2024 (1) TMI 313 - HC - Income Tax

Validity of the order passed u/s 148A (d) - information gathered during a survey conducted u/s 133A relied upon initiating proceedings against an assessee u/s 148 - petitioner-company issued shares on the basis of valuation made by the accountant and not by the merchant banker - HELD THAT - We found that the AO has not initiated the proceedings u/s 148 of the Act against the petitioner on the basis of information collected during survey u/s 133A conducted on 04.03.2020 but for the reason that the case of the petitioner is selected under the risk management strategy. Issue of shares on the basis of valuation made by the accountant and not by the merchant banker - We found that though in the Shares Subscription Agreement and the Share Holders Agreement executed on 22.02.2018, the valuation report of the CA valuing the shares as on 15.02.2018 had already been given but admittedly the shares had been issued by the petitioner prior and after 24.05.2018, whereas as per Section 56(2)(viib) of the Act and Rule 11UA of the IT Rules, after 24.05.2018, valuation of the shares is required to be determined by the merchant banker. We are of the opinion that with regard to the question of issuance of shares without valuation by the merchant banker is concerned, the question would be matter of enquiry by the assessing officer that whether the valuation made by the accountant before 24.05.2018 is sufficient as per the requirement of law or not. In exercise of jurisdiction under Article 226 of the Constitution of India, once this Court finds that the impugned order does not suffer from any procedural error and the same has been passed after giving an opportunity of hearing, it is advisable to restrain from interfering in the matter and left it open for the petitioner to raise all the grounds as raised in this petition to explain the transaction regarding issuance of shares in the assessment proceedings. Thus we are satisfied that prima facie material was available with the department to proceed against the petitioner.

Summary

Issues involved:
Challenge to validity of order dated 31.03.2023 under Section 148A(d) of the Income Tax Act, 1961 and notice dated 05.04.2023 issued by the Assessing Officer under Section 148 of the Act.

Judgment Details:

Issue 1: Jurisdiction of Proceedings
- The petitioner challenged the order passed under Section 148A(d) and the subsequent notice under Section 148, arguing that the proceedings were without jurisdiction as they were based on information from a survey conducted before 1st April, 2021, which is not permissible.
- The respondents contended that the case was selected under the Risk Management Strategy, not solely based on the survey information, as per Explanation-1(i) of Section 148.
- The court found that the proceedings were initiated based on the risk management strategy, not solely on the survey information, thus dismissing the challenge to jurisdiction.

Issue 2: Valuation of Shares
- The petitioner claimed that shares were issued based on a valuation by an accountant, not a merchant banker as required post-24.05.2018, under Section 56(2)(viib) and Rule 11UA of the IT Rules.
- The court noted that while the valuation report by the CA was done before and after 24.05.2018, the requirement for valuation by a merchant banker post-24.05.2018 was not met.
- The court suggested that the adequacy of the valuation by the accountant before 24.05.2018 should be examined by the assessing officer.
- The court advised the petitioner to address the share issuance in the assessment proceedings and refrained from interfering in the matter under Article 226 of the Constitution of India.

Conclusion:
- The court dismissed the writ petition as there was prima facie material available for the department to proceed against the petitioner. No procedural errors were found in the impugned order, and the petitioner was given the opportunity to raise all grounds during assessment proceedings.
- The stay petition was also dismissed, and no costs were awarded.