IN THE HIGH COURT OF GUJARAT
R/Tax Appeal No. 164 Of 2019
PRINCIPAL COMMISSIONER OF INCOME TAX-2
HARIKRISHAN S VIRMANI
J B Pardiwala & A C Rao, JJ
Dated: June 24, 2019
Appellant Rep by: Mrs Kalpanak Raval(1046)
Respondent Rep by: None
Income Tax – Sections 10(38), 260A & 263
Keywords – Exemption benefit – Revisionary jurisdiction – Factual assertion
THE present case is brought by the Revenue on a purchase of preferential allotment of shares by the assessee, an individual who while filling his return declared his income to be Rs.1,77,75,620. the scrutiny assessment u/s 143(3) was successfully held. It was on later event that the Revenue noticed that the assessee had demanded exemption u/s 10(38) on the long term capital gain of Rs. 3,98,02,460 incurred from selling the shares purchased in the AY 2014-15. Revision u/s 263 clause (a) of the Explanation 2 was brought into action by the PCIT on the grounds of AO being erroneous and the assessment being prejudicial to the interest of the revenue and in consequence the PCIT ordered to set aside the assessment and conduct a fresh assessment. Challenging the same, the assessee went before the Appellate tribunal, where the Tribunal upheld that the PCIT was erroneous and was not justified in issuing notice u/s 263 for revision of the assessment order.
On appeal, the HC held that,
Whether Section 260A can be invoked to disturb the findings of facts arrived at by the Appellate Tribunal – NO: HC
++ this Court is of the view that no error not to speak of any error of law could be said to have been committed by the Tribunal in passing the order. In the considered opinion, none of the two questions formulated in the memorandum of the Tax Appeal could be termed as substantial questions of law. The matter is more on facts. This Court would not like to disturb the findings recorded by the Appellate Tribunal. The Appellate Tribunal is the last fact finding authority. Having regard to the scope of appeal u/s 260-A of the Act, we would not like to disturb the findings of fact arrived at by the Appellate Tribunal.
Revenue Appeal Dismissed
Per: J B Pardiwala:
1. This Tax Appeal under Section 260-A of the Income Tax Act, 1961, (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Appellate Tribunal, Surat Bench, Surat in ITA No.292/SRT/2018 for the Assessment Year 2014-15.
2. The Revenue has proposed the following substantial questions of law in its memorandum of the Tax Appeal :
“i) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT has erred in holding that the ld. PCIT was incorrect in revising assessment order u/s. 263 of the Act r/w Explanation 2 thereto by ignoring the fact that the A.O. has passed the assessment order without making inquiries/verification in the light of the survey report which should have been made?
ii) Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT has erred in quashing the notice u/s. 263 of the Act issued by the PCIT and order passed thereof?”
3. The assessee filed his return of income for the Assessment Year 2014-15 on 26.09.2014 declaring the total income at Rs.1,77,75,620/-. The assessment under Section 143(3) of the Act was completed on 28.10.2016 by accepting the income returned by the assessee. It is the case of the Revenue that later it was noticed that the assessee had claimed exemption under Section 10(38) of the Long Term Capital Gain of Rs.3,98,02,460/- from the sale of shares of Radford Global Ltd. It is also the case of the Revenue that a preferential allotment of shares of 1,00,000/- were purchased by one Shri Harikishan S. Virmani on 16.02.2012 at Rs.15 Lakh at a value of Rs.15 per share (face value of Rs.10 and premium of Rs.5). Later, the share was split into five shares and accordingly the total number of shares became 5 Lakh. After a period of one year, the shares were sold at an average price of Rs.82.99 per share and the total sale value came to Rs.4,14,94,974/-. After deducting the purchase value and the other expenses, balance of Rs.3,98,02,460/- was claimed as the long term capital gain exempt under Section 10(38) of the Act relevant to Assessment Year 2014-15.
4. The CIT (Appeals) invoked Section 263 of the Act on the premise that clause (a) of the Explanation 2 of Section 263 of the Act is applicable and the Assessing Officer had passed the assessment order without making inquiries / verification of the survey report forwarded by the DDIT(Inv), which ought to have been made in this case. The CIT(A) ultimately, took the view that the assessment order for Assessment Year 2013-14 passed under Section 143(3) of the Act dated 28.10.2016 by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of the Revenue. The CIT(A) in exercise of its power under Section 263 of the Act set aside the assessment order with a direction to frame the assessment de-novo.
5. The assessee being dissatisfied with the order passed by the CIT(A) preferred an appeal before the Appellate Tribunal. The Tribunal took the view that the CIT(A) while holding that the assessment order was erroneous in exercise of its power under Section 263 of the Act, ought to have indicated that the conclusion or findings recorded by the Assessing Officer were either not based on correct facts or the order had been passed in breach of the provisions of the Act or revision made thereunder. The Tribunal took the view that the CIT(A) had not undertaken any such exercise reaching to the conclusion that the assessment order was erroneous and prejudicial to the interest of the Revenue. In short, on the facts and materials on record, the Appellate Tribunal recorded a finding that the PCIT was not correct and justified in issuing notice under Section 263 of the Act and also was not justified in passing the order revising the assessment order.
6. We may quote the relevant observations made by the Appellate Tribunal while allowing the appeal filed by the assessee :
“29. From the copy of the impugned order of ld. PCIT, we observe that in para 1 & 2, the history of case has been noted, in para3 issuance of show cause notice u/s. 263 of the Act and reply/submissions of the assessee to the same has been reproduced, in para 4 the ld. PCIT further noted the facts pertaining to the claim of the assessee u/s. 10(38) of the Act and report of Investigation Wing, Kolkata and also noted about the typographical error Intel show cause notice and thereafter, in last para 5 directly jump to a conclusion that the AO has passed the assessment order without making any inquiry/verification. As we have already noted above, it is not a case of no inquiry nut in our humble understanding and on the basis of foregoing discussion, we are of the considered opinion that the AO during assessment proceedings for AY 2014-15 not only asked the assessee to furnish all relevant documents pertaining to the investment but also called copies of the assessment orders for immediately preceding three years including AY 2012-13, wherein the assessee made investments and earned income there from in AY 2014-15. Therefore, allegations of the ld. PCIT have not been supported by any inquiry/verification conducted by the Revising Authority and in this scenario impugned order cannot be held as correct and justified. AT the same time we observe that the ratio of the order of ITAT, Jaipur in the case of Pooja Synthetics Ltd. (supra) is not supportive to the contention of the ld. CIT(A)-DR that the AO has not made any inquiry in the present case. Therefore, we respectfully to hold that the benefit of the proposition rendered by ITAT, Jaipur is not available for the Revenue in the present case having different and distinct facts and circumstances.
30. We also pint out that the ld. CIT(A)-DR could not controvert the position that the SEBI by order dated 20.09.2017 has revoked the interim orders dated 19.12.2014 and 09.11.2015 which were confirmed subsequent interim order dated 12.10.2015, 18.03.2016 & 26.08.2016 therefore, SEBI order also supports that there is no adverse order by the SEBI against Redford Global Ltd., which has been exonerated in absence of any adverse findings and material, wherein the assessee made investment and earned exempt income u/s. 10(38) of the Act there from. This fact also supports the original assessment order, wherein the AO allowed claim of the assessee u/s. 10(38) of the Act.
31. Further, from the order of Hon’ble High Court of Delhi in the case of PCIT vs. Mera Baba Reality Associates Pvt. Ltd., (supra) as relied by the ld. AR, wherein it was held that where the AO had a full fledged opportunity to undertake a detailed inquiry, and having not done so on account of paucity of time, there could not be any inference that the inadequate enquiry led to AO to arrive at incorrect facts. It was also held that where the AO issued notice and assessee furnished complete details sought and the details furnished by the assessee were available with the AO along with explanations two queries raised by the AO, then to permit exercise of revisionary jurisdiction would be unfair to the assessee. Ratio of this decision also supports contention of the appellant-assessee.
32. Furthermore, as per ratio of the decision of Hon’ble High Court of Delhi in the case of CIT vs. Sunbeam Auto Ltd. (supra), wherein it was held that there is a distinction between “lack of enquiry” and “inadequate enquiry” if there is an enquiry, even inadequate, that would not be itself give occasion to the CIT to pass order under s. 263 of the Act, merely because he has a different opinion in the matter such a course of action is open only in cases of “lack of enquiry” contention of the Revenue that the AO did not consider as to whether the expenditure in question was capital or revenue expenditure cannot be accepted. In the present case also the AO has made sufficient inquiry by way of issuing questionnaire and the same was replied by the assessee along with all the possible relevant documents therefore, it is not a case of lack of enquiry or no enquiry but in our considered opinion, it is a clear case of sufficient and adequate enquiry therefore, the revisional powers u/s. 263 of the Act cannot be exercised in the present case.
33. As we have noted above, in the present case, the ld. PCIT has not point out specifically that which inquiry or verification or examination should have been carried out by the AO while allowing claim of the assessee u/s. 10(38) of the Act and the AO has failed to carry out those inquiries and verification as desired by the ld. PCIT. Since, in the impugned order passed u/s. 263 of the Act, the ld. PCIT has not suggested the any basis of inquiry or verification to be carried out by the AO, the order passed by the AO cannot deemed to be erroneous in so as far as as it is prejudicial to the interest of the Revenue.
34. As per the ratio of the decision Hon’ble Delhi High Court in the case of PCIT vs. Delhi Airport Metro Express Pvt. Ltd. (supra), wherein it was held that the powers u/s 263 of the Act can be exercised only after the ld. PCIT undertakes as inquiry himself as regards to the issue he proposes to be the basis for invoking said powers under the provisions of the Act and in absence of such exercise the order revising the assessment cannot be held as sustainable, valid and justified. At the cost of reputation, we may point out that the ld. PCIT before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the AO is erroneous. The ld. PCIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the ld. PCIT has failed to do so and has simply expresses the view that the AO should have conducted inquiry in a particular manner as desired by him and thus, the action of the ld. PCIT is not in accordance with the mandate of the provisions of s. 263 of the Act. In the resent case, the ld. PCIT has taken support of the newly inserted Explanation 2(a) to s. 263 of the Act, which is effective from 01.04.2015 and there is a doubt as to whether said explanation would be applicable to AY 2014-2015 pertaining to FY 2013-14, but said explanation cannot be said to have overridden the law interpreted by Hon’ble Delhi High Court in the case of PCIT vs. Delhi Airport Metro Express Pvt. Ltd. and Sunbeam Auto (supra). If, that be the case then the ld. PCIT would be able to find fault with each and every assessment order without conducting any inquiry or verification in order to establish that the assessment order is not sustainable in law and thus, the same is erroneous and prejudicial to the interest of Revenue, while invoking revisionary powers u/s. 263 of the Act.
35. A bare reading of Circular of CBDT No. 19/2015, which introduce the aims and objects of introduction of Explanation 2 to s. 263 of the Act, gives an impression that the Explanation 2 was inserted for the purpose of providing clarity on the expression ‘erroneous in so far as it is prejudicial to the interest if the Revenue.’ In our humble understanding of mandate of s. 263 of the Act and Explanation 2, we are of the opinion that the said Explanation being clarificatory in nature, would not lead to dilution of the basic requirements of mandate of s. 263(1) of the Act. The provisions of s. 263 of the Act although appears to be of a very wide amplitude and more particularly after insertion of Explanation 2 but cannot be possibly mean that recourse to s. 263 of the Act wold be available to the Revisional Authority on each and every inadequacy in the matter of inquiries and verification as perceived by the Revisional Authority. Powers u/s. 263 of the Act are extraordinary and draconian in nature thus, the same cannot be interpreted as an uncontrolled, unguided and uncanalised powers of the Revising competent authority and these powers are not blanket and arbitrary.
36. The mandate of provision of s. 263 of the Act r/w Explanation 2 does not expect the AO to go to the last corner or point in the inquiry on the issue or to hold a fleeting inquiry but the realistic and justified expectation from the AO on the issue of sufficiency and adequacy of inquiry would be that the AO should have conducted an inquiry which itself is sufficient and adequate to justify his proceedings and should be able to establish that the AO has applied his mind before allowing or deciding an issue against or in favour of the assessee and he has conducted inquiry or verification or examination of an issue, which is expected from a adjudicating authority. In the present case, we are satisfied that the AO, before allowing claim of the Act u/s. 10(38) of the Act has conducted sufficient inquiry therefore, the ld. PCIT was not empowered and entitled to revise assessment order u/s. 263 of the act r/w Explanation 2 thereto.
37. Therefore, on the basis of foregoing discussion, we reach to a logical conclusion that the ld. PCIT was not correct and justified in issuing notice u/s. 263 of the Act and passing impugned order revising the assessment order dated 28.10.2016 passed under scrutiny assessment u/s. 143(3) of the Act hence, the same are quashed. Accordingly, the grounds of the assessee are allowed.”
7. Having heard the learned counsel appearing for the Revenue and having gone through the materials on record, we are of the view that no error not to speak of any error of law could be said to have been committed by the Tribunal in passing the impugned order. In our opinion, none of the two questions formulated in the memorandum of the Tax Appeal could be termed as substantial questions of law. The matter is more on facts. We would not like to disturb the findings recorded by the Appellate Tribunal. The Appellate Tribunal is the last fact finding authority. Having regard to the scope of appeal under Section 260-A of the Act, we would not like to disturb the findings of fact arrived at by the Appellate Tribunal.
8. In the result, this appeal fails and is hereby dismissed.