TaxTMI 
TaxTMI 
2023 (1) TMI 204
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....he interest of the revenue. The action of the ld. PCIT is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the order passed u/s 263. 2. The assessee company craves its right to add, amend or alter any of the grounds on or before the date of hearing." 3. Succinctly, the fact as culled out from the records is that the assessee company e-filed its return of income for the aforementioned assessment year on 30-10-2017 declaring a total income of Rs. Nil/- (Loss of Rs. 5,41,872/-). The case of assessee company was taken up for scrutiny u/s 143(3) of the Income Tax Act, 1961 ("The Act") on the basis of Computer Assisted Scrutiny Selection (CASS) and statutory notice u/s 143(2) of the Act, dated 10-08-2018 was issued and served upon the assessee company. 3.1 In compliance to the said notices AR of the assessee filed details / information online. The reasons for scrutiny selection were verified from the online submissions of the assessee company. After examination of the information and other details placed on record, the returned income of the assessee was accepted. 4. After culmination of the assessment proceedings, the Pr. C....
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....(v) After enlisting the facts as above and having huge Unsecured Loans, starting the year with an opening balance and during the year payments of Rs.2,03,50,000/ having been made to them, inflating the book value of the assets to create an artificial share premium value to disguise the routing of money as share capital and share premium, all this in a company which has a turnover of NIL in A.Y. 2017-18, should have evoked a greater scrutiny. There are no bills invoices of addition to fixed assets and as to when were they put to use. The Assessing Officer has not verified the claim of depreciation to the extent of Rs.6,13,624/- as to how the assessee utilized these assets in this year. (vi) With a NIL turnover, maintaining the unsecured loan to the tune of Rs.7,31,25,000/- and raising the book value of fixed assets (net of depreciation) to Rs.3,89,19,099/- in A.Y. 2017-18 and then transferring the majority shareholding to a company & an Individual from where share capital and share premium has flown in on the basis of Asset Based method, speaks of a broader nexus of creating bogus assets and creation of bogus share premium. The authenticity of the credits, share capital and share ....
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....issue identified in the limited scrutiny was "Share Premium" the assessee Company was asked to furnish necessary details along with evidences to justify the share premium received by the assessee Company. 1.6. The assessee Company furnished following Valuation Certificates obtained by it from the External Valuer in accordance with the law prescribed in this regard: S. No. Date of Certificate Name of Valuer PB 1 18.03.2016 PC Modi & Co., Chartered Accountants. 19-23 2 10.08.2016 PC Modi & Co., Chartered Accountants. 24-25 3 31.10.2016 PC Modi & Co., Chartered Accountants. 26-27 4 14.02.2017 PC Modi & Co., Chartered Accountants. 28-29 1.7. On the basis of details submitted by the assessee Company in response to exhaustive queries raised by ld. AO the share premium received by the company was found by the ld. AO genuine, fully justified and in accordance with the law. Accordingly, returned income was accepted and no addition was made u/s 56(2)(viib). 2. Issues raised in the Notice u/s 263: Revisionary jurisdiction u/s 263 is proposed to be assumed for the following purported reasons mentioned in the notice: i. No justification was provided regarding the c....
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....h flows as on the date of the agreement between the two. Any variation, subsequently, effected by subsequent developments, has no bearing on the valuation so arrived at and agreed by the two parties. ii.d Enough examples are available in the Indian stock market, where future prospects have been used as basis for arriving at the share price which subsequently have not gone true. ii.e Reliance is placed on the following judicial pronouncements:- 1. Cinestaan Entertainment (P.) Ltd. [2019] 106 taxmann.com 300 (Delhi - Trib.) : As per section 56(2)(viib) read with rule 11UA assessee has an option to do valuation of shares and determine fair market value either on DCF Method or NAV method, and Assessing Officer cannot examine or substitute his own value in place of value so determined. [PB 31-50 ] 2. Rameshwaram Strong Glass (P.) Ltd. [2018] 96 taxmann.com 542 (Jaipur - Trib.) : Where assessee company determined Fair Market Value of shares issued at premium on basis of Discount Cash Flow method in accordance with rule 11UA(2)(b) read with section 56(2)(viib) and valuation report was prepared as per guidelines given by ICAI and no fault was found in same, Assessing Officer was un....
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....to increase in net worth. v.b During the course of assessment proceedings, vide submission dated 13.05.2019, it was clearly conveyed that no additions to fixed assets have been made during the year. v.c This fact was also evident to ld. AO from the fixed assets schedule annexed and forming part of the audited financial statements, therefore, there is no question of any bills/ invoices in respect of additions to fixed assets for the year. v.d The assets were continuing from the preceding year, depreciation thereon was allowed in the immediately preceding year. These assets continued to be used, during the year under consideration, as similar business activities were carried on during the year. Ld. AO was fully justified in allowing depreciation of Rs. 6,13,624. Issue vi. The authenticity of credits, share capital and share premium has not been established. Response vi.a As has been submitted, complete details of the share subscriber and also share premium were furnished. These details were analysed by ld. AO who found the same satisfactory. Change in shareholding pattern had no impact on the issue under consideration in limited scrutiny. vi.b It is reiterated that the ....
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....e letter dated 26.12.2019: - "Further, as per explanation of section 56(2)(viib), the fair market value of the share shall be the value (1) as per rule 11UA or (ii) as may be substantiated by the company to the satisfaction of AO based on the value on the date of issue of shares of its assets whichever is higher. The intrinsic value of the land alone is Rs. 165.04 crores (Copy of DLC rate, JDA Patta of Land and calculations are attached herewith marked as Annexure-D) excluding the construction cost, as against the net worth of Rs. 67.69 crores as shown in the valuation certificate dated 14th February 2017. Hence, if your goodself is not satisfied with the first method of NAV as per rule 11UA, the other valuation method (intrinsic value method) may be considered, which is in accordance with the law in this regard, and the consideration for allotment of 12092 equity shares on 21.03.2017 to M/s. KGK Infrastructure India Pvt Ltd does not exceeds the fair value of the shares and as such no addition u/s 56(2)(viib) is called for in the hands of assessee company." 9. Ld. AO after knowing the DLC value of land rightly reached to the conclusion that the share premium received by compa....
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....the case of CIT vs. Ganpat Ram Vishnoi, 296 ITR 292 (Raj.) wherein at para 11 of the Hon'ble Court held as under: "Jurisdiction under section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something." In view of the above there is no error in order of ld. AO nor any prejudice is caused to the revenue, therefore, the proceedings-initiated u/s 263 may please be dropped." 6. From the reply of the assessee in the proceeding before her, she has stated that the she has considered the facts of the case and the material available on record and her observation on the submission of the assessee is extracted from the order here in below:- "I have considered the facts of the case and the material available on record and the submission made by the assessee. It is seen that company has overvalued its shares and the share premium charged by the company has no scientific basis and the projections given by M/s PC Modi and company are not consonant with the financials of the company. The calculation of share premium was ascertained on the basis of discount....
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....x before being invested in the assesse company. (iii) Thus, it is observed that company has not done any business during the year, and has a NIL turnover. Further, with this NIL turnover, along with the unsecured loan to the tune of Rs. 7,31,25,000/- and raising the book value of fixed assets (net of depreciation) to Rs.3,89,19.099/-in AY 2017-18 and then transferring the majority shareholding to a company & an Individual from where share capital and share premium has flown in on the basis of Asset Based method. The authenticity of the credits share capital and share premium has not been established." 7. Based on the submission and discussion she has taken a view which in the proceeding before her under section 263 of the Act and the same is extracted here in below:- "9. Therefore, due to above reasons, it is concluded that the share premium rate to be ascertained as calculated at Rs.790/-(Share Price of Rs.10+ Share Premium of Rs.780), totaling of Rs.60645140/-( 790*76766) and excess share premium so generated of Rs.37,44,21,870/- (435067010 60645140) without any authenticity of sources being disclosed. Consequently, excess premium charged by assessee was to be considered as ....
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....n so far as it prejudicial to the interest of revenue as the said order has been passed by the Assessing Officer in a routine and perfunctory manner. The order of the Assessing Officer is therefore liable to revision under the clause (a) & (b) of Explanation (2) to section 263 of the Income Tax Act. Therefore, the assessment order on the aforesaid issue is set aside to be made afresh de-novo in the light of observations made in this order. The AO is directed to examine and verify the issue of share premium in view of the provisions of law after allowing adequate opportunity of being heard to the assessee before passing the fresh assessment order. Hence, the assessment order is set aside as discussed above." 8. Aggrieved from the said order of the ld. Pr. CIT the assessee carried the matter in appeal before us, challenging the order passed u/s. 263 of the Act. On merits the ld. AR appearing on behalf of the assessee submitted a detailed written submission in respect of the various grounds raised by them and the same is extracted here in below: GROUND NO. 1 LD. PCIT ERRED IN ASSUMING JURISDICTION UNDER SECTION 263 1. PROCEEDINGS BEFORE LD. AO 1.1. Case of assessee company wa....
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....tively, the value of the shares were substantiated before the ld. AO by using Intrinsic Value Method, considering the DLC/Market Value of the land, owned by the assessee company, which was accepted by the ld. AO [PB : 17] [PB : 41]. Share price comes to Rs. 780 against Rs. 4,350 and Rs. 6,470 because of the actual results of the company for subsequent years. * No basis provided by ld. PCIT for arriving at the share price of Rs. 780, inspite of specifically requested for the same in the submissions filed before ld. PCIT [PB : 36]. * Ld. PCIT considered the loss for FY 2019-20 at Rs. 4,21,80,725, whereas, the actual loss, as per Audited Financial Statements was Rs. 42,18,072. Audited Profit & Loss was provided to ld. PCIT [PB: 30]. Discrepancy in the SCN was brought to the notice of the ld. PCIT [PB : 36] * Valuation as per DCF method is done on a particular date, at the terms agreed between the investor and investee, at the time of making investment. Actual results cannot be substituted, later on. For this proposition, reliance was placed on Cinestaan Entertainment (P.) Ltd. [2019] 106 taxmann.com 300 (Delhi - Trib.); Rameshwaram Strong Glass (P.) Ltd. [2018] 96 taxmann.com 542 ....
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....med by the ld. PCIT, in the present case, following contentions were raised by the assessee company, before ld. PCIT:- Contention Raised Case Laws * Assessment was completed by ld. AO on the basis of exhaustive enquiries and detailed submissions filed by assessee company. * Explanation 2 to Section 263, inserted vide Finance Act, 2015, cannot override the basic requirements of Sub-Section (1) of Section 263. [PB : 40] * Torrent Pharmaceuticals Ltd. [2018] 173 ITD 130 (Ahmedabad- Trib.) * Eveready Industries India Ltd [2020] 181 ITD 528 (Kolkata -Trib.) * M/s Amira Pure Foods Pvt. Ltd, ITA No. 3205/DEL/2017, ITAT Delhi Bench. * Shri Narayan Tatu Rane, I.T.A. No. 2690/Mum/2016, ITAT Mumbai Bench. * Case was selected for limited scrutiny for verification of share premium and was not converted into full scrutiny. Resultantly, ld. AO had no jurisdiction to enquire on issues other than Share Capital. * Being a limited scrutiny, it was not the case that large number of complicated issues were involved or large number of documents were placed on record, rendering it probable for the ld. AO to miss certain facts/legal position. [PB : 40] * Smt. Lata Phulwani, ITA No. 246/JP/2020 ....
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....he cash flow projection done by the management was not only reliable but arbitrary and imaginary. Ld. PCIT has compared the projections, considered for valuation of shares, with the actual results of the company in the subsequent years. It is reiterated that the Chartered Accountant while valuing the shares of the company has adopted the method as prescribed under the law. The projections, as regards operations of the company, considered by the Chartered Accountant is as on the date of valuing the shares. Subsequent position is not to be considered. Attention is drawn towards the various case laws, in this regard, cited above. Even for listed securities, it is seen that the price at which the shares are allotted/valued, at the time of their listing, drops subsequently. 2.5.iii Ld. PCIT has stated that the shareholding pattern of the assessee company has changed. The said observation is of no relevance. As long as the shares have been issued to the shareholder, in accordance with the method as prescribed under the law, any change in shareholding due to such fresh issue of shares is only incidental. It cannot render the entire procedure for issue of shares as erroneous, least a....
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....he non-resident remitter is established and the money comes through banking channel, it cannot be treated as deemed income under Section 68. [Russian Technology Center (P.) Ltd. 2013 Taxmann.com 400 (Delhi-Trib)] 2.8. Mere inadequacy of an enquiry or insufficiency of material on record can be a ground to invoke powers under Section 263. Under identical set of facts, as in the present case, in the case of Dada Ganpati Gaur Products (P.) Ltd. [2021] 214 TTJ (Chd.) 908, jurisdiction under Section 263 was assumed by the ld. PCIT for the reason that the ld. AO, in such case, had not examined the applicability of Section 56(2)(viiib). A valuation report had already been filed by the assessee company before the ld. AO. In such valuation report the assessee company had followed DCF method for the purpose of valuing it equity shares. Jurisdiction under Section 263 was assumed by ld. PCIT. Thereafter, order of the ld. PCIT was quashed by Hon'ble ITAT by holding that there was no cogent and convincing reason for rejecting the valuation report and since ld. AO had passed the assessment order after conducting proper verification of the details furnished and considering the explanation given b....
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....red by S.263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue..." 2.12. Unless prejudice to the interest of the revenue is "established", any assumption of jurisdiction under Section 263, by the ld. PCIT, directing revision of order, is unjustified. 2.13. Even otherwise, Section 263 proceedings are not meant for correcting each and every error of the ld. AO. [Torrent Pharmaceuticals Ltd. [2018] 173 ITD 130 (Ahmedabad - Trib.)]. 2.14. Hon'ble ITAT, Mumbai Bench, in the case of Reliance Payment Solutions Limited, ITA No. 1010/Mum/2021, held that "...as long as the action of the Assessing Officer cannot be said to be lacking bonafides, his action in accepting an explanation of the assessee cannot be faulted merely because it could have been lawful to make mere detailed inquiries or because he did not write specific reasons of accepting the explanation. As for learned PCITıs observations regarding accepting the explanation "without appropriate evidence", there is nothing to question t....
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....oceed to examine issues, which are beyond the scope of limited scrutiny. Resultantly, Section 263 cannot be invoked for such issues; 2.15.vi Valuation done under Rule 11UA by expert is binding upon AO, as held in Rameshwaram Strong Glass Pvt Ltd vs. AO 195 TTJ465; 2.15.vii Ld. PCIT cannot proceed on mere suspicion and substitution of opinion while assuming jurisdiction under Section 263; 2.15.viii Ld. PCIT cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. 2.16. Ld. PCIT has misplaced reliance on the decision of Hon'ble ITAT, Delhi Bench in the case of Agro Portfolio (P.) Ltd. [2018] 94 taxmann.com 112 (Delhi-Trib). 2.16.i The said case is not in relation to assumption of jurisdiction under Section 263. 2.16.ii In the said case there was a categorical f....
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....ase of Fluture Business Solutions (P.) Ltd. [2020] 117 9 taxmann.com 567 (Bangalore- Trib.) * Copy of order of Hon'ble ITAT, Mumbai Bench, in the case of Vodafone M Pesa Ltd. [2020] 114 taxmann.com 323 1 (Mumbai- Trib) * Copy of order of Hon'ble ITAT, Mumbai Bench, in the case of Karmic Labs Pvt Ltd, ITA No. 3955/Mum/2018 * Copy of order of Hon'ble ITAT, DELHI Bench, in the case of Cinestaan Entertainment (P.) Ltd. [2019] 106 taxmann.com 300 (Delhi-Trib) * Copy of order of Hon'ble ITAT, in the case of Avigna housing PVT.LTD [TS-751- ITAT -2020(CHNY) * Copy of order of Hon'ble ITAT, in case of Reliance Payment Solutions Limited [ TS-199-ITAT-2022 (Mum) * Copy of order of Hon'ble ITAT, Jaipur Bench in the case of Lata Phulwani, ITA No. 246/JP/2020 * Copy of order of Hon'ble High Court of Rajasthan, in the case of Ganpati Ram Bishnoi [2006] 152 Taxman 242 (Rajasthan) * Copy of order of Hon'ble ITAT, Ahmedabad Bench, in the case of Torrent Pharmaceutical Ltd. [2018] 97 taxmann.com 671 (Ahemdabad-Trib) * Copy of order of Hon'ble ITAT, Kolkata Bench in the case of Everready Industries India Ltd. [2020] 114 taxmann.com 610 (Kolkata- tr....
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.... shares ("2nd Method"). WHICHEVER IS HIGHER 2.2 Relevant explanation, forming part of Section 56(2)(viib) is set out hereunder:- "...Explanation. -For the purposes of this clause:- (a) the fair market value of the shares shall be the value- 1st Method (i) as may be determined in accordance with such method as may be prescribed; or 2nd Method (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher..." 2.3 As per the 1st method, i.e. Valuation in accordance with Rule 11UA, valuation has to be done in accordance with Rule 11UA(2) for the purpose of Section 56(2)(viib). Valuation of Shares as per Rule 11UA (2) has to be done on the Valuation Date. Further, for the purpose of determining the value of shares on the basis of Net Asset Value Method [Rule 11UA(2)(a)], the Book Value of the Assets/Liabilities has to be considered as per the Balance Sheet. 2.4 For the purpose of R....
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....ith the position of the company one year prior to the date when it subscribes to the shares of the company. This is the reason why even under the relevant rule for valuation of shares, i.e. Rule 11UA, valuation date for the purpose of valuing the shares is the date on which the consideration is received by the assessee on issue of shares. 2.10 Ld. PCIT has sought to value the shares of the company based on the Balance Sheet position as on 31.03.2015, which was more than one year prior to the date on which shares were issued. Thus, mechanism adopted by ld. PCIT is totally erroneous and deserves to be ignored. 2.11 Even otherwise, ld. PCIT has ignored the legal position that apart from Rule 11UA(2), Section 56(2)(viib) also prescribes another method for valuation of shares of the company (Refer Para 2.2. above). According to such method, the value of the shares, to be substantiated by the company to the satisfaction of the Assessing Officer, has to be based on the value of the assets held by the company, as on the date of issue of shares. 2.12 Assessee company, during the course of proceedings before the ld. AO, had categorically mentioned that considering the Fair Market Value....
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....e calculation of share premium. The assessee company has submitted their reply on the issue on 13.05.2019. In that reply the assessee company has furnished the details pertaining to shares issued at premium. The assessee company also submitted the copies of the valuation certificate issued by the chartered accountant justifying the aforesaid share premium and the calculation of share premium how derived. Based on these documents the ld. AO has issued a show cause notice to the assessee on 24.12.2019 proposing to disturb the valuation of share adopted by the company. The said show cause notice is extracted here in below : "Please refer to the above. As you are aware that assessment proceedings in your case for the AY 2017 18 is pending before me and which is going to be barred by limitation by 31-12-2019. Notice u/s 143(2) and 142(1) has already been issued and served upon you. You are directed to furnish the following details/information. 1. Please refer to the balance sheet and the share valuation report furnished by you. From the previous balance sheets and ITRS of the assessee company it is evident that the assessee company has not been generating any revenue for the past fe....
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.... different cannot review the order of the ld. AO to correct each and every alleged mistake in the order of the AO. The ld. AR of the assessee further without prejudice the submission made before the AO submitted before us that the provision of section 56(2)(viib) can only be adopted when the shares are issued to resident share holders where in this case the investor is non resident and the applicable provision for investment in the shares of Indian company is subjected to regulations by the RBI and the same is also followed and the necessary approval / sanction of the investment made by the NRI is approved by the RBI and necessary approval letter dated 01.11.2016 and 23.03.2017 submitted so as to demonstrate the assessee has also complied that the provisions as the provision of section 56(2)(viib) is not applicable to NRI share holder. Not only that the ld. AR submitted that PCIT is insisting as to why the other method of valuation is not adopted by the assessee company and in that the ld. AR submitted that the law permit the assessee company to choose any one method of valuation and the same has been adopted and approved by the one of the regulator of the country. As regard the co....
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....e correct picture. In the response the ld. AR of the assessee submitted that the dispute with the JDA is settled and if the JDA current land rate applied for the land will be more as compared to the valuation done by the company on discounted cash flow method (DCF). Thus, the contentions of the PCIT is mere guess work on these aspect of valuation. Even the PCIT has not given the working in the proceeding u/s. 263 for adopting the value at Rs. 790 for each share at page 20 of his order which the ld. DR has given in the proceeding before ITAT. The ld. AR also submitted before us that why the same is not correct. The valuation of share as per rule 11U be considered as on the date of issue of share and not based on the past historical data which the PCIT has adopted thus, the PCIT has not perused that valuation rule while commenting on the valuation of the shares. Even the fact that the shares are issued to NRI and provision of section 56(2)(vii) of the act is not applicable in the present set of circumstances is also not dealt. In point no. iv of the show cause issued PCIT has contended that the AO has not brought on record the fact that the whether the investment made is from the dis....
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.... applicable in the present facts of the case. He further submitted that a) The AO has not granted any relief or claim in the present case which is the subject matter in the case. The order is passed after making enquiry in the proceeding. The AO has not violated any direction or instruction of the board. The order has also not violated any binding judicial decision. b) whether the issue raised by the PCIT has been raised by the AO in the proceeding before him ? Yes the ld. AR demonstrate before us that the AO has raised the issue has which the PCIT is contending. c) Whether the necessary enquiry on the issue has been conducted? Yes he has after considering the submission of the assessee issued a show cause notice to d) Whether the ld. AO has applied his mind on the issue and taken a plausible view after considering the issue which the PCIT is raising? Yes the issue was deliberated in the SCN and the submission were made before him on all the possible aspect of the issue before him and the same has considered after raising considered after applying due mind and thus, the explanation of 2 of section 263 will not apply. 13. Thus, the ld AR of the assessee submitted that ld. A....
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....lity of the TRO report is to be obtained or not is also not verified by the AO. He has invited attention to note no. 24 in the account as referred the presumption made are not in real terms and correct when the property is under dispute and there is not possibility to achieve the estimation made in the DCF projections. Thus, based on these facts which are factually examined by the PCIT and the valuation made by the PCIT is the only option available with the assessee and be considered as correct one and therefore, the order of the PCIT setting a side the assessment made by AO be sustained. 15. The ld. AR has also filed the written submission against the various contentions / averments made by the ld. DR in the course of appeal proceedings. The same is also extracted here in below:- During the course of hearing before the Hon'ble Bench on 03.08.2022, ld. DR, as part of his oral submissions, raised certain issues. The contentions raised by the ld. DR, along with the rebuttal from the side of the assessee company, are set out here under:- Contention raised by ld. DR Rebuttal of the assessee company Assessee company issued shares to a Non-Resident, during the relevant previous year,....
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....(Non-Resident). Such form was filed with RBI. * The same have also been approved by the RBI. [Copy Enclosed Page 13-16] * Thus, allegation of the ld. DR is on account of misinterpretation of the law as regards FEMA on issue of shares to Non-Resident. Construction on the land owned by the assessee company had been stopped by the Jaipur Development Authority ("JDA") and the company was in losses. * It is submitted that the investors of the assessee company were aware that whatever construction was done by the assessee company was very much in accordance with law. * As in any business, more so in the real estate business, there are legal issues which might temporarily bring the construction activities to a standstill, however, promoter/investor is always aware and factor in such kind of situations while making the investment. * It is pertinent to note that subsequently the embargo placed by the JDA on construction of the building on the land owned by the assessee company was withdrawn. * Assessee company was given clean chit and was allowed to carry out the construction activities. * Subsequently, Writ Petition [S.B. Civil Writ Petition No. 15767/2015] filed by the assessee co....
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.... "(a) Whether on the facts, in the circumstances of the case and as per law, the Hon'ble ITAT has erred in holding that in the revision proceedings the CIT cannot travel beyond the reasons given by him for revision in the show-cause notice without appreciating that the power of revision under Section 263 of the I.T. Act is not contingent on the giving of a notice to show cause ?" Hon'ble Bombay High Court held that:- "...In the case at hand, there is a finding by the Tribunal, as noted earlier, that no issue was raised by the CIT in respect of particulars of payment made to persons specified under Section 40A(2)(b) of the Act and even the show cause notice is silent about that. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law..." Hon'ble High Court referred to the decision of Hon'ble Supreme Court in the case of Amitabh Bachchan [2016] 69 taxmann.com 170 (SC) for the ratio that opportunity of being heard should be....
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....idered that the same has not been seen by the AO in light of the observations made by her in the proceedings before her as depicted by her in the show cause notice issued by her. The bench notes that the prerequisite exercise of jurisdiction by the learned Principal CIT under section 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The Principal CIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, provision of section 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue's interest, then the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in c....
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....d the law while making the subjected assessment to be termed, as erroneous and prejudicial to the interest of the revenue? The facts are not disputed that the case of the assessee was selected for limited scrutiny. On the issue of the selection of the case the assessing officer has first called for the information from the assessee on the issue under disputed vide notice dated 26.04.2019. It is also not in dispute that the assessee has provided all the relevant details in the assessment proceedings. The ld. AO based on the information provided by the assessee applied his mind. Then on the issue of share valuation and other related issues as pointed out by the DR in his arguments that the assessee incurred loss, the property is under dispute, commercial activity is stopped, the method of accounting adopted while making the valuation of shares etc. on all the related issues a detailed show cause notice was issued to the assessee company on 24.12.2019 asking them to give the reply on the issue which related to issue on hand. The DR only demonstrate that the valuation basis of estimating the growth and income estimate are wrong based on the current state of facts. Whereas, the ld. AR a....
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....antiate that order passed by the ld. AO is prejudicial to the interest of revenue. He only mentioned that the detailed investigation was required to be conducted in order to verify the share premium. There is no further defect found from the record from the material that has been collected by the ld. AO to verify the point raised in the limited scrutiny. The contentions raised by ld. DR on aspects in detailed discussed in the arguments of the ld. AR of the assessee. Since, in this case ld. AO has clearly conducted the enquiry and revenue did not pin point the error on the part of the assessing officer the order passed after due application of mind cannot be subjected to proceeding u/s. 263 of the Act. At this stage it is required to be noted that the ITAT Mumbai bench in the Mrs. Khatiza S. Oomerbhoy addressed the issue of 263 proceeding elaborately after referring to number of cases on revisionary powers vested in the Commissioner of Income-tax under section 263 of the Act and summed up the fundamental principles emerging from several cases as under- (i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interest of the R....
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...., when the ld. AO has conducted the required enquiry and not violated any of the conditions mentioned for revision of order as required by Explanation 2 of Section 263 of the Act, the order passed by the Assessing Officer could not be deemed to be erroneous so as to be prejudicial to the interests of the revenue. In the present case none of the condition laid down is fulfilled in the show cause notice for revision issued and also not specifically dealt with what are the reasons so as to make the revision of order u/s. 263. Therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 of the Act. Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 of the Act, had dislodged the view that was taken by the AO, as regards the issue of share premium for which the ld. AO has already done the required exercise and taken a plausible view. 21. Thus, we found from the above discussion and evidences placed before us that the issue has already been raised in the assessment proceedings. Based on the contentions and judicial precedent cited by the assessee the assessing officer satiated himself and has taken a pla....
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.... founded on no material, it was liable to be set aside. Jurisdiction under section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something. 12. The finding of the Tribunal that the ITO had passed assessment order after relevant enquiries and considering the aspects of the matter required by the CIT to be considered by him is a finding of fact and on the basis of which, the jurisdiction assumed by the CIT being non-existent must be held to be not sustainable. 22. The ld. AR of the assessee also cited the decision of this coordinate bench on similar issue in ITA No. 09/JP/2021 in the case of Annu Agrotech Private Limited where in the coordinate bench after analyzing various court ruling held that; "17. The Ld. Pr.CIT also alleged that the AO did not make enquiries and verification on the issue of large share premium received by the assessee and the applicability of S.56(2)(viib) and other relevant sections even though this was not the reason for scrutiny selection. Alternatively and without prejudice to above, even otherwise on merits, there has b....
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....no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. In the case of Elder IT Solutions (P.) Ltd. vs CIT [2015] 59 taxmann.com 232 (Mumbai - Trib.), it was held that: "18. In the case in hand, there is no dispute that the AO called for financial details of these companies and also examine the parties in order to satisfy himself about the genuineness of the transaction. Therefore, on the basis of the record available before him, the AO accepted the claim of the assessee. The Commissioner has not found any fault with the ....