2023 (6) TMI 971 - AT - Income Tax

Revision u/s 263 - Right issue shares - applicability of section 56(2)(viib) on the issue of shares by the company by stating that this section applied only to the residents and not to the non-residents - assessee is engaged in the business of developing and operating industrial and logistics park - case of the assessee was selected for limited scrutiny on the ground of Large share premium received during the year - HELD THAT - As incumbent upon the PCIT to specifically point out where the AO went wrong in accepting the assessee s explanation. His action in generalizing the issue to the effect that the AO failed to make enquiry to examine and verify the reasonableness and genuineness of share premium, cannot be accorded our imprimatur when all such details were already on record and examined by the AO. If the view point of the ld. PCIT is approved, it would give a licence to Pr. CITs to revise any assessment order in the second situation category cases without first satisfying the jurisdictional condition of showing the defect in the approach of the AO in accepting the assessee s claim. Here is a case in which the assessee issued shares with face value of Rs. 10/- at a price of Rs. 6,526.96 per share. The shares were right issued to the existing shareholders. The assessee justified the receipt of share premium at this level with the help of report of a valuer. Such report was drawn on 05-12-2016, when the assessee issued shares at the same amount of premium in the immediately preceding assessment year 2017-18 to Indospace Ventures II, Mauritius. Assessment for the A.Y. 2017-18 was completed u/s. 143(3) without casting any doubt or aspersion over the reasonableness of the amount of premium charged on the shares. It is the same amount of premium which has been charged by the assessee during the year under consideration on fresh issue of shares within a gap of six months from the last issue of shares, that has been doubted by the ld. PCIT in the present case. We are satisfied that the PCIT was not justified in revising the assessment order passed u/s 143(3) of the Act. The revisionary order is hereby set aside and quashed. Appeal is allowed.

Summary

Issues Involved:
1. Whether the Assessing Officer (AO) conducted proper verification and enquiry regarding the share premium received by the assessee.
2. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking section 263 of the Income-tax Act, 1961, to revise the assessment order.

Summary:

Issue 1: Verification and Enquiry by AO
The assessee, engaged in developing and operating industrial and logistics parks, issued equity shares at a premium. During the assessment, the AO required details about the share premium received, which the assessee furnished electronically, including Income-tax returns, Bank statements, Share Valuation Certificates, and Share Certificates. The AO, after examining these details, completed the assessment under section 143(3) without making any additions, determining the total income as offered by the assessee. The PCIT, however, observed that the AO merely accepted the assessee's submissions without proper analysis and held the assessment order to be erroneous and prejudicial to the Revenue's interest, directing the AO to reframe the assessment after applying his mind.

Issue 2: Justification of PCIT Invoking Section 263
The Tribunal noted that the AO had indeed conducted a thorough enquiry by calling for necessary details, which were duly submitted by the assessee. The AO got satisfied with the detailed information and explicitly recorded his satisfaction in the assessment order. The Tribunal emphasized that proceedings under section 263 can be invoked only when the assessment order is erroneous and prejudicial to the Revenue's interest. It outlined two broad situations: one where the AO does not initiate an issue requiring consideration, and two where the AO initiates the issue, receives necessary details, and makes a decision. The Tribunal found that the AO had conducted a proper enquiry and the PCIT failed to point out specific errors in the AO's approach, thus failing to meet the jurisdictional condition for revision under section 263.

Conclusion:
The Tribunal concluded that the PCIT's revisionary order was not justified as the AO had conducted a thorough enquiry and the necessary details were examined before accepting the genuineness of the transaction. The Tribunal set aside and quashed the PCIT's revisionary order, allowing the appeal in favor of the assessee.