2023 (6) TMI 209 - AT - Income Tax

Revision u/s 263 - as per CIT large share premium received against allotment of shares have not been enquired into on the touchstone of Section 56(2)(viib) by AO - HELD THAT - The chargeability of deemed income arising from transactions between holding and subsidiary or vice versa militates against the solemn object of Section 56(2)(viib) - the extent of inquiry on the purported credibility of premium charged does not really matter as no prejudice can possibly result from the outcome of such inquiry. Thus, the condition for applicability of Section 263 for inquiry into the transactions between to interwoven holding and subsidiary company is of no consequence. We also affirmatively note the decision of SMC Bench in the case of KBC India Pvt. Ltd. .. 2022 (11) TMI 1362 - ITAT DELHI where it was observed that Section 56(2)(viib) could not be applied in the case of transaction between holding company and wholly owned subsidiary in the absence of any benefit occurring to any outsider. Preliminary enquiry, if undertaken, by Pr.CIT would have thus possibly changed the discourse in the present case. Inquiry on the parameters of Section 68 - On an enquiry from the Bench,counsel placed the assessment order passed by the AO in pursuance of the impugned revisional order and submitted that the additions has been carried out u/s 56(2)(viib) by re-determining the Fair Market Value. Assessee thus contends that the Assessing Officer was thus also satisfied with the parameters of Section 68 towards such nature and source of such credits in the post revisional proceedings. A revisional action of the Pr.CIT in the context of the facts of the case thus appears to be wholly unjustified and without meeting the jurisdictional requirement of Section 263 - We find wholesome merit in the plea of the assessee for cancellation of the revisional order and restoration of the order of the Assessing Officer. Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction assumed by the Pr.CIT under Section 263 of the Income Tax Act.
2. Examination of the genuineness of transactions, creditworthiness, and identity of persons from whom share premium was received.

Summary:

1. Jurisdiction Assumed by Pr.CIT:
The assessee challenged the jurisdiction assumed by the Pr.CIT under Section 263 of the Income Tax Act, which led to the impugned revisional order. The Pr.CIT issued a show cause notice alleging that the assessment order was erroneous and prejudicial to the interest of the Revenue due to the failure of the Assessing Officer (AO) to examine the genuineness of transactions, creditworthiness, and identity of persons from whom share premium was received. The Pr.CIT set aside the assessment order and directed the AO to conduct thorough inquiries.

2. Examination of Transactions and Creditworthiness:
The Pr.CIT observed that the assessee had issued 513978 shares at a premium of Rs. 1284.10 per share, receiving a total premium of Rs. 65.48 crore. The AO accepted the Fair Market Value (FMV) of shares submitted by the assessee without proper examination. The Pr.CIT found the AO's inquiries insufficient and deemed the assessment order erroneous and prejudicial to the Revenue's interest. The assessee contended that the share application money was received in the preceding financial year and was scrutinized during the assessment proceedings for both AY 2013-14 and AY 2014-15. The assessee argued that the shares were allotted to its 100% holding company, and the compliance with Section 56(2)(viib) was verified, making the Pr.CIT's concerns unfounded.

Tribunal's Findings:
The Tribunal noted that the shares were allotted to the assessee's 100% holding company, and the applicability of Section 56(2)(viib) was not warranted. The Tribunal referenced the case of DCIT vs. Ozone India Ltd., which analyzed the deeming provisions of Section 56(2)(viib) and concluded that transactions between holding and subsidiary companies do not attract the provisions of Section 56(2)(viib). The Tribunal found that the Pr.CIT's action was unjustified as the inquiries into the share premium were adequately addressed by the AO, and no prejudice resulted from the assessment order.

Conclusion:
The Tribunal allowed the appeal of the assessee, canceling the revisional order of the Pr.CIT and restoring the assessment order of the AO. The Tribunal emphasized that the revisional action was unjustified and did not meet the jurisdictional requirements of Section 263 of the Income Tax Act.