2019 (11) TMI 272 - AT - Income Tax

Revision u/s 263 - AO was required to examine and verity the justification of share premium with regard to FMV and the creditworthiness of the subscriber to whom the said shares have been allotted at a huge premium - HELD THAT - This entire exercise of the Assessing Officer can be seen reflected in the body of the assessment order itself. A conspectus reading of the assessment order vis a vis the issues raised by the PCIT would show that the PCIT has assumed jurisdiction on the ground that no proper enquiries were conducted by the Assessing Officer during the course of assessment proceedings. Whereas, the facts on record and as discussed hereinabove clearly reveal that thorough and investigative enquiries were conducted by the Assessing Officer, not only from the assessee, but also from all the concerned persons. We find that it is a settled position of law that powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should. be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' it is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the AO has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Records which were examined by the ld. PCIT, had it been examined by due application of mind, the ld. PCIT would. have known that CCD pertaining to Assessment Year 2013-14 i.e., the immediately preceding Assessment Year and only on conversion, the entries have been made in the share capital and share premium account. The other decisions relied upon by the ld.. DR are misplaced and need no separate adjudication. Considering all supported by a vortex of evidences, examined and analysed by the Assessing Officer during the course of assessment proceedings, further supported by thorough investigations/enquiries made by the Assessing Officer during the assessment proceedings, we are of the considered view that there remains nothing for the PCIT to assume jurisdiction u/s 263 of the Act to say that the assessment order is not only erroneous but prejudicial to the interest of the revenue. We are of the considered view that the ld. PCIT has wrongly assumed jurisdiction u/s 263 of the Act, hence his combined order for all the A.Ys deserves to be set aside. - Decided in favour of assessee.

Issues Involved:
1. Validity of the order framed under Section 263 of the Income-tax Act, 1961.
2. Examination and verification of share premium received by the assessee.
3. Application of mind by the Assessing Officer during the assessment proceedings.
4. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263.
5. Legal standards for invoking Section 263.

Detailed Analysis:

1. Validity of the Order Framed Under Section 263 of the Income-tax Act, 1961:
The assessee challenged the validity of the order dated 31.01.2019 framed under Section 263 by the PCIT, Gurgaon, for A.Y 2014-15. The PCIT believed that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue due to the issuance of shares at a high premium. The PCIT issued a notice under Section 263, and after considering the assessee's submissions, concluded that the AO failed to apply his mind and did not examine the receipt of share premium, making the assessment order erroneous and prejudicial to the interest of the Revenue.

2. Examination and Verification of Share Premium Received by the Assessee:
The PCIT was of the opinion that the AO did not properly examine and verify the justification of the share premium with regard to the Fair Market Value (FMV) and the creditworthiness of the subscribers. The assessee argued that during the assessment proceedings, the AO raised specific queries, and the assessee provided replies supported by documentary evidence. The assessee issued Compulsorily Convertible Debentures (CCD) in the preceding Assessment Year 2013-14, which were converted into equity shares during the year under consideration, including share premium.

3. Application of Mind by the Assessing Officer During the Assessment Proceedings:
The assessee contended that the AO conducted thorough and investigative enquiries, not only from the assessee but also from all concerned persons. The AO asked the assessee to justify the large share premium received, provide complete details of applicants on shares, and furnish proof that the debenture money was received in F.Y. 2012-13 along with a valuation report of shares. The AO's enquiries and the assessee's responses were reflected in the assessment order, indicating that the AO applied his mind to the issue.

4. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) Under Section 263:
The Tribunal noted that the powers under Section 263 can be exercised by the Commissioner only if the assessment order is both erroneous and prejudicial to the interest of the Revenue. The Tribunal emphasized that if the AO has taken one of the possible views after conducting proper enquiries, the Commissioner cannot invoke Section 263 merely because he has a different opinion. The Tribunal referred to several judicial decisions, including those of the Hon'ble High Courts and the Supreme Court, which support the view that the Commissioner cannot exercise revisional powers for directing a fuller enquiry if the AO has already conducted adequate enquiries.

5. Legal Standards for Invoking Section 263:
The Tribunal reiterated that for the Commissioner to invoke Section 263, there must be material evidence showing that the AO's order is erroneous and prejudicial to the Revenue. An order is considered erroneous if it deviates from the law or is based on incorrect assumptions of fact or law. The Tribunal cited various cases, including Malabar Industrial Co. Ltd. and Gabriel India Ltd., to illustrate that the Commissioner must provide a clear basis for considering an order erroneous and prejudicial to the Revenue. The Tribunal concluded that the PCIT wrongly assumed jurisdiction under Section 263, as the AO had conducted thorough enquiries and applied his mind during the assessment proceedings.

Conclusion:
The Tribunal set aside the order of the PCIT and restored the assessment order of the AO. The appeal of the assessee was allowed, emphasizing that the PCIT's order under Section 263 was not justified as the AO had conducted proper enquiries and the assessment order was not erroneous or prejudicial to the interest of the Revenue.

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