9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (7) TMI 783 - AT - Income TaxRevision u/s 263 - Lack of enquiry or no enquiry - scope for application of provisions of Sec.2(22)(a) / 2(22)(d) - specific arguments the assessee that the AO has caused detailed enquiry on the issue of buyback of shares during the course of assessment proceedings by calling for various details, for which, the assessee has filed necessary details and merely, for the reason that the issue does not find mention in the assessment order, it does not mean that the same has not been examined by the AO - HELD THAT - Once the AO, as per his wisdom has enquired into certain aspects of assessment which he considers relevant and thereafter, the CIT cannot interfere, is wholly untenable. If this argument is taken to its logical conclusion, then it would mean that the provisions of Sec.263 would be redundant. No doubt, if the AO has conducted necessary enquires and has taken a possible view, then there is no scope for the CIT to invoke his jurisdictional powers. However, if the enquiries conducted by the AO are inadequate or it can be said that there is no enquiry at all, then the CIT can very well invoke his powers u/s.263 of the Act, and revise the assessment order. The crux of the matter is that the AO should conduct enquiry to satisfy himself about the genuineness of transaction. The scope of the term enquiry can be different in different cases. There cannot be any hard and past rule to carry out a particular enquiry. Such enquiry would be subject to satisfaction of AO. If the enquiry conducted by the AO is an objective satisfaction, then, even though, the AO has called for necessary materials during the course of assessment proceedings, it will lead to an inference that he has not conducted enquiries he ought to have been conducted. In other words, mere obtaining and placing documents on records cannot be equated into conducting enquiry. In this case, on perusal of facts available on record, there is a prima facie indication that there are few abnormalities on the issue of buyback of shares. In such case, the AO after collection of certain evidences should embark upon further investigation so as to ascertain the true colours of the transactions, because, what is apparent is not real. However, the AO simply called for certain details on the issue of buyback of shares, but did not reach to a logical conclusion on the issue, even though, there is a scope for application of provisions of Sec.2(22)(a) / 2(22)(d) of the Act. Therefore, we are of the considered view that there is no error in reasons given by the ld. CIT to exercise his jurisdiction. We find that although, it appears that the AO has conducted enquiries on the issue of buyback of shares, but in principle, the enquiries conducted by the AO is a case of lack of enquiry or no enquiry at all. Because, even though, there is a scope for AO to test the buyback of shares and consideration paid by the assessee in light of provisions of Sec.2(22)(a) / 2(22)(d) of the Act, but, the AO restricted the scope of enquiry in light of provisions of Sec.46A of the Act, relevant provisions of Companies Act, 1956, and tax treaty between India and Mauritius without going into the aspect of distribution of accumulation of profits of the company in the grab of buyback of shares. No doubt, where the law enables the taxpayer to choose one out of various available options, it is the prerogative of the taxpayer to choose the option that leave the taxpayer with less tax burden, but such option should not be a tool for avoidance of legitimate tax payable to the exchequer. In this case, as per options available to the assessee, the assessee can either go for buyback of shares or distribution of dividend. But, such option cannot be an arrangement to give a colour of legitimate tax planning within the four corners of law. The enquiry conducted by the AO in this case can t be construed as a proper enquiry and further, inadequate inquiry conducted by the AO in the given circumstances is as good as no enquiry and as such, the CIT was empowered to revise the assessment order. The order of the CIT is not based on irrelevant considerations and further in the present circumstances, he was not obliged to positively indicate the deficiencies in the assessment order on merits on the question of consideration paid for buy back of shares. AO in the given circumstances can t be said to have taken a possible view as the revision is sought to be done on the premise that the AO did not make enquiry thereby rendering the assessment order erroneous and prejudicial to the interest of the revenue on that score itself. Therefore, for all these reasons, we hold that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the revenue and thus, the CIT has rightly exercised his jurisdictional powers and set aside the assessment order passed by the AO u/s.143(3) dated 31/12/2016. Hence, we are inclined to uphold the order of the ld.CIT and dismiss the appeal filed by the assessee.
Issues Involved:
1. Validity of revision proceedings under Section 263 of the Income Tax Act. 2. Re-characterization of part of the consideration paid to shareholders for buy-back of shares as dividend. Detailed Analysis: 1. Validity of Revision Proceedings: The assessee challenged the order of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, arguing that the original assessment order passed under Section 143(3) was neither erroneous nor prejudicial to the interests of the revenue. The CIT initiated revision proceedings to re-examine the valuation of shares bought back and the applicability of Sections 2(22), 115-O, 115-QA, and 195 of the Income Tax Act. The assessee contended that the Assessing Officer (AO) had thoroughly examined all details and passed the assessment order in accordance with the applicable CBDT Circular No. 3 of 2016, which excludes buy-back of shares from the ambit of dividend. The CIT, however, held that the AO failed to examine the issue in the right perspective of law, particularly under Sections 2(22)(a) and 2(22)(d), and directed the AO to re-examine the valuation of shares. 2. Re-characterization of Consideration as Dividend: The CIT concluded that the AO did not properly examine the valuation of shares bought back, which was significantly higher than their intrinsic value. The CIT observed that the buy-back price was inflated to distribute accumulated profits without attracting tax under dividend provisions. The CIT directed the AO to treat the excess consideration paid over the fair market value as 'dividend' under Section 2(22)(a) and consequently charge Dividend Distribution Tax (DDT) under Section 115-O. The assessee argued that the buy-back was genuine and complied with the Companies Act and FEMA regulations, and the consideration paid should be taxed as capital gains, not dividend. The assessee also relied on the CBDT Circular and various judicial precedents to support their claim. Judgment Analysis: On Validity of Revision Proceedings: The Tribunal upheld the CIT's order, stating that the AO's failure to conduct necessary enquiries rendered the assessment order erroneous and prejudicial to the interests of the revenue. The Tribunal emphasized that the AO should have examined the buy-back transaction in light of Sections 2(22)(a) and 2(22)(d) and the fair market value of the shares. The Tribunal cited various judicial precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, which held that an order is erroneous if it is passed without proper enquiry or verification. The Tribunal also referred to Explanation-2 to Section 263, which deems an order erroneous if it is passed without making necessary enquiries. On Re-characterization of Consideration as Dividend: The Tribunal agreed with the CIT's view that the consideration paid for the buy-back was inflated and should be partly treated as dividend. The Tribunal noted that the fair market value of the shares was significantly lower than the buy-back price, indicating an attempt to distribute accumulated profits without attracting tax under dividend provisions. The Tribunal cited the Karnataka High Court's decision in Fidelity Business Services India Pvt. Ltd. v. CIT, which supported the treatment of excess consideration as dividend. The Tribunal rejected the assessee's reliance on the CBDT Circular, stating that the circular applies to genuine buy-back transactions and not to those aimed at tax avoidance. Conclusion: The Tribunal dismissed the assessee's appeal, upholding the CIT's order to revise the assessment and re-examine the valuation of shares bought back. The Tribunal concluded that the AO's failure to conduct necessary enquiries rendered the assessment order erroneous and prejudicial to the interests of the revenue, justifying the CIT's revision under Section 263. The Tribunal also supported the re-characterization of excess consideration paid for the buy-back as dividend, subject to DDT under Section 115-O.
|
