1996-VIL-09-ITAT-

Equivalent Citation: ITD 065, 001, TTJ 061, 156,

Income Tax Appellate Tribunal CALCUTTA

Date: 29.11.1996

ASHOKE KUMAR PARASRAMKA.

Vs

ASSISTANT COMMISSIONER OF INCOME-TAX.

BENCH

Member(s)  : N. PACHUAU., R. V. EASWAR.

JUDGMENT

Per Shri R.V. Easwar, J.M. --- This appeal by the assessee is directed against the order passed by the Commissioner Income-tax under section 263 of the Income-tax Act on 29-3-1996.

2. In the assessment made under section 143(3) on 29-1-1996, the Income-tax Officer referred to the assessee's explanation with regard to the speculative transactions in shares. He also referred to the statement of speculation profits/losses in shares during the period from 1-4-1992 to 31-3-1993 which was filed by the assessee in response to his enquiry. It has to be stated here that there was a search in the premises of the assessee wherein certain papers were seized. One such seized document is referred to as AP-2. This paper showed details of certain shares purchased and sold by the assessee as well as family members. It also showed certain other transactions in shares between the assessee and M/s. Magnum Investments of Old China Bazar Street, Calcutta. By letter dated 9-10-1995, the Assessing Officer called upon the assessee to explain the source of investment in the shares, the profit earned therefrom and also the explanation with regard to the transactions which he referred to as share speculative transaction. The assessee explained the papers by letter dated 24-11-1995. With regard to certain transactions in shares, he stated that they were actual purchase and sale. These details were furnished in Annexure-I to the letter. The assessee also furnished certain other details in Annexure-II which was described by him as a summary statement of speculation profit/loss in shares during the accounting period. According to this statement, there was a net loss of Rs. 4,468.50 p. In the assessment order, the ITO referred to both the Annexures. With regard to the actual transactions in shares, the assessee's explanation for the source of money was also referred to in the assessment order. However, beyond a reference to Annexure-II there was no other reference with regard to what the assessee claimed as speculative transaction in shares. The assessment was finally completed on a total income of Rs. 85,980.

3. By notice dated 14-3-1996, the CIT took proceedings under section 263 of the Act of the following reasons :---

"(a) The Assessing Officer has accepted the claim of the assessee in respect of share dealing to be treated as speculation transaction without being satisfied about the correctness of the claim.

(b) The Assessing Officer has accepted the claim of the assessee as noted in para (a) where the assessee himself could not discharge his onus of proving that the share transactions were speculative."

For the aforesaid reasons, the Commissioner of Income-tax was of the view that the assessment made on 29-1-1996 was erroneous and prejudicial to the interests of the revenue. He called upon the assessee to furnish his objection.

4. By letter dated 18-3-1996, the assessee objected to the proceedings under section 263. The gist of the objections was that the assessee had filed complete details with regard to the share transactions with Magnum Investments, that the assessee had also deposed before the ITO under section 131, that the Income-tax Officer was satisfied with the assessee's explanation for the speculative transactions and, therefore, it was not correct on the part of the Commissioner of Income-tax to say that the assessee's claim was accepted without the same being put to enquiry. It was also submitted that the documents seized did not show that the assessee effected any payment or received any payment against the shares, that no contract note, bill, or vouchers which are normally supplied if the transactions were real transactions were found in the course of the search, that the share scrips were also not found and, therefore, there was no material to support the theory that the transactions noted in the papers relating to M/s. Magnum Investments contained details of actual purchase and sale of shares.

5. The Commissioner of Income-tax was not convinced with the assessee's reply. According to him, the assessee had not substantiated the claim that the loss of Rs. 4,468.50p. represented loss on speculative transaction in shares. He observed that the assessee ought to have produced the books of account relating to M/s. Magnum Investments and should have established the identity of the concern and the nature of the transactions. According to him, the mere assertion of the assessee in the deposition under section 131 had been accepted by the Income-tax Officer without further enquiry. He was of the opinion that the Income-tax Officer had failed to apply his mind to the case in all its perspective and this itself made the order erroneous and prejudicial to the interests of the revenue. He referred to the decisions of the Supreme Court in Rampriya Devi Saraogi v. CIT [1968] 67 ITR 84 and Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 and set aside the assessment with directions to the Assessing Officer to reframe the same after making enquiries and after allowing the assessee adequate opportunity of being heard.

6. In the order the Commissioner of Income-tax also referred to a note kept by the Assessing Officer in the record wherein, in the words of the Commissioner of Income-tax, the Assessing Officer had "mentioned that he tried to verify the transactions by sending an Inspector to the address of Magnum Investments and in spite of his best efforts, the said company or its owner could not be traced out. He has also mentioned that no evidence could be collected by him to counter the claim of the assessee and, hence, he has accepted the assessee's version."

7. The assessee is in appeal before us. The contentions taken before the Commissioner of Income-tax were repeated with great vehemence before us. It was contended that the seized material as well as the statement made by the assessee under section 131 together with the Explanation furnished by him in the course of the assessment clearly indicated that the transactions were only speculative transactions and it was only after satisfying himself about the correctness of the assessee's claim that the assessment was completed under section 143(3). It was argued that merely because detailed reasons were not given as to how the Income-tax Officer was satisfied with the assessee's explanation, it did not follow that the order was erroneous and prejudicial to the interests of the revenue. It was further pointed out that the seized material ex facie indicated that the transactions were speculative but in spite of that the Assessing Officer had made further enquiries and, therefore, the Commissioner of Income-tax was not justified in his criticism of the assessment order that it did not indicate any application of mind by the Assessing Officer. Reliance was placed on the following judgments :

(1) CIT v. Goyal Private Family Specific Trust [1988] 171 ITR 698/[1987] 35 Taxman 52 (All.),

(2) CIT v. Kanda Rice Mills [1989] 178 ITR 446/44 Taxman 316 (Punj. & Har.).

8. The learned D.R. submitted that by not making further enquiries regarding the genuineness of the claim that the transactions with M/s. Magnum Investments represented speculative transactions involving no outlay of funds, the Assessing Officer had committed an error which resulted in prejudice to the interests of the revenue. He contended that under the circumstances, the Assessing Officer ought to have embarked on a further enquiry into the claim which he failed to do and a mere failure to make further enquiries has been held to be an error causing prejudice to the interests of the revenue in the following cases:

1. Addl. CIT v. Mukur Corpn. [1978] 111 ITR 312 (Guj.),

2. Kanhaiyalal v. CIT [1982] 136 ITR 243 (Raj.),

3. CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843/83 Taxman 643 (Raj.) and

4. Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi).

9. On a careful consideration of the facts in the light of the rival contentions, we are of the view that grounds have been made out for cancelling or setting aside the order of the Commissioner of Income-tax. In the Gujarat and Delhi High Courts' decisions cited by the learned D.R. it has been held that mere failure to make any enquiry would itself be an error committed by the Income-tax Officer resulting in prejudice to the interests of the revenue. The question in the present case is whether the Income-tax Officer had made enquiries regarding the genuineness of the assessee's claim. The records show that he has. The enquiry made by him by letter dated 9-10-1995 indicates that he had come to the prima facie conclusion that the seized material indicated speculative transactions done by the assessee. Nevertheless he had called upon the assessee to explain the transactions and show that they have been declared in the accounts of the assessee and to further explain the source of funds employed in those transactions. This is clear from paragraph 14 at page 2 of the letter. The same is reproduced below :

"(14) Pages 54 to 60 of AP-2 shows various share trading/speculation transactions done by you. Explain these transactions and show that these transactions have been declared in your accounts. Explain the source of funds employed in these transactions and also the profit earned on these transactions."

The reply of the assessee which we have referred to is dated 24-11-1995. Paragraph 13 at page 3 of the reply says that page number 54(AP-2) shows the transactions of share trading showing the deliveries made and received. The details were enclosed in Annexure-I to the letter. So far as pages 55 to 64 are concerned, the assessee's explanation was contained in paragraph 19 of the letter. In this paragraph it was stated that these pages show transactions of speculative nature and reconciliation of the same with M/s. Magnum Investments. The details of these transactions were enclosed in Annexure II. Annexure II is captioned as a "summary statement of speculation profit/loss in share dealings" during the relevant period. It is a columnar statement showing the name of the company, No. of shares, purchase and sale prices and the resultant profit or loss. This is stated to have been prepared from the seized material itself. The seized material itself is compiled in the paper book. The Income-tax Officer did not stop with this. He probed the matter, further. A statement was recorded from the assessee on 27-11-1995, a copy of which is placed at pages 20 to 35 of the paper- book. In question No. 3, the Assessing Officer asked the assessee to explain the seized documents pagewise. The assessee did so. The Assessing Officer then asked (in question No. 4) the assessee to explain his source of investment in the shares and the resultant profit from the share transactions. To this, the assessee answered that he was actively associated in share transactions, that he was involved in share business in both ways --- share trading and share speculation, that Annexure II along with his letter dated 24-11-1995 gave the details of speculation profit/loss in share dealings, that actually he suffered speculation loss of Rs. 4,468.50p. and that the entire share speculation business was done through M/s. Magnum Investments. In question No. 10 the Assessing Officer asked the assessee as to why the real share transactions and the speculative transactions did not find place in the accounts attached with the return and also asked the assessee to show cause why these transactions should not be treated as transactions kept outside the regular accounts. To this question the assessee pointed out to certain sources in respect of the actual share transactions in the share trading account but when he came to the speculative transactions, he stated that they "did not require any funds". Thereafter he went on to explain why the transactions were not shown in the accounts. In the course of the deposition the assessee has also stated, in answer to question No. 6 that he will not be able to produce the books of account of M/s. Magnum Investments since that firm closed its business operations after suffering huge losses some time in the last quarter of 1993 and that the proprietor of the firm Shri Ajay Srinamkar had left Calcutta, according to his information. Apparently in a bid to verify the statement, the Income-tax Officer had sent his Inspector to the address of M/s. Magnum Investments but in spite of the best efforts the firm or the owner could not be traced. The Income-tax Officer has left a note in the record to the above effect and this note has also been adverted to by the Commissioner of Income-tax in the second new paragraph in page 2 of his order. This we have already extracted. The note goes on to say that no evidence could be collected by him (the ITO) to counter the claim of the assessee and, hence, he has accepted the assessee's version.

10. The above discussion clearly shows that a detailed enquiry had been made by the Income-tax Officer into the claim of the assessee that the transactions with M/s. Magnum Investments represented speculative share transactions where no outlay of funds was involved. He has examined the seized material, he has asked for the assessee's explanation with regard to them, he has also taken a statement from the assessee under section 131 of the Act and has put searching questions and has also made an effort to verify the assessee statement with M/s. Magnum Investments. It may be that M/s. Magnum Investments or its proprietor could not be traced but that is not the point for consideration.

11. The point for consideration is whether the Commissioner of Income-tax is right in his view that no enquiry had been conducted before the assessee's claim had been accepted. His view cannot be accepted. To repeat, the discussion in the preceding paragraphs shows the extent of enquiry made by the income-tax Officer. The Commissioner of Income-tax is also not justified in saying that the Assessing Officer has failed miserably to apply his mind to the case in all its perspectives. This criticism of the Assessing officer's action is not justified. In Gouri Prasad Bagaria v. CIT [1961] 42 ITR 112 (SC), it was held that where the assessee's statement made before the income-tax authorities is believed, the statement was obviously material upon which the finding of the authorities could be based and merely because there was no other material it cannot be stated that the statement was not valid material on which the finding could be given. The statement was held to be good material upon which a finding of fact could be based. If the assessee's statement before the Income-tax Officer has been accepted by him, it cannot be stated that he has acted improperly or that his order is erroneous. It is not the case of the Commissioner of Income-tax that there is any oblique or ulterior motive on the part of the Income-tax Officer in accepting the statement. There can be no such suggestion since the statement has been accepted only after the Income-tax Officer made enquiries through his Inspector regarding the existence of M/s. Magnum Investments. It must be remembered that even the assessee had stated that M/s. Magnum Investments had closed its business in 1993. The assessee made the statement in November 1995. Nevertheless the Income-tax Officer had taken steps to verify the assessee's statement. Now if the assessee's statement that M/s. Magnum Investments had closed its business and its proprietor had left Calcutta for good turned out to be true on enquiry made through Inspector, it can hardly be suggested that the Assessing Officer was at fault. It has also got to be remembered that this is not a case where the assessee's statement made in the return was merely accepted by the Income-tax Officer without any enquiry, as happened in the decision of the Supreme Court cited by the Commissioner of Income-tax towards the end of his order. That was also the case in the Delhi and Gujarat High Courts' decisions cited by the learned representative before us. In all those cases the statement made in the return had been accepted without any enquiry and this was considered by the Commissioner of Income-tax to be erroneous and prejudicial to the interests of the revenue and the High Courts and the Supreme Court upheld the view taken by the Commissioner of Income-tax. The present case is not covered by the ratio laid down in these decisions. We have before us a case where the Income-tax Officer has carried out such an enquiry as the circumstances warranted and permitted. It is an entirely different matter that the Commissioner of Income-tax did not agree with the conclusion derived by the Income-tax Officer from the enquiries made. Failure to carry out any enquiry is one thing and in such cases, the Commissioner of Income-tax would be justified in saying that the mere failure to make any enquiry was erroneous and prejudicial to the interests of the revenue. But it would not be open to him to hold that the assessment order was erroneous and prejudicial to the interests of the revenue merely because he could not agree with the conclusion derived by the Income-tax Officer from the enquiries made. The revisionary jurisdiction exercised by the Commissioner of Income-tax under section 263 has been held by the Madras High Court in Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129/30 Taxman 528 as being in the nature of a supervisory power and the Commissioner of Income-tax acting under section 263 was not "however, an appellate authority, by any means ..... Section 263, however, is a special power, which, so far as we know, has no parallel in any other statute or legal system. It is an extraordinary revisional power. It is also sui generis, in its nature, and in the occasion for its exercise, it is to employed not as a jurisdictional corrective or as a review of a subordinate's order in exercise of supervisory power... Such power cannot, in any manner, be equated to, or regarded as approaching in any way the appellate jurisdiction or even the ordinary revisional power conferred on the Commissioner under section 264 of the Act."[Emphasis supplied]. A similar view has been taken by the Bombay High Court in CIT v. Gabriel India Ltd. [1993] 203 ITR 108, in the conspectus of facts which are more or less similar to the present case. The assessee had claimed a deduction. While examining the facts relating to the claim, the Income-tax Officer asked for an explanation from the assessee in regard to the nature of the claim. The assessee furnished an explanation by a letter dated 19-9-1995. It was on a consideration of the explanation and on being satisfied that it was a revenue expenditure that the Income-tax Officer allowed the claim for deduction. In fact in that case also the Income-tax Officer did not make any discussion in the assessment order with regard to his query or the assessee's explanation. The Commissioner of Income-tax took proceedings under section 263 and set aside the order of the Income-tax Officer on the ground that it did not disclose any application of mind, which is also the view taken by the Commissioner of Income-tax in the case before us. The Tribunal did not approve the action of the Commissioner of Income-tax. On a reference, it was held by the Bombay High Court that the power under section 263 was not an arbitrary or unchartered power. The Commissioner of Income-tax cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. It was further held that if this is permitted there would be no end to litigation because there can always be new views and new versions as to what should be the inference from the facts or proper inference from the facts brought on record or from the weight of the circumstances. At pages 114-115, it was held that if the income-tax Officer acting in accordance with law makes a certain assessment it cannot be branded as erroneous simply because according to the Commissioner of Income-tax, the order should have been written more elaborately. The section does not visualise a case of substitution of the judgment of the Commissioner of Income-tax for that of the Income-tax Officer, unless the decision is held to be erroneous. There may be cases where the income-tax Officer may examine the accounts, make enquiries, and apply his mind to the facts and determines the income either by accepting the accounts or by rejecting them and making an estimate. On a perusal of the records the Commissioner of Income-tax may be of the opinion that the estimate made by the Income-tax Officer was on the lower side and that left to himself he would have estimated the income at a higher figure. According to the Bombay High Court that would not vest the Commissioner of Income-tax with power to re-examine the accounts and determine the income himself at a higher figure. It was held that "It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent." According to the High Court, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded as per law. The observations of the Madras and Bombay High Courts with regard to the nature and content of the power of the Commissioner of Income-tax under section 263 are applicable with full force to the facts of the present case. It has not been suggested by the Commissioner of Income-tax that the assessment was completed in undue hurry or haste. Nor has it been suggested that there was any ulterior or oblique motive on the part of the Income-tax Officer. The facts of the case which have been discussed earlier clearly show that the Income-tax Officer had carried out ample enquiries as the circumstances of the case justified or permitted. Under the circumstances therefore it is impossible to accept the view taken by the Commissioner of Income-tax that there was no enquiry by the Assessing Officer or that the Assessing Officer has failed miserably to apply his mind to the case in all its perspectives. It has not been suggested either by the Commissioner of Income-tax or by the learned D.R. before us that the Income-tax Officer was not entitled to draw the inference which he drew from the enquiry which he had conducted. If that be so, the mere fact that the Commissioner of Income-tax did not approve of the inference does not authorise him to substitute his opinion for that of the Income-tax Officer. Though the Commissioner of Income-tax has only set aside the assessment for being reframed after making enquiries and after allowing opportunity to the assessee of being heard, such a course cannot be upheld if due regard is had to the principles laid down by the Madras and Bombay High Courts in the decisions cited above. It is significant to note that in his order running to three pages the Commissioner of Income-tax has not referred to any material from which it could be said that the acceptance of the assessee's version by the Income-tax Officer was not warranted either in law or on facts. This is so in spite of the existence of a note in the record by the Income-tax Officer that no evidence could be collected by him to counter the claim of the assessee and, therefore, he had perforce to accept the assessee's version. One would have expected the Commissioner of Income-tax, under such circumstances, to at least point out to some materials or evidence which would contradict the assessee's version and which has not been adverted to by the Income-tax Officer while completing the assessment; this has not been done. Under these circumstances, the Commissioner of Income-tax was not justified in branding the assessment order as erroneous and prejudicial to the interests of the revenue.

12. For the above reasons, we cancel the order of the Commissioner of income-tax and allow the appeal.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.