TaxTMI 
TaxTMI 
2018 (12) TMI 525
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.... company was at Rs. 416.38 per share. Thus, the assessee paid less than the fair market value for acquisition of shares. Accordingly the Ld. Pr. CIT observed that the income was short computed by an amount of Rs. 4,74,57,000/- [Rs.316.38 (Rs.416.38 - Rs. 100) x 1,50,000] which is chargeable to tax u/s 56(2)(vii)(c) of the Income Tax Act, 1961 (hereafter called as 'Act'). The Ld. Pr. CIT further observed that the assessee himself had received the entire enhanced equity of the company under the rights issue and the other seven share holders did not receive any shares from the enhanced share capital of the company. Hence, the Ld. Pr. CIT found that the aggregate fair market value of the shares that exceeded the consideration paid is chargeable to tax u/s 56(2)(vii)(c) of the Act and found that the AO has not examined the issue during the assessment proceedings. Therefore issued show cause notice and called for the explanation of the assessee. In reply to the show cause notice, the assessee filed explanation objecting for the proposed revision u/s 263. The Ld. Pr. CIT in his show cause notice taken the support of the Apex court's decision in the case of M/s Khoday Distilleries Ltd., in....
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....essee in the case of Sudhir Menon (148 ITD 260) stating that the facts are different in as much as the additional shares were issued on pro rata basis to the existing share holders of the company in the said case against which the entire additional shares were allotted to assessee in the instant case. The Ld. Pr. CIT observed that in M/s Dorf Ketal Chemicals Pvt. Ltd., Sudhir Menon (HUF) was a share holder and the ITAT in para 4.6 of the order observed that "..No property however being passed on to the assessee in the instant case, i.e. on the allotment of the additional shares, no addition in terms of the provision itself shall arise in the facts of the case.." Whereas in the instant case no such pro-rata allotment took place but on the other hand the assessee's shareholding increased to 91% from existing 76% and thereby "property" was passed on to the assessee within the meaning of section 56(2)(vii)(c), while the share of other shareholders decreased to 9% from the existing 24%. Hence, the Ld. Pr. CIT held that the ratio of the decision relied upon by the assessee has no application in the assessee's case. 3. In respect of allotment of shares as a condition of financing bank ....
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.... the order of the AO was erroneous or prejudicial to the interest of the revenue. In respect of the audit objection, the Pr.CIT viewed that the revision is initiated as there is substance in the audit objection and after due consideration of the facts of the case. The Ld. Pr. CIT further held that the assessment order does not indicate that the AO has raised any queries on the issue which are subject matter of proceedings u/s 263. The Ld. Pr. CIT further observed that the AO has not examined the issue and the assessment was made in a perfunctory manner without making any inquiry or verification about the taxability of difference in the value of shares allotted to the assessee and accordingly rejected the contention of the assessee. In the light of the above and in view of the Explanation 2 to sec.263 inserted by the Finance Act, 2015 w.e.f. 01.06.2015, the Ld. Pr. CIT, held that the decision of Hon'ble Punjab and Haryana High Court in the case of Sohana Woollen Mills (296 ITR 238) relied upon by the assessee has no application and accordingly held that the assessment made by the AO is erroneous and prejudicial to the interest of the revenue and directed the AO to add the differe....
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.... offered is more than the paid up share capital, the shareholders will be offered more than one share for each share held depending upon the quantum of shares offered. As per the Company's Act, if the shareholder who was offered shares does not subscribe for any shares or subscribe less number of shares than offered, then such unsubscribed shares offered to the shareholders can be allotted to the shareholders who subscribe for additional shares. Accordingly, in the present case, seven of the existing shareholders did not subscribe for shares except the assessee Mr. Kumar Pappu Singh. The assessee received 1,13,850 shares on pro-rata basis according to his shareholding of 75,900 shares and was allotted 36,150 shares in excess of his entitlement which was denounced or not subscribed by other shareholders. The Ld.AR submitted that in the rights issue, the shareholders do not get any extra benefit or any amount other than the interest of the shareholder already had, since, all the shareholders of the company are having the interest over the entire assets i.e. reserves and surpluses. In the instant case, the assessee submitted that there was a compulsion for increase of capital of th....
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....r. In the circumstances, section 4(1)(a) was not applicable as held by the Tribunal. The assessee also relied on the decision of Miss Dhun Dadabhoy Kapadia Vs. CIT [36 ITR 0651]." 9. With regard to the additional ground, the Ld.AR argued that in the instant case, the assessment was completed u/s 143(3). Subsequently, the AO had issued the notice u/s 154 of the Act, proposing to make adjustment of Rs. 4,74,57,000/- u/s 56(2)(vii)(c) of the Act by notice dated 29.07.2016. The assessee filed reply on 09.08.2016 opposing the proposed addition u/s 154 of the Act. Thereafter there was no reply from the AO and meanwhile the proceedings u/s 263 were initiated and completed. Thus argued that the AO has considered the reply and after due verification accepted the reply submitted by the assessee, thus there is no case for revision u/s 263. The Ld.AR further submitted that the assessment was taken up for revision u/s 263 because of the audit objection which was accepted by the Ld. Pr. CIT in the revision order, hence there is no application of mind by the Ld. Pr. CIT and without application of mind, the Ld. Pr. CIT is not permitted to take up the case for revision u/s 263. The Ld.AR relied ....
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....der passed by the Pr.CIT. 11. On the other hand, the Ld.DR submitted that the AO has not made any enquiry in the instant case. There was no evidence brought on record to show that the AO has considered the issue during the assessment proceedings. Since the AO neither considered the issue nor made any enquiry and there is a clear under assessment,, the Ld. Pr. CIT has rightly taken up the case for revision u/s 263. W.e.f. 01.06.2015 as per Explanation 2 of section 263 of the Act, the Pr.CIT is empowered to take up the case for revision if in the opinion of the Ld. Pr. CIT, the order passed by the AO is without making enquiries or verification which should have been made. Therefore, this case squarely falls under Explanation 2 of section 263 and the Ld. Pr. CIT has rightly taken up the case for revision and there is no interference called for in the order. The Ld.DR submitted that the transaction was between the company and the assessee, but not between the relatives and the assessee. Therefore, there is no application of the proviso of non application of section 56(2) in the assessee's case. In respect of audit objection, the Ld.DR argued that even audit objection can become a so....
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....the excess shares to the assessee over and above his entitlement to his proportionate to the shareholding. The Ld.AR submitted that all the shareholders in the company are close relatives and the proviso to section 56(2)(vii)(c) is not applicable in the case of close relatives. The Ld.AR brought to our notice that the remaining shareholders are brothers, sisters, son, daughter, wife etc. as per the details given below. S. No. Name Address No.of Shares Share Value as on 01.04.2012 Total Amount in Rs. Relationship 1. Kumar Pappu Singh D.No.23-3-26, Sundar Ramnagar, Sajjapuram, Tanuku-534211 75900 100 7,590,000 2. Rama Devi D.No.23-3-26, Sundar Ramnagar, Sajjapuram, Tanuku-534211 3600 100 360,000 Wife 3. Divya Sree D.No.23-3-26, Sundar Ramnagar, Sajjapuram, Tanuku-534211 5510 100 551,000 Daughter 4. Devendra Chowhan D.No.23-3-26, Sundar Ramnagar, Sajjapuram, Tanuku-534211 5000 100 500,000 Son 5. Kapil Deo Singh D.No.134, South Samaj, Lower Bazar, Ranchi- 3400 100 340,000 Father 834001 6....
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....se relatives for the purpose of taxation under the income from other sources. Even the gifts received from the close relatives u/s 56(2)(v) are outside the scope of 56(2). Though the shares are allotted to the assessee, the entire shareholding of the company is retained by the family and no share was allotted to the outsiders. In this case, though the assessee had received the excess shares, renouncement was from the close relatives and the assessee is at liberty to transfer the shares to other relatives or shareholders at any point of time without attracting the taxation u/s 56(2)(vii)(c). Therefore, surrender of the rights of the close relatives in favour of the another close relative is covered for exemption u/s 56(2)(vii)(c) of the Act. In the decision rendered by the Hon'ble Madras High Court in the case CIT v. Kay Arr Enterprises [2008] 299 ITR 348 and in the decision of the Hon'ble Karnataka High Court in the case CIT v. R. Nagaraja Rao [2012] 21 taxmann.com 101/207 Taxman 236/[2013] 352 ITR 565 it has been categorically held that "where there are transactions involving family arrangement with respect to transfer of shares, the corporate veil of the company has to be....
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....rofit and loss account. The initiation of proceedings u/s 263 was due to the audit objection as evident from the order u/s 263. The Ld. Pr. CIT did not dispute the fact that the revision was taken on audit objection he has emphatically stated that there is substance in the audit objection. With regard to taking up the case for revision on the basis of audit objection, the assessee relied on the decision of Jaswinder Singh Vs. CIT (Chandigarh Bench), [2013] 31 taxmann.com 80 (Chandigarh - Trib.)wherein, the coordinate bench held as under : "21. The Hon'bleGauhati High Court in B&A Plantation & Industries Ltd. (supra) has laid down the difference between revisionary, rectification and reassessment proceedings. The fact situation before the Hon'ble Gauhati High Court that rectification proceedings were initiated on the basis of audit objections, which were dropped subsequently and notice under s. 263 of the Act was issued by the CIT on the basis of same audit objections and the Hon'ble Court held that there was no independent application of mind by the CIT and the revision proceedings were held to be not valid. The Hon'ble Gauhati High Court observed as under:....
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.... to redetermine the income of the assessee by applying a rate other than the rate applied by the AO, being without jurisdiction, is not tenable in law. We find no merit in the plea of the learned Departmental Representative for the Revenue that the source of information in the present case was audit objection, but there was independent application of mind by the CIT. The provisions of s. 263 of the Act are clear and absolute that the power is to be exercised by the CIT from the examination of the records of the proceedings under the Act. The Explanation under s. 263 of the Act defines 'records' as all records relating to any proceedings under the Act available at the time of examination by the CIT. The audit objections under no circumstances can be called as record empowering the CIT to exercise jurisdiction under s. 263 of the Act. Further it is apparent that the CIT has initiated the revision proceedings only on the basis of audit objection. Such exercise of power under s. 263 of the Act is not tenable in law. Accordingly, we set aside the order passed by the CIT under s. 263 of the Act. The grounds of appeal raised by the assessee are thus allowed. 17. The assessee al....