Annu Agrotech Private Limited Vs PCIT (ITAT Jaipur)
Large share premium: CIT cannot initiate proceedings under section 263 to start fishing & roving enquiries
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 assesse 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 been due and proper application of mind inasmuch as the AO raised directly relevant queries which were duly replied by the assesse as well. The assesse also submitted the computation as to how the assesse 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 assesse 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, once all the details were made available before the CIT, he should not have decided the issues instead of setting aside to the AO.
We draw strength from the decision in the case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113): “ . . . From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is „erroneous in so far as it is prejudicial to the interests of the Revenue‟ .
It is not an arbitrary or unchartered power, it can be exercised only on fulfillment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are 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.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The present appeal has been filed by the assessee against the order of the ld. Pr.CIT, Udaipur dated 11/02/2021 passed U/s 263 of the Income Tax Act, 1961 (in short, the Act) for the A.Y. 2016-17. The assessee has raised following grounds of appeal:
“1. The Ld. Pr. CIT, seriously erred in law as well as on the facts of the case in invoking the provisions of Sec. 263 of the Act and therefore, the impugned order dated 11.02.2021 u/s 263 of the Act kindly be quashed.
2. The ld. Pr. CIT seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act without recording a specific and categorical finding that the subjected assessment order passed u/s 143(3) dated 16.11.2018 is erroneous and prejudicial to the interest of the revenue, in absence of which the entire proceedings u/s 263 is vitiated. Therefore, the impugned order dated 11.02.2021 u/s 263 of the Act kindly be quashed.
3. The ld. Pr. CIT seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly holding that the subjected assessment order u/s 143(3) dated 16.11.2018, was passed without making proper enquiries or verification w.r.t.:
(a) Allotment of 1,80,000 shares of Face Value @ Rs. 10/-with premium @ Rs. 50/- per share for total consideration of Rs. 1.08 Crore u/s 68 proviso and,
(b) Receipt of large share premium u/s 56(2)(vii) and any other relevant section of the Act.
with a direction to the AO to properly examine the identity (typed as entities) & creditworthiness of the shareholders/investors and also genuineness of the transactions and also to examine applicability of S. 56(2)(viib) of large share premium and any other relevant section of the Act and also to make necessary additions to the total income or u/s 115JB(1) of the Act, wherever required.
The assumption of jurisdiction -u/s 263 and the directions so given there under, being contrary to the provisions of law and facts on record hence, the proceedings initiated u/s 263 of the Act and the impugned order dated 11.02.2021 deserves to be quashed.
4. The ld. Pr. CIT erred in law as well as on the facts of the case in wrongly setting aside the assessment order dated 16.11.2018 despite there being complete application of mind by the AO on the subjected issues and it was nothing but a case of change of opinion, based on which, assumption of jurisdiction u/s 263 is not permissible. The impugned order dated 11.02.2021 therefore, lacks valid jurisdiction u/s 263 of the Act and hence, the same kindly be quashed.
5. The ld. Pr. CIT seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly invoking Explanation 2 to S. 263 as if the same conferred unbridled power upon the CIT even though the facts and circumstances of the case did not justify the application of the said Explanation.
6. Alternatively and without prejudice to the above
The ld. Pr. CIT erred in law as well on the facts of the case in holding that the consideration received by the appellant company on issue of shares was in excess of the Fair Market Value by Rs. 3,11,400/- hence, is required to be added to the total income u/s 56(2)(viib) of the Act.
Hence, the impugned finding that the assessment order passed u/s 143(3) 16.11.2018 was erroneous and prejudicial to the interest of the revenue to the extent of short assessment of Rs. 3,11,400/-, deserves to be completely quashed and set-aside.
7. The appellant prays your honor indulgences to add, amend or alter of or any of the grounds of the appeal on or before the date of hearing.”
2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
3. The brief facts of the case are that the assesse is a Private Limited Company, derived income from grading, cleaning and storage of agriculture commodity. The assessee had filed its return of income for year under consideration on 14.10.2016 declaring total income of Rs. 2,07,940/- and book profit declared at Rs. 2,15,690/- u/s 115JB(2) of the Act with tax including interest of Rs. 41,100/ u/s 115JB(1) of the Act. Thereafter, the case of the assessee was selected for scrutiny by CASS under Limited Scrutiny for the reason that “Whether the funds received in the form of share premium are from disclosed sources and have been correctly offered to tax.” Thereafter, various other necessary notices were issued and after considering the required information and documents, the A.O. accepted the returned income filed by the assessee. Later on, through show cause notice dated 13.01.2021, it was proposed to invoke revisional proceedings u/s 263 of the Act on the ground that captioned assessment order dated 16.11.2018 passed by the AO is erroneous in so far as prejudicial to the interest of Revenue because the AO did not verify /examine the issues which he ought to have made, by observing as under:
“2. Thereafter, on examination of records by the undersigned it is seen that the assessee company had issued 1,80,000 shares at face value of Rs. 10/- and as per share premium of Rs. 50/-. Thus, the assessee company had received a total consideration of Rs. 1,08,00,000/- in F.Y. 2015-16 relevant to A.Y. 2016-17.
2.1 The detailed breakup of issued shares to whom the shares have been allotted is mentioned as under:-
