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TMI Blog2016 (5) TMI 1015X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT can assume jurisdiction only when the AO assumed the law erroneously ie incorrect assumption of law. CIT has not made out any such erroneous assumption of law in this case either in matters of cost of acquisition or in matters of sale transactions. We also dismiss the CIT / CIT-DR‟s vehement argument that AO failed to apply his mind and AO failed to conduct meaningful inquiries into these aspects. There is an evidence for raising this issue in the regular assessment proceedings, there is a volume of letters between the AO and the assessee on this issue and the above extracts are heavily relied. Therefore, in our opinion, it is not a case of non-application of mind by the AO to the various aspects of this issue of loss of ₹ 20.23 Crs Premium of ₹ 715/- per share – If AO failed to make a any inquiry - Held that:- Issue of share premium was the subject matter of scrutiny by the AO in the regular assessment proceedings. AO is also aware of the undisputed fact of the assessee calculating premium at ₹ 715/- per share from SSL. It is not clear from the record what is the revenue loss on this issue from the CIT‟s point of view? If the premium is exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed u/s 263 of the Act. In this appeal, assessee raised the following grounds which read as under:- 1. On the facts and in the circumstances of the case and in law, the Hon‟ble CIT erred in invoking the provisions of section 263 of the Act in the appellant‟s case. The appellant prays that the order of the CIT under section 263 of the Act may kindly be quashed and the assessment order of the AO dated 19.3.2014 may be restored. 2. On the facts and in the circumstances of the case and in law, the Hon‟ble CIT erred in setting aside the appellant‟s case back to the Ld AO for making a fresh assessment by holding that the assessment order dated 19.3.2014 made by the AO is erroneous and prejudicial to the interest of the Revenue. Further, the AO erred in making various observations and giving various findings without any corroborative evidence and / or contrary to such evidence and / or without any basis is reaching the above conclusions. The appellant prays that the order of the CIT under section 263 of the Act may kindly be quashed and the assessment order of the AO dated 19.3.2014 may be restored. 2. Briefly stated relevant facts are that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the claim of amalgamation, as a part of the business reengineering. There are three such lots of shares involving three companies namely, CESC; SAREGAMA and PHILIPS CARBON BLACK LTD. These shares were subsequently sold to Ujala Agency P Ltd; Goodluck Dealcom Pvt Ltd and reported the LTCGs in some transactions and long term capital loss in others depending on the date of sale and the way assessee considered the value of the acquisition of the shares. Assessee invoked the provisions of section 49(1) of the Act that deals with cost of an asset in the hands of the original owner‟. The shares of CESC Ltd were sold on 17.8.2010. The cost of the shares, purchased from M/s. Summit Securities Ltd, were valued at the previous owner invoking the provisions of section 49(1)(iii)(e) read with section 47(iv) of the Act. Assessee noted the capital gains against the capital loss and the said loss was claimed for carry forwarding benefits. The long term capital loss reported in the return of income worked out to ₹ 20,27,13,990/-. The short term capital gains is ₹ 18,89,591/-. After examining the above facts, the Principal CIT came to the conclusion that the AO did not conduct w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h regard to the cost of acquisition, Ld Counsel for the assessee brought our attention to the written submissions and the evidences furnished along with the same. Bringing our attention to pages 68 to 76 of the said written submission, Ld Counsel for the assessee submitted that this aspect of cost of acquisition was deeply examined by the AO. To support the same, Ld Counsel for the assessee brought our attention to the assessee‟s letter dated 12.3.2014 (placed at page 68 of the PB), which is the subject matter before the DCIT-6(2), Mumbai for the AY 2011-2012 and demonstrated the fact of assessee acquiring of shares in the Scheme of Arrangement and also the details of holding period, applicability of the provisions of section 49(1)(iii)(e) read with section 47(iv) of the Act. There is a detailed discussion about the manner in which the assessee acquired the said shares and how the cost in the previous owner‟s hands needs to be considered in this regard. Documents placed at pages 52, 53, 57, 58 of the PB supports the above. Bringing our attention to pages 62, 63, 65 and 66 of the PB, Ld Counsel for the assessee demonstrated that the same relates to the invoices showing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the market rate of ₹ 128.96 Crs. In this regard, the argument of the Ld Counsel for the assessee is that Principal CIT and CIT-DR replace the full value of sale consideration with fair market value, which is not correct and sustainable. On this issue, Ld Counsel for the assessee submitted that this issue of sale consideration was subject matter of deep scrutiny before the AO. In this regard, bringing our attention to the above said letter dated 14.3.2014 (page 77 of the PB), Ld Counsel for the assessee submitted that assessee explained in writing how and why long term capital loss of ₹ 20.27 Crs on sale of the listed companies should not be disallowed. Assessing Officer is aware of the claim of the said loss of ₹ 20.27 Crs in connection with the sale of shares of listed companies ie CSES Ltd; SAREGAMA and PHILIPS CARBON BLACK LTD. Page 78 of the PB deals with the cost of the acquisition of the shares and page 79 of the PB deals with the sale price and the applicability of coordinate Bench decision in the case of Rupee Finance Management (P) Ltd vs. ACIT, Mumbai (120 ITD 539). The said decision of the ITAT is relevant for the proposition that the AO is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld Counsel for the assessee that in the light of the details already available to the Assessing Officer at the relevant point of time, CIT has no jurisdiction on the ground of non-application of mind by the AO‟. 9. Regarding the arguments relating to the firm v/s substance, in the context of deviation of RPG Group of companies between two brothers, Ld Counsel for the assessee submitted that the deviation of business empire between Shri Harsh Goenka and Shri Sanjeev Goenka was done with the knowledge of the Hon‟ble High Court as approved by the said High Court. In such case, the allegation against the AO on the ground of his failure to examine the substance is not sustainable. Principal CIT has not brought out any tax evasion in this case and further he has not brought out any revenue loss specifically. In such case, Principal CIT cannot assume jurisdiction u/s 263 of the Act. In this regard, Ld Counsel for the assessee mentioned that the way the Principal CIT touched the issues and concluded without quantifying the revenue loss amounts to hit and run‟ case. In this regard, Ld Counsel for the assessee submitted that the CIT is bound by law to quantify the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only issue, ie revenue loss quantified one, relates to the loss of ₹ 20.23 Crs independently to the purchase and sale of the shares. We shall take up this issue first. 14. Claim of long term capital loss of ₹ 20.23 Crs: The stand of the Ld Counsel for the assessee on this issue is that the AO called for various details, raised specific questions going into the details of cost of acquisition of shares, applicability of the provisions of sections 47, 49 and 56 of the Act and completed the regular assessment after examining the various aspect of this long term capital loss of ₹ 20.23 Crs. In this regard, Ld Counsel for the assessee brought our attention to pages 52, 53, 55, 57, 58, 62, 63, 65 and 66 etc. He also brought our attention to the written submission at pages 68-76 and 78 of the paper book. These pages deals with the evidence about the purchases, principle merger, shareholding patterns, copies of invoices showing evidence of purchase of shares etc. Written submission dated 12.3.2014 particularly dealt with the claim of loss reported on transfer of shares. Thus, Ld Counsel for the assessee‟s arguments revolve around the deep scrutiny of the AO on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. Para C‟ of page 79 is directly on the sale price qua the substituting the fair market value to the full value of the consideration. It is relevant to mention here the case of the CIT. The revision order deals with the documents relating to the requirement of considering the fair market value of the shares in place of full value of the consideration of the shares. Further, we have gone through the order of the Tribunal in case of Rupee Finance Management (P) Ltd (supra), which is relevant for the proposition that the fair market value of the asset cannot substitute with the full value of the consideration, the expression used in section 48 of the Act. It is the responsibility of the AO to bring on record any incriminating material to support the view that fair market value is the full value of the consideration of the transferred asset. In the case of bargain transactions and in the absence of any such material, the addition made by the AO by relying on the fair market value is unsustainable in law. Thus, in our view, the AO examined this issue of claim of loss of ₹ 20.23 Crs in the regular assessment proceedings made u/s 143(3) of the Act. Further, we have no co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by the AO dated 6.2.2014 and various written submissions cited above (supra) ie 19.2.2014; 14.3.2014; 12.3.2014 and brought our attention to the specific questions on the issue of reserve‟. Question nos. 9 and 10 are relevant in this regard. He brought our attention to Annexure-3 palced at page 33 of the PB and submitted that the assessee informed the AO about the fact of collecting of premium @ ₹ 715/- per share. The details given in table (9th column is relevant) given on the said page 33 of the PB. From column 10, the following was read out:- Receivable from instant on account of transfer of equity shares and beneficial interest in RIFL beneficial trust . 19. The said table at page 33 was given in the context of furnishing of increasing the share capital involving the assessee and the SSL. Further, the stand of the Ld Counsel for the assessee is that the said premium is to the benefit of the assessee and there is no loss of revenue to the assessee under consideration in respect of whom provisions of section 263 are invoked. Ld Counsel for the assessee also submitted that the share premium calculated by the assessee constitutes a capital receipt̶ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld AR mentioned the provisions of section 263 of the Act were amended by the Finance Act, 2015 w.e.f. 1.6.2015 whereby Explanation-2 to section 263(1) was inserted. The Principal CIT can validly assume jurisdiction under this section if AO pass an order either without making inquiries or verification which should have been done or allowing any relief without inquire into the claim or not in accordance with any order / direction / instruction issued u/s 119 etc. The case of the Ld DR before us is that the said amendment is clarificatory in nature and should be applied to the orders revised u/s 263 of the Act. In support, ld DR relied on the reference made in the decisions of the Tribunal in the case of Crompton Greaves Ltd (supra). Per contra, Ld Counsel for the assessee‟s argument is that the said amendment is prospective in nature and it should be applied to the orders revised prior to the amendment. Regarding the decision of the Tribunal in the case of Crompton Greaves Ltd (supra), Ld Counsel for the assessee submitted that the said decision was passed without considering the order of the Tribunal in the case of M/s. A.V. Industries vs. ACIT in ITA No. 3469/M/2010 (AY 2005- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by them while commenting on the AO‟s failure to carryout inquiries. Thus, it is the case of AO conducting the inquiries during the regular assessment proceedings, forming an opinion in the matter with due application of his mind and not making any addition after due inquiries. With so much of evidence on records in support of the above, we cannot hold AO failed to make meaningful inquiries‟. Thus, we dismiss the arguments of Ld DR and allow the views of the Ld Counsel for the assessee. Accordingly, we hold, Principal CIT erroneously assumed jurisdiction on this issue too. 29. Before parting on the issue of application of mind‟, we would like to mention that that, while describing the order of the AO in matters of jurisdiction of CIT u/s 263, the Department used the following expressions. They are; (i) Lack of inquiry; (ii) Inadequate inquiry; (iii) Improper inquiry and (iv) Perfunctory inquiry 35. Regarding lack of inquiry‟, we are of the opinion that the same is relevant to case of no inquiry at all‟ by AO in the regular assessment. No questions raised on the matter discussed by the CIT in revision proceedings. The same should ..... X X X X Extracts X X X X X X X X Extracts X X X X
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