2022 (9) TMI 77 - AT - Income Tax

Revision u/s 263 by CIT - Whether order passed by the AO u/s 143(3) r.w.s. 153A should not be revised? - Determination of fair market value of shares - provisions of section 56(2)(vii)(c)(ii) applies and the difference amount of Rs.16/- per share which should have been assessed in the hands of the assessee, being the purchaser was not properly verified by the AO - HELD THAT - Since in the instant case the assessee has purchased shares @ Rs.36/- per share on the basis of the last audited balance sheet as on 31.3.2013 therefore, in our opinion, the order passed by the PCIT disputing the valuation of shares is totally contrary to the statutory provisions. In our opinion, merely because the director of the seller company had made a statement, the same cannot be basis for addition in the hands of the assessee unless the same is sustainable within the four corners of law. AO is expected to examine the applicable provisions during the assessment proceedings. However, when the provision itself cannot be invoked, since the Balance Sheet for the year ending on 31.03.2014 was adopted and approved on 22.09.2014 i.e. after the shares were purchased, therefore as per the provisions of the I.T.Act, 1961 and I.T.Rules 1962, the AO was not required to examine the applications of section 56(2)(vii)(c)(ii) as wrongly recorded by the PCIT. In view of the above discussion, we are of the considered opinion, that the PCIT was not justified in disputing the valuation of the shares. We accordingly set aside the order passed u/s. 263 and the grounds raised by the assessee challenging the validity of 263 proceedings are allowed. Since, the assessee succeeds on the issue of validity of 263 proceedings, the grounds challenging the validity of assessment proceedings u/s.153A in absence of any incriminating material becomes academic in nature and therefore are not being adjudicated.

Summary

Issues Involved:
1. Validity of invoking jurisdiction under Section 263 of the IT Act.
2. Applicability of Section 56(2)(vii)(c)(ii) for valuation of shares.
3. Validity of assessment proceedings under Section 153A in absence of incriminating material.

Issue-wise Detailed Analysis:

1. Validity of invoking jurisdiction under Section 263 of the IT Act:
The learned PCIT invoked jurisdiction under Section 263 of the IT Act, arguing that the assessment order was erroneous and prejudicial to the interest of the Revenue. The PCIT noted that the assessee purchased shares at Rs. 35 per share, whereas the fair market value (FMV) was Rs. 51 per share. The PCIT held that the difference of Rs. 16 per share should have been assessed under Section 56(2)(vii)(c)(ii). The assessee contended that the valuation was based on the last audited balance sheet as of 31.3.2013, in accordance with Rule 11UA of the IT Rules, since the balance sheet as of 31.3.2014 was not drawn up. The Tribunal found merit in the assessee's argument, stating that the shares were correctly valued as per the last audited balance sheet, and the PCIT's invocation of Section 263 was contrary to statutory provisions.

2. Applicability of Section 56(2)(vii)(c)(ii) for valuation of shares:
The PCIT argued that the shares should have been valued as per the balance sheet as of 31.3.2014, which was not audited at the time of transfer. The assessee adopted the value based on the audited balance sheet as of 31.3.2013. The Tribunal referred to Rule 11UA, which mandates valuation based on the last audited balance sheet if the balance sheet for the valuation date is not drawn up. The Tribunal concluded that the assessee's valuation was correct and in accordance with the law, and the PCIT's contention was invalid.

3. Validity of assessment proceedings under Section 153A in absence of incriminating material:
The assessee argued that no incriminating material was found during the search, and therefore, the PCIT could not have invoked Section 263. The Tribunal noted that the original assessment was completed without any additions, and the assessee disclosed the purchase of shares in the return of income. The Tribunal held that in the absence of incriminating material, the PCIT's invocation of Section 263 was not justified. The Tribunal also referred to various judicial precedents supporting the view that concluded assessments cannot be reopened under Section 153A without incriminating material.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, setting aside the order passed under Section 263 by the learned PCIT. The Tribunal held that the valuation of shares was correctly done as per Rule 11UA, and the PCIT's invocation of Section 263 was contrary to statutory provisions. The Tribunal also found that the assessment proceedings under Section 153A were valid in the absence of any incriminating material.