AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 1786
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Act. 3. That on the facts and circumstances of the case and in law, the PCIT erred in exercising jurisdiction under section 263 of the Act in respect of such issue, which was debatable thus ousting jurisdiction under the said section. 4. That on the facts and circumstances of the case and in law, the PCIT erred in setting the issue for examination without recording any prima facie finding on the merits of the issues. 5. That on the facts and circumstances of the case and in law, the PCIT erred in holding that the assessment order is erroneous and prejudicial to the interests of revenue since the assessing officer did not have an occasion to examine the details. 6. The appellant craves leave to add to, alter, amend or vary any of the above grounds of appeal before or at the time of hearing." 3. Brief facts of the case are as follow: The assessee is a private limited company engaged in the business of distribution of cleaning products of Jyoti Laboratories Limited, Mumbai. For the assessment year 20142015, the return of income was filed on 29.09.2014 declaring total income of Rs.14,97,300. The return of income was processed u/s 143(1) of the I.T.Act on 30.11.2014. The ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come chargeable under the head `income from other sources'. This provision applies to a closely held company which should receive any consideration for issue of shares to resident and the issue price of shares exceeds the face value of such shares (i.e. at a premium). If the aggregate consideration received for such shares exceeds the fair market value of shares, the excess consideration is considered as income of the company issuing shares. This is a measure to prevent generation and circulation of unaccounted money. 9. Shares can be of any kind. that is, equity or preference or any variant thereof. The assessee has not substantiated value of the assets/ shares during the course of assessment proceeding. 10. Honourable High Court of Kerala in the case of Sunrise Academy of Medical Specialities (India) (P) Ltd Vs ITO, Corporate Ward 2(1). Range-2, Kochi (2018) 257 Taxman 373 (Kerala) held that in a case of a company in which public is not substantially interested. any premium received by the said company on sale of shares, in excess of its face value would be treated as income from other sources u/s.56(2)(viib). Section 56(2) is triggered at the stage of computation of income i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or the following reason(s):- During the previous year the company had issued 30,00,000 optionally convertible cumulative preference shares of Rs. 10 each, fully paid up amounting to Rs. 3,00,00,000/- along with securities premium of Rs. 57,00,00,000/- to Shri. MP Ramachandran, one of the Directors of the company. This issue is not seen to have been examined by the Assessing Officer. The securities premium of Rs. 57,00,00,000/- may have to be brought to tax under section 56(2)(viib) or 68. This issue is also be examined. " Re: Appellant's submissions: I. In limited scrutiny assessment, the Assessing Officer has to restrict himself to issues raised in limited scrutiny and cannot make any additions on other issues. In this regard, reliance is placed on the decisions mentioned in Annexure A, wherein it has been held that in a case selected for limited scrutiny, the assessing officer cannot expand the scope of scrutiny beyond the reasons for which it was selected for limited scrutiny unless prior administrative approval is obtained from PCIT / CIT concerned. II. If the Assessing Officer has no power to pass an order on a particular issue, then PCIT also has no power on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of which such valuation. The accountant has been given freedom to adopt any methodology including DCF as he deems fit to determine the value of optionally convertible preference shares. Accordingly, the order passed by the PCIT under section 263 of the Act is bad in law. In this regard, reliance is placed on the decisions mentioned in Annexure C. IV. The PCIT's conclusion that the assessee has not cooperated during the original assessment proceedings is not correct. Para 5 and 6 of the assessment order shows that the Assessing Officer had received all the information required for completion of limited scrutiny. Para 7 of the assessment order shows that the Assessing Officer was pleased to accept the returned income. 7. The learned Departmental Representative strongly supported the impugned order of the Pr.CIT. 8. We have heard the rival submissions and perused the material on record. Admittedly in this case, the assessment was taken up for limited scrutiny under CASS for the reason of (i) large interest expenses relatable to exempt income u/s 14A of the I.T.Act, and (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f either AIR data or CIB information or for non re-conciliation with 26AS data, the scope of enquiry should be limited to verification these particular aspects only. Therefore, in such cases, an Assessing Officer shall confine the questionnaire and subsequent enquiry or verification only to the specific point(s) on the basis of which the particular return has been selected for scrutiny. 3. The reason(s) for selection of cases under CASS are displayed to the Assessing Officer in AST application and notice u/s 143(2), after generation from AST, is issued to the taxpayer with the remark "Selected under Computer Aided Scrutiny Selection (CASS)". The functionality in AST is being modified suitably to flag the reasons for scrutiny selection in cases. This functionality is expected to be operationalised by 15th October, 2014. Further, the Assessing Officer while issuing notice under section 142(1) of the Act which is enclosed with the first questionnaire would proceed to verify only the specific aspects requiring examination/verification. In such cases, all efforts would be made to ensure that assessment proceedings are completed expeditiously in minimum possible number of hearings with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a resident and the issue price of shares exceeds the face value of such shares. In the event, the aggregate consideration received for such shares exceeds the fair market value of shares, the excess consideration is considered as income of the company issuing the shares. The Hon'ble High Court of Kerala in the case of Sunrise Academy of Medical Specialities (India) (P) Ltd. v. ITO (supra) had held in a case of a company in which public are not substantially interested that any premium received by the said company on sale of shares in excess of its face value would be treated as income from other sources u/s 56(2)(viib) of the I.T.Act. The Hon'ble High Court further opined that section 56(2) is triggered at the stage of computation of income itself when the share application money received from a resident by a company, in which the public are not substantially interested, is above the face value. 8.3 In this case the Assessing Officer had mentioned that there was no response to the notices issued u/s 142 of the I.T.Act by the assessee. Therefore, the Assessing Officer had proceeded to initiate penalty proceedings u/s 271B of the I.T.Act. In para 4 of the A.O., it was stated as foll....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ioned cases, additions were made by the Assessing Officer in a limited scrutiny assessment other than those mentioned under the CASS without seeking approval / permission of the concerned CIT. In this case, we are only examining the CIT's powers u/s 263 of the I.T.Act to set aside an assessment wherein the A.O. did not even verify prima facie, whether in limited scrutiny assessment, escapement of income exceeded the amount prescribed in the relevant CBDT's Instruction. Therefore, the above judicial pronouncements cannot be of any assistance to the assessee in the instant case. 8.6 The learned AR had also submitted that if the Assessing Officer has no power to pass an order on a particular issue, then Pr.CIT also has no power on that issue u/s 263 of the I.T.Act. In this context, the learned AR relied on the order of the Tribunal in the case of Paul John, Delicious Cashew Co. 94 ITD 131 (Cochin Tribunal), which was upheld by the Hon'ble High Court in the case reported in 200 Taxmann 154. In the case of Paul John, Delicious Cashew Co. (supra) considered by the Cochin Bench of the Tribunal, it was held that the completed assessment cannot be reopened by the A.O. in view of the provis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amount prescribed in the CBDT Instructions. Therefore, we are of the view that this is a fit case for invoking the revisionary jurisdiction u/s 263 of the I.T.Act, especially in the light of the judgment of the Hon'ble jurisdictional High Court in the case of Sunrise Academy of Medical Specialities (India) (P) Ltd. v. ITO (supra). 8.9 The learned AR had submitted that in response to the show cause notice u/s 263 of the I.T.Act, when the assessee has filed replies, the CIT has to give positive finding on merits while setting aside the matter u/s 263 of the I.T.Act on how the assessment order is erroneous and prejudicial to the interest of the revenue. In support of his submission, the learned AR relied on the judgment of the Hon'ble Karnataka High Court in the case of CIT v. Narayana Pai (T) [98 ITR 422]. The Explanation 2(a) to section 263 of the I.T.Act, states that the assessment order shall deem to be erroneous and prejudicial to the interest of the revenue if such an order was passed without making inquiry or verification, which should have been made. As mentioned earlier, in this case the assessment order was passed without making inquiry / verification as regards the potenti....