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2021 (9) TMI 1364 - AT - Income TaxRevision u/s 263 - As per CIT AO has passed the assessment order u/s 143(3) of the Act, without making any enquiry or verification on the issue of share premium received and applicability of section 56(2)(viiib) - HELD THAT - From the observations of the Ld. Pr. CIT, it can be inferred that the AO has examined the genuineness of the transaction and did not find any infirmity with regard to the identity and creditworthiness of the share applicants and the genuineness of the transaction. Under these circumstances the Ld. Pr. CIT has wrongly assumed that the AO has not examined the applicability of section 56(2)(viib) of the Act. This is not a case of no enquiry. As pointed out by the Ld. Counsel, during the assessment proceedings the assessee produced the complete detail called for by the AO except the valuation report, which was produced before the Ld. Pr. CIT in compliance to his directions given during the appellate proceedings. In our considered view, the AO has passed the assessment order after examining and verifying the documents and the details furnished by the assessee.In the present case since the AO has passed the assessment order after due application of mind and after accepting the explanation given by the assessee the same cannot be termed as erroneous. Therefore, in our considered view the observation of the Ld. Pr. CIA that AO has passed the order without making proper enquiries is not factually correct, hence not sustainable. Whether Pr. CIT has wrongly rejected the valuation of shares @ ₹ 33.44? - Evidence on record do not suggest that the valuation report submitted by the assessee had been prepared without verification of the data supplied by the assessee. Hence, we do not find any merit in the contention of the Ld. DR that the Ld. Pr. CIT has rightly rejected the valuation report submitted by the assessee. We therefore, do not find any cogent and convincing reason for rejecting the valuation report prepared as per the provisions of law and the guidelines issued by the Institute of Chartered Accountants of India. Hence, in our considered view Ld. Pr. CIT has wrongly rejected the method of valuation of shares adopted by the assessee for determining the fair market value. We hold that the Ld. Pr. CIT has failed to show the twin conditions for exercising jurisdiction u/s 263 of the Act that the order passed by the AO is erroneous as well as prejudicial to the interest of the revenue. Since, the AO has passed the assessment order after conducting proper verification of the details furnished and considering the explanation given by the assessee, we find merit in the contention of the assessee that the impugned order passed by the Ld. Pr. CIT is beyond the scope of section 263 - Decided in favour of assessee.
Issues Involved:
1. Validity of the Principal Commissioner of Income Tax's (Pr. CIT) exercise of jurisdiction under Section 263 of the Income Tax Act, 1961. 2. Examination of the applicability of Section 56(2)(viib) of the Income Tax Act regarding share premium received. 3. Rejection of the assessee's valuation of shares by the Pr. CIT. Detailed Analysis: 1. Validity of the Principal Commissioner of Income Tax's (Pr. CIT) Exercise of Jurisdiction under Section 263 of the Income Tax Act, 1961: The assessee contested the order passed by the Pr. CIT under Section 263, which set aside the assessment order initially passed by the Assessing Officer (AO) under Section 143(3). The Pr. CIT directed the AO to reassess the case, arguing that the original assessment was erroneous and prejudicial to the interest of the revenue. The Tribunal noted that the AO had conducted proper verification of the details furnished by the assessee. The AO had examined the identity, genuineness, and creditworthiness of the share applicants, and found no infirmity in the transactions. The Tribunal referred to the Hon'ble Karnataka High Court's ruling in CIT vs. M/s Cyber Park Development, which stated that mere inadequacy of enquiry or insufficiency of material on record cannot justify invoking Section 263. Therefore, the Tribunal concluded that the Pr. CIT's assumption that the AO had not examined the applicability of Section 56(2)(viib) was incorrect, and the exercise of jurisdiction under Section 263 was invalid. 2. Examination of the Applicability of Section 56(2)(viib) of the Income Tax Act Regarding Share Premium Received: The Pr. CIT argued that the AO had not examined the applicability of Section 56(2)(viib) concerning the share premium received by the assessee. However, the Tribunal found that the AO had indeed verified the share premium, including the valuation of shares issued at a premium of ?10 and ?20 per share. The AO had also verified the audit report and other relevant documents. The Tribunal noted that the AO's assessment order did not explicitly discuss every point, but this did not imply a lack of enquiry. The Tribunal referenced the Hon'ble Bombay High Court's ruling in CIT vs. Gabriel India Ltd., which held that an assessment order cannot be deemed erroneous simply because it does not discuss every issue. The Tribunal concluded that the AO had conducted a proper verification, and the Pr. CIT's claim of inadequate enquiry was unfounded. 3. Rejection of the Assessee's Valuation of Shares by the Pr. CIT: The Pr. CIT rejected the assessee's valuation of shares, which was based on the Discounted Free Cash Flow (DCF) method, and instead computed the fair market value using Rule 11UA(2)(a). The assessee argued that the valuation report was duly prepared in compliance with the law and relied on multiple judicial precedents, including the Hon'ble Delhi High Court's ruling in Pr. CIT vs. Cinestaan Entertainment (P) Ltd., which upheld the DCF method for valuation. The Tribunal noted that the DCF method is a recognized valuation method under Section 56(2)(viib) read with Rule 11UA(2)(b), and the AO had no jurisdiction to change the valuation method adopted by the assessee. The Tribunal also referenced the Hon'ble Mumbai High Court's decision in Vodafone M-Pesa Limited vs. Pr. CIT, which held that the AO could scrutinize the valuation report but could not change the valuation method. The Tribunal concluded that the Pr. CIT had wrongly rejected the DCF method and that the valuation report prepared by the assessee was in accordance with the law. Conclusion: The Tribunal held that the Pr. CIT failed to demonstrate that the assessment order was both erroneous and prejudicial to the interest of the revenue. The AO had conducted proper verification and enquiry, and the valuation of shares using the DCF method was valid. Consequently, the Tribunal set aside the impugned order passed by the Pr. CIT, allowing the appeal of the assessee. The order was pronounced on 24th September 2021.
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