2022 (7) TMI 991 - AT - Income Tax

Revision u/s 263 - Addition u/s 56(2)(viib) for the excess share issue price received by the assessee and assessed the loss - as per CIT- A AO has not carried out the detailed investigation/verification /independent inquiry regarding identity, creditworthiness of the shareholders and the genuineness of the transactions of receiving share capital - HELD THAT - In the light of the provisions of section 263 and a settled position of law, powers u/s 263 can be exercised by the Pr. Commissioner/Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and also prejudicial to the interest of the Revenue. By 'erroneous' 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 Assessing Officer 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. In the present case Assessing Officer observed that the fair market value determined by the Chartered Accountant is Rs.90.34 whereas the assessee issued for a price of Rs.91/- each. The excess amount charged by the assessee-company was added by the Assessing Officer by invoking the provisions of section 56(2)(viib). We come to the conclusion that the transaction of issuing 76923 equity shares at Rs.91/- per share (face value of Rs.10/- and share premium of Rs.81/-) issued by the assesseecompany to the two shareholder companies namely Zigzag Vanijya Private Limited (43,956 equity shares) and Ganadipati Estate Private Limited (32,967 equity shares) has been examined in detail by the Assessing Officer and an addition was made on this issue. It is neither a case of no enquiry or lack of enquiry . In our considered view, the Assessing Officer has conducted sufficient inquiry by calling all necessary details and information and accepted the genuineness of the said transactions after being satisfied with the identity, creditworthiness and genuineness of the shareholders and examining fair market value of the equity shares issued. Under these given facts and circumstances wherein neither the order of the Assessing Officer is erroneous nor it is prejudicial to the interest of the revenue, there remains no scope for ld. PCIT to invoke the provision of section 263 of the Act. - Appeal of assessee allowed.

Summary

Issues Involved:
1. Jurisdiction and validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Fulfillment of conditions for invoking section 263.
3. Examination and verification by the Assessing Officer (AO) during the original assessment.
4. Alleged lack of independent and adequate inquiry by the AO.
5. Direction for de novo assessment by the Principal Commissioner of Income Tax (PCIT).

Detailed Analysis:

1. Jurisdiction and Validity of the Order Passed Under Section 263:
The assessee challenged the jurisdiction and validity of the order passed by the PCIT under section 263, arguing that the order was without jurisdiction, bad in law, and void ab initio. The Tribunal considered the legal framework of section 263, emphasizing that the PCIT must demonstrate that the AO's order was both erroneous and prejudicial to the interest of the revenue. It was noted that the AO had conducted a detailed inquiry during the original assessment, and thus, the PCIT's invocation of section 263 was unjustified.

2. Fulfillment of Conditions for Invoking Section 263:
The PCIT must satisfy two conditions to invoke section 263: the order must be erroneous, and the error must be prejudicial to the revenue's interest. The Tribunal referenced the Supreme Court's ruling in Malabar Industrial Co. Ltd. vs. CIT, which clarified that an incorrect assumption of facts or incorrect application of law would render an order erroneous. However, if the AO adopted one of the permissible views in law, it cannot be deemed erroneous. The Tribunal found that the AO had taken a permissible view after conducting an adequate inquiry, thus not fulfilling the conditions for invoking section 263.

3. Examination and Verification by the AO During the Original Assessment:
The AO had issued notices under sections 142(1) and 133(6) of the Act, requesting detailed information from the assessee regarding the issuance of equity shares and share premium. The AO examined the documents, including the Chartered Accountant's certificate, and made an addition under section 56(2)(viib) for the excess share issue price. The Tribunal noted that the AO had conducted a thorough examination and verification of the transactions, thereby fulfilling his duties.

4. Alleged Lack of Independent and Adequate Inquiry by the AO:
The PCIT argued that the AO failed to conduct an independent and adequate inquiry into the identity, creditworthiness of the shareholders, and the genuineness of the transactions. The Tribunal, however, found that the AO had issued specific notices, received replies, and examined the relevant documents. The Tribunal concluded that the AO had conducted sufficient inquiry and that the PCIT's claim of lack of inquiry was factually incorrect.

5. Direction for De Novo Assessment by the PCIT:
The PCIT directed the AO to conduct a de novo assessment, claiming that the original assessment was based on an incorrect assumption of facts and law. The Tribunal held that the AO had already conducted a detailed inquiry and made an addition based on the fair market value of the shares. The Tribunal emphasized that the PCIT cannot invoke section 263 merely because he disagrees with the AO's view if the AO's view is one of the possible views in law. The Tribunal quashed the PCIT's order and restored the original assessment order.

Conclusion:
The Tribunal concluded that the AO had conducted a sufficient inquiry and that the original assessment order was neither erroneous nor prejudicial to the revenue's interest. Therefore, the invocation of section 263 by the PCIT was unjustified. The Tribunal quashed the PCIT's order and restored the original assessment order, allowing the assessee's appeal.