2023 (1) TMI 204 - AT - Income Tax

Revision u/s 263 - increase in share premium - HELD THAT - It is not disputed by both the parties that the case of the assessee was selected for limited scrutiny and issue to be examined was increase in share premium. In the assessment proceeding the ld. AO has examined the issue as it is evident form the submission made in the form of paper book filed by the assessee. As the case was for this limited purpose the same has been examined and verified by the ld. AO in that framework. CIT evidently did not place on record any apparent error on the part of the AO so as to substantiate that order passed by the ld. AO is prejudicial to the interest of revenue. He only mentioned that the detailed investigation was required to be conducted in order to verify the share premium. There is no further defect found from the record from the material that has been collected by the ld. AO to verify the point raised in the limited scrutiny. The contentions raised by ld. DR on aspects in detailed discussed in the arguments of the ld. AR of the assessee. Since, in this case ld. AO has clearly conducted the enquiry and revenue did not pin point the error on the part of the assessing officer the order passed after due application of mind cannot be subjected to proceeding u/s. 263. As the A.O while framing the assessment had taken a possible view, and revenue did not demonstrate the error remain on the part of the ld. AO. In fact, when the ld. AO has conducted the required enquiry and not violated any of the conditions mentioned for revision of order as required by Explanation 2 of Section 263 of the Act, the order passed by the Assessing Officer could not be deemed to be erroneous so as to be prejudicial to the interests of the revenue. In the present case none of the condition laid down is fulfilled in the show cause notice for revision issued and also not specifically dealt with what are the reasons so as to make the revision of order u/s. 263. Therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 - Decided in favour of assessee.

Issues Involved:
1. Assumption of jurisdiction under Section 263 by the Principal Commissioner of Income Tax (PCIT).
2. Justification and method of valuation of share premium.
3. Verification of the source of share capital and share premium.
4. Examination of the authenticity of credits, share capital, and share premium.
5. Adequacy of inquiries made by the Assessing Officer (AO).

Detailed Analysis:

1. Assumption of Jurisdiction under Section 263:
The PCIT assumed jurisdiction under Section 263, alleging that the AO's order was erroneous and prejudicial to the interest of the revenue. The PCIT argued that the AO failed to make necessary inquiries and did not apply his mind to the information available on record. The PCIT concluded that the AO's order was passed in a routine and perfunctory manner, thus warranting revision under Section 263.

The assessee contended that the AO had made exhaustive inquiries during the assessment proceedings, specifically regarding the share premium received. The AO issued multiple notices and show cause notices, to which the assessee duly responded with detailed submissions and supporting documents, including valuation certificates from an external valuer. The AO, after considering these submissions, accepted the share premium as genuine and justified.

2. Justification and Method of Valuation of Share Premium:
The PCIT contended that the assessee did not provide justification for changing the valuation method and that the discounted cash flow (DCF) projection method used was not acceptable. The PCIT argued that the share price should have been Rs. 780 instead of Rs. 4,350 and Rs. 6,470, based on the actual results of subsequent years.

The assessee argued that under the law, it was free to use any of the methods allowed under Section 56(2)(viib) and Rule 11UA, including the DCF method. The assessee provided valuation certificates from a Chartered Accountant, justifying the share premium received. The assessee also highlighted that the DCF method is a prescribed method under Rule 11UA(2)(b) and that there is no prohibition against changing the valuation method. The assessee cited judicial precedents supporting the use of the DCF method and argued that subsequent actual results cannot invalidate the projections used for valuation.

3. Verification of the Source of Share Capital and Share Premium:
The PCIT argued that it was not verified whether the share capital and share premium received by the company were from disclosed sources and whether this money had been assessed to tax before being invested in the assessee company.

The assessee contended that it had provided complete details of the share subscribers, including their identity, residential status, PAN, and income tax returns. The assessee argued that the AO had examined these details and found them satisfactory. The assessee also argued that the provisions of Section 6(3)(ii) regarding the place of effective management (POEM) were not relevant in this case as the non-resident subscriber was an individual, not a company.

4. Examination of the Authenticity of Credits, Share Capital, and Share Premium:
The PCIT argued that the authenticity of the credits, share capital, and share premium had not been established. The PCIT also raised concerns about the inflation of book value of assets to create artificial share premium and the lack of invoices for additions to fixed assets.

The assessee contended that it had furnished complete details of the share subscribers and the share premium. The assessee argued that the AO had examined these details and found them satisfactory. The assessee also argued that the issue of share premium was the only issue under limited scrutiny and that the AO had no jurisdiction to make inquiries beyond this scope. The assessee provided explanations regarding the book value of assets and the depreciation claimed, arguing that these were justified and in accordance with the law.

5. Adequacy of Inquiries Made by the AO:
The PCIT argued that the AO had failed to carry out necessary inquiries and had not applied his mind to the information available on record. The PCIT concluded that the AO's order was erroneous and prejudicial to the interest of the revenue.

The assessee contended that the AO had made exhaustive inquiries during the assessment proceedings, specifically regarding the share premium received. The AO issued multiple notices and show cause notices, to which the assessee duly responded with detailed submissions and supporting documents. The AO, after considering these submissions, accepted the share premium as genuine and justified. The assessee argued that the AO had exercised his quasi-judicial power in accordance with the law and that the PCIT could not substitute his opinion for that of the AO.

Conclusion:
The Tribunal found that the AO had made exhaustive inquiries and had applied his mind to the facts and circumstances of the case. The AO had exercised his quasi-judicial power in accordance with the law and had taken a plausible view. The Tribunal held that the PCIT could not invoke jurisdiction under Section 263 merely because he had a different opinion. The Tribunal quashed the order passed by the PCIT under Section 263 and sustained the order passed by the AO.

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