Ruchi J Oil Pvt. Ltd Vs PCIT (ITAT Indore)
Conclusion: Since there was a detailed enquiry by AO on issue of equity shares to non-residents and after thoroughly discussing the issue in the assessment order, AO had taken a permissible view within the parameters of the law, there remained no room for PCIT to assume the jurisdiction u/s 263.
Held: Assessee issued equity shares to the resident and non resident companies. As per the Discounted Cash Flow (DCF) method provided under Rule 11UA(2b) of the I.T. rules fair market value per equity share was computed by the Chartered Accountant at Rs.2061.35. Assessee company issued 204000 equity shares at Rs.2061.35 per share (Face value per share Rs.10/- and share premium at Rs. 2051.35) to a resident company namely Ruchi Soya Industries Ltd . However following shares were issued to Non Resident companies at a price of Rs.2840.68 per share ( Face value per share Rs.10/- and share premium at Rs. 2830.68). PCIT in the impugned order had came to a conclusion that when the value of each share computed by DCF method was Rs. 2061.35 and excess premium of Rs. 779.33 per had been charged to Non Resident companies and then why it had not been added to the income of the assessee by AO u/s 56(2)(viib). PCIT further held that since AO did not examine this aspect of the case relating to excess share premium charged to Non Resident companies, order of AO was erroneous and prejudicial to the interest of revenue and deserved to be set aside. It was held that the powers under section 263 can be exercised by the Commissioner on satisfaction of twin conditions, i. e., the assessment order should be erroneous and prejudicial to the interests of the Revenue. By “erroneous” is meant contrary to law. Thus, this power could not be exercised unless the Commissioner was able to establish that the order of AO was erroneous and prejudicial to the interests of the Revenue. Thus, where there are two possible views and AO has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. In the instant case AO had considered various submissions of assessee and taken a possible view. Therefore merely because PCIT did not agree to the opinion/information of AO who had conducted sufficient enquiry regarding the issue raised in this show cause notice issued by PCIT, provisions of Section 263 could not be invoked in order to substitute his own information. It has been held in several decisions that if AO had made enquiry to his satisfaction and it was not a case of no enquiry then PCIT could not assume the jurisdiction u/s 263 to again investigate or approach in a particular manner. Since there was a detailed enquiry by AO and after thoroughly discussing the issue in the assessment order taking a permissible view within the parameters of the law, there remained no room for PCIT to assume the jurisdiction u/s 263.
FULL TEXT OF THE ORDER OF ITAT INDORE
The above captioned appeal filed at the instance of the Official Liquidator of the assessee company pertaining to Assessment Year 2014-15 is directed against the orders of Ld. Principal Commissioner of Income Tax (in short ‘Ld. PCIT], Ujjain dated 25.03.2020 framed u/s 263 of the Act.
2. Assessee has raised following grounds of appeal:-
1)That the Ld. Pr. Comm. Of Income Tax erred in law in not appreciating the fact that issue of shares at a higher premium than the value determined as per Rule llUA(2)(b) of Income tax Rules to non-resident foreign companies was examined by the ACIT and after proper application of mind, he did not make any addition u/s 56(2)(viib) of the Act because the provision of section 56(2)(viib) are not applicable to non-resident. After proper enquiries, assessment order was passed U/S 143(3) of the Act, not only having detailed discussion regarding issue of share at a premium but also after refining the matter to TPO. Therefore, the order cannot be said to be erroneous and prejudicial to the interest of Revenue because the AO did not commit any error, whatsoever, by ignoring the provisions contained in Section 56(2)(viib) of the Act while completing the assessment, as alleged.
2.That the Ld. Pr. Comm. Of Income Tax erred in law in not considering, vital fact that the provisions of Section 56(2)(viib) of the Act are applicable only in case where consideration against issue of shares is received from any person being a resident as reproduced hereunder :-
“Where a company, not being a company in which tile public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, tile aggregate consideration received for such shares as exceeds tile fair market value of the shares”.
Both the companies to whom equity shares were issued at a premium were non-resident companies as proved beyond doubt from remittances received from foreign companies through their banks duly intimated to RBI through HDFC Bank. Id. Pr. Comm. of Income Tax invoked the’ provisions of Sec. 263 of the Act because there was no discussion regarding applicability of provisions of Section 56(2)(viib) of the Act in the assessment order. The assessment order was neither erroneous nor prejudicial to the interest of Revenue because provisions of Section 56(2)(viib) of the Act were not at all applicable in relation to shares issued to any non-resident at a premium by any company, hence order passed u/s. 263 of the Act, deserves to be quashed.
03. The appellant further craves leave to add, alter, and/or to amend the aforesaid grounds of appeal as and when necessary.
3. Brief facts of the case as culled out from the records are that the assessee is a Private Limited Company engaged in the business of manufacturing and processing of soya Oil. Loss of Rs. 4,14,66,430/- declared in the Income Tax Return e filed on 25.11.2014. Case selected for scrutiny under CASS followed by serving of notices u/s 143(2) and 143(1) of the Act. During the assessment proceedings various information were called by the Ld. A.O. The one which is relevant for the instant appeal is with regard to issuing equity shares to two Non Resident companies namely M/s Toyota Tsusho Corporation, Japan and M/s. J Oil Mills Inc, Japan. Both these companies made foreign direct investment for acquiring 92000 and 104000 equity shares respectively of face value of Rs.10/- per share and share premium per share of Rs.2830.68. Since in view of the Ld. A.O these transaction were international transaction he made a reference to the jurisdictional Transfer Pricing Officer (In short ‘ Ld.TPO”) u/s 92CA(1) of the Act for the computation of arms length price. Ld. TPO called for the necessary information after issuing notice u/s 92CA(2) of the Act and was of the view that no adjustment is required to be made to the arms length price of the transaction. After receiving the order of Ld. TPO assessment u/s 143(3) r.w.s. 92CA(3) of the Act was completed by Ld. A.O on 27.12.2017 accepting the returned income of the assessee after thoroughly discussing all the issues including the instant issue of issue of share capital to two non resident companies (discussed in para 6 of the assessment order from page 7 to 12).
4. Subsequently Ld. Pr. CIT invoking the power u/s 263 of the Act called for the assessment records and after going through the same issued following show cause notice dated 19.02.2020 to the assessee:-
In this case, the assessee filed return of income for the AY 2014-15 on 25.11.2014 declaring total loss of Rs.4,14,66,430/-. The case was selected for scrutiny through CASS. The assessment was completed u/s 143(3)/92CA(3) 29.11.2017 by the AO (ACIT-2(1), Ujjain] at the total assessed loss and declared in the return of income, which is considered erroneous and prejudicial to the interest of revenue for the following reasons:-
On perusal and examination of records, it is noticed that assessee company issued total number of shares 4,00,000 @10 per share face value and share premium received for Rs.95,27,75,180/- on 3,90,000 shares. Further it is noticed that the assessee company furnished the share valuation report of M/s SSPA & Co, CA for valuation of shares as on date of issue on Discounted Cash Flow (DCF) method and valued share at Rs.2061.35 per share. The assessee company received share premium for Rs.95,27,75,180/- on 3,90,000 shares against share premium valued on the basis of DCF method for Rs.80,39,26,500/-, resulting excess share premium received for Rs.14,88,48,680/- as detailed below:-
