IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. No.2284/Mum/2015 (Assessment Year: 2011-12) M/s Cartier Leaflin Pvt Ltd Vs ITO, Wd.1(1)(2), Mumbai Flat No.3105, Shiv Krupa CHS Ltd R.G. Marg, Near Shobana Bldg, Andheri (E), Mumbai 93 PAN : AACCC0097Q (Appellant) (Respondent) Appellant by Shri Satish R Mody Respondent by Shri Sanjay Singh, CIT-DR Date of hearing : 07-09-2016 Date of pronouncement : 21 -09-2016 ORDER Per ASHWANI TANEJA, AM: This appeal has been filed by assessee against order passed u/s 263 by Principal Commissioner of Income-tax-9, Mumbai [hereinafter called Ld. PCIT] dt 20-03-2015 for A.Y. 2011-12 on following grounds: YOUR APPELLANT CRAVES LEAVE TO RAISE FOLLOWING GROUNDS OF APPEAL WITHOUT PREJUDICE TO ONE ANOTHER & THEREFORE, YOUR APPELLANT PRAYS THAT THEY MAY BE DECIDED INDEPENDENTLY. 1] Order u/s. 263 of Income Tax Act, 1961 On facts and in circumstances and in law and in interest of natural justice, learned PrCIT erred in setting aside u/ s. 263 of Income Tax Act order passed by Learned Assessing Officer u/s. 143(3) of Income Tax Act, 1961 dated 2 I.T.A. No.2284/Mum/2015 28/03/2014. 2] On facts and in circumstances and in law and in interest of natural justice, learned Pri. CIT further erred of stating reasons in order that Learned Assessing Officer has passed order without making ,proper inquiry and verification of various financial and documentary evidence furnished during assessment assessment proceedings by appellant. 3] PRAYERS (i) On facts and circumstances of case appellant submits that order passed by Learned Pri. CIT is bad in law as said order is passed against principles of natural justice. 2. brief background in this case is that original assessment order was passed by Assessing Officer u/s 143(3) dt 28-03-2014 making few disallowances / additions and assessing income at Rs.35,50,14,339/- as against return of income declaring loss of Rs.11,29,98,987/-. Subsequently, Ld. PCIT issued show cause notice to assessee u/s 263. assessee filed detailed reply to show cause notice, but Ld. PCIT was not satisfied and he held assessment as erroneous and prejudicial to interest of revenue and directed Assessing Officer to pass fresh assessment order in terms of directions given in order passed u/s 263. Being aggrieved, assessee filed appeal before Tribunal. 3. During course of hearing, it has been submitted by Ld. Counsel that detailed enquiries were made by Assessing Officer for which exhaustive replies were submitted to Assessing Officer from time to time. It appears that Ld. PCIT has not examined assessment record before issuing show cause notice u/s 263. It was submitted that show cause notice was issued challenging allowance of operational expenses of Rs.8.79 crores and interest debited in Profit & Loss Account of Rs.3.96 crores by Assessing Officer without examining these claims. After assessee filed reply, Ld. PCIT 3 I.T.A. No.2284/Mum/2015 dropped allegation regarding interest expenses but held assessment order as erroneous on first issue raised in show cause notice. It was submitted that in show cause notice various allegations have been made which are factually incorrect and prima facie contrary to documentary evidence held on record. It was submitted that at many places it has been mentioned in show cause notice that no enquiry was made by Assessing Officer and no details were called for whereas fact is that detailed enquiries were made, replies were submitted and details and documentary evidences were submitted which were duly examined by Assessing Officer before passing impugned assessment order. Our attention has been drawn on exhaustive paper book filed by assessee containing various documentary evidences submitted before AO during course of assessment proceedings which were indeed omitted to be examined by Ld. PCIT while passing order u/s 263. It was lastly submitted that in any case, before passing order u/s 263 and holding assessment order as erroneous, Ld. PCIT has nowhere given finding that impugned operational loss of Rsa.8.79 crores was not allowable. Therefore, it was requested that order passed u/s 263 is bad in law and deserves to be quashed. 4. Per contra, Ld. CIT-DR supported order passed by Ld. PCIT. However, he could not rebut arguments made by Ld. Counsel of assessee that various evidences were already held on record which appear to have skipped attention of Ld. PCIT while issuing show cause notice u/s 263. He thus concluded his arguments by supporting order of Ld. PCIT. 5. We have gone through order passed by Ld. PCIT as well as details and documentary evidences shown to us by both parties. It is noted that show cause notice u/s 263 was issued on two grounds, one of grounds was with regard to allowing interest expenses of Rs.3.96 crores debited in P&L 4 I.T.A. No.2284/Mum/2015 Account on ground that same was allowed by Assessing Officer without any verification of loans / funds on which interest was paid was whether utilized entirely for purposes of business of assessee or not. assessee submitted detailed reply which was examined by Ld. PCIT and he accepted arguments of assessee and dropped this ground. But with respect to other ground, i.e. challenging allowability of operational loss of Rs.8.79 crores by Assessing Officer without making proper verification, though assessee made exhaustive reply before Ld. PCIT demonstrating that overwhelming details and evidences were furnished before Assessing Officer and Assessing Officer had duly examined same and applied his mind before allowing same while framing assessment order, but Ld. PCIT was not satisfied and he held assessment order as erroneous and prejudicial to interest of revenue. Before examining various reasoning s given by Ld. PCIT we find it appropriate to reproduce show cause notice issued u/s 263 dt 24-2-2014 to assessee by Ld. PCIT as under :- "Kindly refer to assessment order u/s 143(3) dated 28.3.2014 in your case passed by ITO 1(1) (2), Mumbai. On perusal thereof, it is noticed that AO has failed to make proper enquiries so as to assess correct income with regard to following points: 2) computation of total income filed along with return of income you have shown net loss from Business/Profession of Rs. 11,21,87,728/- taken from profit and loss account for relevant accounting year. Further, on perusal of profit and loss account for relevant assessment year to arrive at said loss of Rs.11,21,87,728 you have shown operational expenses of Rs. 8,79,80,969/- (sch.6) and further perusal of said schedule same is found to be as under: 1) Depository charges Rs. 534 2) Other operational losses Rs. 8,79,80,162 Total Rs. 8,79,80,696 5 I.T.A. No.2284/Mum/2015 This figure of Rs. 8,79,80,162/- shown under other operating losses seems to be trading loss incurred by company out of its business of financial and capital market activities as reported by Tax Auditors in Col. No.8 of form 3 CD, being its main business activity. However, on perusal of assessment records it is noticed that neither any details nor any explanation to arrive at said loss of Rs. 8,79,80,162/- is either filed by assessee or called for by Assessing Officer. No examination of books of account, transaction accounts of share trading activity carried out by assessee viz-a-viz D-mat accounts of assessee is carried out by Assessing Officer during course of assessment proceedings. In other words, entire operating loss as mentioned above is accepted by Assessing Officer without any verification or proper application of mind. It is not known, how assessee has debited net other operating loss in its P & L account without specifying details of opening stock, purchases, sales and closing stock and Assessing Officer has accepted same without seeking any further details and making enquires thereof. Therefore, to this extent assessment order passed by Assessing Officer is prima- fade appear to be erroneous and prejudicial to interest of revenue within meaning of provisions of section 263 of Act. ii) It is further noticed that you have claimed interest or financial expenses of Rs. 3,96,78,563/- as per sch.8 of profit and loss account which is also accordingly allowed by Assessing Officer without any verification so as to ascertain whether loan / funds raised on which interest paid is utilized entirely for purpose of business or not. 3. Therefore, in view of above, assessment order passed by Assessing Officer u/s. 143(3) of Act dated 28.03.2014 is found to be erroneous and prejudicial to interest of revenue, and therefore you are hereby given opportunity to attend before undersigned on 04.03.2015 at 3.30 P.M. either in person or through representative duly authorized in writing in this behalf. If you do not wish to avail of this opportunity of bei ng heard in person or through authorized representative, you may show cause in writing on or before said date which will be considered before any such order u/s. 263 of Act is passed. (Emphasis supplied in bold letters) 6. Thus, from above, it is noted that Ld. PCIT was prompted to 6 I.T.A. No.2284/Mum/2015 assume jurisdiction u/s 263 by issuing aforesaid show cause notice on ground that with respect to loss of Rs.8.79 crores, neither any details nor any explanations were furnished by assessee. It was also alleged that no transaction accounts of trading activity carried out by assessee viz- -viz demat accounts of assessee were examined by Assessing Officer and thus assessment order was passed without any verification or application of mind with respect to aforesaid issue. On other hand, Ld. Counsel demonstrated before us that aforesaid allegation is prima facie incorrect on facts. Our attention was drawn on various details and evidences enclosed in paper book which was furnished to Assessing Officer. Our attention was also drawn upon reply submitted to Assessing Officer dt 11-11-2013 and item No.9 of said reply which reads as follows: 9. Point No.18 Purchases and sales of shares and stock of shares, Refer Annexure- D . For expenses, operative expenses [It is loss on sale of shares] and administration expenses, monthly ledger copies are enclosed herewith PAN No. where applicable will be given shortly. Refer Annexure E . 7. Similarly, at page 66 of paper book, assessee has enclosed quantitative stock position for period 01-04-2010 to 31-03-2011 of all shares showing scrip-wise opening balance, purchases, sale, Profit / loss and closing balance providing quantitative as well as value. said table clearly depicts amount of loss arrived at Rs.8.79 crores. paper book also contains item-wise details of all transactions carried out in day-to-day manner providing settlement number, purchase date, number of shares, rate, amount and resultant profit / loss arising on each transaction individually. assessee vide its reply dated 3-12-2013 provided further explanation to doubts arising in mind of Assessing Officer; relevant part of said 7 I.T.A. No.2284/Mum/2015 reply is reproduced hereunder for sake of ready reference: Respected Sir, In above matter, we have been instructed by our client to state and we enclosed herein following evidences, explanations and submissions as required by your goodself. In continuation of time to time submission, we state as under: We request your honour as broker gave broker / contract note just two days back after much representation and on Assurance of same payment we have attached all he contract notes, tallied and numbered with broker s ledger account but due to lack of time (i.e. only 2 days). We could not earmarked and highlight every transactions to be matched with AIR details. (Although all details are furnished and record considering of 3500 plus pages in total 7 sets). We therefore request you to give us opportunity to marked and matched with AIR details in person before your goodself or otherwise give reasonable time to reconcile all AIR details at earliest opportunity. We hope you will consider our above request by affording one more opportunity before finalizing said Assessment. 8. Further, vide its reply dated 24-1-2014, assessee again enclosed details of purchases of shares including all opening split shares with sources of funds, borrowed funds, equity shares and DEMAT position of shares during year. assessee also submitted detailed break up of all shares and co-relating same with respective source of funding. Further, vide its reply dated 24-1-2014 submitted to Assessing Officer, assessee also submitted quantitative stock position, details of sales along with broker s ledger account with NSE and BSE and also DEMAT settlement account of assessee held with broker, viz. M/s 8 I.T.A. No.2284/Mum/2015 Fortune Equity Brokers India Ltd and DEMAT settlement account with M/s Fortune Credit Capital Ltd. In addition to that, assessee also placed on record before Assessing Officer its accounts in books of M/s Fortune Equity Brokers India Ltd (depository participant of Central Depository Services India Ltd) showing excessive details and break up of all transactions. Further, assessee vide its letter dated 15-3-2014 to Assessing Officer submitted scrip-wise stock of shares. Further, assessee submitted letter dated 31-1-2014 to Addl Commissioner of Income-tax, i.e. supervising authority of Assessing Officer with copy to Assessing Officer wherein assessee brought on record, in summarized manner, various details and documentary evidences that has been submitted to remove / surpass all doubts of Assessing Officer. We find it relevant to reproduce same below, relevant part of letter:- above assessment proceedings are undertaken by ITO-1(1)(2). facts of case are as under: We have last submitted details before your goodself on 24-1-2014 and request your goodself to grant us time for two weeks in order prepare details required by your goodself as per your Questionnaire dt.27-12-2013. For your information we have submitted details of purchase and sales on our personal appearance on 20-1- 2014 and 24-1-2014 with detail explaining ownership of shares, source of funds, demat statement and along with complete supporting documents and on going through your Questionnaire we have to reconcile purchase and sales value to extent of 78-92 crore (refer Point No.6) of your Questionnaire dt.27-12-2013, in your presence. With reference to Point o.7 of your Questionnaire dt. 27-12-2013 we have given purchase details with bills, ledger confirmation of broker 9 I.T.A. No.2284/Mum/2015 and demat confirmation statement of our brokers and lender which were personally submitted to your goodself on 20-1-2014 with detail explaining ownership of shares, source of funds, demat statement and alongwith complete supporting documents and sales confirmation along with quantity and value, with broker s confirmation, borrower s confirmation and demat statement with detail explaining ownership of shares, source of funds along with complete supporting documents were submitted to your goodself on 24-1-2014 personally with value of Ras.54=26 crore in value along with documentary evidence. With reference to your point no.10 as per your Questionnaire dt.18-11-2013 is already explain and relevant documents are submitted on 11-11-2013. Point No.8 already explained by our letter dt.11-11-2013. According to us we have to comply your requirement of Point No.9 & Point No.11 which is under verification and preparation stage therefore we require 15 days by which time we are hopeful to complete and comply all your requirements of your Questionnaire dt. 27-12-2013. perusal of aforesaid letter clearly brings out fact before us that assessee had submitted exhaustive details and documentary evidences to AO with view to justify its operational loss from share trading. All documentary evidences and details were also in knowledge of Addl.CIT and thus, these were examined not only by AO but also by Addl.CIT. Under these circumstances, we fail to understand as to on what basis Ld. PCIT mentioned in show cause notice that no details and documentary evidences were furnished before AO and AO passed assessment order without verifying same and without application of mind. Rather, it appears to us that Ld. PCIT had issued show cause notice u/s 263 even without examining assessment records. Such type of practice is contrary to transparent and fair working and not appreciated in eyes of law. 10 I.T.A. No.2284/Mum/2015 assumption of jurisdiction u/s 263 is based upon valid show cause notice issued u/s 263. entire premise of Ld. Principal CIT in issuing show cause notice u/s 263 for holding impugned assessment order as erroneous and prejudicial to interest of revenue is built upon incorrect facts. Further, no proper allegation could be made against assessee by Ld. PCIT while framing order u/s 263. Inspite of exhaustive exercise done in 263 proceedings, ld. PCIT could not find anything to hold that impugned loss was not allowable at all by any stretch of imagination under law. When exhaustive details and documentary evidences were submitted by assessee before AO and assessment order was framed after examining exhaustive details and evidences, recourse available for Ld. PCIT for revision u/s 263 to was to hold that loss has been wrongly allowed by AO and view taken by AO was not at all plausible view in eyes of law. Unless such finding is recorded by Ld. PCIT, especially where exhaustive exercise has been done by AO, order of AO in allowing impugned loss could not have been held to be erroneous. Same is missing here, Thus, we find that order passed by Ld. PCIT is without application of proper mind and beyond parameters of law and we find same to be nullity in eyes of law and same is, therefore, hereby quashed. 9. As result, appeal of assessee is allowed. Order pronounced in court on this 21st day of September, 2016. Sd/- Sd/- (C.N. PRASAD) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 21st September, 2016 Pk/- 11 I.T.A. No.2284/Mum/2015 Copy to : 1. appellant 2. respondent 3. CIT(A) 4. CIT 5. Ld. Departmental Representative for Revenue, -Bench (True copy) By order ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES M/s Cartier Leaflin Pvt Ltd . v. ITO, Wd.1(1)(2), Mumbai