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2024 (1) TMI 1223 - AT - Income TaxRevision u/s 263 by CIT - Right Issue of shares - invocation of provisions of section 52(2)(viib) by debunking the calculation of fair market value of shares done by the assessee and accepted by the AO, under Rule 11UA of IT Rules - addition on account of the shares being issued at a value less than its fair market value - CIT set aside the assessment order passed by the ld.AO u/s 143(3) holding it as erroneous and prejudicial to the interest of the Revenue as AO had failed to make proper inquiries regarding valuation of fair market value of shares issued by the assessee during the year at a premium, which valuation as per the ld. Pr. CIT was not in accordance with law as done by the assessee - assessee argued CIT held that the assessment order was erroneous without dealing with the arguments made by the assessee before him. HELD THAT - We are not in agreement with the contention of assessee that the contentions made by the assessee before the ld. Pr. CIT were not dealt with by him while holding the assessment order to be erroneous. He has specifically referred to the contentions made regarding non-applicability of section 56(2)(viib) to the Right Issue issued, that there is no mala fide intention involved in the Right shares which is said to be brought in the ambit and scope of the deeming provision of section 56(2)(viib) of the Act. As for the decision cited in the case of Sudhir Menon HUF 2014 (3) TMI 534 - ITAT MUMBAI we have noted from the ld. Pr. CIT order, that the issue in the said case related to the invocation of the provisions of 56(2)(vii) which relates to the receipt of any money or property without any consideration or without adequate consideration. While in the present case, the issue relates to the provisions of section 56(2)(viib) of the Act which deems the amounts received in lieu of the issue of shares in excess of their FMV as income of the assessee. CIT, therefore, has rightly found the facts of the case to be different and distinguishable from that in the present case before us. Therefore, we do not agree with the assessee that the ld. Pr. CIT has held the assessment order erroneous without dealing with averments made by the assessee before it. Now coming to the aspect of the decision of Chhatisgarh Metaliks and Alloys P.Ltd 2023 (4) TMI 74 - ITAT RAIPUR holding the provision of the section 56(2)(viib) of the Act not applicable on Right Issue, and its impact on revisionary order passed in the present case, it is evident that in the absence of any contrary decision cited by the Revenue before us, the entire exercise of revision in the present case on identical set of facts fails considering the categorical finding of the ITAT that section 56(2)(viib) of the Act cannot be invoked on a Rights Issue. The finding of the error in the assessment order by the ld. Pr. CIT on account of an identical issue clearly does not survive. Thus the impugned order of the ld. Pr. CIT passed under section 263 of the Act is set aside, and the appeal of the assessee is allowed.
Issues Involved:
1. Condonation of Delay 2. Validity of the Revisionary Order under Section 263 of the Income Tax Act 3. Applicability of Section 56(2)(viib) to Rights Issue Condonation of Delay: The appeal filed by the assessee was delayed by 262 days. The assessee attributed the delay to the preoccupation of its Finance Department with financial reporting and statutory compliances, alongside the top management's involvement in negotiations for a joint venture agreement. The Tribunal, referencing Section 5 of the Limitation Act and Section 253(5) of the Income Tax Act, noted that the delay was unintentional and justified by sufficient cause. Citing the Supreme Court's liberal approach in the case of Collector, Land Acquisition Vs. Mst. Katiji & Others, the Tribunal condoned the delay, emphasizing that substantial justice should prevail over technicalities. Validity of the Revisionary Order under Section 263: The Pr. CIT set aside the assessment order under Section 143(3), deeming it erroneous and prejudicial to the Revenue's interest due to the AO's failure to properly inquire into the fair market value (FMV) of shares issued at a premium. The Pr. CIT calculated the FMV at Rs. 47.07 per share, whereas the assessee issued shares at Rs. 60 per share, resulting in an excess premium of Rs. 12.93 per share. The Tribunal noted that the assessee did not dispute the Pr. CIT's calculation but argued that the Pr. CIT did not consider its contentions and case laws. The Tribunal found that the Pr. CIT had addressed the assessee's arguments and distinguished the cited case laws, thus validating the Pr. CIT's order. Applicability of Section 56(2)(viib) to Rights Issue: The assessee contended that Section 56(2)(viib) was not applicable to the Rights Issue, as the shares were issued to existing shareholders in proportion to their shareholding, without introducing new shareholders or cash consideration. The Tribunal referenced the ITAT Raipur Bench's decision in Chhatisgarh Metaliks and Alloys P. Ltd., which held that Section 56(2)(viib) does not apply to Rights Issues. Consequently, the Tribunal concluded that the revisionary order under Section 263 could not survive, as the foundational error identified by the Pr. CIT was not sustainable. Conclusion: The Tribunal set aside the Pr. CIT's order under Section 263 and allowed the assessee's appeal, emphasizing that Section 56(2)(viib) does not apply to Rights Issues and that the assessee's delay in filing the appeal was justified and condoned.
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