2023 (3) TMI 715 - AT - Income Tax

Revision u/s 263 by CIT - applicability of section 56(2)(viib) - share premium received - HELD THAT - In this case, PCIT simply noted that the assessment order passed by the AO is cryptic. PCIT ought to have been examined the entire record, particularly, notice issued under section 142(1), wherein, the AO has called for various details from the assessee and specifically, all the details were filed before the Assessing Officer. Thus, we are of the opinion that the order passed by the AO is not erroneous and therefore, revision order under section 263 of the Act is not warranted and accordingly, the order passed u/s 263 of the Act is liable to be quashed. Assessee company has determined the fair market value at ₹.33/- per share on the basis of Net Assets method which is in accordance with the second method i.e., as per Explanation (a)(ii) to section 56(2)(viib) of the Act. The said value is duly substantiated by the valuation certificate issued by the Chartered Accountant, which is already filed in the form of paper book. Valuation of a subsidiary company is also supported by the valuation certificate issued by a Chartered Accountant. Moreover, the ld. PCIT did not find fault with the fair market value of ₹.33 per share determined by the assessee company on the basis of second method. Therefore, shares were issued at a consideration of ₹.33/- per share which is in line with the fair market value of ₹.33/- per share determined as per Explanation (a0(ii) to section 56(2)(viib) of the Act. Hence, the assessee company has not received any consideration exceeding the fair market value of its shares. Thus, the question of making any addition under section 56(2)(viib) of the Act does not arise. The ld. PCIT arrived at a fair market value of ₹.15.14/- per share as per Rule 11UA which is as per Explanation (a)(i) and the same is irrelevant since the assessee company had opted for determination on the basis of Net Assets method. In view of the above, we are of the opinion that the order passed by the AO is neither erroneous nor prejudicial to the interest of Revenue. Thus, the revision order passed by the ld. PCIT under section 263 of the Act is quashed. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction and limitation of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961.
2. Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of the revenue.
3. Determination of Fair Market Value (FMV) of shares issued by the assessee company.
4. Applicability of section 56(2)(viib) of the Income Tax Act, 1961.

Summary:

1. Jurisdiction and Limitation of PCIT under Section 263:
The assessee argued that the revision order dated 31.03.2021 passed by the PCIT under section 263 was without jurisdiction, barred by limitation, and opposed to principles of law, equity, and natural justice. The Tribunal condoned the delay in filing the appeal due to the Covid-19 pandemic.

2. Erroneous and Prejudicial to Revenue:
The PCIT noted that the AO failed to verify the issue of share premium received during the assessment, making the assessment order erroneous and prejudicial to the revenue's interest. The PCIT issued a show-cause notice under section 263, stating that the AO did not discuss the applicability of section 56(2)(viib) despite it being a reason for limited scrutiny.

3. Determination of Fair Market Value (FMV):
The assessee issued shares at Rs. 33 per share, claiming it was below the FMV of Rs. 34.05 per share. The PCIT contended that the FMV was Rs. 15.14 per share as per Rule 11UA, making the excess premium taxable. The assessee used the net worth of its subsidiary for valuation, which the PCIT did not accept.

4. Applicability of Section 56(2)(viib):
The AO had examined the details and determined the FMV of Rs. 33 per share using the Net Assets method, which is in accordance with Explanation (a)(ii) to section 56(2)(viib). The Tribunal found that the AO made specific inquiries and took a conscious decision not to make any addition under section 56(2)(viib). The Tribunal held that the assessment order was not erroneous or prejudicial to the revenue's interest, quashing the revision order under section 263.

Conclusion:
The Tribunal concluded that the AO's assessment was thorough, and the PCIT's invocation of section 263 was not justified. The appeal filed by the assessee was allowed, and the revision order passed by the PCIT was quashed.