2022 (9) TMI 499 - AT - Income Tax

Revision u/s 263 - Doctrine of merger - As per CIT assessment order passed u/s. 143(3) r.w.s. 254 as erroneous and prejudicial to the interest of the Revenue - HELD THAT - Hon ble Bombay High Court in case of Ballarpur Industries Ltd. 2017 (8) TMI 530 - BOMBAY HIGH COURT and in case of Vedant Ltd. 2020 (12) TMI 89 - BOMBAY HIGH COURT held that when the assessment was completed without proper enquiry the Commissioner was competent to invoke the jurisdiction and direct fresh assessment under section 263 of the Act. Identical issue has also been decided in case of Shri Arbuda Mills Ltd. 1996 (1) TMI 11 - SUPREME COURT as discussed when Ld. PCIT exercises his power under section 263 of the Act in respect of claim relating to 3 items which was decided by the ITO in favour of the assessee and were not subject matter of the appeal by the assessee there is no question that order of ITO merged with that of Commissioner(Appeals) so as to exclude jurisdiction under section 263 because under the amended provisions contained under section 263 of the Act power of Commissioner under section 263 would extend and would be deemed to have been extended to three items because the same had not been considered and decided in appeal filed by the assessee. In the instant case also the issue flagged by Ld. CIT(A) as to not ascertaining and examining the correct book profit on transfer of 9033701 shares of Adani Enterprises at the rate of Rs.201 per share which comes to Rs.189.71 crore and not at the rate of Rs.864 per share which comes to Rs.780.51 crore, which the AO has accepted without ascertaining and examining the correct facts and without making necessary enquiries/verifications which made the assessment order erroneous so far as prejudicial to the interest of the Revenue, was never agitated or decided by CIT(A) or Tribunal in original assessment or assessment framed under section 143(3) read with section 254 of the Act. So in these circumstances the PCIT has the power under section 263 of the Act. So we are further of the view that in the case laws relied upon by the assessee referred are not applicable to the facts and circumstances of the case. When the issue flagged by Ld. PCIT has never been ascertained/examined to compute the correct book profit qua the transfer of these shares there is no question of merger of the order. Moreover, when the assessment order is apparently erroneous so far as prejudicial to the interest of the Revenue having been decided by the AO in favour of the assessee without ascertaining or examining the same order passed by Ld. PCIT does not call for any interference by the Tribunal. Consequently, appeal filed by the assessee is hereby dismissed.

Summary

Issues Involved:
1. Validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Correctness of the book profit computation under section 115JB of the Act.
3. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under section 263 in the context of the Tribunal's prior directions.

Detailed Analysis:

1. Validity of the order passed under section 263 of the Income Tax Act, 1961:
The appellant, M/s. MGN Agro Properties Pvt. Ltd., sought to set aside the impugned order dated 30.03.2021 passed by the PCIT, which invoked revisionary jurisdiction under section 263 of the Income Tax Act, 1961. The PCIT held that the assessment order passed under section 143(3) read with section 254 was erroneous and prejudicial to the interest of the Revenue. The PCIT noticed that the amalgamated companies held shares of M/s. Adani Enterprises Ltd. and the value per share for computing the capital gain as per books was required to be taken at Rs.210 per share instead of Rs.864 per share as adopted by the assessee. The PCIT concluded that the AO did not make necessary enquiries or verification, thus making the assessment order erroneous and prejudicial to the interest of the Revenue.

2. Correctness of the book profit computation under section 115JB of the Act:
The PCIT observed that the book profit on the transfer of shares was incorrectly computed by the assessee. The assessee had taken the value of shares at Rs.864 per share, whereas the correct value as per the scheme of amalgamation approved by the High Court should have been Rs.210 per share. This discrepancy resulted in an incorrect book profit computation. The PCIT directed the AO to recompute the book profit under section 115JB after making necessary enquiries and ascertaining the correct facts.

3. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under section 263 in the context of the Tribunal's prior directions:
The assessee argued that the assessment order passed under section 143(3) read with section 254 was pursuant to the Tribunal's directions and thus could not be revised under section 263. However, the Tribunal noted that the issue of the correct book profit computation on the transfer of shares was never examined by the AO in the original assessment or the assessment framed under section 143(3) read with section 254. The Tribunal held that the PCIT was justified in invoking section 263 as the AO had not made necessary enquiries or verification regarding the correct book profit, making the assessment order erroneous and prejudicial to the interest of the Revenue.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the order passed by the PCIT under section 263. The Tribunal concluded that the AO's failure to ascertain and examine the correct book profit on the transfer of shares made the assessment order erroneous and prejudicial to the interest of the Revenue. The PCIT was within its jurisdiction to direct the AO to pass a fresh assessment order after necessary enquiries and verification. The Tribunal emphasized that the issue flagged by the PCIT was never examined by the AO or CIT(A) in the original or subsequent assessments, thus validating the PCIT's invocation of section 263.