2015 (12) TMI 1615 - AT - Income Tax

Revision u/s 263 - prejudicial to the interest of revenue - multiple share transfers by assessee - Held that - On verification of the notices and u/s 142, the questionnaires and replied thereto, we find that the AO probed into the aspects of each of the related concerned, facts relating to the multiple share transfers by the assessee company repeated over the short span of time, facts relating to the purchase of shares by the assessee with no adequate funds from Universal for consideration lower than the market price, raising of the funds through the OFCDs route from the INSTANT and clearing of the liabilities to the Universal etc. We also examined and the following annexures reflect the fact of verification of the details relating to the Share purchase transactions from the UNIVERSAL for the lower price. When the AO formed an opinion on an issue ( ie amount of premium on the OFCD), the CIT cannot sit on the judgment seat as the review officer u/s the provision of section 263 of the Act. Judgmental law does not permit the same. The assessee purchased the shares from the said Zensar, KEC, Spencer and Co Ltd and the transactions are considered by the AO genuine. Fact of verification of the share purchase transaction is very much on records. We find the AO is aware of and informed of the facts relating to the purchase price of the said shares, being lessor than that of the FMV. Considering the facts narrated by the Sri Mehta, we find that the AO conducted necessary enquiries in to various aspects of the said purchase transactions and opined to make addition on account of excess premium‟ only and invoked the provisions of section 56 of the Act and not on account of the said share purchase transactions involving Zensar, KEC, Spencer and Co Ltd. Therefore, we find no error in the order of the AO, whether of legal or factual nature on that account.- Decided in favour of assessee.

Issues Involved:
1. Validity of the Principal CIT's assumption of jurisdiction under Section 263 of the Income Tax Act.
2. Proper verification and inquiry by the Assessing Officer (AO).
3. Allegation of loss of revenue and prejudicial interest to the revenue.
4. AO's conclusions on excess premium and share purchase transactions.
5. Allegation of colorable device and form vs. substance.

Issue-wise Detailed Analysis:

1. Validity of the Principal CIT's Assumption of Jurisdiction under Section 263 of the Income Tax Act:
The Principal CIT initiated proceedings under Section 263, questioning the AO's assessment order regarding the purchase of shares at a lower price and the excess premium charged on Optional Fully Convertible Debentures (OFCDs). The Tribunal examined the scope of Section 263, noting that the CIT can assume jurisdiction if there is an incorrect assumption of fact or law, failure to conduct an investigation, or if such failures are prejudicial to the interest of the revenue. The Tribunal found that the AO had conducted necessary inquiries and formed an opinion, making the CIT's assumption of jurisdiction invalid.

2. Proper Verification and Inquiry by the Assessing Officer (AO):
The AO made a regular assessment, issuing notices under Section 142 and conducting detailed inquiries, including the collection of various details and explanations from the assessee. The AO verified the issues raised by the CIT, including the investment in shares and the sources of funds. The Tribunal found that the AO had probed into the aspects of related concerns, share transfers, purchase of shares, and raising funds through OFCDs, demonstrating proper verification and inquiry.

3. Allegation of Loss of Revenue and Prejudicial Interest to the Revenue:
The Principal CIT alleged that the AO's assessment order was prejudicial to the interest of the revenue, citing the purchase of shares at a lower price and the excess premium on OFCDs. The Tribunal found that the AO had considered the market value of the shares and the premium issue, making an addition under Section 56(1) for excess premium. The Tribunal noted that the assessee benefited from the transactions, and there was no loss of revenue. The CIT failed to demonstrate any revenue loss specific to the assessee, making the allegation unsustainable.

4. AO's Conclusions on Excess Premium and Share Purchase Transactions:
The AO made an addition of Rs. 11.34 crores under Section 56(1) for excess premium collected from Instant Holdings. The Principal CIT disagreed with the AO's conclusions, suggesting that the addition should have been made for the lower purchase consideration of shares. The Tribunal found that the AO had conducted necessary inquiries and formed an opinion on the premium issue, making the CIT's disagreement on the conclusions insufficient for assuming jurisdiction under Section 263.

5. Allegation of Colorable Device and Form vs. Substance:
The Principal CIT alleged that the transactions constituted a colorable device and questioned the form vs. substance of the transactions. The Tribunal found no violation of any provisions of the law in the share transfers and no evidence supporting the allegation of a colorable device. The Tribunal noted that the AO had verified the transactions and formed an opinion, making the CIT's allegations unsustainable.

Decision of the Tribunal:
The Tribunal concluded that the Principal CIT's assumption of jurisdiction under Section 263 was invalid, as the AO had conducted proper verification and inquiry, and there was no loss of revenue. The Tribunal allowed the appeal of the assessee, finding that the CIT's allegations were unsupported by evidence and that the AO's assessment order was neither erroneous nor prejudicial to the interest of the revenue. The remaining grounds raised by the assessee were dismissed as academic. The appeal was partly allowed, and the order was pronounced in the open court on 07th December 2015.

← Previous Next →