Commissioner Of Income Tax Delhi ... vs Leo Financial Services Ltd
2010 Latest Caselaw 1573 Del

$~25

*              IN THE HIGH COURT OF DELHI AT NEW DELHI


%                            Date of Decision : 20th March, 2012.

+      ITA 558/2010

       COMMISSIONER OF INCOME TAX DELHI II
                                               ..... Appellant
                  Through Mr. N P Sahni, sr. standing counsel

                   versus

       LEO FINANCIAL SERVICES LTD.           ..... Respondent
                   Through Mr. S. Krishnan, Adv.

CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V. EASWAR

SANJIV KHANNA,J: (ORAL)

CM 5230/2010 (Delay)

       This is an application for condonation of delay in refiling.

Delay is of 760 days but the reason given is that the case was

assigned to Late Mr. R D Jolly, the then Sr. Standing Counsel. He

subsequently fell ill and expired. Ld. counsel for the respondent


ITA 558/2010                                        Page 1 of 7
 states that delay is substantial but he would not like to oppose the

same. In view of the statement made we condone the delay in

refiling.

ITA 558/2010

       Having heard the counsel for the parties, we have frame the

following substantial question of law:

       "Whether the Income Tax Appellate Tribunal was right in
       setting aside the order of the Commissioner of Income
       Tax under Section 263 of the Income Tax Act, 1961?"


2.     During the course of hearing it is stated that after the

Commissioner of Income Tax had passed the order dated 21.2.2005

under Section 263 of the Income Tax Act, 1961 ("Act", for short),

which has been set aside by the impugned order passed by the

Income Tax Appellate Tribunal ("Tribunal", for short) on 28.2.2007,

only two additions were made by the Assessing Officer. We will

only record that this assessment order dated 28.02.2006 was passed

before the impugned order was passed by the Tribunal. Ld. counsel




ITA 558/2010                                        Page 2 of 7
 for the parties agree that we are required to, therefore, examine only

these two additions and the reasons given by the Commissioner of

Income Tax in the order dated 21.2.2005 in respect of these two

additions.

3.     The first aspect relates to dividend stripping.                  The

Commissioner of Income Tax noticed that in two transactions, the

respondent-assessee had purchased units of mutual funds before the

record date and sold them on the next day. Dividend received on

them being tax free was claimed and treated as income on which no

tax was payable. Further, the assessee had claimed a loss on the sale

of units being the difference between the purchase price and the sale

price. The Commissioner of Income Tax noticed that the two transactions

were accepted by the Assessing Officer without verification about the

genuineness, nature and purpose of the transaction and without

obtaining necessary details. The Tribunal in the impugned order has

recorded that the entire claim of the assessee was legally allowable as per

the case law discussed and therefore the order passed by the




ITA 558/2010                                              Page 3 of 7
 Assessing Officer was not erroneous.

4.     The assessment year in question is 2001-02.      Provision of

Section 94(7) of the Act dealing with dividend stripping were

brought into statute book and are applicable from the assessment

year 2002-03 onwards. There are two decisions of this Court in

Commissioner of Income Tax Vs. Vikram Aditya and Associates P.

Ltd. (2006) 287 ITR 268 and Commissioner of Income Tax Vs.

Vimgi Investment P. Ltd. (2007) 290 ITR 505 directly on the issue.

In these two cases, it has been held that order of the Assessing

Officer cannot be treated as erroneous and therefore revisable under

Section 263 of the Act, as Section 94(7) relating to dividend

stripping became a part of the statute and is applicable from

Assessment Year 2002-03 onwards and is not applicable to earlier

assessment years.     It would be appropriate to reproduce the

observations of this Court in Vimgi Investment P. Ltd. (supra)

wherein the order under Section 263 was set aside after noticing that

the assessee therein had received dividend of about Rs.3.72 crores



ITA 558/2010                                         Page 4 of 7
 and the units were sold at a loss of Rs.4.45 crores. The assessee had

claimed and had adjusted said loss against business profit.          The

Division Bench after referring to Malabar Industrial Co. Ltd. Vs.

CIT (2000) 243 ITR 83, had observed as under:

       "We find that in so far as the present case is concerned,
       only one view is possible and that was taken by the
       Assessing Officer and that view was valid with reference
       to the assessment year 2001-02. Therefore, there was no
       occasion for the Commissioner to exercise his powers
       under Section 263 of the Act to revise the order passed
       by the Assessing Officer and tax the Assessee on the
       ground that the transaction was an attempt to avoid tax.
       The purchase and sale of units by the Assessee was
       undoubtedly bona fide and this was accepted by the
       Assessing Officer. Under these circumstances, the
       question of the Commissioner invoking his powers under
       Section 263 of the Act would not arise. Following the
       decision of this Court in Vikram Aditya and Associates
       Pvt. Ltd., we find no substance on the merits of the case.

             In any event, in view of the decision of the Supreme
       Court in M/s. Malabar Industrial Co. Ltd., the exercise
       of power by the Commissioner under Section 263 of the
       Act is not warranted, if it is assumed that two views are
       possible on the issue."

       In view of the aforesaid decision we do not think the




ITA 558/2010                                           Page 5 of 7
 Commissioner of Income Tax was justified in invoking his

revisionary power under Section 263 of the Act on the issue/

question of dividend stripping.

5.     The second aspect relates to failure of the Assessing Officer to

invoke Section 40A (2)(b) in respect of Rs.2,37,500/- paid to Rajesh

Mehta, CA, who is also a director of the respondent-assessee. The

Commissioner of Income Tax in the order under Section 263 held

that the Assessing Officer had not made any enquiry. The precise

and only observation recorded by the Commissioner of Income Tax

is that the payment was allowed without any examination.

6.     The Tribunal, on the other hand, has given a factual finding

and have held as under:

       "So far as point 'C'- relating to payments made to Shri
       Mehta is concerned, the assessee had written letter dated
       2-3-2000 which is available at page 13 of the paper
       book. Shri Mehta was assessed to tax as is evident from
       acknowledgement for filing the return and copy of
       computation filed at page 15 of the paper book. In the
       income expenditure account filed at page 16 of the paper
       book, the professional Tax of Rs.2,37,500/- has been



ITA 558/2010                                           Page 6 of 7
        shown. All these documents were before the Assessing
       Officer. If on being satisfied with these documents, the
       Assessing Officer did not make any further enquiry, then
       his order cannot be treated to be erroneous."


7.     The Tribunal, therefore, has observed and held that the

Commissioner of Income Tax had recorded an entirely incorrect

finding. It is not pointed out and shown to us how and why the

finding recorded by the Tribunal is factually incorrect or perverse.

Even the question of law framed does not specifically require us to

go into the said factual aspect.

8.     In view of the aforesaid position, question of law mentioned

above is answered in affirmative i.e. in favour of the assessee and

against the Revenue. Appeal is dismissed. No order as to costs.



                                          SANJIV KHANNA, J.

R.V.EASWAR, J. March 20, 2012 vld