Appeal allowed; revision under s.263 quashed as s.56(2)(viib) cannot deem intercompany share premium income where no outsider benefit

ITAT DELHI - AT allowed the appeal, quashed the Pr. CIT's revision under s.263 and restored the AO's assessment. The Tribunal held that s.56(2)(viib) cannot be invoked to deem income on share premium between interrelated holding and subsidiary where no outsider benefits, so the revisional scope was lacking; preliminary inquiry by the revisional authority was absent and no prejudice could arise from further inquiry. Findings under s.68 and the AO's post-revision satisfaction supported cancellation of the revisional order in favour of the assessee.

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Issues Involved:
1. Jurisdiction assumed by the Pr.CIT under Section 263 of the Income Tax Act.
2. Examination of the genuineness of transactions, creditworthiness, and identity of persons from whom share premium was received.

Summary:

1. Jurisdiction Assumed by Pr.CIT:
The assessee challenged the jurisdiction assumed by the Pr.CIT under Section 263 of the Income Tax Act, which led to the impugned revisional order. The Pr.CIT issued a show cause notice alleging that the assessment order was erroneous and prejudicial to the interest of the Revenue due to the failure of the Assessing Officer (AO) to examine the genuineness of transactions, creditworthiness, and identity of persons from whom share premium was received. The Pr.CIT set aside the assessment order and directed the AO to conduct thorough inquiries.

2. Examination of Transactions and Creditworthiness:
The Pr.CIT observed that the assessee had issued 513978 shares at a premium of Rs. 1284.10 per share, receiving a total premium of Rs. 65.48 crore. The AO accepted the Fair Market Value (FMV) of shares submitted by the assessee without proper examination. The Pr.CIT found the AO's inquiries insufficient and deemed the assessment order erroneous and prejudicial to the Revenue's interest. The assessee contended that the share application money was received in the preceding financial year and was scrutinized during the assessment proceedings for both AY 2013-14 and AY 2014-15. The assessee argued that the shares were allotted to its 100% holding company, and the compliance with Section 56(2)(viib) was verified, making the Pr.CIT's concerns unfounded.

Tribunal's Findings:
The Tribunal noted that the shares were allotted to the assessee's 100% holding company, and the applicability of Section 56(2)(viib) was not warranted. The Tribunal referenced the case of DCIT vs. Ozone India Ltd., which analyzed the deeming provisions of Section 56(2)(viib) and concluded that transactions between holding and subsidiary companies do not attract the provisions of Section 56(2)(viib). The Tribunal found that the Pr.CIT's action was unjustified as the inquiries into the share premium were adequately addressed by the AO, and no prejudice resulted from the assessment order.

Conclusion:
The Tribunal allowed the appeal of the assessee, canceling the revisional order of the Pr.CIT and restoring the assessment order of the AO. The Tribunal emphasized that the revisional action was unjustified and did not meet the jurisdictional requirements of Section 263 of the Income Tax Act.

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