TaxTMI 
TaxTMI 
2025 (1) TMI 35
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....g u/s 263 rw Explanation 2 the assessment order passed u/s. 143(3) dt 07/06/2021 with respect to the issue of valuation of shares/charging of premium without appreciating that the assessment order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of the revenue and hence the order of revision is bad in law. 2. The learned PCIT failed to appreciate that the Assessing Officer has issued specific questions in the course of assessment proceedings in respect of valuation of shares/charging of premium during the course of assessment proceedings and the assessee had furnished all details pertaining to the issue of valuation of shares/charging of premium during the course of assessment proceedings and the learned Assessing Officer has accepted the valuation & allowed the same after making proper & specific enquiry with reference to Section 56(2)(viib) for valuation of shares. The assessment order was passed by the Assessing Officer after due application of mind and after making due investigation / enquiries, which fact is clearly borne from the assessment records and hence was not a case of lack of enquiry as envisaged in Explanation 2 to sectio....
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....es of the assessee as on 31/05/2016 at Rs. 20/- per share. 2.2. The Ld.PCIT noted that, Ld.AO while passing the scrutiny assessment order for A.Y. 2017-18 on 22.12.2019 rejected the valuation report submitted by the merchant banker and adopted fair value of shares at face value of Rs. 10 per share thereby brought excess share premium to tax. It was observed by Ld. PCIT that, the fundamentals of the assessee were same for the year under consideration as well as assessment year 2017-18. The Ld.PCIT was thus of the opinion that a consistent approach should have been adopted by the Ld.AO for year under consideration and valuation report filed by the assessee should be rejected and excess share premium received by the assessee during the year under consideration should have been taxed u/s. 56 (2) (b) of the act. 2.3. Accordingly, notice u/s. 263 was issued on 01.03.2024. For the sake of convenience, the said notice is scanned and reproduced as under: "Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961-Assessment Year 2018-19. In this regard, a hearing in the matter is fixed on 08/03/2024 at 03:25 PM. You are req....
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....n May 31 2016 at Rs. 20/- per share. The assessing officer while passing scrutiny assessment order for A.Y. 2017-18 on 22/12/2019 rejected the valuation report submitted by the Merchant Banker and adopted the fair value of shares at face value of the shares i.e. Rs. 10 per share and brought the excess share premium to tax. The A.O. analysed the annual accounts of the assessee company till 31/03/2019 and pointed out that the assessee company was making huge losses since the year of inception. Further, the A.O. compared the valuation report with the actual financials and concluded that the assessee's profits before tax and/or after tax as projected for the years had not been met even upto 31.03.2019, which clearly indicated that the inflated profits were adopted for computing the value of the share by mentioned following DCF method. Therefore, the A.Ο. mentioned in the order that the projections on which the premium was based had not only been proved wrong but very far from the actual position as was evident from the books of accounts of said years and did not support the actual financials of the assessee company. Based on the above grounds, the AO rejected the Valuation ....
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....ring the facts of the case for AY 2017-18 (wherein the Assessing Officer analysed the financials of the assessee till 31.03.2019), the share premium of Rs. 29.60 per share received during the the Act. 8. Since the assessment order u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 on 07.06.2021 for the A.Y. 2016-17 is passed by the AO without making any proper and sufficient inquires or verification which should have been made and to make corresponding additions/disallowances after making such inquires which ought to have been made. The same is deemed to be erroneous in so far as it is prejudicial to the interest of Revenue. 9. In view of the aforesaid reasons, it is proposed to revise the assessment order u/s 143(3) r.w.s. 144B dt. 07.06.2021, under section 263 of the Income Tax Act, 1961, being erroneous in so far as it is prejudicial to the interest of revenue.. 10. You are hereby given an opportunity to represent your case as to why the proposed action u/s 263 be not pursued and necessary order be passed on the issues discussed above as well as other issues that may come to the notice of the undersigned during this proceeding. You or any duly authoriz....
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....Rs. 14,94,94,978/- was received during the A.Y.2018-19. Our submission i) The assessee Company is engaged in the business of operations and management of hospitals. During the FY 2014-15 under reference the assessee Company the assessee Company has entered into an agreement with Dr. Balabhai Nanavati Hospital for acquiring the Operation and Management Rights of Nanavati Hospital for a period of 29 years. The assessee Company has entered into the agreement with Dr. Balabhai Nanavati Hospital on 16.07.2014. Acquisition of Operations & Management Rights by the Company enhanced its value in terms of earning capacity and accordingly time to time the Company has obtained valuation of its shares done by category I Merchant Banker Spa Capital Advisors Limited. ii) During the year the assessee Company has issued and allotted 50,50,506 equity shares of Rs. 10/- each at a premium of Rs. 29.60/- per share. The Company has allotted shares to the holding company namely Radiant Life Care Private Limited (formerly known as Halcyon Finance and Capital Advisors Private Limited). iii) For AY 2018-19 Spa Capital Advisors Pvt. Ltd. has vide its valuation report dt. 1....
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....labhai Nanavati's figures as well) as the base for valuation but the Ld. AO misunderstood the valuation report and rejected the valuation report incorrectly concluding that assessee's profits before tax as projected for the years in the report had not been met even upto 31.03.2019. In this regard we submit that the Ld. AO completely misinterpreted and misunderstood the valuation report as valuation clearly stated that valuation as per DCF method was calculated taking into account Audited Financial Statements of the assessee and consolidated financial projections of the assessee including of Dr. Balabhai Nanavati's figures as well up to March, 2030, hence while calculating fair market value the Merchant Banker has considered projected financials of the assessee including of Dr. Balabhai Nanavati's figures as well. However, the Ld. AO failed to appreciate the fact and made additions. The assessee is in appeal against the same. 3. Further, it is observed that the fundamentals of the company were not changed in AY 2018-19 as well and the assessee company is still making huge losses. Thus, the findings for AY 2017-18 still hold good for AY 2018-19 also. Conseque....
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....e wish to mention here that the assessee is making losses as separate entity is due to the fact that the assessee company is engaged in the business of operations and management of Dr. Balabhai Nanavati Hospital and had acquired the Operation and Management Rights of Nanavati Hospital for a period of 29 years. Dr. Balabhai Nanavati Hospital was in bad shape and it was well considered that for initial 4-5 years there will be losses in operation. However as explained herein above the valuation report has been made after considering the consolidated financial projections which included Dr. Balabhai Nanavati's figures as well. Here we wish to mention the fact that even in the valuation report dated October 11, 2017 for initial 5 years the profit was negligible in which in the first three years the valuer took negative PBT(EOI) for the base for valuation. The assessee Company has issued shares on the fair market value of its share derived by the professional and method as prescribed under Rule 11UA of the Income Tax Rules, 1962. You will appreciate the fact that the assessee has provided all the necessary information to the Ld. AO during the assessment proceedings for A.Y 2018-19. T....
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....uced above, the provisions are applicable only if the consideration for issue of shares as received exceeds the fair market value of the shares so issued and as per the provisions of section fair market value means the value as may be determined in accordance with such method as may be prescribed or as may substantiated by the Company based on various factors as mentioned in the explanation to that section, whichever is higher. The assessee Company has issued shares on the fair market value of its share derived by the professional and method as prescribed under Rule 11UA(2)(b) of the Income Tax Rules, 1962 r.w.s. 56(2) (viib) of the Income Tax Act, 1961. In view of the facts mentioned above and the provisions of section 56(2)(viib), we hereby submit that the issue of shares by the assessee Company during the year at Rs. 39.58/- per share was at fair market value of its shares and the provisions of section 56(2)(viib) are not applicable to it." 6. Since the assessment order u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 on 07.06.2021 for the A.Y. 2016-17 is passed by the AO without making any proper and sufficient inquires or verification which should ....
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....of income filed for AY 2017-18, Α.Υ 2018-19 and 2019-20 are as under. AY 2017-18 AY 2018-19 AY 2019-20 Profit before Tax (3,59,48,434) (4,66,00,307) (5,12,97,005) Profit after Tax (3,59,48,434) (4,66,00,307) (5,12,51,837) 8. Accordingly, the Assessing Officer held that the projections on which the premium was based has not only been proved wrong but also is very far from the actual position as is evident from the books of accounts of succeeding years and does not support the actual financials of the assessee company. 9. During the year under consideration ie. AY 2018-19, the financials of the company were not changed much from the previous AY 2017-18. Further, the assessee company issued and allotted 50,50,506 equity shares of Rs. 10 each at a premium of Rs. 29.60 per share. The financials of the company for the AY 2018-19 does not justify charging of shares at premium of Rs. 29.60 per share. The assessee company has shown Revenue from Operations at Rs. 82.209/- and Other Income of Rs. 81.11,792/- and has suffered huge losses in the year under consideration also. Therefore, it can be safely concluded that in....
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.... P Ltd(2023) 149 taxmann 115(SC) held that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. It is further observed that if due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. 13. Thus, it is clear that, the order passed by the Assessing Officer under 143(3) r.w.s. 1448 of the Income Tax Act, 1961 dated 07.06.2021 is erroneous in so far as it is prejudicial to the interests of the revenue. 14. After considering the facts and submissions of the assessee, the order under section 143(3) r.w.s. 144B of the Act dated 07.06.2021 is set aside under section 263 of the Act and the Assessing Officer is directed to bring the share premium to taxation and make fresh assessment after giving sufficient opportunity to the assessee to furnish the details with respect to the issues involved and pass the order in accordance with law." Aggrieved by the order of Ld.PCIT, assessee is in appeal before this Tribunal. 3. The Ld.AR reiterated the submissions made before the Ld....
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....ollowing decisions to support the argument that, once enquiry was specifically held with reference to the issue consider under revisionary proceedings, invoking provision of section 263 on the same issue is not justified: 1. Decision of Hon'ble Supreme Court in case of CIT vs. Paville Projects Pvt. Ltd. reported in (2023) 453 ITR 447 2. Decision of Hon'ble Supreme Court in case of CIT vs. Max India Ltd. reported in (2007) 295 ITR 282 3. Decision of Hon'ble Bombay High Court in case of CIT vs. Nirav Modi reported in (2017) 390 ITR 292 4. Decision of Hon'ble Supreme Court in case of Malabar Industries Ltd. Vs. CIT reported in (2000) 243 ITR 83 5. Decision of Hon'ble Bombay High Court in case of CIT vs. Development Credit Bank Ltd reported in (2010) 323 ITR 206 3.2. The Ld.AR submitted that, to invoke revisionary proceedings u/s. 263 the twin condition vis; the assessment order should be erroneous in so far as prejudicaiton in interest of revenue must be satisfied. He submitted that, the following decision has upheld the view that where there are two views possible and the Ld.AO has adopted one of the possible view, t....
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....eedings initiated u/s. 263 of the act, as all the relevant details/ information regarding the share premium received are on record. 3.7. He placed reliance on the decision of Coordinate bench of this Tribunal in assessee's own case for A.Y. 2015-16 and 2016-17 dated wherein on identical issue the revisionary proceedings, with respect to valuation of shares/charging of premium was upheld. The Ld.AR argued that, the facts prevailed in A.Y. 2015-16 and 2016-17 were different, vis-a-vis the year under consideration. He submitted that, in those years the responses filed by the assessee during the original assessment proceedings on identical issues were considered to be not filed before the Ld.AO as the copies relied by the assessee therein were did not carry and inward stamp of the office. He submitted that, those assessment years were prior to the faceless assessment period and assessee did not have any proof of the details having filed with the Ld.AO during assessment proceedings. He submitted that in the present year all replies to the specific query raised by Ld.AO was responded by way of e-filing, which is verifiable from the acknowledgement placed at page 251-252 of paper book.....
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....tted that all are distinguishable on facts. He submitted that, the decision of Hon'ble Delhi Tribunal in case of Vaaan Infra Ltd. Vs. PCIT reported in (2024) 205 ITD 331 pertains to assessment year prior to the insertion of Explanation on (2) to section 263. He submitted that, after insertion of Explanation 2, Hon'ble Supreme Court considered proceedings initiated u/s. 263 of the Act in case of CIT vs. Amitabh Bacchan reported in (2016) 69 taxmann.com 170. Hon'ble Supreme Court upheld revisionary proceedings initiated due to no/ lack of enquiry or verification that should have been made on the issue considered in the notices issued. He thus submitted that the Ld. PCIT was correct in exercising his powers u/s. 263 of the act, by virtue of Explanation (2) to section 263 of the Act. We have perused the submissions advanced by both sides in light of records placed before us. 4. In the present facts of the case the power under section 263 has been exercised only on one ground which is elucidated in the notice dated 01.03.2024 issued to the assessee reproduced herein above. 4.1. The Ld. PCIT was of the opinion that due verification should have been carried out by ....
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....is juncture, it is relevant to extract Explanation 2 to section 263 that reads as under:- "Explanation 2- For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [for the Transfer Pricing Officer, as the case may be], shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made, (b) the order is passed allowing any relief without inquiring into the claim: (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.]" 4.6. The revisionary proceedings initiated in the present facts of the case is due to no enquiries or verification made by the Ld.AO even though there wer....
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....d through glaring ignorance, heedlessness, or awkwardness. An error may be overlooked or atoned for, a mistake may be rectified, but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgement or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived. 4.11. Section 263 of the Income-tax Act seeks to remove prejudice caused to the revenue by such erroneous order passed by the Ld.AO. It empowers the Commissioner to initiate suo moto proceedings, either in a case where the assessing officer takes a wrong decision without considering the materials available on record, or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. In order to ascertain whether a....
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....thout paying legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims. It is the duty of the Ld.AO to ascertain the truth of the facts stated by the assessee and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke an inquiry. Arbitrariness in either accepting or rejecting the claim has no place. Hon'ble Supreme Court in many cases have taken such view. To name a few, Hon'ble Supreme Court in case of Rampyari Devi Saraogi v. CIT reported in 67 ITR 84, Smt. Tara Devi Aggarwal v. CIT reported in 88 ITR 323, and Malabar Industrial Co. Ltd in case of 243 ITR 83. 4.13. In the present facts of the case, the order passed by the Ld.AO, therefore becomes erroneous because enquiry has not been made regarding the share valuation report based on which the assessee determined the share value at premium. It was incumbent on him to verify by making necessary enquiries, more so when in the immediately preceeding assessment year in assessee's own case the valuation report by the merchant banker was rejected on similar facts. 4.14. In case of Malabar Industrial Co....
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....s been made. It is settled law that while making assessment on assessee, the ITO acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. 4.17. The decisions relied by the Ld.AR referred to in the preceding paragraphs also points to the same direction. They have all held that orders which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments without application of mind and without carrying out necessary enquiries, as has been done in the present facts of the case, the administration of revenue is bound to suffer. Similarly, without discussing the nature of a transaction and materials on record, if an assessing officer makes addition to the income of an assessee, the same also would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We fin....
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....of income amount of fixed overheads like see company has incurred higher fees and depreciation legal and professional benefit expenses, relevant to assessment year 2018-19. the financial year 2017-18 lained involved in operational the assonsAR company was the Hospital during Balabhai Nanavati loss in ng was 02 in continue the relevant costs duri exp of DE- management year and hospital no raven therefore generated from O ех relevant previous previous year and revenue also the to Gover the aforesaid sufficient substantial business loss." During Assesseo sbmitted the details which were that eXCONS it W23 found Notice u/a 142 (1). However, the company. not the year was incurred it and as a result Proceending was accrued to the ther during Sources penditure the Assessment equisitoned through the depreciation was claimed by 1.M disallowd intangible asset during on WAS en Rence, Depreciation claimed mado u/s 14 which and disallowance was in an funds....