2021 (1) TMI 559 - AT - Income Tax

Revision u/s 263 - valuation of equity share - HELD THAT - PCIT has mentioned that though the issue of valuation of equity share had come up before Ld. A.O during the assessment proceedings but he need to examine the issue in detail. PCIT should have made an enquiry and examination of the facts which would have certainly landed up in computing the same fair market value of equity share as was adopted by Ld. A.O. Here we would also like to mention that the proceedings initiated u/s 263 of the Act may not always result into outcome of setting aside the assessment order or giving direction to examine certain issues. It is fairly possible that once the show cause notice u/s 263 is issued to which the detailed reply is filed by the assessee and after indepth examination and if necessary after conducting any investigation or for calling relevant information, if Ld.CIT/PCIT may end up the proceedings that find that A.O has rightly concluded the assessment proceedings which are neither erroneous nor prejudicial to the interest of revenue. In the instant case also the litigation before us may not have erupted if in the proceedings u/s 263 by Ld.. PCIT have mentioned that the audited financial statements are similar to the unaudited financial statement placed before Ld. A.O and the same has been examined by him and there is no change in valuation of the fair market value of the equity shares as per rule 11UA of I.T. Rules. Since proper enquiry was conducted by the Ld. A.O with regard to the issue mentioned in the impugned order u/s 263 of the Act in the case of assessee(s) M/s Dhirendra International Pvt. Ltd and M/s Charitra Gold Pvt. Ltd, the assessment order u/s 143(3) of the Act of the Ld. A.O are neither erroneous or prejudicial to the interest of revenue. Thus Ld. PCIT erred in assuming jurisdiction u/s 263 - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Principal Commissioner of Income Tax (PCIT) wrongly assumed jurisdiction under Section 263 of the Income Tax Act.
2. Whether the assessment orders were erroneous and prejudicial to the interest of the revenue due to insufficient examination of certain issues by the Assessing Officer (AO).

Issue-Wise Detailed Analysis:

1. Wrongful Assumption of Jurisdiction under Section 263:
The PCIT assumed jurisdiction under Section 263 of the Income Tax Act, claiming that the AO's orders were erroneous and prejudicial to the interest of the revenue. The assessee(s) argued that the AO had conducted a thorough examination of the facts and details before completing the assessments, and thus, the orders could not be considered erroneous or prejudicial. The Tribunal noted that for Section 263 to be invoked, both conditions—that the order must be erroneous and prejudicial to the interest of the revenue—must be satisfied. This principle was supported by various judicial precedents, including the Hon'ble Jurisdictional High Court of Madhya Pradesh and the Hon'ble Supreme Court in the cases of H.H. Maharaja Raja Power Dewas and Malabar Industrial Co. Ltd., respectively.

2. Erroneous and Prejudicial to the Interest of the Revenue:

a. Long Term Capital Gains from Sale of Shares (ITA Nos. 632, 634, 635, and 637/Ind/2019):
The PCIT challenged the AO's acceptance of Long Term Capital Gains (LTCG) on the sale of shares of Kappac Pharma Ltd., alleging that the transactions were fraudulent and the AO had not conducted sufficient verification. The Tribunal found that the AO had issued specific queries regarding the LTCG, and the assessee had provided detailed responses with supporting documents, including broker accounts and share certificates. The AO had examined these documents and accepted the assessee’s claim. The Tribunal held that the AO had conducted a detailed inquiry, and the PCIT's order was based on general information without specific findings against the assessee. Therefore, the Tribunal quashed the PCIT's orders under Section 263, restoring the original assessment orders.

b. Valuation of Equity Shares (ITA Nos. 750 and 517/Ind/2019):
The PCIT directed the AO to re-examine the valuation of equity shares allotted by the assessee companies, M/s Dhirendra International Pvt. Ltd and M/s Charitra Gold Pvt. Ltd, alleging that the valuation was not in accordance with Rule 11UA of the Income Tax Rules. The Tribunal found that the AO had raised specific queries about the valuation during the assessment proceedings, and the assessee had provided detailed calculations and unaudited balance sheets. The AO had examined these details and made necessary adjustments. The Tribunal noted that the audited balance sheets submitted during the Section 263 proceedings showed no variation from the unaudited ones. Thus, the AO’s original assessment was neither erroneous nor prejudicial to the revenue. The Tribunal quashed the PCIT's orders under Section 263 and restored the original assessment orders.

Conclusion:
The Tribunal concluded that the AO had conducted sufficient inquiries in all the cases, and the PCIT had not provided specific findings or conducted additional inquiries to justify the invocation of Section 263. Therefore, the Tribunal quashed the PCIT's orders and restored the original assessment orders, allowing the appeals of the assessee(s).