IN THE HIGH COURT OF DELHI AT NEW DELHI
.
.
.
.
.
ITA 410/2013
.
.
.
.
.
CIT ..... Appellant
.
Through Mr. Kamal Sawhney, Sr. Standing Counsel.
.
.
.
versus
.
.
.
.
.
GUPTA SPINNING MILLS PVT LTD ..... Respondent
.
Through
.
.
.
CORAM:
.
HON'BLE MR. JUSTICE SANJIV KHANNA
.
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
.
.
.
O R D E R
.
13.09.2013
.
.
.
We have heard the learned counsel for the Revenue in this appeal
under Section 260A of the Income Tax Act, 1961 challenging the order
passed by the Income Tax Appellate Tribunal (tribunal, for short) dated
29th February, 2012. Order under Section 263 of the Commissioner of
Income Tax (Commissioner) dated 5th March, 2010 has been quashed.
.
2. We are afraid that we have to uphold the order of the tribunal
because of the order passed under Section 263 by the Commissioner, which
is highly cryptic and self contradictory. In fact, it supports the case
of the respondent that power under Section 263 could not have been
invoked.
.
3. The respondent-assessee had filed return for assessment year 2006-
07 declaring income of Rs.2,14,62,660/- on 23rd October, 2006. The said
income was derived from investments in mutual funds, shares in the shape
of dividend, capital gains, etc. The assessment order records that during
the course of hearing, the respondent had produced books of account,
which were checked. The Assessing Officer made an addition of
Rs.27,110/- under Section 14A of the Act by making disallowance of
expenditure. No other addition was made.
.
4. The order under Section 263 in the first paragraph refers to profit
on sale of shares, which was treated as short-term capital gain or long-
term capital gain. Notice was issued why profit from sales of shares
should not be treated as business profit. The said order records the
submissions of the respondent in the following words:-
.
?The case fixed for hearing on 03.05.2010 Sh. Vinod Gupta, AR of the
assessee appeared and submitted that the profit resulted because of sale
of past investment so the same was rightly shown as capital gains and not
business income. It was further submitted that for looking at the nature
of transaction its frequency etc it could not be construe as business
income. In support of the above contention, certain judicial
pronouncements were relied upon and it was further submitted that in the
earlier year the assessee company had account he (sic) shares as
investment in its account and, not as stock in trade. Secondly, the
assessee had earned the divided got bonus shares on the investment held.
It was argued that the same would prove that the associated income was
related to sale of investment and was rightly shown as capital gains.?
.
.
.
5. Thereafter, the reasoning given by the Commissioner reads as
under:-
.
?I have heard the authorized representative, gone thought (sic) the
submission as also the facts of records. Prima facts the assessee
submission has some strength and needs appropriate considerations as per
law. At the same time it is also a matter of record that there is a lack
of enquiry/investigation on the part of Assessing Officer. To that
extent it can certainly be held that the order of the AO is both
erroneous as well as prejudicial to the interest of the revenue.
Therefore, the provision of section 263 of the Act is invoked and the
order of the Assessing Officer is set aside to be redone afresh. The
assessee shall be given reasonable opportunities of being heard.?
.
(emphasis supplied)
.
.
.
6. On looking at the assessment order, one does get an impression that
the respondent had no other business and had declared a huge amount of
Rs.2,16,40,214/- as income from short-term capital gains. This factum
has not been adverted or stated in the findings recorded by the
Commissioner, though in the first paragraph, the Commissioner has
mentioned that there was underassessment of Rs.662.06 lakhs and tax
effect was Rs.260.13 lakhs. In the reasoning and the ratio, the
Commissioner has made observation in favour of the respondent-assessee
that ?prima facie the assessee?s submission has some strength and needs
appropriate consideration as per law?. He further records that there was
lack of enquiry and investigation by the Assessing Officer. In other
words, investigation or inquiry was carried out by the Assessing Officer
at the time of original assessment. The Commissioner has accepted that
this is not a case of no inquiry or investigation but it could be a case
of an erroneous decision. Power under Section 263A can be invoked when
twin conditions are satisfied i.e. when order passed by the Assessing
Officer is erroneous and prejudicial to the interest of the Revenue.
Satisfaction of jurisdictional conditions by the Commissioner is
imperative and obligatory to sustain an order under Section 263 of the
Act. It has been repeatedly held that an erroneous order means one which
is contrary to law or the maker misunderstood the law/ facts or when
there is erroneous application of law to the facts. The facts
incorrectly stated can also lead to erroneous order. However, the
.
Commissioner must reach the said conclusion and cannot set aside an order of the Assessing Officer for fresh consideration or revisit without
recording that the order was erroneous. As the Assessing Officer is both
an investigator and adjudicator, when he fails to conduct any inquiry on
the subject matter, i.e. it is a case of no inquiry, order passed by the
Assessing Officer is treated as erroneous. However, there is difference
between no inquiry by the Assessing Officer and what Commissioner
considers and regards is inadequate inquiry. This distinction has to be
drawn in view of the decision of the Supreme Court in Malabar Industrial
Co. Ltd. Vs. CIT, (2000) 243 ITR 83 (SC) wherein it has been observed
that where two views are possible and the Assessing Officer takes one
view or accepts the assessee?s stand, the order is not erroneous, unless
the order is not sustainable in law. Thus in such cases, Commissioner is
not powerless. After hearing the assessee, he can hold that the finding
of the Assessing Officer is erroneous. In rare cases the inadequate
inquiry per se can be treated as erroneous, but this must be indicated
and stated by the Commissioner in clear and lucid term by pointing out
the relevant facts.
.
7. We have quoted the exact reasoning given by the Commissioner but do
not think that the said observations meet the statutory requirements.
The said lapse and failure of the Commissioner bars and prevents us from
issuing notice in the appeal in view of the statutory provisions. The
appeal therefore has to be dismissed. Ordered accordingly.
.
.
.
.
.
SANJIV KHANNA, J.
.
.
.
.
.
.
.
SANJEEV SACHDEVA, J.
.
.
.
SEPTEMBER 13, 2013
.
NA/VKR
.
.
.
$ 01
.