TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 1193
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....nt. After proper enquiries, assessment order was passed U/S 143(3) of the Act, not only having detailed discussion regarding issue of share at a premium but also after refining the matter to TPO. Therefore, the order cannot be said to be erroneous and prejudicial to the interest of Revenue because the AO did not commit any error, whatsoever, by ignoring the provisions contained in Section 56(2)(viib) of the Act while completing the assessment, as alleged. 2.That the Ld. Pr. Comm. Of Income Tax erred in law in not considering, vital fact that the provisions of Section 56(2)(viib) of the Act are applicable only in case where consideration against issue of shares is received from any person being a resident as reproduced hereunder :- "Where a company, not being a company in which tile public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, tile aggregate consideration received for such shares as exceeds tile fair market value of the shares". Both the companies to whom equity shares were issued at a premium were non-resident companies as proved beyond d....
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.... Pr. CIT invoking the power u/s 263 of the Act called for the assessment records and after going through the same issued following show cause notice dated 19.02.2020 to the assessee:- In this case, the assessee filed return of income for the AY 2014-15 on 25.11.2014 declaring total loss of Rs. 4,14,66,430/-. The case was selected for scrutiny through CASS. The assessment was completed u/s 143(3)/92CA(3) 29.11.2017 by the AO (ACIT-2(1), Ujjain] at the total assessed loss and declared in the return of income, which is considered erroneous and prejudicial to the interest of revenue for the following reasons:- On perusal and examination of records, it is noticed that assessee company issued total number of shares 4,00,000 @10 per share face value and share premium received for Rs. 95,27,75,180/- on 3,90,000 shares. Further it is noticed that the assessee company furnished the share valuation report of M/s SSPA & Co, CA for valuation of shares as on date of issue on Discounted Cash Flow (DCF) method and valued share at Rs. 2061.35 per share. The assessee company received share premium for Rs. 95,27,75,180/- on 3,90,000 shares against share premium valued on the basis of DCF method....
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....interest of revenue. 4. In view of the given facts and circumstances, the assessment order of the AO is erroneous and prejudicial to the interest of revenue. The order of the AO is, therefore, set aside to the file of the AO with direction to examine the issue of share premium and pass fresh assessment order, after affording proper opportunity to the assessee. The order dated 29.11.2017 passed u/s 143(3)/92CA(3) is, accordingly, set aside. 6. Aggrieved assessee is now in appeal before the Tribunal. 7. Ld. Counsel for the assessee vehemently argued referring to the following written submissions including the judgments referred and relied therein:- The company engaged in manufacturing and processing of soya oil had entered into a business agreement with M/s. Ruchi Soya Industries Ltd to acquire an undertaking located at Shujalpur on slump sale basis. A Joint Venture was formed with two non-resident companies who subscribed to share capital of the company at a premium. M/s. Ruchi Soya Industries Limited had subscribed 204000 shares @ 2051.35 per share based on share valuation report from M/s. SSPA & Co., Chartered Accountants by adopting Discounted Cash Flow (DCF) methods perm....
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....y, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares". It is humbly submitted that it is an undisputed fact that both the companies to whom equity shares were issued at a premium were nonresident companies as evident from (a) remittances received from foreign companies through their banks and (b) investment through FDI route duly intimated to RBI. The assessing authority had taken into cognigence these facts and referred the matter to DCIT (TPO) also. Having satisfied that shares were issued to both non-resident companies of Japan, additional premium received by the company was not assessed to tax because provisions of Section 56(2)(viib) of the Act, are not applicable. From plain wordings of the section 56(2)(viib) it is evident that deeming fiction of law can be invoked in relation to the amount received by the appellant company from a person being a resident against issue of shares at a premium. The appellant ....
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.... There is no sufficient reserve in Balance sheet to work out value of share issued to the share holders. Please give complete details of the share premium and applicability of section 36(viib) of the Income tax Act". ii) In response vide letter dated 15.06.2016 (Page 8 of P.B)the company had submitted following details relating to issue of shares at a premium to M/s. Ruchi Soya Industries Limited and two foreign companies :- a) List of shareholders and Directors of the company (Page 11 & 12 of P.B). b) Certificates in support of foreign inward remittance issued by M/s. Mizuho Bank Limited and the Bank of Tokyo - Mitsubishi UFJ Ltd (Page 13 of P.B). c) Letter addressed to HDFC Bank Limited related to FDI. (Page 25 of P.B) d) Boards Resolution & Certificate issued by Company Secretary confirming statutory compliances related to issue of shares to FDI. (Page 26 to 28 of P.B). iii) Fresh notice u/s 142(1) of the Act dated 24.08.2016 was issued directing to explain the reasons of large premium on shares vide para 19 &22 of the questionnaire (Page 31 of P.B.) as under :- "19 - Please explain the reasons for large share premium received during the year" "22 Scrutiny Reason....
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....d the categorization of the same as an international transaction is acceptable".[Page 47 of P.B] Thus, Asstt. Commissioner of Income tax made detailed enquiry with reference to such investment and never doubted upon the genuineness of such foreign investment.After due verification of all documents placed on record & having detailed enquiries regarding issue of share at a premium, to both companies, the AO had examined the fact that shares were issued at a premium higher than the value determined as per Rule 11UA(2)(b) of Income tax Rules. There was neither "lack of enquiry" nor "inadequate enquiry" by the ACIT,hence the assessment order passed u/s 143(3) of the Act cannot be treated as erroneous and prejudicial to the interest of Revenue. Reliance is placed upon following judgments:- i) CIT vs. Mehrotra Brothers [2004] 270 ITR 157 (MP) Held "Whether if while making assessment, Assessing Officer has made an inadequate enquiry , that would not, by itself, give occasion to Commissioner to pass order under section 263, merely because he has different opinion in matter.It is only in cases of 'lack of inquiry' that such a course of action would be open. Whether further, o....
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.... held as erroneous and prejudicial to the interest of revenue". We submit that there was must be some prima facie material on record to show that the order is unsustainable in law and the tax which was legally payable has not been imposed. The present case is neither a case of "no enquiry" nor a case where the AO, failed to make "necessary enquiry". In fact, the assessment order was passed after making detailed enquiry and application of mind. III. Reference in the assessment order regarding non- applicability of Sec. 56(2)(viib): It is submitted that having satisfied after enquiry and application of mind that section 56(2)(viib) was not applicable in relation to shares issued to NON-RESIDENTS,if the reasons for non-applicability of said section were not specifically referred to in the assessment order, the same cannot be termed as to be "erroneous" order. Reliance is placed on following judgments :- a) CIT vs. Gabriel India Ltd (1993) 203 ITR 108 (Bom). Held that "It is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income tax officer acting in accordance with law makes a certain assessment, the same cannot be branded as ....
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.... officer, but neither the query nor the answer was reflected in the assessment order, that would not, by itself, lead to the conclusion that the order of the assessing officer called for interference and revision". e) CIT vs. Fine Jewellery (India) Ltd (2015) 372 ITR 303 (Bom). [Idea Cellular Ltd vs. Dy. CIT (2008) 301 ITR 407 (Bom) Followed] Held "If a query is raised during assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the assessment order would not lead to a conclusion that no mind had been applied to it". f) CIT vs. Krishna Capbox (P) Ltd - [2015] 372 ITR 310 (All) Tribunal held that "once inquiry was made, a mere non-discussion or non-mention thereof in assessment order could not lead to assumption that Assessing Officer did not apply his mind or that he had not made inquiry on subject and this would not justify interference by Commissioner by issuing notice under section 263". In substance, after proper application of mind, by considering the order passed by TPO u/s 92CA(3) of the Act and the fact that shares were issued at a premium to two non-resident foreign companies,the AO did not make any addition u/s 56(2)....
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....ed 06.03.2020 (Page 49 to 52 of P.B)in response to his notice wherein it was stated that issue of shares at a premium to Non-Resident does not attract provisions of section 56(2)(viib) of the Act.Vide Para 3.1 of the order passed u/s 263 of the Act, the Pr. Commissioner of Income tax, concluded as under :- "The facts of the case, performance of the business results of the assessee and its overall worth including track records of the Promoter Group i.e. M/s. Ruchi Soya, as may be observed from the balance sheet, did not justify in any manner, the rate of share premium charged by the assessee............. During the course of assessment proceedings the AO did not examine this aspect of the case and completed the assessment proceedings. thus, the action of the AO is erroneous and prejudicial to the interest o revenue". It may kindly be appreciated that the notice u/s 263 of the Act was issued proposing to treat the income of the assessee u/s 56(2)(viib) of the Act being excess premiumreceived by the company over DCF Method from two non-resident companies at Rs. 14,88,48,680/- (as tabulated). Contrary to this, in aforesaid conclusion, he observed that the track record of promot....
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....he Act are not applicable to the Non residents. Though in the written submissions filed by the assessee it is also been contended that the Ld. A.O has discussed the issue of share capital received from non resident companies in depth and it is not the case of no enquiry. 10. We observe that during the year under appeal assessee issued equity shares to the resident and non resident companies. As per the Discounted Cash Flow (DCF) method provided under Rule 11UA(2b) of the I.T. rules fair market value per equity share was computed by the Chartered Accountant at Rs. 2061.35. Assessee company issued 204000 equity shares at Rs. 2061.35 per share (Face value per share Rs. 10/- and share premium at Rs. 2051.35) to a resident company namely Ruchi Soya Industries Ltd . However following shares were issued to Non Resident companies at a price of Rs. 2840.68 per share ( Face value per share Rs. 10/- and share premium at Rs. 2830.68):- Name of company No. of equity shares Amount Toyota Tsusho,Japan 92000 261342560 J Oil Mills Inc, Japan 104000 295430720 556773280 11. Ld. PCIT in the impugned order has referred to the above transactions and came to a conclusion that ....
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....eferred to the provisions of Section 56(2) of the Act stating that the excess amount received from two non resident companies on allotment of shares should be treated as income of the assessee u/s 56(2)(viib) of the I.T. Act: So the finding of Ld. PCIT is only to the effect that Ld. A.O should have examined the transaction of excess premium received from Non Resident companies which needs to be brought to tax u/s 56(2)(viib) of the Act. However we are of the considered view that this finding of Ld. PCIT is factually incorrect and is not sustainable in law since the provisions of Section 56(2)(viib) of the Act are not applicable to the consideration received from Non Residents for issuing of shares. Ld. Departmental Representative was fair enough to accept this fact that Section 56(2)(viib) of the Act s only applicable to residents and not to Non Residents. Therefore since the very basis of issue of show cause notice u/s 263 of the Act is factually incorrect and the provisions of Section 56(2)(viib) of the Act has been wrongly interpreted by Ld. PCIT by directing the Ld. A.O to tax an amount under a section namely 56(2)(viib) for the consideration received for issue of equity shares....
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....ed by the assessee during the course of scrutiny assessment proceedings itself. It can be safely concluded that the Ld. A.O had raised queries which were complied by the assessee. Considering these facts in totality, it can be safely concluded that the Assessing Officer made complete enquiry regarding share capital and share premium received from Non resident companies and also called for a report from Ld. TPO on the arms length price of this international transaction. It is a settled position of law that the powers under section 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i. e., the assessment order should be erroneous and prejudicial to the interests of the Revenue. By "erroneous" is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view take....