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2021 (10) TMI 1246 - AT - Income TaxRevision u/s 263 by CIT - Addition u/s 68 - amount received in a different Financial year - verification of loan transactions - HELD THAT - Assessee has vociferously pleaded before PCIT in the first instance that the so called list of shell co. by SEBI implicating lender (a privately held group co.), statement of some third party witness alleging such a privately managed company to be a shell company and all other material coming to the notice of deptt., which is basis for allegation of order being erroneous, must be confronted and made available to Assessee. Such material were admittedly never confronted to the assessee despite specific request. Pertinent here to observe that while it is fairly settled that substantive power enshrined in the Act cannot be ordinarily held hostage to procedural requirements, nonetheless, it bears to recall that procedure delineated in section 263 is a substantive provision and the provision explicitly requires the revisional authority to meet the mandate of principles of natural justice., an abiding characteristic of any administrative or quasi-judicial function in any case. The revisional order so passed, in the instant case, alleging existence of some adverse material without enabling the assessee to respond thereto and without giving any effective opportunity despite express demand is thus palpably fragile and requires to be treated as illegal. In the absence of adherence to salutary principles, the purported new material is rendered extraneous and hence required to be ignored as non est and consequently, the revisional action is required to be tested dohors such alleged material. The whole case of the PCIT built on such unintelligible and non-descript premise is thus a damp squib. On this score too, the revisional action fails. Looking from any angle, the directions towards verification of loan transactions are unsustainable in law and deserve to be quashed. The directions no. 1-4 are thus set aside. Applicability of Section 56(2)(viib) in respect of shares issued - We are unable to see any error in the action of the AO towards his endorsement on issue of shares at premium. The premium charged is demonstrated to be strictly as per the immediately last available audited and approved balance-sheet at the time of issue of shares. The action of the Assessee is thus on a sound basis. We find prima facie merit in the plea advanced for justification of the requirement of Section 56(2)(viib) of the Act. No abnormality is discernable in the admission of claim of the Assessee by the AO. On facts, the balance-sheet for the FY 2013-14 was stated to be signed on 29.08.2014, i.e. after the issue of shares on 30.07.2014 and, therefore, the stance of the assessee to adopt the figures as per last audited accounts of FY 2012-13 is plausible - AO has weighed these facts and has come to a reasonable conclusion. Valuation dynamics is contingent upon of plethora of factors such as market interest, feasibility, perception etc. and cannot be determined with a mathematical precision. It is often said that valuation is an art rather than a science. A meager difference in premium qua a book net-worth as per past balance-sheet would not, in our view, necessarily invite the deeming fiction in the larger context of its stated objects. Such course is certainly not decipherable under the shelter of revisional proceedings where the order has been passed in exercise of quasi judicial powers and carries legal effect. Such a tiny difference in valuation determined by a highly subjective exercise can not be said to be either erroneous or even prejudicial to the interest of revenue in it true purport. It is not permissible to PCIT to substitute a view taken by the AO which has a plausible basis. Applicability of Section 56(2)(viib) by the Revisional Commissioner is thus set aside. Applicability of Section 43CA in respect of sale deed executed below stamp duty value - A chart was placed before the PCIT also showing actual sale consideration and circled rate/stamp duty value - assessee thus contends that it was conclusively demonstrated before the PCIT that there exists no infringement of Section 43CA. The PCIT has not applied his mind to the demonstrable facts but has merely directed the assessee to re-verify the point in question. The action of PCIT does not appear tenable. The PCIT must have weighed the submissions of the assessee to remove any doubt entertained by him as per show cause. The points at the stage of show cause are ephemeral and rebuttable. The PCIT has not given any finding on the submissions made. No hesitation to set aside such action. Section 263 is not meant to conduct roving inquiry howsoever wide the amplitude of the powers may be. When a glaring and demonstrable fact has been placed before the PCIT to address his concern, the minimum that is expected of him is to look at the relevant facts. He cannot direct the Assessing Officer to make further inquiry/adequate inquiry without himself looking into the facts and carrying out some minimum inquiry to demonstrate the error. The mundane and perfunctory remittance of the issue to the file of the Assessing Officer cannot be approved. The action of PCIT is thus set aside and that of AO is restored. Applicability of Section 40A(3) in respect of payment for purchase of land - We straight away find substantial merit in the plea of the assessee that Section 40A(3) has no application in the facts of the case where the payment was made merely by way of advance and consequently not claimed as expenditure/deduction. The PCIT has not controverted the claim of the assessee that no expenditure has been claimed under the provisions of law towards advances made. Apparently, the provisions of Section 40A(3) does not apply to such transactions of mere advance without being claimed as expenditure. The genuineness of stamp-paper for execution of documents for advance payment is not relevant where no prejudice is caused to the revenue having regard to the fact that no expenditure has been claimed at all. The proposed directions are grossly opposed to the scheme of the revisionary powers. We thus see no merit, whatsoever, in this direction either. The whole set of directions given by the revisional order thus are thus marred in law and traveled beyond the mandate. - Decided in favour of assessee.
Issues Involved
1. Assumption of jurisdiction by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act. 2. Verification of transactions with M/s. Gangotri Tracon P. Ltd. (GTPL). 3. Applicability of Section 56(2)(viib) regarding the issuance of shares. 4. Applicability of Section 43CA concerning the sale deed executed below stamp duty value. 5. Applicability of Section 40A(3) in respect of payment for the purchase of land. Detailed Analysis 1. Assumption of Jurisdiction by the PCIT under Section 263: The assessee challenged the revisional action of the PCIT, arguing that the assessment order under revision was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal noted that the PCIT's directions were vague and lacked a legal basis. It was highlighted that Section 68 cannot be invoked for credits received in a different financial year. The Tribunal found that the PCIT's directions were based on unsubstantiated information and lacked proper confrontation with the assessee, thus failing to meet the principles of natural justice. 2. Verification of Transactions with GTPL: The PCIT alleged that the Assessing Officer (AO) failed to verify the nature and source of a ?16 crore loan from GTPL, repayment of loans, and interest payments. The Tribunal observed that the amount of ?16 crores was received in the previous assessment year and not in the year under consideration. The Tribunal noted that the AO had already examined the financial statements and other relevant documents during the original assessment proceedings. The Tribunal found the PCIT's directions to be without legal basis and set them aside. 3. Applicability of Section 56(2)(viib) Regarding Issuance of Shares: The PCIT directed the AO to verify the applicability of Section 56(2)(viib) concerning the issuance of shares at a premium. The assessee argued that the fair market value (FMV) of the shares was determined based on the last available audited balance sheet, which was in compliance with the law. The Tribunal found no error in the AO's action, noting that the balance sheet for the FY 2013-14 was signed after the issuance of shares. The Tribunal set aside the PCIT's directions, stating that the valuation dynamics are subjective and the AO's conclusion was reasonable. 4. Applicability of Section 43CA Concerning Sale Deed Executed Below Stamp Duty Value: The PCIT directed the AO to verify the applicability of Section 43CA. The assessee contended that there was no difference between the actual consideration and the stamp duty value. The Tribunal observed that the PCIT did not apply his mind to the demonstrable facts presented by the assessee and merely directed the AO to re-verify the point. The Tribunal set aside the PCIT's action, stating that Section 263 is not meant for conducting a roving inquiry and the PCIT should have considered the relevant facts before issuing directions. 5. Applicability of Section 40A(3) in Respect of Payment for Purchase of Land: The PCIT directed the AO to verify the applicability of Section 40A(3) regarding cash payments for the purchase of land. The assessee argued that Section 40A(3) does not apply to mere advances not claimed as expenditure. The Tribunal found substantial merit in the assessee's plea, noting that the PCIT did not controvert the claim that no expenditure was claimed. The Tribunal set aside the PCIT's directions, stating that they were grossly opposed to the scheme of revisionary powers. Conclusion: The Tribunal quashed and set aside the revisional order passed by the PCIT, finding it to be under a misconception of facts and law. The appeal of the assessee was allowed. The Tribunal emphasized the need for the PCIT to exercise due circumspection and restraint before attempting to dislodge an assessment order. Pronouncement: The judgment was pronounced on 22.10.2021.
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