2022 (5) TMI 1496 - AT - Income Tax

Revision u/s 263 - valuation of shares/charging of premium depreciation on operation and management rights - As per CIT no inquiries carried out in respect of receiving share premium as well as depreciation on the deposit to the person running the Nanavati Hospital - HELD THAT - There is no evidence on record, which could show that the Assessing Officer has made enquiry on the issue of applicability of section 56(2)(viib) of the Act and eligibility of depreciation on deposit made the person running the Nanawati Hospital as how the same was an intangible asset in the hands of the assessee. Merely placing of certain information by the assessee on the issue in dispute cannot be termed as conducting of enquiry by the AO. AO is not only adjudicator, but he is the investigator also as prior to adjudication of the issue, he is required to thoroughly investigate the issue by way of the inquiries, for which he has been given powers under the Act which include raising of queries under section 142(1) issuing notice under section 133(6) of the Act to 3rd parties or issue of summon u/s 131 of the Act for attendance of the witnesses etc. But no such inquiries were carried out by the assessee on the pile of information filed by the assessee. We are of the opinion that no enquiry has been carried out by the Assessing Officer on the two issues of i.e. applicability of section 56 (2)(viib) and depreciation on deposit of ₹25 crore. Assessing Officer has not analyzed the information supplied by the assessee and he simply accepted whatever filed by the assessee. In such circumstances, we can t say that he has made any opinion or taken a particular view. Thus, no issue of change of opinion is involved in the case before us. We are of the opinion that there is no error in the order of the Ld. PCIT and accordingly we uphold the same. The grounds raised by the assessee are accordingly dismissed.

Summary

Issues Involved:
1. Validity of the revision order under Section 263 of the Income Tax Act, 1961.
2. Examination of the valuation of shares and charging of premium.
3. Depreciation on the operation and management rights.

Issue-wise Detailed Analysis:

1. Validity of the Revision Order under Section 263 of the Income Tax Act, 1961:
The assessee challenged the Principal Commissioner of Income Tax (PCIT)'s revision orders under Section 263, asserting that these were "bad in law and void ab-initio." The core argument was that the Assessing Officer (AO) had conducted proper inquiries and the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal examined whether the AO had indeed conducted adequate inquiries on the issues of share premium and depreciation on operation and management rights. The Tribunal found that the AO had not conducted any meaningful inquiry or verification, which justified the PCIT's invocation of Section 263.

2. Examination of the Valuation of Shares and Charging of Premium:
The assessee issued shares at a premium during the assessment years in question. The PCIT found that the AO failed to verify the basis of the valuation reports provided by the assessee. The Tribunal noted that the AO had merely accepted the valuation reports without further investigation, despite the valuation reports indicating that the financial information used was provided by the assessee and was not independently verified. The Tribunal upheld the PCIT's view that the AO should have conducted a thorough verification, particularly given the significant share premium involved.

3. Depreciation on the Operation and Management Rights:
The assessee claimed depreciation on Rs. 25 crores paid for acquiring operation and management rights of a hospital, treating it as an intangible asset. The PCIT observed that the AO did not make any inquiries into the nature of these rights and whether they qualified as intangible assets eligible for depreciation under Section 32 of the Act. The Tribunal agreed with the PCIT, noting that the AO failed to investigate the ownership and nature of the intangible rights, thereby making the assessment order erroneous and prejudicial to the interest of the revenue.

Conclusion:
The Tribunal concluded that the AO did not conduct adequate inquiries into the issues of share premium valuation and depreciation on operation and management rights. Consequently, the Tribunal upheld the PCIT's revision orders under Section 263 for both assessment years, dismissing the appeals filed by the assessee. The Tribunal emphasized that the AO's failure to investigate and verify critical aspects of the assessment justified the PCIT's intervention to correct the erroneous and prejudicial assessment orders.