SHRI NIKESH JAGDISH MEHTA,RAJKOT V. THE PR. CIT-1, RAJKOT, RAJKOT

ITA 87/RJT/2021

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The case revolves around an appeal by Nikesh Jagdish Mehta against the order of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961, which set aside the original assessment order for the assessment year 2015-16. The PCIT's order was based on the grounds that the original assessment did not adequately investigate the genuineness of transactions leading to a claimed long-term capital gain (LTCG) exempt under section 10(38) of the Act. The Tribunal examined whether the Assessing Officer had conducted sufficient inquiries during the assessment proceedings and concluded that the inquiries made were adequate, thus allowing the appeal and quashing the PCIT's order.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 473452 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-08-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 25-05-2021
• Other Referred Cases: PCIT vs. Swati Bajaj, Sumati Dayal vs. CIT, Satish Kumar Lakhmani vs. PCIT, Vipul Modi vs. PCIT, Kaushalya Dealers Pvt. Ltd. vs. ITO, PCIT vs. Kaushalya Dealers Pvt. Ltd., Bhadresh Mansukhlal Dodhia vs. ACIT, Pradipkumar Harakchand Doshi vs. ITO, PCIT vs. Deep Industries Ltd., PCIT vs. Shreeji Prints (P.) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAMDEEP SINHA
• Assessee Lawyers: VIMAL DESAI
• Keywords: Set aside; Accommodation entries; Earning of tax free income; Revision of order; Bogus
• Section: 143(3); 142(1); 263; 48; 264

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER AND SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER आयकरअपीलसं./ITA Nos.87/RJT/2021 (Ǔनधा[रणवष[ / Assessment Year: (2015-16) (Physical Hearing) Nikesh Jagdish Mehta, White House, Amin Marg, B/h.: Kalawad Road, Rajkot - 360001 Vs. The Pr. CIT – 1, Rajkot èथायीलेखासं./जीआइआरसं./PAN/GIR No.: ACPPM1786J (Appellant) (Respondent) Appellant by : Shri Vimal Desai, AR Respondent by : Shri Shramdeep Sinha, CIT-DR Date of Hearing : 06/08/2024 Date of Pronouncement : 04/11 /2024 आदेश / O R D E R PER DR. A. L. SAINI, AM: By way of this appeal, the assessee has called into question correctness of impugned order passed by the learned Principal Commissioner of Income Tax, under section 263 of the Income tax Act, 1961, dated 20.01.2021, in the matter of assessment under section 143(3) of the Act, for the assessment year 2015-16, on the following grounds: “1. The order u/s. 263 of the Act is bad in law. 2. The learned Pr. CIT has erred in law as well as on facts in not considering the submissions of the appellant on the strength of which the assessment order was neither erroneous nor prejudicial to the interest of revenue and therefore, the provisions of Section 263 of the Act were not applicable to the case of the appellant. Page | 2 ITA No.87/Rjt/2021/AY.2015-16 Nikesh Jagdish Mehta 3. The learned Pr. CIT has erred in law as well as on facts in setting aside the assessment order passed by the Id. A.O. u/s. 143(3) of the Act and directing de- novo assessment regarding verification of claim of exemption u/s. 10(38) on account of LTCG on sale of shares of PS IT Infrastructure Services Ltd. The appellant craves leave to add, alter, amend, delete or withdraw one or more grounds of appeal.” 2. The appeal filed for Assessment Year 2015-16, is barred by limitation by 65 days. The assessee has moved a petition requesting the Bench to condone the delay. Learned Counsel for the assessee, argued and explained the delay stating that delay has mainly occurred due to COVID- 19- pandemic. We have heard both the parties on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing. 3.Succinctly, the factual panorama of the case is that assessee before us is an Individual. The return of income for A.Y. 2015-16, has been filed by the assessee, on 28-01-2016, disclosing income of Rs.1,34,920/- and exempt income of Rs.91,63,309/-. The assessee`s case was selected for complete scrutiny with a reason to verify suspicious sale transaction in shares. The assessment was completed u/s 143(3) of the Income-tax Act on 27/11/2017, accepting the returned income. 4. Later on, the learned Principal Commissioner of Income Tax, has exercised his jurisdiction, under section 263 of the Income tax Act, 1961, On examination of the records, it was noticed by the learned PCIT that the assessee had claimed long term capital gain of Rs.91,63,309/- from sale of 1,13,000 shares of M/s PS IT Infrastructure Services Ltd, with script code 505502 (formerly known as Parag Shilpa Investments Limited) and the same has been claimed as exempt from tax u/s 10(38) of the Income-tax Act. This claim of the assessee has been allowed by the assessing officer Page | 3 ITA No.87/Rjt/2021/AY.2015-16 Nikesh Jagdish Mehta without going into genuineness of the transactions based on the circumstantial evidences available on record.It is pertinent to mention that the details of investigation carried out by the Investigation Wing of the department has conclusively proved that the said scrip of the said company M/s PS IT Infrastructure & Services Ltd. has been utilized excessively to provide accommodation entries in the books of the beneficiaries in the name of bogus LTCG/STCL or unsecured loans. The report is already available with all the Assessing Officer at the ITS tab of the ITBA Application. In fact, the very base for selection of this case for scrutiny is suspicious sale transaction in shares. The report of the Investigation is comprehensive enough detailing the modus operandi of the scam along with copies of statements of the entry operators (scrip- wise) recorded by the officers of investigation wing wherein such entry operators have admitted that they managed the trading in these scrips to artificially rig the price on stock exchange through a network of dummy directors, brokers and jama/kharchi companies. However, the Assessing Officer ignored of all this details and accepted the details furnished by the assessee during the assessment proceedings, on its face value, without making any efforts to cull out the exact nature of the transaction entered into by the assessee with this company. 5. Therefore, learned PCIT has issued a show cause notice under section 263 of the Act, to the assessee, to explain the transaction. 6. In response to the said notice, the assessee furnished written submission before learned PCIT on 04/07/2019. The gist of the assessee`s submissions are as follows: (i) That the assessee has submitted full details/information along with supporting documentary evidence, and assessing officer verified all the details / information & supporting Page | 4 ITA No.87/Rjt/2021/AY.2015-16 Nikesh Jagdish Mehta evidence. After verification of details & information submitted, the assessing officer wisely passed the assessment order, (ii) The AR of the assessee has submitted a chart showing the transactions that he has entered into with relation to the claim of Long Term Capital Gain (Exempt) in chronological order. (The said chart was also submitted before the assessing officer during the assessment proceedings), (iii) Besides, the AR has also vehemently argued that the company is not a bogus company and all the transactions carried out by him are backed by documents. It has been mentioned that even SEBI has no objection towards functioning of the company and there not a single instances leading to belief that it was Penny stock company and (iv) In addition to the above comments, the AR has quoted some of the judicial decisions which upheld that if genuineness of the transactions leading to LTCG claimed exempt u/s 10(38) is established, claim should not be rejected. 7. However, the Ld. PCIT rejected the contention of the assessee and noted that it is the bounden duty of an Assessing Officer to collect and appreciate the facts and to properly apply the law while making the assessment. The Ld. PCIT noticed that the assessment made by the Assessing Officer is in a very casual and mechanical manner. Therefore, ld PCIT held that in the interest of justice and since the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous, and (ii) it is prejudicial to the interests of the revenue are satisfied, the impugned assessment order was set aside for fresh assessment only to the extent of the issue (supra), and directed the assessing officer, to make in depth inquiries regarding genuineness of purchase / genuineness and justification for such sharp rise in the price of shares as also genuineness of sales of such shares resulting into arisen of Long Term Capital Gain. Page | 5 ITA No.87/Rjt/2021/AY.2015-16 Nikesh Jagdish Mehta 8. Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us. 9. Shri Vimal Desai, Ld. Counsel for the assessee, argued that during the assessment proceedings, the issue raised by the Ld. PCIT, had been thoroughly examined by the assessing officer. The assessing officer had issued notice during the assessment proceedings u/s 142(1) of the Act which is placed at paper book page no.29 and 30 wherein the assessing officer specially asked the assessee to submit the details and documents regarding purchase and sale of shares. Whatever the documents required by the assessing officer, has been furnished before the assessing officer during the assessment proceedings, therefore assessing officer has taken the plausible view and allowed the claim of the assessee. Besides, the Ld Counsel has also vehemently argued that the company is not a bogus company and all the transactions carried out by him are backed by documents. It has been mentioned that even SEBI has no objection towards functioning of the company and there not a single instances leading to belief that it was Penny stock company. Therefore, order passed by the assessing officer, is neither erroneous nor prejudicial to the interest of revenue, hence order passed by the ld. PCIT may be quashed. 10. On the other hand, the Learned Commissioner of Income-tax - Departmental Representative (Ld. CIT-DR) for the Revenue submitted that assessing officer did not conduct necessary enquiry to the effect that there was a jump in the share price which is more than 2100%. The assessing officer has also not conduct further enquiry which is needed, considering the facts and circumstances. The Ld. CIT-DR for the Revenue therefore stated that enquiry was not made by the assessing officer.Just to Page | 6 ITA No.87/Rjt/2021/AY.2015-16 Nikesh Jagdish Mehta collect the documents from the assessee and keep in the assessment folder that does not mean that it is an enquiry.The assessing officer has not considered, the human probability aspect, which is mentioned by the Hon’ble Supreme Court in the case of Sumati Dayal vs. CIT, (1995) 80 Taxman 89 (SC). Therefore, Ld. CIT-DR contended that relevant enquiry was not made by the assessing officer, during the assessment proceedings;therefore order passed by the assessing officer, is erroneous as well as prejudicial to the interests of Revenue. Apart from this, Ld. CIT-DR relied on the following judgments: (i) PCIT vs. Swati Bajaj, 139 taxmann.com 352 (Cal- HC) (ii) Sumati Dayal vs. CIT, 80 Taxman 89 (SC) 11. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. First of all, we should have examine, whether assessing officer, has conducted adequate enquiry or not. We find that assessing officer had issued notice during the assessment proceedings u/s 142(1) of the Act, which is placed at paper book page no.29 and 30 of assessee`s paper book, wherein the assessing officer specially asked the assessee to submit the details and documents regarding purchase and sale of shares. The relevant points, raised by the assessing officer, in the notice u/s 142(1) of the Act, are as follows: “9. Copy of your account in the books of broker in respect of shares, futures, securities, units etc. and copy of trading account. Please produce all bills/vouchers/contract notes for verification. 10. Please furnish the details of share/derivative transactions made by you during the period under consideration (with or without delivery) in the following format:” Sr. No. Name of Dt. Of Purch Quantity Purchase price Date of Quantit y Sale Price Profit / Loss Page | 7 ITA No.87/Rjt/2021/AY.2015-16 Nikesh Jagdish Mehta Script ase Sale 12. During the assessment proceedings, the assessing officer has issued other notice u/s 142(1) of the Act, also. In response to these notices, assessee has also submitted his reply, before the assessing officer, dated 24.07.2017, the relevant portion of reply is reproduced below: “8. Point no.8 to 12 pertains to share transactions entered into during the year. During the year I traded in shares of various companies. However major chunk of these transactions pertain to one company PS IT Infrastructure & Services Ltd. (earlier Parag Shilpa Investment Ltd.). Following documents in support of the same are furnished herewith: Pg. No. 48 to 89. a. Copy of Purchase Invoice evidencing purchase of 25,000 equity shares. b. intimation of Shares transferred in my favour alongwith copy of share certificates. c. Copy of Dematerialization Request Form for transferring physical shares into Demat Account with Rajkot Nagarik Sahakari Bank Ltd. d. Copy of intimation from company intimating split of shares in the ratio of 1:10. Originally, I purchased 25,000 shares of Rs.10/- each which were later split into 2,50,000 equity shares of Rs.1/- each. e. Copy of Demat statements of Rajkot Nagarik Sahakari Bank Ltd. evidencing credit of 25,000 equity shares & later 2,50,000 equity shares on split. f. As Rajkot Nagarik Sahakari Bank Ltd, was not having trading account facility, I opened another Demat Account & Trading Account with IIFL. Copy of Demat Account with IIFL is furnished. It may please be noted that shares credited in Demat Account with IIFL are transferred from Demat Account held with Rajkot Nagarik Sahakari Bank Ltd. g. Copy of my account with IIFL evidencing trading of shares of all the companies made by me during the year is attached. h. Copy of account of IIFL from my books of account for the year under assessment is also furnished. i. Copies of Contract Notes issued by IIFL on shares trading are furnished herewith. j. Complete working of capital gain is already furnished vide reply no.6 herein above.” Page | 8 ITA No.87/Rjt/2021/AY.2015-16 Nikesh Jagdish Mehta 13. The assessee has also submitted a further reply, before the assessing officer, dated 30.01.2019; the relevant para of reply is also reproduced below: “1. As stated in my earlier submission, investment in shares of Parag Shilp Investment Ltd. was made in preceding financial year i.e. in AY 2014-15. Original Investment in shares was Rs. 10.00 Lacs. The same was met out of my fund lying with Macpower CNC Machines Pvt. Ltd. Copy of my account from the books of company & company's account from my books for AY 2014-15 evidencing relevant transaction is attached herewith. Copy of my bank passbook evidencing relevant transaction is also furnished herewith. 2. Copy my demat statement with IIFL from the date of opening account showing transactions during the year under assessment is furnished herewith. 3. As regards independent verification of transactions carried out through recognized stock exchange, we submit herewith certificate issued by BSE Ltd. certifying transactions carried out through it during the current assessment year. This certificate was issued by BSE Ltd. on my specific request & on depositing requisite fees. From the certificate it is clearly evident that each & every sale transaction on which long term capital gain is claimed exempt from tax u/s10(38), are made through recognized stock exchange only. Further STT (Security Transaction Tax) on all the transactions processed through recognized stock exchange are duly paid. 14. Therefore, we note that whatever, documents required by the assessing officer, has been furnished, by the assessee, before the assessing officer, during the assessment proceedings, therefore assessing officer, having gone through the documents and evidences submitted by the assessee, has taken the plausible view and allowed the claim of the assessee. The Ld. Counsel for the assessee, argued that the script of M/s PS IT Infrastructure & Services Limited (formerly known as Parag Shilpa Investments Ltd.) and the company whose script relates to an active company,the Hon’ble Co-ordinate Bench of ITAT, Kolkata in the case of Satish Kumar Lakhmani vs. PCIT, (2021) 128 taxmann.com 264 (Kol – Page | 9 ITA No.87/Rjt/2021/AY.2015-16 Nikesh Jagdish Mehta Trib.), considering the same share, (script) held that order passed by the assessing officer was not erroneous and prejudicial to the interest of Revenue. The Ld. Counsel for the assessee, also relied on the following decisions: (i) Satish Kumar Lakhmani vs. PCIT, 128 taxmann.com 264 (Kol – Trib.) (ii) Vipul Modi vs. PCIT, 139 taxmann.com 89 (Mum – Trib.) (iii) Kaushalya Dealers Pvt. Ltd. vs. ITO, in ITA No.419/Kol/2020, dated 10.12.2021 (Kol – Trib) (iv) PCIT vs. Kaushalya Dealers Pvt. Ltd., 147 taxmann.com 526 (Cal – HC) (v) BhadreshMansukhlalDodhia vs. ACIT, ITA No. 5544/Mum/2018, dated 06.01.2021 (v) Pradipkumar Harakchand Doshi vs. ITO, ITA No. 2229/Mum/2023, dated 15.03.2024 (vi) PCIT vs. Deep Industries Ltd., 67 taxmann.com 6 (Guj - HC) (vii) PCIT vs. Shreeji Prints (P.) Ltd., 130 taxmann.com 294 (SC) 15. The law with regard to exercise of jurisdiction u/s.263 of the Act on the ground that the assessing officer failed to make enquiries which he ought to have made in the given circumstances of a case is well settled. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Page | 10 ITA No.87/Rjt/2021/AY.2015-16 Nikesh Jagdish Mehta Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word “erroneous” in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. We derive support for the proposition as stated above from the decision of the Hon’ble Delhi High Court in the case of Gee Vee Enterprises 99 ITR 375 (Del). 16. Since in the present case, the PCIT has exercised jurisdiction u/s.263 of the Act, on the ground that the assessing officer, while completing the assessment proceeding, did not make enquiries, which he ought to have made, it is necessary to look into what enquiries the assessing officer made on the issues raised in the order u/s.263 of the Act. It is clear from the submissions and material available on record with regard to shares, and long-term capital gain earned by the assessee, that assessee has submitted the reply along with documents and evidences, before the assessing officer. We find that the PCIT has not set out, as to what type of inquiry ought to have conducted by the assessing officer. A mere observation that no proper details have been obtained, cannot be sufficient to come to a conclusion that the assessing officer did not make proper and adequate inquiries which he ought to have made in the given facts and circumstances of this case. In the conclusion, we are of the view that none of the reasons, set out by the PCIT, for invoking the jurisdiction u/s 263 of the Act are sustainable. The impugned order of the ld. PCIT has to be quashed for the reason that order of the assessing officer sought to be revised in the impugned order was neither erroneous nor prejudicial to the interest of the revenue for the reason of any lacks of inquiry that the assessing officer ought to have made in the given facts and circumstances Page | 11 ITA No.87/Rjt/2021/AY.2015-16 Nikesh Jagdish Mehta of the case. We accordingly quash the order u/s 263 of the Act, and allow the appeal of the assessee. 17. In the result, appeal of the assessee is allowed. Order is pronounced in the open court on 04/11/2024 Sd/- Sd/- (DINESH MOHAN SINHA) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Rajkot Ǒदनांक/ Date: 04 /11 /2024 Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr. CIT 5. DR/AR, ITAT, Rajkot 6. Guard File By Order Assistant Registrar/Sr. PS/PS ITAT, Rajkot Date Initial 1. Draft dictated on (dictation sheet is enclosed with main file.) 01.08.2024 } PS 2. Draft placed before author 05.08.2024 PS 3. Draft proposed & placed before the second member 4. Draft discussed/approved by Second Member. 5. Approved Draft comes to the Sr.PS/PS 6. Kept for pronouncement on Page | 12 ITA No.87/Rjt/2021/AY.2015-16 Nikesh Jagdish Mehta 7. File sent to the Bench Clerk 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. 11. Draft dictation sheets are attached PS "