2016 (5) TMI 1015 - AT - Income Tax

Tribunal quashes CIT order under Section 263, reinstates original assessment.

The Tribunal quashed the CIT's order under Section 263 of the Income Tax Act, finding that the Assessing Officer had conducted thorough inquiries and ... Revision u/s 263 - Claim of long term capital loss - Held that:- It is the responsibility of the AO to bring on record any incriminating material to support the view that fair market value is the full value of the consideration of the transferred asset. In the case of bargain transactions and in the absence of any such material, the addition made by the AO by relying on the fair market value is unsustainable in law. Thus, in our view, the AO examined this issue of claim of loss of ₹ 20.23 Crs in the regular assessment proceedings made u/s 143(3) of the Act. Further, we have no confusion in our mind to mention here that AO has gone through the specific issues relating to the cost of acquisition of shares of CESC; SAREGAMA and PHILIPS CARBON BLACK LTD. The documents cited above would contain the invoice of the purchase and sale transactions confirm our decision. In any case, the fair market value related additions are unsustainable in law. CIT cannot recommend such unsustainable additions as the case of revenue loss while revising the order of the AO. CIT can assume jurisdiction only when the AO assumed the law erroneously ie incorrect assumption of law. CIT has not made out any such erroneous assumption of law in this case either in matters of cost of acquisition or in matters of sale transactions. We also dismiss the CIT / CIT-DR‟s vehement argument that AO failed to apply his mind and AO failed to conduct meaningful inquiries into these aspects. There is an evidence for raising this issue in the regular assessment proceedings, there is a volume of letters between the AO and the assessee on this issue and the above extracts are heavily relied. Therefore, in our opinion, it is not a case of non-application of mind by the AO to the various aspects of this issue of loss of ₹ 20.23 Crs Premium of ₹ 715/- per share – If AO failed to make a any inquiry - Held that:- Issue of share premium was the subject matter of scrutiny by the AO in the regular assessment proceedings. AO is also aware of the undisputed fact of the assessee calculating premium at ₹ 715/- per share from SSL. It is not clear from the record what is the revenue loss on this issue from the CIT‟s point of view? If the premium is excessive from the Department‟s point of view, it is the gain f the assessee. In our opinion, there is no revenue loss on this issue to the assessee. Further, it is obvious that capital loss cannot be the ground for the CIT to assume jurisdiction u/s 263 of the Act. The capital receipt on this kind is tax neutral so for as this assessee is concerned. Amended provisions of section 56(2)(vii)(b) of the Act do not apply to the AY 2011-12 under consideration. Thus, assessment order cannot be invalid on the ground of erroneous assumption of law or fact. What would AO do even if he probe this issue further, when there is no revenue implications legally? Therefore, as argued by the Ld Counsel for the assessee, this issue of premium falls in the capital field with no revenue implication on the income assessed by the AO. On these facts, we are of the opinion that the arguments of the CIT / CIT-DR is misplaced qua the provisions of section 263 of the Act. In assessment, AO accepts various claims of the assessee made in the returns after scrutinizing or auditing the accounts of the assessee and made few additions / disallowed few claims. Not all such acceptances fall in the category of 'inadequate inquiry or improper inquiry or perfunctory inquiry'. Therefore, Principal CIT cannot resort to 'hit and run' approach. He is under legal obligation to enlist the details of inquiries not done by the AO, the manner of conducting such inquiries etc and quantify or demonstrate the revenue in clearly expressed language in his order. Therefore, on the facts of the present case and the settled legal propositions in force, we are of the opinion that the Principal CIT wrongly assumed jurisdiction u/s 263 of the Act on all these issues raised by him. Considering the inquiries done by the AO clearly made out in the records above, we are of the opinion that this is not the case of 'inadequate inquiry or improper inquiry or perfunctory inquiry' - Decided in favour of assessee. Issues Involved:1. Invocation of Section 263 of the Income Tax Act by the CIT.2. Examination of the cost of acquisition of shares.3. Inquiry into the reasonableness of the premium of Rs. 715 per share.4. Examination of the sale of shares at below market price.5. Applicability of Section 47(iv) of the Act.6. Examination of the substance of transactions involving the RPG Goenka group.7. Acceptance of provisions receivable, fair market valuation report, and revaluation of distribution of shares.Detailed Analysis:1. Invocation of Section 263 of the Income Tax Act by the CIT:The appellant contested the CIT's invocation of Section 263, arguing that the assessment order dated 19.3.2014 was not erroneous or prejudicial to the interest of the Revenue. The Tribunal found that the CIT's order lacked specific evidence of revenue loss or erroneous application of law by the AO. The Tribunal emphasized that the AO had conducted reasonable inquiries and applied his mind to the issues during the assessment proceedings.2. Examination of the Cost of Acquisition of Shares:The assessee provided detailed submissions and evidence regarding the cost of acquisition of shares. The AO scrutinized these details, including the provisions of Sections 49(1)(iii)(e) and 47(iv) of the Act. The Tribunal noted that the AO had examined the cost of acquisition in depth, supported by various documents and letters exchanged during the assessment proceedings. Thus, the Tribunal dismissed the CIT's contention that the AO failed to examine this aspect.3. Inquiry into the Reasonableness of the Premium of Rs. 715 per Share:The assessee issued equity shares on a rights basis at a premium of Rs. 715 per share to settle outstanding liabilities. The AO had raised specific questions regarding this premium during the assessment proceedings. The Tribunal found that the AO was aware of the premium and had scrutinized the relevant details. The Tribunal also noted that the premium was a capital receipt, not subject to tax under the provisions applicable for the assessment year 2011-12. Therefore, the Tribunal held that the AO had conducted sufficient inquiries into this issue.4. Examination of the Sale of Shares at Below Market Price:The CIT argued that the AO did not scrutinize the sale of shares to related parties at a price significantly lower than the market value. The Tribunal found that the AO had examined the sale transactions, including the cost and sale price of the shares. The Tribunal cited the decision in Rupee Finance & Management (P) Ltd vs. ACIT, which held that fair market value cannot replace the full value consideration for capital gains computation. The Tribunal concluded that the AO had applied his mind and conducted meaningful inquiries into the sale transactions.5. Applicability of Section 47(iv) of the Act:The CIT alleged that the AO failed to apply Section 47(iv) regarding the transfer of shares. The Tribunal found that the AO had scrutinized the acquisition and sale of shares, including the applicability of Sections 47 and 49. The Tribunal noted that the AO had considered these provisions during the assessment, dismissing the CIT's claim of non-application of mind.6. Examination of the Substance of Transactions Involving the RPG Goenka Group:The CIT contended that the AO did not examine the substance of transactions related to the division of the RPG Goenka group between two brothers. The Tribunal noted that the High Court had approved the division, and the CIT did not provide evidence of tax evasion or revenue loss. The Tribunal held that the CIT's assumption of jurisdiction under Section 263 was not justified in the absence of specific findings of revenue loss.7. Acceptance of Provisions Receivable, Fair Market Valuation Report, and Revaluation of Distribution of Shares:The CIT raised issues regarding the AO's acceptance of provisions receivable, fair market valuation, and revaluation of shares. The Tribunal found that the AO had examined these aspects during the assessment proceedings, supported by written submissions and documentation. The Tribunal concluded that the CIT's invocation of Section 263 was not valid, as the AO had conducted reasonable inquiries and applied his mind to these issues.Decision of the Tribunal:The Tribunal held that the AO had conducted reasonable inquiries and applied his mind to the issues raised by the CIT. The Tribunal found no evidence of revenue loss or erroneous application of law by the AO. Consequently, the Tribunal quashed the CIT's order under Section 263 and restored the original assessment order dated 19.3.2014. The appeal of the assessee was allowed.