1. The assessee has filed this appeal against the order passed by CIT under Section 263 of the Act, dt. 18th March, 2002, for the asst. yr, 1997-98 on the following grounds: "1. For that, the CIT erred in holding that the assessment of the appellant for the asst. yr. 1997-98 was erroneous and prejudicial to the interest of Revenue and in setting aside the same for de novo assessment after enquiry/investigation.
2. For that, the CIT erred in holding that the appellant had booked any loss or that the assessment completed on 28th March, 2000, was made without proper enquiry, investigation or verification as regards genuineness of share-transactions.
3. For that, the assumption of jurisdiction under Section 263 was illegal and the purported findings contained in the impugned order are wholly erroneous, without any material or evidence and contrary to facts and law and perverse." 2. The assessee filed the return showing total income of Rs. 24,96,909.
The AO completed the assessment under Section 143(3) of the Act by order dt. 28th arch, 2000.
3. Learned CIT issued a notice under Section 263 of the Act, dt. 1st Feb., 2002, stating that assessee had interest income of Rs. 51.20 lakhs and dividend income of Rs. 22.48 lakhs. The assessee set off share trading loss of Rs, 47.88 lakhs against interest income and after claiming deduction under Section 80M against dividend income, it returned net profit of only Rs. 7,57,250. He further stated that the assessee suffered share trading loss of Rs. 38.54 lakhs in asst. yr.
1996-97 and share trading loss of Rs. 42 lakhs in asst. yr. 1998-99.
The learned CIT further stated in the said notice that nobody would do share trading to make huge loss every year to lose even fixed income from interest and dividend. The AO vide letter dt. 11th Feb., 2000, asked the assessee to substantiate the loss and the assessee vide letter dt. 21st Feb., 2000, filed details of purchase and sale of shares with names of brokers. The AO did not make any enquiries from the brokers. Learned CIT further stated in the said notice that on 28th March, 2000, the assessee produced purchase and sale bills and the AO accepted the loss after keeping copies of the bills in the file. The learned CIT has stated that the genuineness or otherwise of share transaction could have been easily probed by calling for contract notes from the broker, the challan regarding delivery of shares, obtaining details of date and mode of payments, examining the books of brokers and making enquiries from the stock exchange if necessary. But no such details were called or enquiries were made and huge loss accepted.
Learned CIT has stated that the assessments have been completed without conducting any worthwhile enquiry and, therefore, the said assessment is erroneous in so far as it is prejudicial to the interest of Revenue.
4. The assessee filed the reply of the said notice by letter dt. 12th March, 2002, a copy of which is placed at pp. 5 to 7 of the paper book.
In the said reply; the assessee stated that the AO while making the assessment duly called for, examined, verified and scrutinised all relevant materials, details, particulars, books and documents in respect of, inter alia, the transactions relating to purchase and sale of shares of various quoted companies, The assessee further stated that it duly filed the relevant details and also produced the purchase and sale bills. All the transactions were made through share brokers at market rates prevailing on the stock exchange on the relevant dates and the said facts were duly verified by the AO. The assessee further stated in the said reply that the books of account were produced before the AO and were duly examined by him. That the AO duly examined the genuineness of the transactions and after due enquiry and examination as was necessary in the facts and circumstances of the instant case and upon being fully satisfied, accepted the losses incurred in the transactions relating to purchase and sale of shares. Therefore, there could be no reason or material on the basis of which any belief could be entertained, prima facie or otherwise, that the assessment made was erroneous or prejudicial to the interest of Revenue. The assessee further stated that merely because losses were incurred in share transactions during the asst. yrs. 1996-97 and 1998-99 as also in the asst. yr. 1997-98, it could not constitute any ground for entertaining any doubt as to the genuineness of the transactions or the genuineness of the losses incurred therein or for holding that proper enquiry or investigation was not made. The assessee also denied and disputed that the genuineness or otherwise of the share transaction was not looked into by the AO or that the AO did not examine the contract notes or challans regarding delivery of shares or the details regarding date or mode of payment or that he did not verify the transactions with reference to Stock Exchange quotations or that no enquiries were made from the brokers.
5. Learned CIT after considering the reply of the assessee has stated that he was of the opinion that the assessment had been completed without proper enquiry and investigation and to that extent the assessment is erroneous in so far as it is prejudicial to the interest of Revenue, Learned CIT has also stated that the contention of the assessee that the idea of purchasing shares was not to lose the income but to earn more income is not tenable as the assessee is of the habit of booking share losses year after year. Accordingly, learned CIT set aside the assessment with the direction to the AO to complete the assessment de novo after making of the relevant enquiries and investigation in respect of share trading loss of Rs. 47.88 lakhs and after giving full opportunity of being heard to the assessee. Hence, this appeal by the assessee before the Tribunal.
6. During the course of hearing of the appeal, the learned authorised representative of the assessee vehemently submitted that the AO made detailed examination of the books and documents, inter alia, in respect of the transaction relating to purchase and sale of shares and referred p. 29 of the paper book which is a copy of the AO's requisition under Section 142(1) of the Act dt. 31st May, 1999, and referred item Nos. 11 and 12 thereof that the AO called for the details of business receipts/sales, details of purchases and called for books of accounts, bills/vouchers, bank statement along with bank reconciliation, etc. The learned authorised representative of the assessee referred pp. 22 and 23 of the paper book and submitted that the assessee furnished the details of purchase and sale of shares. The learned authorised representative of the assessee further referred to p. 16 of the paper book and submitted that the assessee also furnished by its letter dt.
24th Feb., 2000, copies of bills in addition to details of purchase and sale of shares earlier submitted by the assessee. The learned authorized representative of the assessee submitted that the AO made detailed enquiries and the same fact is also evident from the assessment order which is considered by the CIT as erroneous and prejudicial to the interest of the Department, The learned authorised representative of the assessee submitted that the CIT passed a sweeping statement in the impugned order dt. 18th March, 2002, that the AO did not examine properly the genuineness of share transactions. He submitted that the learned CIT was influenced by the fact that the assessee incurred loss in share transaction in three successive years.
He further submitted that the learned CIT while invoking the jurisdiction under Section 263 of the Act was not justified to direct as to what enquiry was to be made by the AO before completing the assessment and what not. He submitted that the AO called for the requisite material to consider the genuineness of the share transactions and had taken a particular view. The mere fact that a different view could be taken could not be the basis for an action under Section 263 of the Act and in support of his submission relied on the decision of the Gujarat High Court in the case of CIT v. Arvind Jewellers (2003) 259 ITR 502 (Guj). The learned authorised representative of the assessee relying on the decision of the Kerala High Court in the case of Paul Matnews and Sons v. CIT (2003) 263 ITR 101 (Ker), submitted that if the AO takes a view on consideration of the books of account and related facts, such a view of the AO could not be said to be prejudicial to the Revenue nor could it be said to be erroneous merely for the reason that the CIT does not agree with the view taken by the AO. He submitted that their Lordships of the Kerala High Court held in the said case that such an assessment could not be treated as erroneous or prejudicial to the interest of the Revenue unless the view taken by the AO is unsustainable in law. The learned authorised representative of the assessee also relied on the decision of the Bombay High Court in the case of CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom) and submitted that CIT could revise the order of the AO only if the AO's order is erroneous and not because CIT disagrees with the AO. He submitted that the CIT in his jurisdiction under Section 263 of the Act could not direct the AO to make a fishing, and roving enquiry. The learned authorised representative of the assessee further relied on the decisions of the Tribunal, Delhi Benches in the case of Triveni Engineering Works Ltd. v. Dy. CIT (2003) 131 Taxman 32 (Del)(Mag) and the case of Sunil Lamba v. Dy. CIT (2003) 131 Taxman 35 (Del)(Mag) and submitted that it has been held that CIT could not invoke Section 263 for upsetting a concluding assessment framed by the AO merely because he feels that a particular line of investigation which would have been effective and useful for Revenue had not been adopted by the AO, The learned authorised representative of the assessee further submitted that the CIT cannot dispute the finality of the assessment merely on presumptions and assumptions or for the reasons that the assessment order is small and does not explain the reasons for allowing the expenses claimed by the assessee. He submitted that mere lack of discussion of the issue by the AO in the assessment order would not render the order to be erroneous as the learned CIT before exercising his jurisdiction under Section 263 of the Act has to establish that the order of the AO sought to be revised is erroneous and prejudicial to the interest of the Revenue. The learned authorised representative of the assessee submitted that the apex Court has held in the case of Malabar Industrial Co. Ltd v. CIT (2000) 243 ITR 83 (SC) that if one of them is absent, recourse to Section 263 of the Act cannot be had. He further submitted that merely because the brokers were not summoned by the AO does not in any way prove that the transactions in shares were not genuine. He submitted that even otherwise, had the brokers not responded to the- summons issued by the AO, the transactions would still have had to be treated as genuine and in support of his submissions placed the reliance on the decisions of the Calcutta High Court in the case of CIT v. Korley Trading Co. Ltd- (1998) 232 ITR 820 (Cal) and CIT v. Carbo Industrial Holdings Ltd. (2000) 244 ITR 422 (Cal). The learned authorised representative of the assessee submitted that the order passed by the learned CIT under Section 263 be quashed as the same is not tenable in law.
7. On the other hand, the learned Departmental Representative strongly supported the action of the learned CIT. He submitted that the AO has not mentioned in the assessment order an iota of investigation and enquiry made by him. He submitted that the AO passed the assessment order without discussing the purported enquiries made by him.
Therefore, the learned CIT is justified to consider the order as erroneous and prejudicial to the interest of Revenue. In support of his submission, the learned Departmental Representative placed reliance on the decision of the Madhya Pradesh High Court in the case of CIT v.Kohinoor Tobacco Products (P) Ltd. (1998) 234 ITR 557 (MP). He submitted that the learned CIT in his revisional jurisdiction under Section 263 of the Act can direct the AO to make further enquiry and verification to properly examine the genuineness of the transactions.
He supported the order of the learned CIT under Section 263 of the Act.
8. We have carefully considered the submissions of the learned representatives of the parties and have also gone through the assessment order as well as the impugned order passed by the learned CIT dt. 18th March, 2002. We have also considered the relevant pages of the paper book. We have also carefully considered the cases relied on by the learned representatives of the parties in support of their submissions.
9. We do agree with the learned Departmental Representative that the assessment order passed by the AO under Section 143(3) of the Act is a brief assessment order and the AO has not discussed in the said order the details of the discussions and details of examinations made by him, inter alia, in respect of the share transactions in respect of which the assessee incurred the loss of Rs. 47.88 lakhs. In order to ascertain as to whether the AO had stated the crux of the discussion in the order sheet, we requested the learned Departmental Representative to furnish a copy of the order sheet but till date the learned Departmental Representative has not furnished the copy of the order sheet in spite of the fact that it was specifically stated at the time of hearing of the appeal that if the copy of the order sheet was not furnished on or before 23rd Sept., 2003, it would be presumed that the AO had made necessary enquiries and were stated in the order sheet. Be that as it may, we observe that the AO before completing the assessment vide letter dt. 31st May, 1999, and letter dt. 11th Feb., 2000, the copies of which are placed at pp. 29 and 21 respectively of the paper book, called for the details of business receipts/sales, details of purchase, books of accounts, bills/vouchers, bank statement and the details to consider the share loss of Rs. 47,87,672. It is observed that the assessee gave the details of purchase and sale of shares to the AO, the copies of which are placed at pp. 22 and 23 of the paper book.
10. On perusal of the letters of the Department and the reply given by the assessee, we find force in the submission of the assessee that the AO before completing the assessment conducted enquiries and thereafter has passed a brief assessment order. Now the question arises whether the brief assessment order passed by the AO without recording therein the facts and the discussion could be said to be an erroneous order which is prejudicial to the interest of the Revenue. It has been held by the Jaipur Bench of the Tribunal in the case of Ashok Khan v. ITO (1996) 84 Taxman 29 (Jp)(Mag) that if an order passed by the AO is brief or cryptic but it has been passed after conducting the proper enquiries into the facts stated in the return, such an order cannot be held erroneous inasmuch as prejudicial to the interest of the Revenue for that reason alone. The Mumbai Bench of the Tribunal has also held in the case of Indian Hotels Co. Ltd v. Dy. CIT (1999) 107 Taxman 205 (Mum)(Mag) that mere lack of discussion of an issue by the AO in his order would not render the order to be erroneous and prejudicial to the interest of the Revenue. Further, their Lordships of the Mumbai High Court in the case of Gabriel India Ltd. (supra) while considering the power of the learned CIT under Section 263 of the Act have held that the supervisory jurisdiction of the CIT can be exercised only if two circumstances therein exist viz. (i) the order should be erroneous and (ii) by virtue of the order being erroneous, prejudice must have been caused to the interest of the Revenue. Their Lordships have further held that an order cannot be formed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the CIT simply because according to him the order should have been written more elaborately, Their Lordships of the Bombay High Court have further observed that Section 263 of the Act does not visualise a case of substitution of the judgment of the CIT for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the fact and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the CIT he would have estimated the income at a higher figure than the one determined by the ITO. But that would not vest the CIT with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO 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 CIT does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the CIT the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the CIT with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent. It was further held that similarly if an order is an erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute, on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed. Their Lordships of the Bombay High Court while answering the question in favour of the assessee and against the Revenue confirmed the order of the Tribunal in setting aside the order passed under Section 263 of the Act and held that the AO made enquiries in regard to the nature of the expenditure incurred and the assessee had given detailed explanation in that regard by a letter in writing. Such a decision of the ITO cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. Their Lordships have further stated that the learned CIT also simply asked the ITO to re-examine the matter. It was held that such a direction by the learned CIT for making further enquiry and/or fresh determination is not permissible under Section 263 of the Act and accordingly, the learned CIT does not get the power to set aside the assessment. We find that the said decision squarely applies to the facts of the case before us in favour of the assessee as in the instant case also the AO completed the assessment after calling the details and considering the books of accounts produced by the assessee before him but the AO only passed a brief assessment order without making elaborate discussion.
Further, the learned CIT while setting aside the assessment has also not given any reason as to whether the loss claimed by the assessee on account of share transaction is bogus or not genuine. He has merely stated that the AO did not examine properly the genuineness of the share transaction which could have been verified by calling for contract notes from the brokers, the challan recording delivery of shares, obtaining details of dates and mode of payments, examining the books of brokers and making enquiries from the stock exchange. In this regard, we find substance in the submission of the learned authorised representative of the assessee that even if the brokers do not respond to the summons issued by the AO, the transactions still will have to be treated as genuine as held by the Calcutta High Court in the case of Korley Trading Co. Ltd. (supra) and in the case of Carbo Industrial Holdings Ltd. (supra).
11. During the course of hearing of the appeal, the learned Departmental Representative placed reliance on the decision of the Madhya Pradesh High Court in the case of Kohinoor Tobacco Products (P) Ltd. (supra). We observe that the AO in the said case completed the assessment without making any enquiry at all to ascertain as to whether the income received from letting out of the properties was assessable as income from business or as income from house property. The AO completed the assessment merely by accepting the assessee's claim that such income was assessable as income from business and thereby allowed excessive deduction towards repairs and also depreciation. However, the facts of the said case do not apply to the case before us. We have already observed that the AO before completing the assessment asked for details and discussed the case with the authorised representative of the assessee. The only fact is that the AO passed a brief assessment order. The learned CIT has not pointed out infirmity in regard to allowing the claim by the AO to the assessee save and except stating that the contention of the assessee was not tenable as the assessee was of the habit of booking share loss year after year. The Madras High Court has held in the case of CIT v. Smt. D. Valliammal (1998) 230 ITR 695 (Mad), that the CIT cannot set aside an assessment under Section 263 of the Act on the ground that verification of accounts was needed.
The Mumbai Bench of the Tribunal has held in the case of Andhm Valley Power Supply Co. Ltd. v. Dy. CIT (1995) 53 TTJ (Bom) 647 : (1995) 55 ITD 24 (Bom), that the CIT's action under Section 263 must resemble that of a surgeon's knife and he cannot open the assessment wide and direct the AO to consider everything afresh. The Supreme Court has held in the case of Malabar Industrial Co. Ltd. (supra) that the phrase 'prejudicial to the interest of Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be termed as prejudicial to the interest of the Revenue, e.g., when an ITO adopted one of the courses permissible in law and it resulted in loss of revenue, or where two views are possible and the ITO has taken one view to which the CIT does not agree, it cannot be treated as erroneous or prejudicial to the interest of the Revenue unless the view taken by the ITO is unsustainable in law.
12. In the case before us, CIT has considered the assessment order as erroneous and prejudicial to the interest of Revenue merely because the AO has not recorded the specific findings by elaborating the details.
Delhi Bench of Tribunal held in the case of Sunil Lamba (supra) that if the AO does not deal with an issue or record specific findings in the assessment order it could not be said that there was no application of mind by the AO to the facts and details before him. It was held that order of CIT under Section 263 of the Act in that case has to be cancelled. Further, the Delhi Bench of Tribunal has also held in the case of Triveni Engineering Works Ltd (supra) that CIT cannot invoke Section 263 for upsetting a concluded assessment framed by AO merely because he feels that a particular line of investigation which could have been effective and useful for the Revenue had not been adopted by the AO. We observe that the above cases of Delhi Bench of Tribunal also squarely apply to the case before us as the AO before completing assessment called for details of share transactions and had discussed with the representative of the assessee. The only fact is that the AO has not specifically stated the discussion he had with the assessee.
This fact does not empower the learned CIT to invoke jurisdiction of Section 263 of the Act. Thus, the order of the learned CIT in the circumstances, is not justifiable and has to be cancelled.
13. In view of the above, we are of the considered view that the order passed by the learned CIT in setting aside the assessment with the direction to the AO to complete the assessment de novo after making the relevant enquiries and investigation by calling for contract notes, challans, etc., from the books of brokers and making enquiries from stock exchanges is not sustainable and the same is liable to be quashed. Therefore, in our considered opinion, condition precedent for assuming jurisdiction under Section 263 did not exist in the case before us. Accordingly, we quash the impugned order of CIT passed under Section 263 of the Act.