2024 (10) TMI 357 - AT - Income Tax

Revision u/s 263 - applicability of section 56(2)(viib) - consideration received by the assessee company against the aggregate value of shares so issued, exceeded the total face value of such shares - HELD THAT - AO passed the assessment order accepting the returned loss claimed by the Assessee. AO considered the allotment of shares between the holding and subsidiary companies at a face value of Rs. 10 and without there being any premium accepted the returned income. AO made necessary enquiry before passing the assessment order. Thus there is no question of inadequate enquiry made by the AO during the assessment proceedings. PCIT misconstrued the provisions of section 56(2)(viib) namely if a company not being a company in which public are substantially interested, received any consideration against issuance of shares and the consideration so received exceeds the face value of such shares, the difference between the aggregate consideration received and the fair market value of the shares becomes taxable in the hands of such company. PCIT failed to note that the assessee company is not a Public Ltd company and the shares were allotted only on the face value of Rs. 10/- without any premium, therefore the provisions of section 56(2)(viib) of the Act does not arise in the above transaction, resultantly the very basis of invocation of Revision proceedings itself is liable to quashed. AO made necessary inquiry during the assessment proceedings by calling for various information and after satisfied with the information received from the assessee company, passed the assessment order. In the above circumstances we do not find any merits in the Revision proceedings and the same is liable to be quashed. Thus the Grounds raised by the assessee are hereby allowed.

Summary

Issues:
Delay in filing appeal due to Covid-19 pandemic, validity of revision order under section 263 of the Income Tax Act, 1961, applicability of section 56(2)(viib) of the Act, adequacy of inquiry by the Assessing Officer, grounds of appeal raised by the assessee.

Analysis:
The appeal was filed by the assessee against an ex-parte revision order dated 08-03-2021 passed by the Principal Commissioner of Income Tax, Ahmedabad-1, related to the assessment year 2015-16. The delay in filing the appeal was condoned due to the Covid-19 pandemic, following a judgment by the Hon'ble Supreme Court extending the limitation period. The delay was reduced to 44 days, and the appeal was accepted for hearing.

The facts of the case involved the issuance of shares by the assessee company to another entity, where the consideration received exceeded the face value of the shares. This triggered the application of section 56(2)(viib) of the Act, which imposes tax on the difference between the consideration received and the fair market value of the shares. The Assessing Officer failed to examine the fair market value of the shares as required by the IT Rules, leading to an erroneous assessment order.

The assessee challenged the revision order on various grounds, including the validity of the order under section 263 of the Act, adequacy of inquiry by the Assessing Officer, and applicability of section 56(2)(viib) in the case of share issuance between related companies. The assessee argued that the subsidiary company of a public listed company should not be considered privately held, and the provisions of section 56(2)(viib) did not apply in this context.

The Tribunal considered the submissions of both parties and examined the materials on record, including the notices issued by the Assessing Officer and the replies provided by the assessee. It was noted that the Assessing Officer had made necessary inquiries before accepting the returned loss claimed by the assessee. The Tribunal found that the invocation of revision proceedings under section 263 was not justified, as the provisions of section 56(2)(viib) did not apply to the transaction between the holding and subsidiary companies.

Ultimately, the Tribunal allowed the appeal filed by the assessee, quashing the revision order and holding that the grounds raised by the assessee were valid. The appeal was allowed, and the order was pronounced in open court on 01-10-2024.