Pawansut Media Services Pvt. Ltd. Vs PCIT (ITAT Delhi)
Conclusion: PCIT was not justified in assuming the jurisdiction under section 263 when the case of assessee which was selected for limited scrutiny was never converted to full scrutiny and assessee had submitted all the details as called for by AO from time to time for the reasons for which the case was selected for limited scrutiny.
Held: AO during the course of assessment proceedings had not examined the issue of applicability of provisions of Section 56(2)(viia) for basis of determination of Fair Market Value [“FMV”]. Although AO had examined with regard to source of investment and income derived from this investment, however, AO had not examined the fair market value of investment. He, therefore, was of the opinion that the order passed by AO under section 143(3) appeared to be erroneous in so far as it was prejudicial to the interests of revenue. He, therefore, issued a show cause notice to assessee to explain as to why the order passed by AO should not be set aside. PCIT relying on various decisions held that since there was no enquires conducted by the AO on the issue of valuation of shares in terms of Section 56(2)(viia) read with Rules 11U/11UA of the Income Tax Rules the order passed by AO without making any enquiry or verification which should have been done had made the order erroneous in so far as it was prejudicial to the interests of Revenue. He, therefore, set aside the order passed by AO under section 143(3) and directed him to pass necessary consequential order. It was held that AO had indeed made enquiries as per the reasons for which the case was selected for limited scrutiny and the case was not converted to full scrutiny, therefore, respectfully following the decision in the case of PCIT vs., M/s. Brahma Centre Development Pvt. Ltd., PCIT was not justified in assuming the jurisdiction under section 263. Revision was not justified when the case of assessee which was selected for limited scrutiny was never converted to full scrutiny and assessee had submitted all the details as called for by AO from time to time for the reasons for which the case was selected for limited scrutiny.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the Assessee is directed against the order dated 30.03.2021 of the Ld. PCIT-7, Delhi, passed under section 263 of the I.T. Act, 1961, relating to the A.Y. 2015-2016.
2. Facts of the case, in brief are that the assessee is a company and is stated to have not done any business activity during the year. It filed its return of income on 29.10.2015 declaring loss of Rs. 30,439/-. The A.O. completed the assessment on 15.12.2017 under section 143(3) of the I.T. Act, 1961, accepting the returned loss of Rs.30,439/-.
2.1. Subsequently, the Ld. PCIT examined the records and noted that the case was selected for limited scrutiny on the following reasons :
i) Low income in comparison to very high investments.
ii) Large increase in investment in unlisted equities during the year.
Low income in comparison to high loans/ advances/investment in shares.
2.2. He noted that during the year under consideration the assessee has invested in equity shares of the following companies which is hit by the provisions of Section 56(2)(viia) of the Income Tax Act, 1961 :
2.3. However, the A.O. during the course of assessment proceedings has not examined the issue of applicability of provisions of Section 56(2)(viia) of I.T. Act for basis of determination of Fair Market Value [“FMV”]. Similarly, the other reason for scrutiny was investment in unlisted equity shares during the year. However, although the A.O. has examined with regard to source of investment and income derived from this investment, however, the A.O. has not examined the fair market value of investment. He, therefore, was of the opinion that the order passed by the A.O. on 15.12.2017 under section 143(3) of the I.T. Act, 1961 appears to be erroneous in so far as it is prejudicial to the interests of revenue. He, therefore, issued a show cause notice to the assessee to explain as to why the order passed by the A.O. should not be set aside.
2.4. It was submitted by the assessee that the A.O. after considering the various written submissions filed by the assessee from time to time has completed the assessment. Relying on various decisions, it was submitted that the order of the A.O. is neither erroneous nor prejudicial to the interest of Revenue as the parameters laid down by the Hon’ble Supreme Court have never been crossed and no loss to the Revenue has ever caused due to the same. It was also submitted that the provisions of Section 56(2)(viia) of the I.T. Act, 1961 is grossly inapplicable to the transactions subjected for revisional powers under section 263 of the I.T. Act, 1961. The A.O. had already examined the valuation provided by the assessee company during the course of on-going proceedings to his satisfaction. It was argued that the proceedings initiated under section 263 of the I.T. Act, 1961 should be dropped.
2.5. However, the Ld. PCIT was not satisfied with the arguments advanced by the assessee. After going through the assessment order and the assessment records, he noted that the aspect of valuation of Shares/Fair Market Value as required for the purposes of Section 56(2)(viia), which is intrinsically connected with the issue of investment in unquoted equity shares has not been enquired into at all. Therefore, the judicial precedents cited in support of its claim by the assessee and the A.O. do not apply to the facts of the present case, since there is a lack of enquiry on the aspect of valuation of the shares in terms of Section 56(2)(viia) read with Rules 11U/11UA of the Income Tax Rules. Therefore, the PCIT observed that the assessment order is erroneous as well as prejudicial to the interests of Revenue to this extent. He further noted that ideally the Assessment Order should be a self-contained speaking order explaining the reasons of acceptance or rejection of the contention of assessee, summarising the enquiries conducted and the findings therein. However, from perusal of the Assessment Order dated 15.12.2017, it is seen that all such required elements are missing therein and it is not reflected if any enquiry relevant to the issue under consideration in the present proceedings has been conducted. The Ld. PCIT relying on various decisions held that since there was no enquires conducted by the A.O. on the issue of valuation of shares in terms of Section 56(2)(viia) read with Rules 11U/11UA of the Income Tax Rules the order passed by the A.O. without making any enquiry or verification which should have been done has made the order erroneous in so far as it is prejudicial to the interests of Revenue. He, therefore, set aside the order passed by the A.O. under section 143(3) of the I.T. Act, 1961 and directed him to pass necessary consequential order, after giving due opportunity of being heard to the assessee.
3. Aggrieved with such order of the Ld. PCIT the assessee is in appeal before the Tribunal by raising the following grounds :
