Radiant Life Care Mumbai Pvt. Ltd Vs PCIT (ITAT Mumbai)
Conclusion: Since AO had merely asked the assessee for filing information in respect of the grounds on which the case was selected and no meaningful enquiry had been carried out by the AO on the information filed by the assessee, therefore, revision under section 263 by CIT was justified.
Held Assessee-company entered into an operation and management agreement for acquiring the Operation & Management Rights of “M/s Nanavati Hospital” for 29 years and paid an amount of Rs.25 crores as a non-refundable deposit and capitalized the said amount as an intangible asset eligible for depreciation u/s 32. PCIT held that there was a lack of inquiry by AO on the issue of share premium received by assessee and depreciation on the deposit. Assessee contended that during assessment proceedings u/s 143(3), AO had issued notice u/s 142(1) and raised specific queries on the issue of details of the large share premium received by assessee and introduction addition on intangible assets during the year. It was held that AO had merely asked the assessee for filing information in respect of the grounds on which the case was selected and no meaningful enquiry had been carried out by AO on the information filed by the assessee. Facts and circumstances of the year under consideration being identical to assessment year 2015-16, following our finding in assessment year 2015-16, the grounds raised by the assessee in the year under consideration were dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These two appeals have been preferred by the assessee against the revision orders dated 31.03.2021 and 30.03.2021 passed by the Ld. Principal Commissioner of Income-Tax-3, Mumbai (in short ‘Ld. PCIT’) for assessment years 2015-16 & 2016-17 respectively. Being common issue-in-dispute involved, both these appeals were heard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts.
ITA No. 895/MUM/2021
Assessment Year: 2015-16
2. First, we take up the appeal for AY 2015-16 having ITA No. 895/Mum/2021. The grounds raised by the assessee are reproduced as under:
“General ground
1. That the order passed by the Principal Commissioner of Income Tax (“Learned PCIT”) under Section 263 of the Income Tax Act, 1961 (“‘Act”) is bad in law and void ab-initio.
2. That the order of the learned PCIT is bad in law, being based onsurmises and conjectures without any finding of fact as to how theorder passed under section 143(3) of the Act was erroneous orprejudicial to the interest of the revenue.
Jurisdictional grounds / on merits
1. The learned PCIT erred in revising u/s 263 r.w Explanation 2 the assessment order passed us. 143(3) dt 29/12/2017 with respect to the issue of valuation of shares/charging of premium & depreciation on operation and management rights 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 depreciation on operation and management rights during the course of assessment proceedings and the assessee had furnished all details pertaining to the issue of valuation of shares/ chagrin of premium & depreciation on operation and management rights during the course of assessment proceedings and the learned Assessing Officer has accepted the valuation & allowed the depreciation after making proper & specific enquiry with reference to Section 56(2) (viib) for valuation of shares and Section 32 for depreciation on intangible asset. 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 section 263 and hence the assessment order was neither erroneous nor prejudicial to the interest of the revenue and hence the order of revision is bad in law.
3. The Learned PCIT failed to appreciate that Section 56(2) (viib) is not attracted in the facts of the present case as Appellant has issued shares on premium on the basis of valuation report obtained from category-1 Merchant Banker and addition in subsequent assessment Year cannot have any impact in the current year as shares in both years are issued at premium on the basis of different valuation report and hence the order of revision is bad in law.
4. The learned PCIT erred in revising the order with respect to the issue of valuation of shares/charging of premium on wrong assumption of facts that the Valuation report showed profits whereas they actually showed losses and hence the order of revision is bad in law.
5. The Learned PCIT failed to appreciate that depreciation on Rs 25 crores paid to acquire operation and management rights is allowable u/s 32 and that the observation of PCIT that no intangible rights are acquired is not in accordance with law and hence the order of revision is bad in law.
6. Without prejudice to above, the learned PCIT has no jurisdiction to decide the issue on merit in revision jurisdiction by applying the wrong principle of law and relying on the case laws which are not applicable to the facts of the appellant particularly when according to him the Assessing Officer has not made verification/inquiry & hence the revision order may be set aside
7 Without prejudice to above, the learned PCIT failed to appreciate that on the issue of valuation of shares/charging of premium & depreciation on operation and management rights the Assessing Officer had adopted a possible view which view was not unsustainable in law and thus the assessment order cannot be termed as erroneous and prejudicial to the interest of the revenue and hence the order of revision is bad in law.
8. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal.”
3. Briefly stated, facts of the case are that the assessee-company was engaged in the business of operation and management of hospitals and for assessment year under consideration i.e. AY 201516 , filed its return of income on 30.09.2015 declaring total loss of Rs.(-) 7,19,33,633/-. During the year under reference, the assessee-company entered into an operation and management agreement on 16.07.2014 for acquiring the Operation and Management Rights of “M/s Nanavati Hospital” for a period of 29 years and paid an amount of Rs.25 crores as non-refundable deposit. According to the assessee, the said amount was non-refundable, therefore, the assessee capitalized the said amount as intangible asset eligible for depreciation u/s 32 of the Income Tax Act, 1961 (in short ‘the Act’) and claimed depreciation on the same.
3.1 During the year under consideration, the assessee-company also issued and allotted 2,73,82,700 equity shares of Rs.10/- each at par to the ‘promoter group’ of the company and 2,63,08,700 equity shares of Rs.10/- each at premium of Rs.10/- per share to other persons.
3.2 The shares to the promoters were allotted during the period from 21.05.2014 (being the date of incorporation of the company) and upto 15.07.2014. It is the claim of the assessee that shares were issued to the promoters on the basis of the valuation done by category (I) Merchant Banker Spa Capital Advisors Limited vide its report dated 26.05.2014.
3.3 The assessee-company further allotted equity shares to ‘M/s Shrem Construction Private Limited’ during the period from 18.07.2014 to 13.02.2015 at fair market value of Rs.20/- (Rs.10/-against face value and Rs.10/- as share premium). It is the claim of the assessee that value of the shares of the company was enhanced due to an agreement entered into by the assessee-company on 16.07.2014 with Dr. Balabhai Nanavati for acquiring the Operation and Management Rights of M/s Nanavati Hospital for a period of 29 years. The assessee claimed that fair market value of Rs.20/- per equity share was arrived at on the basis of valuation report dated 17.07.2014 on category-I Merchant Banker Spa Capital Advisors Limited.
3.4 The return of income filed by the assessee was selected for scrutiny and statutory notices under the Act was issued and complied with. The Assessing Officer accepted the returned income vide assessment u/s 143(3) of the Act dated 29/12/2017, with following finding:
“5. After verification of the details filed during the course of assessment proceedings, the return of income filed by the assessee-company is accepted as per below computation of income:
