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2016 (12) TMI 1629 - AT - Income TaxRevision u/s 263 - proof of lack of enquiry during the assessment proceedings or no discussion in the assessment order issue - Held that - As regards to the share application money, we find that AO has examined everything and even the nature of transaction in regard to the issue of share and it is also a fact that this investment was made on the basis of erosion of loss of the company as on 31-03-2011, wherein, paid up capital resulting in an erosion of its capital and amounts have been paid on a going concern basis on the understanding that finance will be available with the company for work-in-capital requirement from its promoters. In view of the above, we are of the view that the observations of PCIT that huge investment made in loss making company by paying a premium of ₹ 20 per share does not make commercial sense and investment ought to have looked into closely is of no consequence because the promoter has brought in the funds by way of preference shares as their holding was 62%. From the terms of preference shares issued it can be seen that the same was redeemable at premium of ₹ 20 per share and the premium was required to be refunded by the company on its redemption. As regards to the issue of demerger of infrastructure division into Reliance Capital Asset Management Company Ltd., we find that the scheme of an arrangement of demerger approved by Hon ble High Court of Bombay and Hon ble High Court of Gujarat, looked into all the aspects before approving the schemes of demerger and now the PCIT cannot raise any question on the judgment of Hon ble High Courts. We are of the view that when the scheme and orders of Hon ble High Courts are in public domain and the same are also filed with the Registrar of companies (ROC), the same cannot be questioned by the Revenue and moreover in the revision proceedings u/s 263 of the Act. For claim of deduction towards loss incurred on forward brokering trade settlement complete details in respect to this loss is filed before the AO during the course of assessment proceedings in lieu of query raised and it is presumed that the AO has applied his mind to the facts of the case and passed an appropriate order. Hence, the assessment order cannot be said to be erroneous so as to prejudicial to the interest of Revenue on this issue. As regards to the issue of claim of deduction towards return of referral fee we find from the facts of the case that the AO has examined this issue by making a query and the same was replied by the assessee and this aspect has also been considered while framing assessment of RCIBL, wherein, the same AO has framed assessment only on 30-01-2014, which is also the same date when the assessment in the present case was framed. We find that these amounts are not in doubt or the genuineness of the same is doubted neither by the PCIT or the AO during the course of assessment proceedings. Hence, the assessment order cannot be said to be erroneous so as to prejudicial to the interest of the Revenue. Accordingly, the revision order passed by PCIT on this issue is without any basis. As regards to the issue of claim on long term capital loss on sale of shares we find from the details filed in the assessee s paper book at page 132-137, which were filed before the AO also during the course of assessment proceedings that the shares of the above companies were sold at cost on which the same were purchased and therefore, there was no profit or loss but the loss has arising only on account of the provisions of the Act requiring the assessee to adopt the indexed cost because these shares are held for long term purposes, i.e. beyond one year. We find that the assessee has recovered the entire investment and there is no impairment in respect to thereof As regards the next issue on claim of depreciation on cost of improvement of lease hold premises u/s 32(1) we find that the sale of lease hold premises and improvement thereon is stated to be ₹ 2,71,72,549/- is not sale value but it is accumulated depreciation which is removed from the schedule of fixed assets on account of transfer of assets and demergers. We find from the facts of the case that the assessee filed complete details before AO which are available in assessee s paper book pages 223-227. Once it is a fact that this accumulated depreciation amounting to ₹ 2,71,72,549/- is not sale value, which is removed from fixed assets on account of transfer of assets and demerger of the companies. Even otherwise the complete details were available before the AO during the course of assessment proceedings, which were filed by the assessee on query from the AO. In term of the above factual position, we are of the view that the assessment order framed under 143(3) of the Act is neither erroneous nor prejudicial to the interest of the Revenue. On lease rent and improvement expenditure the AO enquired the issue by raising a query u/s 142(1) of the Act dated 30-05-2013, wherein vide question No.19 the AO has asked the details of merger expenses including breakup and nature. We find that complete expenses of rent rates and taxes and details of rent premises which are filed before the AO vide letter dated 17-01-2014, wherein, the assessee has debited the sum of ₹ 56,41,858/- as property tax under the head rates and taxes and the details were submitted before the AO. It is a fact that this premise was taken on leave and license basis from Uptown Properties And Leasing Properties Pvt. Ltd. vide agreement dated 12-10-2007 and the same was evicted on 04-06-2009 Section 263 is a section which enables the Commissioner to have a look at the orders or proceedings of the lower authorities and to effect a correction, if so needed, particularly if the order or proceeding is erroneous and prejudicial to the interest of the Revenue. The object of the provision is to raise revenue for the State and Section 263 is an enabling provision conferring jurisdiction on the Commissioner to revise the order of the authorities below in certain circumstances particularly when it is erroneous and prejudicial. The provision is intended to plug leakage to the revenue by erroneous order passed by the lower authorities where the order of assessment by the AO is erroneous and prejudicial to the interest of the Revenue. But in the present case before us the AO has passed the assessment order after examining all the details, replies and documents filed by the assessee. - Decided in favour of assessee.
Issues Involved:
1. Non-examination of the issue of preference shares to Reliance Money Mall Ltd. (RMML). 2. Non-examination of claim of deduction towards return of referral fee. 3. Non-examination of claim of deduction towards loss incurred on forward broking trade settlement of gold business. 4. Non-examination of claim of allowance of long-term capital loss on sale of shares amounting to ?2,75,76,240/-. 5. Non-examination of allowance of claiming of depreciation on cost of improvement of leasehold premises u/s 32(1) of the Act. 6. Lease rent and improvement expenditure. Detailed Analysis: 1. Non-examination of the issue of preference shares to Reliance Money Mall Ltd. (RMML): The Principal Commissioner of Income Tax (PCIT) noted that the Assessing Officer (AO) did not conduct proper inquiries to verify the source of funds and the genuineness of the transaction regarding the issue of 20 crore preference shares at a premium of ?20 each to RMML. The PCIT found that the AO failed to ascertain the source, capacity, and genuineness of such credits or share capital introduced. The PCIT also observed that the demerger of the infrastructure and real-estate broking business resulted in the erosion of the value of the investment from ?600 crores to ?2 crores. The assessee argued that the AO had examined the details during the assessment proceedings, including the source of funds and the terms of the preference shares, which were redeemable at a premium. The Tribunal found that the AO had indeed examined the necessary details and that the investment decision by RMML was a commercial decision by the promoters. The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. 2. Non-examination of claim of deduction towards return of referral fee: The PCIT held that the AO allowed the deduction of the referral fee refund without proper inquiry and application of mind. The assessee explained that the refund was made on the instructions of the Insurance Regulatory Development Authority (IRDA) and that the referral fee had been offered to tax in earlier years. The Tribunal noted that the AO had raised a query and the assessee had provided a detailed explanation during the assessment proceedings. The Tribunal found that the AO had examined the issue and allowed the deduction based on the facts and circumstances of the case. Therefore, the assessment order was not erroneous or prejudicial to the interest of the Revenue. 3. Non-examination of claim of deduction towards loss incurred on forward broking trade settlement of gold business: The PCIT observed that the AO did not make any inquiry or investigation regarding the loss claimed on forward broking trade settlement. The assessee explained that the company hedged its gold position to cover the risk of price fluctuation and provided detailed information to the AO during the assessment proceedings. The Tribunal found that the AO had examined the details and that the loss was not speculative in nature as the transactions involved actual delivery of gold. The Tribunal concluded that the assessment order was not erroneous or prejudicial to the interest of the Revenue. 4. Non-examination of claim of allowance of long-term capital loss on sale of shares amounting to ?2,75,76,240/-: The PCIT noted that the AO did not examine whether the sale of shares to related parties was at arm's length price. The assessee provided details of the sale of shares and explained that the shares were sold at cost, resulting in a capital loss due to indexation. The Tribunal found that the AO had raised a query and the assessee had provided the necessary details during the assessment proceedings. The Tribunal concluded that the assessment order was not erroneous or prejudicial to the interest of the Revenue. 5. Non-examination of allowance of claiming of depreciation on cost of improvement of leasehold premises u/s 32(1) of the Act: The PCIT held that the AO did not verify the details of the sale/transfer of leasehold premises and the accounting treatment given as a result of demerger. The assessee explained that the demerger was approved by the High Courts and provided details of the transfer of assets. The Tribunal found that the AO had examined the details and that the accumulated depreciation was removed from the fixed assets schedule due to the demerger. The Tribunal concluded that the assessment order was not erroneous or prejudicial to the interest of the Revenue. 6. Lease rent and improvement expenditure: The PCIT observed that the AO did not examine the details of lease rent and improvement expenditure. The assessee provided details of the lease agreement and the expenditure incurred, which were submitted to the AO during the assessment proceedings. The Tribunal found that the AO had raised a query and the assessee had provided the necessary details. The Tribunal concluded that the assessment order was not erroneous or prejudicial to the interest of the Revenue. Conclusion: The Tribunal quashed the revision order passed by the PCIT u/s 263 of the Income Tax Act, 1961, as the assessment order passed by the AO was neither erroneous nor prejudicial to the interest of the Revenue. The appeal of the assessee was allowed.
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