2021 (10) TMI 1246 - AT - Income Tax

Tribunal quashes PCIT's order for lack of legal basis & natural justice, upholds assessee's appeal.

Sun and Sun Inframetric Pvt. Ltd. Versus Assistant Commissioner of Income Tax, Central Circle-1 Raipur

Sun and Sun Inframetric Pvt. Ltd. Versus Assistant Commissioner of Income Tax, Central Circle-1 Raipur - TMI Issues Involved1. Assumption of jurisdiction by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.2. Verification of transactions with M/s. Gangotri Tracon P. Ltd. (GTPL).3. Applicability of Section 56(2)(viib) regarding the issuance of shares.4. Applicability of Section 43CA concerning the sale deed executed below stamp duty value.5. Applicability of Section 40A(3) in respect of payment for the purchase of land.Detailed Analysis1. Assumption of Jurisdiction by the PCIT under Section 263:The assessee challenged the revisional action of the PCIT, arguing that the assessment order under revision was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal noted that the PCIT's directions were vague and lacked a legal basis. It was highlighted that Section 68 cannot be invoked for credits received in a different financial year. The Tribunal found that the PCIT's directions were based on unsubstantiated information and lacked proper confrontation with the assessee, thus failing to meet the principles of natural justice.2. Verification of Transactions with GTPL:The PCIT alleged that the Assessing Officer (AO) failed to verify the nature and source of a Rs. 16 crore loan from GTPL, repayment of loans, and interest payments. The Tribunal observed that the amount of Rs. 16 crores was received in the previous assessment year and not in the year under consideration. The Tribunal noted that the AO had already examined the financial statements and other relevant documents during the original assessment proceedings. The Tribunal found the PCIT's directions to be without legal basis and set them aside.3. Applicability of Section 56(2)(viib) Regarding Issuance of Shares:The PCIT directed the AO to verify the applicability of Section 56(2)(viib) concerning the issuance of shares at a premium. The assessee argued that the fair market value (FMV) of the shares was determined based on the last available audited balance sheet, which was in compliance with the law. The Tribunal found no error in the AO's action, noting that the balance sheet for the FY 2013-14 was signed after the issuance of shares. The Tribunal set aside the PCIT's directions, stating that the valuation dynamics are subjective and the AO's conclusion was reasonable.4. Applicability of Section 43CA Concerning Sale Deed Executed Below Stamp Duty Value:The PCIT directed the AO to verify the applicability of Section 43CA. The assessee contended that there was no difference between the actual consideration and the stamp duty value. The Tribunal observed that the PCIT did not apply his mind to the demonstrable facts presented by the assessee and merely directed the AO to re-verify the point. The Tribunal set aside the PCIT's action, stating that Section 263 is not meant for conducting a roving inquiry and the PCIT should have considered the relevant facts before issuing directions.5. Applicability of Section 40A(3) in Respect of Payment for Purchase of Land:The PCIT directed the AO to verify the applicability of Section 40A(3) regarding cash payments for the purchase of land. The assessee argued that Section 40A(3) does not apply to mere advances not claimed as expenditure. The Tribunal found substantial merit in the assessee's plea, noting that the PCIT did not controvert the claim that no expenditure was claimed. The Tribunal set aside the PCIT's directions, stating that they were grossly opposed to the scheme of revisionary powers.Conclusion:The Tribunal quashed and set aside the revisional order passed by the PCIT, finding it to be under a misconception of facts and law. The appeal of the assessee was allowed. The Tribunal emphasized the need for the PCIT to exercise due circumspection and restraint before attempting to dislodge an assessment order.Pronouncement:The judgment was pronounced on 22.10.2021.