TaxTMI 
TaxTMI 
2021 (3) TMI 1193
X X X X Extracts X X X X
X X X X Extracts X X X X
....section 56(2)(viib) are not applicable to non-resident. 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 share....
X X X X Extracts X X X X
X X X X Extracts X X X X
....scussed in para 6 of the assessment order from page 7 to 12). 4. Subsequently Ld. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urse 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 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 S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f section 56(2)(viib) of the Act : We submit that provisions of Section 56(2)(viib) of the Act are applicable only where any consideration for issue of shares is received by the company from any person being a resident, which provision is reproduced hereunder for ready reference :- "Where a company, 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 be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... premium as under :- i)Vide First notice u/s 142(1) of the Act dated 30.05.2016 specific querry was raised regarding issue of shares at a premium and applicability of provisions of section 56(2)(viib) of the Act[wrongly typed at 36(viib)] as under :- "4. As per Balance sheet you have declared issued share capital at Rs. 40,00,000/- and share premium receipt at Rs. 95,27,75,180/-. 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 & C....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., with reference to International transaction within the meaning of section 92B of the Act[Page 46 of P.B] viii) The conclusions drawn by Dy. CIT (TPO) were also considered by the AO vide Para 6.5.2 of the assessment order as under :- "The Ld. TPO, has considered the issuance of equity shares to both the above mentioned entities as an international transaction but has not made any addition to the value of the same. Therefore, the order of the Ld. TPO u/s 92CA(3) as regards valuation of the above transaction and 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 14....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ld. Pr. CIT took a different view of the matter. However that would not be sufficient to permit Ld. Pr. CIT to exercise the power u/s 263 of the Act because when two views are possible and Ld. Pr.CIT does not agree with the view taken by the Assessing Officer, assessment order cannot be treated as erroneous and prejudicial to the interest of the revenue unless the view taken by the Assessing Officer not unacceptable in law"....................."As the Ld. AO; after making detailed enquiry allowed assessee's claim of exemption u/s 10A of the Act at Rs. 12,51,79,200/-, this action of the Ld. A.O cannot be 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 havin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this Court. That being the position, the present case would not be one of 'lack of inquiry' and, even if the inquiry was termed as inadequate, "that would not by itself give occasion to the Commissioner to pass orders under section 263 of the said Act, merely because he has a different opinion in the matter". d) CIT vs. M/s. Vikas Polymers (2012) 341 ITR 537 (Del) at Page 548. Held "This is for the reason that if a query was raised during the course of scrutiny by the assessing officer, which was answered to the satisfaction of the assessing 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 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unless the prejudice to the interests of the revenue is shown, the jurisdiction under section 263(1) cannot be exercised by the Commissioner, even though the order is erroneous". iii) V. G. Krishnamurthy vs. CIT - [1985] 152 ITR 683 (Kar) HEAD NOTE - Section 263 of Income tax Act, can be invoked only when the CIT prima-facie finds that the order made by the ITO was erroneous and was prejudicial to the interest of Revenue. Both these factors must exist simultaneously. If one or the other of the factorsis absent, the Commissioner cannot exercise the suo moto power of revision under section 263." Last but not the least, we submit that the Ld. Pr. Commissioner of Income tax did not properly consider the vital fact and ignored the submissions made before him vide letter dated 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for invoking the provisions of section 263 the assessment order is satisfied & the order passed u/s 263 of the Act, deserves to be quashed. 8. Per contra Ld. Departmental Representative vehemently argued supporting the order of Ld. PCIT and also could not controvert the fact that the provisions of Section 56(2)(viib) of the Act are not applicable for the consideration for issue of shares received from non resident companies. 9. We have heard rival contentions and perused the records placed before us and carefully gone through the decisions referred and relied by the Ld. Counsel for the assessee. The assessee has raised 3 grounds of appeal and the effective grounds are Ground No. 1 & 2 through which the jurisdiction assumed by Ld. PCIT u/s 263 of the Act has been challenged mainly on the ground that the provisions of Section 56(2)(viib) of the 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 e....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Provided that this clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a venture capital fund 67[or a specified fund]; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. 14. From perusal of the above section it is very much clear that it refers to the consideration for issue of shares received from "any person being Resident". The provision is very clear and there cannot be any second opinion to this aspect that Section 56(2)(viib) of the Act applies only to Residents. The issue in the instant appeal relates to allotment of equity shares to Non Resident companies. As per DCF method value of equity share is at Rs. 2061.35 but the equity shares allotted to non resident is at Rs. 2840.68. In the show cause notice issued, Ld. PCIT has only referred 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Act for computing the arms length price of the international transaction entered into with Toyoto Tsusho and J Oil Mills for allotment of equity shares at a premium for total consideration of Rs. 55,67,73,280/-. Ld. TPO has also examined the transaction and after perusing the records concluded that no adjustment is required to be made to the arms length price of the transaction. In other words the transaction with Non resident company were accepted at a fair market value requiring no adjustment. After receiving the order u/s 92CA(3) of the Act Ld. A.O further discussed the transaction of issuance of share capital to the two non resident companies and since Ld. TPO did not make any adjustment to the value of transaction the same was accepted by the Ld. A.O. 17. In view of the above facts in our understanding there was a specific enquiry from the Ld. A.O to which the specific reply along with supporting documents were submitted 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 Asse....