TaxTMI 
TaxTMI 
2023 (1) TMI 204
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....the ld. AO is neither erroneous nor prejudicial to the 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.....
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....um are from disclosed sources, whether this money had been assessed to tax before being invested in the assessee company. (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 ....
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.... 10 3 24.12.2019 11-12 26.12.2019 13-18 1.4. A detailed Show Cause Notice dated 24.12.2019 was issued by the ld. AO. The said Show Cause Notice was duly replied by the assessee Company vide response letter dated 26.12.2019. 1.5. Since the 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 ....
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....y submission in this regard can be made. ii.b In the Notice loss of the F.Y. 2019-20 is taken at Rs. 4,21,80,725, whereas the loss as per audited financial statement for the said year is only Rs. 42,18,072. Photocopy of audit profit & loss is enclosed. [PB 30 ] This error has impacted your view point on the matter. ii.c Discounted Cash Flow Method (DCM) presumes matching of minds between investor and investee regarding probable future cash 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 Offic....
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....lace of effective management" means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made. Issue v. Inflation of book value of assets to create artificial share premium. There were no invoices of addition of fixed assets placed on record nor any verification of claim of depreciation of Rs. 6,13,624. Response v.a The net worth of the assessee company subsequently increased because the share capital raised earlier was utilised for payment of liabilities. The assets remaining at same level decrease in liabilities resulted into 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 allow....
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....f Coordinate Bench of ITAT Jaipur in case of Smt. Lata Phulwani v. Pr. CIT - ITA No. 246/JP/20 "Even otherwise, it is clear from the assessment order that the case was selected for limited scrutiny only on the issue of investment made in the agricultural land and deduction under section 54F of the IT Act. Therefore, the question of lack of enquiry does not arise when the AO has taken up the scrutiny and issued the notice under section 142(1) along with a questionnaire calling for all the details relevant to the acquisition of the land as well as of construction of house." 8. After responding to all the queries of ld. AO and after satisfying him in respect of all the issues raised following alternative submission was made vide response 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 calcul....
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....HUF) (2001) 247 ITR 555 (Cal) ix. CIT v Amalgamations Ltd. (1999) 238 ITR 963 (Mad) x. CIT v Macneill Magore Ltd. (1998) 232 ITR 945 (Cal) 14. Where the Assessing Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be considered erroneous simply because the Commissioner does not feel satisfied with the conclusion. 15. Provision of section 263 no where allows to challenge the judicial wisdom of Id. AO or to replace her wisdom in the guise of revision unless the view taken by Id. AO is not at all sustainable in law. Extent of enquiry can be stretched to any level by forcing the AO to go through the assessment process again and again this proposition is not authorised by the law. Reliance is placed on the decision of the Hon'ble Jurisdictional High Court in 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....
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....5151) (42180725) Therefore, it is ascertained that cash flow projection done by its management was not reliable but arbitrary and imaginary. As per profit & loss statement of the company, it has shown heavy losses, however company allotted share premium at very higher side, which is not justifiable. (i) Due to allotment of shares by the company, the share holding pattern has changed and now the majority of the share holding i.e. 53.56% of the shareholding vests with M/s. KGK Infrastructure (India) Pvt. Ltd. and 22.67% of the shareholding is with Sh. Vinay Kumar Ghisilal Kothari. Total 76.23% shareholding is now with the above mentioned investors. Company has received share capital and share premium from Shri Vinay Kumar Kothari, Hongkong. (ii) Further, it is not verifiable whether the amount of share capital and share premium received by the company from its share holders are from disclosed sources and whether this money had been assessed to tax 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 ....
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....lhi(2018) 94 Taxmann112 has held that "For all these reasons, we are of the considered opinion that there has not been any possibility of verifying the correctness or otherwise of the data supplied by the assessee to the merchant banker, in the absence of which the correctness of the result of DCF method cannot be verified. This left no option to the AO but to reject the DCF method and to go by NAV method to determine the FMV of the shares Without such evidence, it serves no purpose even if the matter is referred to the Department's Valuation Officer. We, therefore, do not find any illegality or irregularity in the approach of conclusions are by the authorities ITA No. 2189/Del/2018 below. While confirming the same, we dismissed the appeal as devoid of merits." 1. Accordingly, by virtue of powers conferred on the undersigned under the provisions of section 263 of the Income Tax Act 1961, I hold that the order under Section 14(3) of the IT Act dated 30.12.2019 for AY 2017-18 passed by the Assessing Officer is erroneous in 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. Th....
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.... was found by the ld. AO to be 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. SUBMISSIONS 2.1. Before ld. PCIT elaborate submissions were filed, which are also placed in Paper Book from Pages 33 to 42, which may please be considered in correct perspective. 2.2. Summarised position of the issues raised by the ld. PCIT, for assuming jurisdiction under Section 263, and the consequent reply filed by the assessee company is as under: - ISSUE RAKED UP BY LD. PCIT CONTENTION BEFORE LD. PCIT No justification was provided regarding the change in valuation method and share price calculated on basis of discounted cash flow projection was not acceptable * As per Explanation to Section 56(2)(viib), read with, Rule 11UA, assessee company at its own option can choose (i) Intrinsic Value Method [Rule 11UA(2)(a)]; or (ii) Discounted Cash Flow Method [Rule 11UA(2)(b)], for valuation of its shares. [PB : 35] * There is no prohibition, under ITA, w.r.t change of method and ld. AO was aware of this legal position. * Alternatively, the value of the shares were sub....
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....preciation of Rs. 6,13,624. * Liabilities decreased as the share capital received previously was utilized for paying off the liabilities. Assets remained at the same level. Due to reduction of liability, net worth of the assessee company increased. [PB : 39] * No additions were made to the Fixed Assets, during the year. Fact conveyed to ld. AO and evident from Audited Financial Statements. [PB : 39] * Assets continuing from preceding year, on which depreciation claimed by assessee company. [PB : 39] The authenticity of credits, share capital and share premium has not been established. * Complete details of the share subscribers and also share premium furnished. [PB : 39] * Change in shareholding pattern had no impact on the issue under consideration in limited scrutiny. * Share premium was to be examined in limited scrutiny. * Issue was to be examined with reference to Section 56(2)(viib) and not with reference Section 68. * Ld. AO had no jurisdiction to make enquires u/s 68. Accordingly, ld. AO appropriately did not transgress his jurisdiction. Action of the ld. AO was well in accordance with the law. 2.3. Regarding whether jurisdiction could be....
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....urther relied upon) Ratio laid down * Karmic Labs Pvt. Ltd., ITA No. 3955/Mum/2018 * Flutura Business Solutions (P.) Ltd. [2020] 117 Taxmann.com567 (Bangalore - Trib) * Him Agri Fresh (P.) Ltd. [2021] 90 ITR(T) 95 (Amritsar- Trib) It is beyond the jurisdiction of the Assessing Officer to change the method of valuation adopted by the assessee company, for the purpose of Section 56(2)(viib), if the same is within the purview of Rule 11UA. * Vodafone M-Pesa Ltd. [2020] 114 taxmann.com 323 [Mumbai-Tribunal] * Flutura Business Solutions (P.) Ltd. [2020] 117 Taxmann.com567 (Bangalore - Trib) When Fair Market Value has been determined based on the Discounted Cash Flow Method, then such method of valuation cannot be rejected by comparing the projections with the factual results. 2.5. Point by point rebuttal of the contentions raised by ld. PCIT, in disregarding the submissions of the assessee company, in her order from Pages 18 to 21, are set out here under: - 2.5.i Assessee company has overvalued its shares and the share premium charged by the company has no scientific basis and the projection given by PC Modi & Company are not in consonant with t....
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....g at Rs. 790 as the value of share, computed by the ld. PCIT, no such calculation was provided. Attention was also drawn to the fact that ld. PCIT had erroneously considered excess loss, however no such adjusted working has been provided by the learn it PCIT in her order. 2.6. In the present case, no cogent basis has been provided by ld. PCIT for disregarding the calculation adopted by the assessee company for the purpose of valuing its shares. Under such circumstances, jurisdiction cannot be assumed under Section 263 by ld. PCIT. [Trimex Fiscal Services (P.) Ltd. [2020] 113 taxmann.com 441 (Kol.-Trib)] 2.7. Assessee company submitted the Income Tax Return of Shri Vinay Kothari, to establish that he was a non-resident, for the relevant previous year. 2.7.i Accordingly, the provisions of Section 56(2)(viib) were not applicable on the amount received oh account of issue of shares to him. 2.7.ii Section 56(2)(viib) is only applicable to shares issued to residents. 2.7.iii Ld. PCIT has stated that the ld. AO has not considered the amount received from Shri Vinay Kothari from the point of view of Section 68. 2.7.iv Although, it is re....
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....rder of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1)..." 2.11. From the exhaustive material, already on record, and the enquiries conducted by ld. AO, it is abundantly clear that no prejudice, in any manner, was caused to the interest of the revenue:- 2.11.i Hon'ble Calcutta High Court in Dawjee Dadabhoy and Co. v. S.P. Jain [1957] 31 ITR 872 (Cal.) at page 881 has explained the meaning of the expression "prejudicial to the interest of the Revenue" the following terms: "..The words 'prejudicial to the interests of the Revenue' have not been defined, but it must mean that the orders of assessment challenged are such as not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. It can mean nothing else..." 2.11.ii G.R. Thangamaligai [2003] 259 ITR 129 (MAD.) "In the absence of any finding that th....
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....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, Section 263 cannot be invoked; 2.15.ii Section 263 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, that 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; 2.15.iii Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. If the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law; 2.15.iv The law is well settled that the assessment order cannot be held to be....
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....nt case is completely different from the factual position as was existent in the case law relied upon by the ld. PCIT. 2.17. Ld. PCIT at page 20 of her order, calculated excess share premium generated by the assessee company on issue of shares. For the purpose of this calculation, ld. PCIT has considered the number of shares issued by the assessee company to be 76,766. However, the fact remains that the assessee company, during the relevant previous year, issued 81,766 shares. This shows complete non-application of mind by the ld. PCIT. In view of the above factual and legal position, ld. PCIT has grossly erred in assuming jurisdiction under section 263. Thus, the entire such proceedings initiated by the ld. PCIT deserves to the quashed." 9. The ld. AR of the assessee has also relied upon the following judicial decisions driving home to the various contentions raised by the ld. AR of the assessee: * Copy of order of Hon'ble ITAT, Jaipur Bench in the case of Annu Agrotech Pvt Ltd, ITA No. 09/JP/2021 * Copy of order of Hon'ble ITAT, Chandigarh Bench in case of Dada Ganpati Gaur Products Pvt Ltd [2021] 224 TTJ (Chd) 908 * Copy of....
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.... written submission already submitted also commented upon the valuation of share referred by the ld. PCIT in her order and the same is reiterated here in below :- "Assessee company is in receipt of the report of the ld. PCIT, as regards the basis adopted by ld. PCIT for valuing the shares of the assessee company at Rs. 790 per share. In this regard, below mentioned submissions may please be considered:- 1. It is reiterated that ld. PCIT in her Show Cause Notice issued to the assessee company, during the course of proceedings before her, calculated the value of the shares of the assessee company at Rs. 790. During the course of proceedings before her, it was specifically asked by the assessee company for the basis of such valuation. However, no basis was provided to the assessee company by the ld. PCIT. The current basis has been provided only pursuant to the letter written by the ld. CIT-DR to ld. PCIT asking for such basis. No opportunity was provided to the assessee company to rebut the basis in the proceedings before ld. PCIT, which is against the principles of natural justice. For this reason alone, even without considering the merits of the case, order of ld.....
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....f Balance Sheet, relevant for the purpose of Rule 11UA(2), as provided in Rule 11U(b) is as under:- "....for the purposes of sub-rule (2) of rule 11UA, the balance sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under section 224 of the Companies Act, 1956 (1 of 1956)26 and where the balance sheet on the valuation date is not drawn up, the balance sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company.." 2.6 Further, Valuation Date has also been defined in Rule 11U(j) to mean "..the date on which the property or consideration, as the case may be, is received by the assessee...." 2.7 In the present case, shares were issued by the assessee company, during Financial Year 2016-17, relevant Assessment Year being AY 2017-18. Accordingly, assessee company considered the Balance Sheet position as on the date of issue of shares. Wher....
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....Thus, the valuation of the shares adopted by the assessee company was in accordance with law and was, therefore, rightly accepted by the ld. AO, during the course of assessment proceedings." 11. In addition to the above written arguments the ld. AR of the assessee submitted that one of the agencies of the government of India, i.e. RBI for monitoring the inward and outward flow of money has prescribed the rule and regulations and following that regulator terms and the valuation of shares the same is done in accordance with that regulation. For that he relied upon the RBI regulation submitted in the paper book. He also submitted that both the allotment of shares to the NRI is very well informed to the RBI and RBI based on the application not only adopted the investment but has also accepted the valuation based on the workings given to them. The both approval letters of the RBI are made available in the paper which are dated 01.11.2016 and 23.03.2017. The same are approved in terms of the nature of the investment to be made by the NRI and also on the issue of valuation method to be adopted. Once the one regulator has accepted the modus operndi. Not only that the valuation method ad....
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....arry out any major work till final decision. 2. As per the company's audit report and balance sheet, the borrowing cost incurred on the project was added to capital work in progress. Further, while valuing the assets of the company for the purpose of calculating book value of the shares, it is evident that the borrowing cost has been added to capital work in progress which has been shown as asset for the company. 3. As per accounting standard 16, paragraph 18 and as per accounting slandered 10, paragraph 20, this treatment of borrowing cost by the company is not permissible. Given the fact that the project has been held up for many years, the company cannot capitalized the interest expense or the borrowing cost. Rather it has to book the borrowing cost / interest expenses as expense in its profit and loss account. However, you have not complied with these standards and as a result of this mistreatment of the borrowing cost / interest expenses, your capital work in progress has been inflated by 66 Cr. during the year under consideration. You are hereby required to show cause as to why your borrowing cost should not be removed from the schedule of asset....
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....e lower debt of the company and there are the undisputed facts available on the record of the assessing officer. As regards the NRI investor the assessee submitted the return of income, PAN details so as to establish the credit worthiness of the investor. As regards the applicability of the provision of section 56(2)(viib) the assessee company has already submitted their submission vide point no. 4 of the assessee's submission in the assessment proceeding vide letter dated 04.09.2018. The same is not disputed by the ld. AO after going through the submission of the assessee company. Not only that the ld. AO has issued the show cause notice after analyzing the details submitted by the assessee on that very particular issue. The ld. AR of the assessee in para 4 and 5 submitted that accounting aspect, para 6 deals with the provision of section 56(2)(viib) via a vis the method of valuation adopted and also submitted the legal decision on the validity of the valuation aspect vide their reply dated 26.12.2019. Thus, the ld. AR of the assessee submitted that the aspect of valuation, applicability of provision of sections 56(2)(viib) and rule 11UA & U, justification for charging premium cou....
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....ssue is raised is without considering the facts already on record submitted vide reply dated 26.12.2019 to the AO. The ld. PCIT in her SCN in point no. v and vi raised those issues which were not subject matter of the scrutiny as the assessment was selected for limited issue. Not only that the ld PCIT in para 4 of her SCN take a rate of valuation and the working was also not provided to the assessee in the proceeding and the order has been passed without providing due opportunity of being heard on the issues raised and thus, the order passed by the PCIT u/s. 263 deserves to be quashed. The ld. AR of the assessee submitted that even after insertion of explanation 2 in section 263 the law mandated the ld PCIT to take a decision and has to demonstrate which the are condition that has been prescribed is not fulfilled in the order passed by the AO. For that he draw our attention to explanation 2 of section 263 the same is extracted here in below: Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer ^94[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudici....
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.... by the ld. PCIT deserves to be quashed. 14. Per contra, the ld. DR supported the order of the PCIT and has argued on various aspect of the case. He has stated that the ld. PCIT has arrived a a particular price only from the detailed balance sheet already on record and even working done by the PCIT is submitted to AR for his comments. The ld. DR submitted a circular of the RBI stating that the investor being NRI is not permitted to invest in the company engaged in the business of the real estate. The valuation done by the assessee is much higher side the company is not earning any income as there exist a dispute of property with the JDA and the matter is pending in the High Court as reported in the balance sheet of 2016 vide note no. 24 of the audited accounts, so the projected earning or revenue adopted in the valuation are not real. The valuation done by the assessee company on DCF is not correct method of valuation. As the company has never made profit in the recent past how the revenue can be estimated. Not only that while making the valuation weightage average cost of capital is presumed @ 16 % and on that growth is estimated at 5 %. The AO has accepted the imaginary valuat....
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....e of issue of shares to a Non-Resident, as per regulations of FEMA, the same is to be done in accordance with the "internationally accepted pricing methodology". * The same is in accordance with RBI Notification No. FEMA 306/2014-RB, dated May 23, 2014, issued by the Reserve Bank of India ("RBI"), relevant for the issue of shares during the relevant previous year. Such circular was also referred by the Chartered Accountant firm, in the Valuation Report, while carrying out the valuation of shares of the company [PB: 19] * Thus, method of valuation has been left for the issuing entity to decide. The same can either be on the basis of DCF or NAV, as both such methods are recognised internationally. * During the course of hearing before the Hon'ble bench, ld. DR submitted A.P.(DIR Series) Circular No 49. It is submitted that the said circular is not relevant, for the relevant previous year, because it pertains to the Year 2010, and subsequently RBI vide circular referred above, has clarified the position as regards the valuation of shares. Also, the circular as has been submitted by the ld. DR pertains to "transfer of shares from a resident to a non-resident", whereas, in the ....
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....curred, pending commencement of sale. Looking at the time location of the land, being situated just next to the Jaipur International Airport, the project is likely to make substantial profits. This aspect has been considered by the investors before making investment. * Also, ld. DR ignored the fact that the land which was owned by the assessee company was worth approx. Rs. 165 crores. This factual position had already been submitted by the assessee company to the ld. AO, during the course of assessment proceedings. Accordingly, ld. AO was satisfied as regards the valuation of shares by the assessee company. [PB : 17] * Ld. DR also raised the issue that who would invest in the private limited company making losses. It is submitted that the shareholders to whom shares were issued by the assessee company were all part of the group to which the assessee company belonged. They were fully aware of the future potential of the business of the assessee company and accordingly made the investment. The assessee company is a private limited company, which cannot issue shares to the public at large. Without prejudice to the above, it is submitted that the issues which have been r....
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....afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. Reference in this regard may be illustratively made to the decisions of this Court in Gita Devi Aggarwal vs. CIT [1970] 76 ITR 496 and in CIT v. Electro House [1971] 82 ITR 824 (SC). Paragraph 4 of the decision in Electro House (supra) being illumination of the issue indicated above may be usefully reproduced hereunder.." Even otherwise, after having submitted even on merits, ld. DR cannot raise issues before the Hon'ble Bench in order to rake up additional issues to hold the order of ld. AO erroneous." 16. In addition to the above counter reply of the ld. AR he has submitted that the both the transaction are approved by the RBI not only that the method of valuation adopted by the assessee is also accorded approval. For that he filed the copy of the approval letter of RBI dated 01.11.2016 and 23.03.2017. As regards the case flow on account of the litigation he has filed the status of the court case and the matter is also resolved. Therefore, the ld. AR su....
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....re courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC). We also draw strength from the decision of the Hon'ble Supreme Court in the case of CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282 (SC) wherein it was held that: "The phrase 'prejudicial to the interests of the Revenue' in s. 263 of the IT Act, 1961, has to be read in conjunction with the expression 'erroneous' order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with....
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....ill not decide the valuation of shares when there is clear cut future better profit is visible by the investor. Even the ld. AR has converted the ld. DR arguments that the necessary investment is not permitted under FEMA by placing on record the approval granted by the regulator (RBI) on two different occasion in the same year. Thus, the investment made by the NRI is in its merits and allowed by the RBI. The ld. AR also brought to our notice that even the valuation done by the company is accepted even by the RBI and has not raised any question on it and the same is in accordance with the method of valuation prescribed under the income tax rules. As regards the issue of arm's length price and applicability of section 92E & F on the transactions, the ld. AR submitted that this provisions are not applicable on the transaction done by the assessee company with that with NRI. Not only that the issue of applicability of these sections and report of the TPO is not raised in the show cause notice and the ld. DR cannot raise this issue at this stage. As regards the applicability of these sections the ld. DR relied on the Vodaphone judgement which holds that in these types of transactions th....
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....tion will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view with which the does not agree. If cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under law (vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the Commissioner of Income-tax, while exercising his power under section 263 of the Act is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer. (vii) The Assessing Officer exercises quasi-judicial power vested in his and if he exercises such power in accordan....
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....ng the identity, capacity of the investor and genuineness of the transaction is proved by placing on record all the related proof of the investor. Based on the set of evidence before him the AO has taken a view which is also one of the views and there is no clear finding of the ld. Pr. CIT as to why and how the view taken by the assessing officer is not legally correct when he has asked the relevant information and taken a view in the matter once in asking the details and second by issue of show cause notice to the assessee. The ld. AR of the assessee based on the similar set of circumstance relied on the decision of the Honurable Jurisdiction High Court in the case of CIT Vs. Ganpat Ram Bishnoi 152 Taxman 242 where in the court observed that : 10. From the record of the proceedings, in the present case, no presumption can be drawn that the Assessing Officer had not applied its mind to the various aspects of the matter. In such circumstances, without even prima facie laying foundation for holding that assessment order is erroneous and prejudicial to interest in any matter merely on spacious ground that the Assessing Officer was required to make an enquiry, cannot be held t....
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.... computation as to how the assessee derived the amount of the premium which was also admitted by the Ld. CIT in para 3 pg 4 of the Impugned Order. In addition, thereto, the assessee also submitted a report of the expert dated 10.10.2015 under Rule 11UA which are at page Nos. 46-58 of the paper book which fully justified charging premium @ Rs 50 per share. Hence, the AO was fully justified in not applying in S. 56(2)(viib). There appears no valid basis to compute excessive value of Rs 1.73 per share which is not supported by any expert report but mere suspicion. In other words, it was nothing but a substitution of opinion by the Ld. Pr.CIT. Therefore, on this aspect also the subjected assessment order could not be covered u/s 263 as it was neither erroneous nor prejudicial to the interest of the revenue. He also got valuation done u/r 11UA by expert which is binding upon AO, as held in Rameshwaram Strong Glass Pvt Ltd vs. AO 195 TTJ465 (Jp). The allegation of the Ld. CIT that various evidential documents were furnished itself goes to show that the AO did not make requisite enquiries, is not a good basis to invoke S.263 and is mere suspicion and substitution of opinion. Moreover, onc....
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.... was available with the Commissioner then he ought to have given a concluding finding that the view taken by the AO is contrary to the law as well as facts emerging from the records. However, the Commissioner has not given any such finding and restored the matter to the record of the AO which is not permissible as per the provisions of section 263 when the AO has conducted the enquiry and allowed the claim of the assessee on the basis of the examination of the record as well as the parties in person. We further note that the assessee has also filed the bank statements of these companies showing the transaction of payment of share premium as well as loans to the assessee. The transactions were also reflected in the return of income filed by these companies, therefore, in any case if the Department has any doubt about the genuineness of arranging the funds by these share applicant companies, the enquiry and investigation should have been conducted in those cases as held by the Hon'ble Delhi High Court in the case of Lovely Exports (P.) Ltd. (supra) which has been confirmed by the Hon'ble Supreme Court by dismissing the special leave petition filed by the Department." ....