2020 (2) TMI 484 - AT - Income Tax

Tribunal upholds AO's valuation of shares, rejects Commissioner's revision under Section 263.

Trimex Fiscal Services (P.) Ltd. Versus Principal Commissioner of Income-tax, Kolkata

Trimex Fiscal Services (P.) Ltd. Versus Principal Commissioner of Income-tax, Kolkata - TMI Issues Involved:1. Invocation of revisional jurisdiction under Section 263 of the Income-tax Act, 1961.2. Determination of fair market value of shares as per Section 56(2)(viib) of the Income-tax Act, 1961 and Rules 11U and 11UA of the Income Tax Rules, 1962.3. Adequacy of the Assessing Officer's (AO) enquiry into the valuation of shares.Issue-Wise Detailed Analysis:1. Invocation of Revisional Jurisdiction under Section 263 of the Income-tax Act, 1961:The primary grievance of the assessee was against the Principal Commissioner of Income Tax (Pr. CIT) invoking his revisional jurisdiction under Section 263 without satisfying the necessary conditions for exercising such jurisdiction. The Pr. CIT issued a show-cause notice indicating that the assessment order dated 28.03.2016 was erroneous and prejudicial to the interests of the revenue because the AO did not properly enquire into the valuation of shares issued by the assessee.2. Determination of Fair Market Value of Shares as per Section 56(2)(viib) and Rules 11U and 11UA:The Pr. CIT argued that the fair market value of shares should be determined based on the formula stipulated under Rules 11U and 11UA, which calculated the value at approximately Rs. 23 per share. The shares were issued at Rs. 150 per share (Rs. 10 face value plus Rs. 140 premium), resulting in an excess value of Rs. 127 per share. The Pr. CIT contended that this excess amount should be added back to the total income of the assessee.The assessee, however, substantiated the valuation of shares at Rs. 150 per share with a Chartered Accountant’s certificate. According to Section 56(2)(viib), the fair market value of shares can be determined either as per the prescribed method (Rules 11U and 11UA) or as substantiated by the company to the satisfaction of the AO, based on the value of its assets. The AO accepted the assessee's valuation, which was higher than the value calculated under the prescribed rules.3. Adequacy of the Assessing Officer's Enquiry into the Valuation of Shares:The assessee argued that the AO had indeed made adequate enquiries regarding the valuation of shares during the assessment proceedings. The AO issued notices and sought detailed information about the share applicants, the applicability of Section 56(2)(viib), and other relevant details. The assessee provided a valuation certificate from a Chartered Accountant and detailed calculations showing the fair market value of shares based on the value of investments in group companies.The Tribunal noted that the AO had conducted a thorough enquiry and was satisfied with the valuation provided by the assessee. The AO’s acceptance of the valuation was deemed a plausible view. The Pr. CIT, however, failed to conduct further enquiries or record a finding that the AO’s conclusion was unsustainable in law. The Tribunal emphasized that if two views are possible, the Pr. CIT cannot impose his view if the AO’s view is plausible.Conclusion:The Tribunal found that the AO had made sufficient enquiries and accepted the valuation of shares based on the Chartered Accountant’s certificate, which was a plausible view. The Pr. CIT’s invocation of revisional jurisdiction under Section 263 was deemed unsustainable as the assessment order was neither erroneous nor prejudicial to the revenue. Consequently, the Tribunal quashed the revision order and allowed the appeal of the assessee.Result:The appeal of the assessee was allowed, and the order of the Pr. CIT invoking revisional jurisdiction under Section 263 was quashed.Order Pronouncement:The order was pronounced in the open court on 20th November 2019.