOME TO TH E ASSESSEE AT RS.3,20,05,480/ - WITHDRAWING THE EXEMPTION GRANTED U/S 54F AND DIRECTED THE I.T.A. NO. 71/NAG/2012 4 ASSESSING OFFICER TO COMPUTE TAX, LEVY INTEREST, ISSUE DEMAND NOTICE AND SERVE THE4 ORDER ACCORDINGLY. 4. THE LEARNED A.R. CONTENDED BEFORE US THAT THE ASSESSEE IS A NON - RESIDENT INDIAN, SETTLED IN USA SINCE BIRTH. SHE IS PRACTICING IN USA AS A QUALIFIED NEURO - PHYSICIAN. HER PARENTS SMT. URMILA RAMPAL AND SHRI SHARAN RAMPAL ARE ALSO CITIZENS OF USA. THE ASSESSEE FAMILY HAD ADVANCED AN AMOUNT OF RS.10,50,000/ - IN TH E YEAR 2003 TO M/S UNIQUE WASTE PLASTIC MANAGEMENT & RESEARCH PVT. LTD., A PRIVATE LIMITED COMPANY PROMOTED BY ZADGAONKAR FAMILY. AFTER MUCH SCIENTIFIC RESEARCH, A FORMULA FOR CONVERSION OF WASTE PLASTIC INTO HYDROCARBONS LIKE PETROL, DIESEL ETC. WAS WORK ED OUT. THE ASSESSEE HAD ADVANCED THE AMOUNT AS AN INVESTMENT WITH THE INTENTION OF SUPPORTING ZADGAONKAR IN A NOBLE PROJECT. SUBSEQUENTLY, AGAINST THE ADVANCE SO GIVEN IN THE MONTH OF FEBRUARY, 2006, SHARES WERE ALLOTTED TO THE ASSESSEE IN UNIQUE WASTE PLASTIC MANAGEMENT & RESEARCH PVT. LTD., WHICH WERE HELD BY THE ASSESSEE PURELY AS INVESTMENT. SURESH SHAH GROUP OF MUMBAI, LOOKING AT THE BRIGHT PROSPECTS OF M/S UNIQUE WASTE PLASTIC MANAGEMENT & RESEARCH PVT. LTD. DECIDED TO ACQUIRE CONTROLLING INTEREST WITH A PURPOSE OF REFINING THE RESEARCH AND DEVELOPING ITS MARKETABILITY. THE PROPOSAL WAS ACCEPTED BY THE MANAGEMENT AND SHAREHOLDERS AND AN AGREEMENT WAS ENTERED INTO ON 21/11/2006 SETTING THE TERMS AND CONDITIONS OF THE TRANSFER OF PART OF THE SHARES OF ALL SHAREHOLDERS. THE SHARES WERE ULTIMATELY TRANSFERRED AS PER THE TERMS ON RECEIPT OF THE FINAL PAYMENT ON 29/03/2007 I.E. AFTER 13 MONTHS OF THE SHARES BEING ALLOTTED. THE SHARES WERE TRANSFERRED BY THE ASSESSEE TO SURESH SHAH GROUP BY ACTUAL DELI VERY. THE TRANSFER OF SHARES TOOK PLACE ON 06/04/2007. THE ASSESSEE HELD THE INITIAL INVESTMENT AS WELL AS THE SHARES AS AN INVESTMENT AND NOT AS STOCK IN TRADE AND ACCORDINGLY WHEN THE SHARES WERE SOLD, OFFERED THE SALE PROCEEDS OF THE SHARES UNDER THE CAPITAL GAINS UNDER THE PROVISIONS OF THE I.T. ACT AFTER CLAIMING THE EXEMPTION U/S 54F BEING INVESTMENT MADE IN PURCHASE OF FLAT FROM M/S CONCRETE DEVELOPERS, NAGPUR FOR A SUM OF RS.2.5 CRORES. THE TAX ON THE I.T.A. NO. 71/NAG/2012 5 RESULTANT TAXABLE LONG TERM CAPITAL GAIN AMOU NTING TO RS.73,73,117/ - WAS DULY PAID FOR THE COMPUTATION OF THE RETURN. ATTENTION WAS DRAWN TO PAGE 13 OF THE PAPER BOOK. THE SCRUTINY OF THE RETURN WAS TAKEN BY THE ASSESSING OFFICER AND AFTER MAKING THE ENQUIRIES AND NECESSARY VERIFICATION OF THE VARI OUS DOCUMENTS FROM TIME TO TIME, ASSESSMENT WAS COMPLETED U/S 143(3) ALLOWING THE EXEMPTION TO THE ASSESSEE U/S 54F AND ACCEPTING THE RESULTANT LONG TERM CAPITAL GAIN AS DISCLOSED BY THE ASSESSEE. SUBSEQUENTLY, THE CIT - I, NAGPUR ISSUED A NOTICE U/S 263 FO RMING AN OPINION THAT THE ASSESSMENT ORDER PASSED U/S 143(3) DATED 25/09/2009 WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF REVENUE FOR THE FOLLOWING REASONS: 1. THE ASSESSEE HAS SOLD SHARES OF A PRIVATE LIMITED COMPANY FOR RS.3,24,9 0,000/ - IN MARCH, 2007 WHICH WERE ACQUIRED IN FEB., 2006 FOR RS.4,85,520/ - . THE REASONS FOR THE HIGH RATE AT WHICH THE SHARES HAVE BEEN SOLD, THE DETAILS OF THE PERSONS TO WHOM THE SHARES HAVE BEEN SOLD AND THEIR SOURCE ETC HAVE NOT BEEN VERIFIED BY THE A. O. BEFORE ACCEPTING THE LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE. 2. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 54F OF RS.2,46,09,871/ - AND THE SAME HAS BEEN ALLOWED WITHOUT FINDING OUT WHETHER THE INVESTMENT IN PROPERTY HAD MATERIALIZED INTO A DUPLEX FLAT OR NOT. 3. THE CAPITAL ACCOUNT OF THE ASSESSEE HAS NOT BEEN CALLED FOR AND VERIFIED. 4. SIMILARLY, THE S OURCE OF CREDIT ENTRIES IN THE BANK ACCOUNT ON 29/03/2007 AMOUNTING TO RS.5,59,80,000/ - HAS NOT BEEN VERIFIED. 4.1 THE ASSESSEE OBJECTED TO THE SAID NOTICE VIDE REPLY DATED 02/02/2010, AS ACCORDING TO THE ASSESSEE THERE WAS NO REASON TO BELIEVE THAT THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. ALL THE FACTS, CIRCUMSTANCES AND MATERIAL RELATING TO TH E CAPITAL GAINS WERE DULY CONSIDERED BY THE ASSESSING OFFICER BEFORE PASSING THE ASSESSMENT ORDER U/S I.T.A. NO. 71/NAG/2012 6 143(3). THE OBJECTIONS RAISED BY CIT WERE IN THE NATURE OF MAKING FRESH INQUIRIES ALTHOUGH ALL THE RELEVANT DETAILS WERE AVAILABLE ON RECORD. THE OBJECT IONS RAISED BY THE CIT WERE NOT TENABLE FOR THE FOLLOWING REASONS: (A) THE SHARES WERE TRANSFERRED BY WAY OF WRITTEN AGREEMENT EXECUTED THROUGH SOLICITORS. THE SHARES WERE TRANSFERRED AFTER RECEIPT OF FINAL PAYMENT. THERE WAS NO QUESTION ABOUT THE SUSPI CIONS RAISED BY CIT AS ALL THESE ISSUES WERE DULY EXPLAINED. (B) THERE WAS NO DOUBT ABOUT THE IDENTITY OF PURCHASERS AS IT WAS A COLLECTIVE DEAL EXECUTED THROUGH WRITTEN AGREEMENT AND EXCHANGE OF SHARES AND PAYMENTS THROUGH BANKING CHANNELS. (C) APPELLA NT SUBMITTED NECESSARY PROOF OF INVESTMENT IN THE FLAT. AT THIS STAGE THE ISSUE OF MATERIALIZATION OF FLAT DOES NOT ARISE AS IN SUBSEQUENT YEAR THE ASSESSING OFFICER WOULD HAVE VERIFIED THE SAME ACCORDING TO BUILDER AGREEMENT. WHAT WAS CONTEMPLATED IN TH IS YEAR WAS INVESTMENT OF AMOUNT FOR BOOKING OF A FLAT. (D) WHEN THE TRANSACTIONS ARE THROUGH APPELLANTS NRO BANK A/C, FILING OF ANY CAPITAL ACCOUNT IS NEITHER NECESSARY NOR PRESCRIBED BY ANY PROVISION OF THE ACT. (E) THE SOURCE OF CREDIT ENTRIES IN BAN K ACCOUNT AND TRANSFER OF SHARES ARE NOT DISPUTED. (F) THUS, REASONS GIVEN BY LEARNED CIT FOR REVISING THE ORDERS WERE EITHER, ALREADY ANSWERED AND AVAILABLE ON RECORD OR WERE TOTALLY AMOUNTING TO WHOLLY IRRELEVANT TO THE ISSUE. 4.2 SUBSEQUENTLY, SINCE THE CIT FOUND THE REPLY OF THE ASSESSEE TO BE CORRECT, SHIFTED HIS STAND BY ISSUING ANOTHER SHOW CAUSE NOTICE DATED 02/02/2010 PROPOSING TO TREAT THE TRANSACTION OF THE SALE OF SHARES AS ADVENTURE IN THE NATURE OF TRADE. THE ASSESSEE S UBMITTED REPLY DATED 19/02/2012 CHALLENGING THE VALIDITY OF ISSUING ANOTHER SHOW CAUSE NOTICE COMPLETELY ON A DIFFERENT POINT WHILE THE PROCEEDINGS WERE ALREADY PENDING IN CONTINUATION TO THE ORIGINAL SHOW CAUSE NOTICE AS ILLEGAL AND WITHOUT JURISDICTION. THE CIT, UNDER THE GUISE OF SECTION 263 I.T.A. NO. 71/NAG/2012 7 WENT ON MAKING FISHING AND ROVING ENQUIRIES AND CHANGING HIS STAND TO TAX A CLEAR TRANSACTION OF LONG TERM CAPITAL GAIN UNDER THE HEAD BUSINESS INCOME. THE CIT PASSED THE ORDER WITHOUT GIVING PERSONAL HEARING THROU GH OUT THE PROCEEDINGS OF HEARING AND HELD THAT THE CLAIM OF THE ASSESSEE U/S 54F IS NOT TENABLE. THE LEARNED CIT ULTIMATELY ENHANCED THE INCOME OF THE ASSESSEE BY TREATING THE LONG TERM CAPITAL GAIN RETURN OF THE ASSESSEE TO BE THE INCOME FROM BUSINESS . ASSESSING OFFICER HAVING MADE DUE ENQUIRIES AND WHEN NO FURTHER ENQUIRIES WERE CONSIDERED DESIRABLE OR NECESSARY AND THEREBY, HE HAS REACHED TO A REASONABLE LEVEL OF SATISFACTION AFTER DUE APPLICATION OF MIND IN REGARD TO AN ISSUE EXAMINED BY HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THEN, SUCH MATTER CANNOT BE REOPENED MERELY BECAUSE THE CIT IS OF THE OPINION THAT THE ASSESSING OFFICER SHOULD HAVE DONE MORE OR SHOULD HAVE ACTED IN A MANNER WHICH IS CONSIDERED BY THE CIT(A) AS MORE APPROPRIATE. H E PLACED RELIANCE IN THE CASE OF PURANLAL AGRAWAL (HUF) VS. CIT [2010] 131 TTJ (NAG) 78. THE LEARNED A. R. FURTHER SUBMITTED THAT CIT HAS NO POWER TO RECTIFY ASSESSMENT ORDER U/S 263 WHEN ASSESSING OFFICER HAS DULY VERIFIED ALL FACTS AND EVIDENCE. FOR TH IS HE PLACED RELIANCE IN THE CASE OF MATRIX LOGISTICS PVT. LTD. VS. CIT [2010] 122 ITD 228 (AHD) AND GYAN CHAND GUPTA VS. CIT [2011] 135 TTJ JP B) (UO) 1. THE LEARNED A. R. FURTHER SUBMITTED THAT THE CIT HAVING ISSUED A SHOW CAUSE NOTICE U/S 263 STATING THE REASONS FOR INVOKING THE SECTION, HAS NO AUTHORITY TO TRAVEL BEYOND THE REASONS ISSUED IN THE NOTICE SO ISSUED BY ISSUING A SECOND NOTICE U/S 263. THE SECOND SHOW CAUSE NOTICE WANTS TO TREAT THE TRANSACTION AS ONE ADVENTURE IN THE NATURE OF TRADE ON THE SAME FACTS. THE SATISFACTION SHOULD BE OBJECTIVE AND NOT SUBJECTIVE ON THE MATERIAL AVAILABLE WHEN THE CIT EXAMINED THE ORDER OF THE ASSESSING OFFICER. THIS IS THE BASIC REQUIREMENT OF INITIATING ACTION U/S 263 AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. G. M. MITTAL S TAINLESS STEEL PVT. LTD. 263 ITR 255 (SC). THE CONFLICTING STAND TAKEN IS CLEAR EVIDENCE THAT THERE ARE NO MATERIALS TO HAVE A SATISFACTION THAT THE ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJU DICIAL TO THE INTEREST I.T.A. NO. 71/NAG/2012 8 OF R EVENUE. THE LEARNED A. R. ALSO SUBMITTED THAT THE ORDER PASSED BY ASSESSING OFFICER U/S 143(3) WAS AFTER CONSIDERING ALL THE FACTS AND MATERIALS W.R.T. THE RETURN FILED. THE ORDER OF THE ASSESSING OFFICER CANNOT BE HELD TO BE PREJUDICIAL MUCH LESS ERRON EOUS TO THE INTEREST OF REVENUE. IT IS SETTLED LAW THAT SECTION 263 PROCEEDINGS CAN BE RESORTED TO ONLY IN CASE OF ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE 263 PROCEEDINGS ARE THUS INVALID. THE ORDER PASSED WAS WITHOUT GIVING PERSONAL HEARING TO THE APPELLANT AND THE ORDER THUS PASSED IS LIABLE TO BE QUASHED BEING VIOLATIVE OF THE PRINCIPLES OF NATURAL JUSTICE. THE ASSESSEE ALL ALONG HELD HER INTEREST IN UNIQUE PURELY AS AN INVESTMENT AND NEVER WITH THE INTENTION OF DOING ANY BUSINESS. THE GAINS THUS ARISING FROM INTEREST HELD AS INVESTMENT IS CHARGEABLE TO TAX AS CAPITAL GAINS AND NOT BUSINESS INCOME/ADVENTURE IN THE NATURE OF TRADE. THE LEARNED A. R. FURTHER SUBMITTED THAT THE INVESTMENT MADE IN HOUSE PROPERTY AND ENTIRE CONSIDERATION PAID ENTITLES THE APPELLANT TO DEDUCTION U/S 54F DURING THE YEAR OF PAYMENT FOR PURCHASE OF HOUSE PROPERTY. EXEMPTION UNDER SECTION 54F COULD NOT BE DENIED WHERE AFTER INVESTMENT OF FULL VALUE OF SALE PROCEEDS OF OR IGINAL ASSETS IN PURCHASE OF LAND, CONSTRUCTION OF RESIDENTIAL HOUSE WAS NOT COMPLETED WITHIN THE PRESCRIBED PERIOD. THE NON - REGISTRATION OF PROPERTY IN THE NAME OF THE ASSESSEE IS NO GROUND FOR DENIAL OF BENEFIT U/S 54F AS SECTION 54F POSTULATES PURCHASE OF PROPERTY. REGISTRATION IS NOT IMPERATIVE. THE LEARNED A. R. PLACED RELIANCE IN THE CASE OF GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. VS. ACIT AND SUBMITTED THAT CIT CANNOT TRAVEL BEYOND THE REASONS GIVEN IN THE ASSESSMENT ORDER U/S 143(3) BY ISSUING SHO W CAUSE NOTICE ONLY WITH REGARD TO NOT REDUCING THE EXPENDITURE INCURRED IN THE FOREIGN CURRENCY FROM THE TOTAL EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION U/S 10A. BUT IN THE REVISION ORDER, THE ASSESSMENT WAS SET ASIDE ALSO ON THE OTHER GROUND THAT S OME OF THE SALE PROCEEDS WAS YET TO BE RECEIVED BY THE ASSESSEE. THE REVISION UNDER SECTION 263 IS NOT LIKE THE REOPENING OF THE ASSESSMENT WHERE ONCE THE ASSESSMENT IS REOPENED, ENTIRE ASSESSMENT IS OPEN BEFORE THE ASSESSING OFFICER TO BE I.T.A. NO. 71/NAG/2012 9 RECONSIDERED IN ACCORDANCE WITH LAW. IN THE REVISION PROCEEDINGS, THE CIT CANNOT TRAVEL BEYOND THE REASONS GIVEN BY HIM FOR REVISION IN THE SHOW CAUSE NOTICE. REVISION ON THE GROUND THAT PART OF THE SALE PROCEEDS IS YET TO BE RECEIVED BY THE ASSESSEE IS NOT TENABLE. T HE LEARNED A. R. ALSO SUBMITTED THAT WHEN TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER TAKES ONE VIEW OR TWO METHODS ARE POSSIBLE AND THE ASSESSING OFFICER FOLLOWS THE ONE METHOD, THE ORDER OF THE ASSESSING OFFICER CANNOT BE SAID TO BE ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF THE REVENUE. WHEN TWO DIFFERENT VIEWS EXISTED WHEN THE CIT WAS PASSING THE ORDER, IT HAD TO BE TAKEN INTO ACCOUNT AND THE CIT HAS NO JURISDICTION POWER TO REVISE U/S 263. THE LEARNED A. R. ALSO RELIED ON THE DECISION IN THE C ASE OF CIT VS. MAX INDIA LTD. [2007] 213 CTR (SC) 266, MALABAR INDUSTRIAL CO. LTD. VS. CIT [2000] 159 CTR (SC) 1, ARVIND JEWELLERS CO. LTD. VS. CIT [2002] 177 CTR (GUJ.) 546 AND CAPGEMINI CONSULTING INDIA (P) LTD. VS. ADDL. CIT I.T.A. NO.2782/MUM/2007. TH US, IT WAS CONTENDED THAT THE ORDER PASSED U/S 263 BE QUASHED. 5. THE LEARNED D.R., ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT PASSED U/S 263. IT WAS CONTENDED THAT THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER WITHOUT MAKING THE DEEMED ENQUIR Y. THE AGREEMENT ON THE BASIS OF WHICH THE SHARES WERE SOLD WAS NEVER FILED BEFORE THE ASSESSING OFFICER BUT FOR THE FIRST TIME BEFORE THE CIT U/S 263. AGREEMENT FOR THE TRANSFER OF THE SHARES WAS ENTERED INTO ON 26/11/2006, THEREFORE, THE SALE OF THE SH ARES WERE WITHIN 12 MONTHS AND CAN NEVER BE TREATED AS LONG TERM CAPITAL GAIN. THE ASSESSING OFFICER, WITHOUT EXAMINING THE FACTS, COMPLETED THE ASSESSMENT AND TREATED THE CAPITAL GAIN AS RETURNED BY THE ASSESSEE TO THE LONG TERM CAPITAL GAIN AND ALSO ALL OWED DEDUCTION TO THE ASSESSEE U/S 54F WHILE THE FLAT WAS NOT CONSTRUCTED WITHIN THE PRESCRIBED TIME BY M/S CONCRETE DEVELOPERS. THE CIT HAS ALSO CALLED THE CONCRETE DEVELOPERS BUT HE DID NOT APPEAR. THE POSSESSION OF THE FLAT IS NOT HANDED OVER EVEN A FTER THREE YEARS. THE INVESTMENT MADE BY THE ASSESSEE WAS MONEY OF HER MOTHER AND NOT OF THE ASSESSEE. ON THE I.T.A. NO. 71/NAG/2012 10 AGREEMENT OF SALE OF THE FLAT FOR RS. 2 .5 CRORE, THE SIGNATURE OF THE ASSESSEE WERE NOT APPENDED BUT THE ASSESSING OFFICER HAS TAKEN IT TO BE TRU E AND CORRECT AND GAVE A LEGAL STATUS. THIS FACT CAME FOR THE FIRST TIME BEFORE THE CIT AND NEVER SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE MONEY WAS INVESTED BY THE MOTHER OF THE ASSESSEE. THE ASSESSEE WAS GIVEN OPPORTUNITY ON 09/08/2011 AND 24/08 /2011 TO CLARIFY HIS STAND. RS. 45 LAKHS ADVANCE WAS RECEIVED ON SALE OF SHARES BY 21/11/2006 I.E. IN THE NINE MONTHS ITSELF. POSSESSION OF THE SHARE CERTIFICATE ALONG WITH THE TRANSFER DEED SIGNED WERE HANDED OVER THROUGH AGENT. THE ASSESSING OFFICER W AS ONLY INFORMED THAT THE SHARES WERE PURCHASED IN FEBRUARY 2006 AND SOLD IN MARCH 2007, THEREFORE, CAPITAL GAIN AROSE. THE ASSESSING OFFICER WAS INFORMED FOR THE PURCHASE OF FLAT FOR A CONSIDERATION OF RS.2.5 CRORE AND EXEMPTION WAS CLAIMED. THE FULL FA CTS WERE NOT DISCLOSED BY THE ASSESSEE. THUS, IT WAS CONTENDED THAT THE CIT HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 263. THE FIRST NOTICE CLEARLY MENTIONS ABOUT THE DEDUCTION U/S 54F WITHOUT PROPER ENQUIRY. THE ASSESSMENT ORDER IS ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF REVENUE. THE CIT HAS RIGHTLY HELD THAT THE ASSESSEE ENTERED INTO A BUSINESS VENTURE AND, THEREFORE, THE CIT HAS RIGHTLY ASSESSED THE INCOME UNDER THE HEAD INCOME FROM BUSINESS. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH THE CASE LAWS AND CITED BEFORE US. BEFORE DECIDING THE ISSUE, IT IS NECESSARY TO REFER TO THE PROVISIONS OF SECTION 263, WHICH IS REPRODUCED AS UNDER: 263. (1) THE COMMISSI ONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESS EE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR I.T.A. NO. 71/NAG/2012 11 MODIFYING THE ASSESSMENT, OR CANCELLING THE ASSESS MENT AND DIRECTING A FRESH ASSESSMENT. EXPLANATION. - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB - SECTION, - (A) AN ORDER PASSED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988 BY THE ASSESSING OFFICER SHALL INCLUDE - (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMISSIONER OR DEPUTY DIRECTOR OR THE INCOME - TAX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED BY THE JOINT COMMISSIONER UNDER SECTION 144A; (II) AN ORDER MADE BY THE JOINT COMMISSIONER IN EXERCISE OF T HE POWER OR IN THE PERFORMANCE OF THE FUNCTIONS OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BOARD OR BY THE CHIEF COMMISSIONER OR DIRECTOR GENERAL OR COMMISSIONER AUTHORISED BY THE BOARD IN THIS BE HALF UNDER SECTION 120; (B) 'RECORD' SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDING UNDER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE COMMISSIONER; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB - SECTI ON AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTER OF ANY APPEAL FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988, THE POWERS OF THE COMMISSIONER UNDER THIS SUB - SECTION SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH M ATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL. (2) NO ORDER SHALL BE MADE UNDER SUB - SECTION (1) AFTER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY TIME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CONSEQUENCE OF OR TO GIVE EFFECT TO, ANY FINDING OR DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE T RIBUNAL, THE HIGH COURT OR THE SUPREME COURT. EXPLANATION. - IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB - SECTION (2), THE TIME TAKEN IN GIVING AN OPPORTUNITY TO THE ASSESSEE TO BE I.T.A. NO. 71/NAG/2012 12 REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURI NG WHICH ANY PROCEEDING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED. 6.1 FROM THE PERUSAL OF THE AFORESAID SECTION, IT IS APPARENT THAT THERE ARE FOUR MAIN FEATURES OF THE POWER OF REVISION TO BE EXERCISED U/S 26 3 BY THE COMMISSIONER OF INCOME - TAX. FIRSTLY, THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDINGS UNDER THE ACT AND FOR THIS PURPOSE HE NEED NOT TO SHOW ANY REASON OR RECORD ANY REASON TO BELIEVE. IT IS A PART OF HIS ADMINISTRATIVE PO WER TO CALL FOR THE RECORD AND EXAMINE THEM RELATING TO ANY ASSESSEE. SECONDLY HE MAY CONSIDER ANY ORDER PASSED BY THE ASSESSING OFFICER AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THIS CONSIDERATION HAVING REGARD TO THE LANGUAGE OF SECTION 263 APPARENTLY IS A CONSIDERATION WHICH HE EXERCISES BY CALLING FOR AND EXAMINING THE RECORDS AVAILABLE AT THIS STAGE. THERE IS NO QUESTION OF THE ASSESSEE TO APPEAR AND MAKE SUBMISSION. THIRDLY, IF AFTER CALLING FOR AND EXAMINING THE RECORDS THE COMMISSIONER CONSIDERS THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE IS BOUND TO GIVE AN OPPORTUNITY TO THE ASSESSEE OF BEING HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH ENQUIRY A S HE MAY DEEM FIT, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE MAY JUSTIFY INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELING ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. THIS EMPOWERS THE C.I.T. TO CAUSE OR MAKE SUCH ENQUI RIES AS HE DEEMS NECESSARY. FOURTHLY THE C.I.T. U/S 263 CAN ENHANCE OR MODIFY THE ASSESSMENT. 6.2 IT IS A SETTLED LAW THAT FOR INVOKING THE PROVISIONS OF SECTION 263 THE CIT MUST SATISFY BOTH THE CONDITIONS THAT THE ORDER PASSED BY THE ASSESSING OFFICER I S ERRONEOUS AND ALSO THAT IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IF ONE OF THE CONDITIONS IS ABSENT, THE ORDER PASSED BY THE CIT BY INVOKING THE PROVISIONS OF SECTION 263 WILL NOT BE LEGAL. THE TERM ERRONEOUS HAS NOT BEEN DEFINED UNDER I.T.A. NO. 71/NAG/2012 13 THE INC OME - TAX ACT BUT IT IS WELL SETTLED THAT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER CANNOT BE SAID TO BE AN ERROR. AN ORDER CAN BE SAID TO BE ERRONEOUS IF THERE IS AN INCORRECT ASSUMPTION OF FACT OR INCORRECT APPLICATION OF LAW IN THE ORDER PASSED BY THE ASSESSING OFFICER. IF THE ASSESSING OFFICER AFTER MAKING THE ENQUIRIES AND EXAMINING THE RECORDS, TAKEN ONE OF THE POSSIBLE VIEWS, IT CANNOT BE SAID THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS. 6.3 IT IS ALS O APPARENTLY CLEAR THAT THE POWER OF THE CIT ARE THREE FOLD. ONE, PRIOR TO THE INITIATION OF THE PROCEEDINGS U/S 263. SECOND, AT THE TIME OF INITIATION OF THE PROCEEDINGS. THIRD, THE FINAL OUTCOME AFTER THE INITIATION OF THE PROCEEDING. POWER OF THE CIT PR IOR TO THE INITIATION INCLUDES CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDINGS UNDER THIS ACT. THE WORD RECORD IS VERY IMPORTANT, BECAUSE ON THE BASIS OF THE RECORD OF THE PROCEEDINGS THE CIT WILL FORM AN OPINION THAT THE ORDER PASSED IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND ONCE HE FORMS AN OPINION, HE HAS TO GIVE AN OPPORTUNITY TO THE ASSESSEE OF BEING HEARD AND AFTER MAKING OR CAUSING THE ENQUIRY HE CAN PASS AN ORDER. MOREOVER THE INQUIRY IS CONDUCTED ONCE THE CIT FORMS AN OPINION ON THE BASIS OF RECORD THAT THE ORDER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE WORD RECORD HAS BEEN DEFINED UNDER EXPLANATION (B) OF SECTION 263 TO MEAN THAT THE RECORD SHALL INCLUDE AND SHALL BE DEEMED ALWA YS TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDING UNDER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE COMMISSIONER. THE EXAMINATION OF THE RECORD IS TO BE CARRIED BY THE COMMISSIONER PRIOR TO THE FORMING AN OPINION THAT THE ORDER IS ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ONCE THE RECORD IS EXAMINED AND THE CIT ON THE BASIS OF EXAMINATION OF THE RECORD FORMS AN OPINION THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE IS EMPOWERED AFTER GIVIN G THE OPPORTUNITY TO THE ASSESSEE, TO MAKE SUCH ENQUIRY AS HE MAY DEEM NECESSARY. THEREFORE, THE ENQUIRY TO BE CONDUCTED BY THE CIT IS AN ACT ONCE THE CIT ARRIVES AT A CONCLUSION THAT THE ORDER PASSED BY THE ASSESSING I.T.A. NO. 71/NAG/2012 14 OFFICER IS ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF THE REVENUE AFTER EXAMINING THE RECORD. THUS ENQUIRY PRECEDES THE RECORD AND THE MATERIAL COLLECTED DURING THE COURSE OF THE ENQUIRY CANNOT BE THE PART OF THE RECORD OF THE PROCEEDINGS WHEN THE CIT FORMS AN OPINION THAT THE ORDER PASSED B Y THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE NOTED THAT IN THIS CASE WHILE MAKING THE ASSESSMENT UNDER SCRUTINY, THE ASSESSING OFFICER ISSUED NOTICE U/S 143(2). IN REPLY THERETO, ONE SHRI SUDHIR BAHETI, CA ATTEN DED BEFORE THE ASSESSING OFFICER. HE WAS ASKED TO FILE CERTAIN DETAILS TO PROVE THE RETURNED INCOME. THE DETAILS MAINLY CONSIST OF (A) WORKING OF THE VALUATION OF THE SHARES SOLD ALONG WITH SUPPORTING DOCUMENTS; (B) AGREEMENT OF SALE OF SHARES; (C) CONFI RMATION WITH DOCUMENTARY SUPPORT OF CONSIDERATION RECEIVED BY VENDOR AND (D) SUPPORTING THE TRANSACTION SALE OF SHARES WITH DOCUMENTS. THE PART OF THE INFORMATION WAS FILED ON 09/09/2009 WHILE THE PART OF INFORMATION WAS FILED ON 14/09/2009 AND IMMEDIATEL Y HEARING WAS CONCLUDED AND THE ORDER WAS PASSED. FROM THE NOTING ON THE ORDER SHEET IT IS APPARENT THAT THE ASSESSING OFFICER HAS EXAMINED THE TRANSACTIONS RELATING TO THE SALE OF THE SHARES AND THE ASSESSEE HAS FILED THE REQUISITE DOCUMENTS AND THE AGRE EMENT AS WERE ASKED FOR TO SUPPORT THE SALE OF THE SHARES. WE HAVE ALSO GONE THROUGH THE AGREEMENT DATED 21/11/2006 ENTERED INTO BETWEEN UNIQUE WASTE PLASTIC MANAGEMENT & RESEARCH PVT. LTD. AND MRS. USHA S . SHAH WHO HAS AGREED TO PURCHASE THE SHARES OF UNIQUE WASTE PLASTIC MANAGEMENT & RESEARCH PVT. LTD. FROM ITS SHAREHOLDERS FOR A TOTAL CONSIDERATION OF RS.35 CRORE IN WHICH THE ASSESSEE WAS HAVING 10% SHARE HOLDING. THIS AGREEMENT IS AVAILABLE AS ANNEXURE A - 3 AND THIS AGREEMENT IS DULY SIGNED ON BEHALF OF UNIQUE WASTE PLASTIC MANAGEMENT & RESEARCH PVT. LTD. BY ONE SHRI ZADGAONKAR I.E. THE PROMOTER OF THE SAID COMPANY. WE ALSO NOTED THAT THE SIGNATURE OF THE ASSESSEE MS. NISHA RAMPAL ARE ALSO THERE ON EACH PAGE OF THIS AGREEMENT. THEREFORE, THIS IS INC ORRECT TO STATE THAT THE AGREEMENT IS NOT SIGNED BY THE ASSESSEE. AT THE TIME OF ENTERING INTO AN AGREEMENT, AN ADVANCE WAS TO BE GIVEN AMOUNTING TO RS.4,50,00,000/ - , I.T.A. NO. 71/NAG/2012 15 10% THEREOF BEING THE SHARE OF THE ASSESSEE AMOUNT ED TO RS.45,00,000/ - . THE BALANCE CONSIDERATION WAS TO BE PAID IN NEXT 25 MONTHS AND THE SHARES ARE TO BE TRANSFERRED IN THE NAME OF SHAH GROUP ONLY AFTER THE PAYMENT OF THE FULL CONSIDERATION UNDER THIS AGREEMENT. WE ALSO NOTED THAT SHAH GROUP HAVE THE RIGHT TO PRE - PAY THE CONSIDERATION IN TERMS OF THE AGREEMENT DATED 21/11/2006 A ESCROW DEED DATED 26/01/2007 WAS EXECUTED AND THE SHARES WERE DEPOSITED WITH THE ESCROW AGENT NAMELY SHAH & SINGHVI ASSOCIATES, ADVOCATES, SOLICITOR AND NOTARY. THE TOTAL CONSIDERATION WAS PAID BY SHAH GROUP ON 24/03/2007 AND ACCORDINGLY THEY HAVE WRITTEN A LETTER TO THE ESCROW AGENT SHAH & SINGHVI ASSOCIATES, ADVOCATES, SOLICITOR AND NOTARY FOR RELEASE OF THE SHARES AFTER MAKING THE PAYMENT TO THE SHAREHOLDER. ON 30/0 3 /2007 SHAH & SINGHVI ASSOCIATES, ADVO CATES, SOLICITOR AND NOTARY, WHO WERE ACTING AS ESCROW AGENT, WROTE A LETTER TO THE ASSESSEE INTIMATING HERE THAT THE SALE CONSIDERATION OF THE SHARES HAS BEEN TRANSFERRED TO HER BANK ACCOUNT AT NAGPUR BRANCH AND ACCORDINGLY THEY HAVE RELEASED THE ORIGINAL SHARE CERTIFICATES AND SHARE TRANSFERRED FORM IN TERMS OF ESCROW DEED DATED 26/01/2007 TO SMT. USHA S. SHAH. THUS, THE SHARES WERE HANDED OVER BY THE ESCROW AGENT TO THE PURCHASER ON 30/03/2007 AND THE FULL CONSIDERATION HAS ALSO BEEN RECEIVED BY THE ASS ESSEE BY THAT DATE. IN OUR OPINION, ESCROW AGENT SHAH & SINGHVI ASSOCIATES, ADVOCATES, SOLICITOR AND NOTARY WAS REPRESENTING AS AN AGENT OF THE ASSESSEE AND THE SALE OF THE SHARE HAS ACTUALLY TAKEN PLACE ON 30/03/2007 WHEN THE SHARES WERE HANDED OVER BY THE ESCROW AGENT TO THE SELLERS ACCOUNT AGAINST THE RECEIPT OF THE TOTAL CONSIDERATION. ACCORDINGLY, RECEIVING OF AN ADVANCE, IN OUR OPINION, WILL NOT TANTAMOUNT TO SALE OF SHARES. THUS, THE SHARES WERE HELD BY THE ASSESSEE FOR MORE THAN 12 MONTHS AND C IT, IN OUR OPINION, WAS NOT CORRECT IN LAW IN HOLDING THAT THE PROFIT ON SALE OF SHARES COULD HAVE BEEN ASSESSED AS SHORT TERM CAPITAL GAIN U NDER PARA 19.2 . T O THAT EXTENT , WE DO NOT FIND ANY ERROR IN THE ORDER OF THE ASSESSING OFFICER. EVEN WE MAY MENTI ON THAT WHERE THERE ARE TWO VIEWS POSSIBLE AS TO THE INTERPRETATION OF ANY TRANSACTION AND THE ASSESSING I.T.A. NO. 71/NAG/2012 16 OFFICER HAS TAKEN ONE OF THE VIEW FAVOURABLE TO THE ASSESSEE, THE ORDER CANNOT BE SAID TO BE ERRONEOUS UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER I S UNSUSTAINABLE IN LAW. SAME VIEW HAS BEEN TAKEN BY HON'BLE SUPREME COURT IN CASE OF MALABAR INDUSTRIAL CO. LTD. V S . COMMISSIONER OF INCOME - TAX 243 ITR 83. WE NOTED ON THE BASIS OF THE EVIDENCE AND THE FACTS ON RECORD AND THE ENCLOSURES TO THE ORDER OF CIT PASSED U/S 263, THE SHARES WERE HELD BY THE ASSESSEE FOR 13 MONTHS AND SALES HAS TAKEN PLACE THEREAFTER. THE CIT WAS NOT CORRECT THAT THE SHARES WERE SOLD WITHIN 11 MONTHS. ESCROW AGENT WAS MERELY HOLDING THE SHARES ON BEHALF OF THE ASSESSEE AS THE T RUSTEE OF THE ASSESSEE. ON THIS BASIS ITSELF, IN OUR OPINION, THE ORDER PASSED BY THE CIT DOES NOT HAVE ANY LEG TO STAND AND IS LIABLE TO BE ANNULLED. EVEN WE NOTED THAT IN THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS I NVESTED THE SALE CONSIDERATION IN THE PURCHASE OF THE FLAT. WHETHER THE POSSESSION OF THE FLAT WILL BE AVAILABLE TO THE ASSESSEE, CANNOT BE LOOKED INTO AT THE TIME OF PASSING THE ORDER U/S 143(3). THE FINDING GIVEN BY THE CIT, IN OUR OPINION, THAT THE AG REEMENT TO SALE IS NOT GENUINE IS ALSO NOT CORRECT. THE PERIOD OF THREE YEARS HAVE NOT PASSED WHEN THE ORDER U/S 143(3) WAS PASSED. APPARENT IS REAL. ONUS IS ON THE PERSON WHO ALLEGES, APPARENT IS NOT REAL. THE CIT SIMPLY OBSERVED THAT THE AGREEMENT IS NOT GENUINE AND ASSESSEE IS NOT ELIGIBLE FOR RELIEF U/S 54F MERELY ON SURMISES AND CONJECTURES WITHOUT DISCHARGING THE ONUS WHICH LIES ON CIT WHO ALLEGES THAT THE APPARENT IS NOT REAL. THE SAID VIEW HAS BEEN TAKEN BY HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER O F INCOME TAX (CENTRAL), CALCUTTA V S . DAULAT RAM RAWATMALL 87 ITR 349. WE ALSO NOTED THAT IN THIS CASE THE CIT TREATED THE INCOME ON THE SALE OF SHARES AS ADVENTURE IN THE NATURE OF TRADE BY ISSUING THE SECOND NOTICE TO THE ASSESSEE. THE ASSESSEE HAS MADE THE INVESTMENT IN THE SHARES AND SO LD THE SAME. THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT. THERE IS NO CONTINUITY OF THE TRANSACTION S . SHARES ARE NOT HELD BY THE ASSESSEE AS STOCK IN TRADE. THE REVENUE CANNOT DIRECT THE ASSESSEE THAT THE ASSESSEE SHOULD NOT TAKE THE RISK BY INVE STING IN A NON PRIVATE I.T.A. NO. 71/NAG/2012 17 LIMITED COMPANY. THE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES, THEREFORE, THERE IS NO QUESTION OF ASSESSING THE INCOME ARISING ON THE SALE OF SHARES AS HELD BY THE ASSESSEE AS INVESTMENT TO BE THE INCO ME FROM BUSINESS. IF THE ASSESSING OFFICER HAS ACCEPTED THE SALE OF THE SHARES AS INCOME FROM CAPITAL GAIN, IN OUR OPINION, THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEWS AND THE VIEW TAKEN BY THE ASSESSING OFFICER WAS NOT ILLEGAL. SECTION 263 DOES NOT EMPOWER THE CIT TO THR UST UPON HIS VIEW ON THE ASSESSING OFFICER. REVISION U/S 263 IS POSSIBLE ONLY IF BOTH THE CONDITIONS I.E. THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, ARE SATI SFIED. WHEN THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEWS, THE ORDER PASSED BY THE ASSESSING OFFICER CANNOT BE REGARDED TO BE ERRONEOUS. THUS, IN OUR OPINION, UNDER THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE CIT HAS NOT CORRECTLY EXE RCISIN G HIS JURISDICTION AND HAD ACTED BEYOND THE POWER AS LAID DOWN U/S 263 OF THE ACT. WE, THEREFORE, QUASH THE ORDER PASSED U/S 263 AND ALLOW THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ( O RDER PRONOUNCED IN THE OP EN COURT ON 30/11/2012 ) SD/. SD/. ( D. T. GARASIA ) ( P. K. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30/11/2012 * CL SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR