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TMI Blog2025 (1) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... 021 with respect to the issue of valuation of shares/charging of premium without appreciating that the assessment order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of the revenue and hence the order of revision is bad in law. 2. The learned PCIT failed to appreciate that the Assessing Officer has issued specific questions in the course of assessment proceedings in respect of valuation of shares/charging of premium during the course of assessment proceedings and the assessee had furnished all details pertaining to the issue of valuation of shares/charging of premium during the course of assessment proceedings and the learned Assessing Officer has accepted the valuation & allowed the same after making proper & specific enquiry with reference to Section 56(2)(viib) for valuation of shares. The assessment order was passed by the Assessing Officer after due application of mind and after making due investigation / enquiries, which fact is clearly borne from the assessment records and hence was not a case of lack of enquiry as envisaged in Explanation 2 to section 263 and hence the assessment order was neither erroneous nor prejudicial to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order for A.Y. 2017-18 on 22.12.2019 rejected the valuation report submitted by the merchant banker and adopted fair value of shares at face value of Rs. 10 per share thereby brought excess share premium to tax. It was observed by Ld. PCIT that, the fundamentals of the assessee were same for the year under consideration as well as assessment year 2017-18. The Ld.PCIT was thus of the opinion that a consistent approach should have been adopted by the Ld.AO for year under consideration and valuation report filed by the assessee should be rejected and excess share premium received by the assessee during the year under consideration should have been taxed u/s. 56 (2) (b) of the act. 2.3. Accordingly, notice u/s. 263 was issued on 01.03.2024. For the sake of convenience, the said notice is scanned and reproduced as under: "Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961-Assessment Year 2018-19. In this regard, a hearing in the matter is fixed on 08/03/2024 at 03:25 PM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Merchant Banker and adopted the fair value of shares at face value of the shares i.e. Rs. 10 per share and brought the excess share premium to tax. The A.O. analysed the annual accounts of the assessee company till 31/03/2019 and pointed out that the assessee company was making huge losses since the year of inception. Further, the A.O. compared the valuation report with the actual financials and concluded that the assessee's profits before tax and/or after tax as projected for the years had not been met even upto 31.03.2019, which clearly indicated that the inflated profits were adopted for computing the value of the share by mentioned following DCF method. Therefore, the A.Ο. mentioned in the order that the projections on which the premium was based had not only been proved wrong but very far from the actual position as was evident from the books of accounts of said years and did not support the actual financials of the assessee company. Based on the above grounds, the AO rejected the Valuation Report in made additions accordingly. AY 2017-18 and 5. Further, it is observed that the fundamentals of the company were not changed in AY 2018-19 as well and the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 on 07.06.2021 for the A.Y. 2016-17 is passed by the AO without making any proper and sufficient inquires or verification which should have been made and to make corresponding additions/disallowances after making such inquires which ought to have been made. The same is deemed to be erroneous in so far as it is prejudicial to the interest of Revenue. 9. In view of the aforesaid reasons, it is proposed to revise the assessment order u/s 143(3) r.w.s. 144B dt. 07.06.2021, under section 263 of the Income Tax Act, 1961, being erroneous in so far as it is prejudicial to the interest of revenue.. 10. You are hereby given an opportunity to represent your case as to why the proposed action u/s 263 be not pursued and necessary order be passed on the issues discussed above as well as other issues that may come to the notice of the undersigned during this proceeding. You or any duly authorized person can appear on the date and time mentioned in this Notice at Room No.612 Aayakar Bhavan, M. K. Road, Mumbai-400020 or you may file written submission which will be considered while passing the revision order. Failure to comply will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... navati Hospital for acquiring the Operation and Management Rights of Nanavati Hospital for a period of 29 years. The assessee Company has entered into the agreement with Dr. Balabhai Nanavati Hospital on 16.07.2014. Acquisition of Operations & Management Rights by the Company enhanced its value in terms of earning capacity and accordingly time to time the Company has obtained valuation of its shares done by category I Merchant Banker Spa Capital Advisors Limited. ii) During the year the assessee Company has issued and allotted 50,50,506 equity shares of Rs. 10/- each at a premium of Rs. 29.60/- per share. The Company has allotted shares to the holding company namely Radiant Life Care Private Limited (formerly known as Halcyon Finance and Capital Advisors Private Limited). iii) For AY 2018-19 Spa Capital Advisors Pvt. Ltd. has vide its valuation report dt. 11/10/2017 certified the fair market value of the shares of the Company as on that date at Rs. 39.58/- per equity share. The assessee has allotted shares at fair market value as certified by Spa Capital Advisors Ltd. vide their Valuation Report dt. 11/10/2017. 2. Perusal of the assessment records of previous assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpreted and misunderstood the valuation report as valuation clearly stated that valuation as per DCF method was calculated taking into account Audited Financial Statements of the assessee and consolidated financial projections of the assessee including of Dr. Balabhai Nanavati's figures as well up to March, 2030, hence while calculating fair market value the Merchant Banker has considered projected financials of the assessee including of Dr. Balabhai Nanavati's figures as well. However, the Ld. AO failed to appreciate the fact and made additions. The assessee is in appeal against the same. 3. Further, it is observed that the fundamentals of the company were not changed in AY 2018-19 as well and the assessee company is still making huge losses. Thus, the findings for AY 2017-18 still hold good for AY 2018-19 also. Consequently, consistent approach should have been adopted by the AO and AO should have rejected the valuation report and should have taxed the share premium of Rs. 29.60 per share received during the year under section 56(2)(viib). Omission in this regard has resulted in underassessment of income of Rs. 14,94,94,978/-. & 4. From perusal of the assessment re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here will be losses in operation. However as explained herein above the valuation report has been made after considering the consolidated financial projections which included Dr. Balabhai Nanavati's figures as well. Here we wish to mention the fact that even in the valuation report dated October 11, 2017 for initial 5 years the profit was negligible in which in the first three years the valuer took negative PBT(EOI) for the base for valuation. The assessee Company has issued shares on the fair market value of its share derived by the professional and method as prescribed under Rule 11UA of the Income Tax Rules, 1962. You will appreciate the fact that the assessee has provided all the necessary information to the Ld. AO during the assessment proceedings for A.Y 2018-19. The Ld.AO has specifically asked and verified the details shares issued including the premium and after verifying all the document including the valuation reports, the Ld. AO has passed the assessment order. It is pertinent to note that the Ld. AO at the time of assessment proceedings has asked for the assessment orders for the earlier years and was fully aware of the fact that in the earlier years there was addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of its share derived by the professional and method as prescribed under Rule 11UA(2)(b) of the Income Tax Rules, 1962 r.w.s. 56(2) (viib) of the Income Tax Act, 1961. In view of the facts mentioned above and the provisions of section 56(2)(viib), we hereby submit that the issue of shares by the assessee Company during the year at Rs. 39.58/- per share was at fair market value of its shares and the provisions of section 56(2)(viib) are not applicable to it." 6. Since the assessment order u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 on 07.06.2021 for the A.Y. 2016-17 is passed by the AO without making any proper and sufficient inquires or verification which should have been made and to make corresponding additions/disallowances after making such inquires which ought to have been made. The same is deemed to be erroneous in so far as it is prejudicial to the interest of Revenue. 7. In view of the aforesaid reasons, it is proposed to revise the assessment order u/s 143(3) r.w.s. 144B dt. 07.06.2021, under section 263 of the Income Tax Act, 1961, being erroneous in so far as it is prejudicial to the interest of revenue. Our submission During the course of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. 9. During the year under consideration ie. AY 2018-19, the financials of the company were not changed much from the previous AY 2017-18. Further, the assessee company issued and allotted 50,50,506 equity shares of Rs. 10 each at a premium of Rs. 29.60 per share. The financials of the company for the AY 2018-19 does not justify charging of shares at premium of Rs. 29.60 per share. The assessee company has shown Revenue from Operations at Rs. 82.209/- and Other Income of Rs. 81.11,792/- and has suffered huge losses in the year under consideration also. Therefore, it can be safely concluded that inflated profits have been adopted for computing the value of the share. Also, considering the facts of the case for AY 2017-18 (wherein the Assessing Officer analysed the financials of the assessee till 31.03.2019), the share premium of Rs 29.60 per share received during the year under consideration should have been taxed under section 56(2) (vib) of the Act which was not done by the Assessing Officer while completing the assessment proceedings. 10. The order under section 143(3) r.w.s 144B of the Act dated 25.9.2021 is erroneous in so far it is prejudicial to the interest of the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering the facts and submissions of the assessee, the order under section 143(3) r.w.s. 144B of the Act dated 07.06.2021 is set aside under section 263 of the Act and the Assessing Officer is directed to bring the share premium to taxation and make fresh assessment after giving sufficient opportunity to the assessee to furnish the details with respect to the issues involved and pass the order in accordance with law." Aggrieved by the order of Ld.PCIT, assessee is in appeal before this Tribunal. 3. The Ld.AR reiterated the submissions made before the Ld.PCIT during the review proceedings. In addition, he submitted that, the Ld.AO during the original assessment proceedings applied his mind to the valuation report filed for the year under consideration, and took into account losses incurred in the initial years of operation. He submitted that, there was variation in the cash flows for A.Y. 2017-18 an 2018-19 and the valuation was based on consolidated figures of profits and losses. Referring to various notices issued by Ld.AO u/s. 142(1) of the act and response filed by the assessee during the original assessment proceedings the Ld.AR submitted as under; A. "During the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Bombay High Court in case of CIT vs. Development Credit Bank Ltd reported in (2010) 323 ITR 206 3.2. The Ld.AR submitted that, to invoke revisionary proceedings u/s. 263 the twin condition vis; the assessment order should be erroneous in so far as prejudicaiton in interest of revenue must be satisfied. He submitted that, the following decision has upheld the view that where there are two views possible and the Ld.AO has adopted one of the possible view, the exercise of powers u/s. 263 cannot arise. 3.3. The Ld.AR further proposed that, merely because the Ld.AO did not make any mention of the issue in respect of which specific notices were issued to the assessee, and did not make any reference to the enquires contented, will not warrant exercise of jurisdiction u/s. 263 of the act. In support of this proposition he placed reliance on following: 1. Decisions of Hon'ble Supreme Court in case of Ld.PCIT vs. R K. Jain reported in (2024) 297 taxmann.com 369 2. Decision of Hon'ble Delhi High Court in case of Ld.PCIT vs. Trojan Pvt Ltd. reported in (2024) 297 taxmann.com 177. 3.4. The Ld.AR submitted that, revisionary proceedings cannot be sustained based on assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inward stamp of the office. He submitted that, those assessment years were prior to the faceless assessment period and assessee did not have any proof of the details having filed with the Ld.AO during assessment proceedings. He submitted that in the present year all replies to the specific query raised by Ld.AO was responded by way of e-filing, which is verifiable from the acknowledgement placed at page 251-252 of paper book. He submitted that from ITBA Portal, it is evident that all submissions were made by the assessee before the authorities below. He thus submitted that, the ratio laid down by the decision referred to hereinabove in assessee's own case is not applicable to the present facts of the case and the proceeding initiated by the Ld.PCIT u/s. 263 of the act, deserved to be quashed. 3.8. On the contrary, the Ld.DR submitted that, the Ld.AO merely issued notices calling for the details/ information regarding the share capital received against, which shares were issued by the assessee. He submitted that, no enquiry was conducted based on the submissions furnished by assessee during the scrutiny proceedings, Ld.DR placed reliance on Explanation 2 to section 263 of the act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o section 263 of the Act. We have perused the submissions advanced by both sides in light of records placed before us. 4. In the present facts of the case the power under section 263 has been exercised only on one ground which is elucidated in the notice dated 01.03.2024 issued to the assessee reproduced herein above. 4.1. The Ld. PCIT was of the opinion that due verification should have been carried out by the Ld.AO in respect of the inflated profits adopted by the merchant banker for computing the value of the shares under DCF method (Rule 11 UA), having regards to the fact that, the assessee incurred loss in the initial years of his operation. The Ld. PCIT was of the opinion that, the Ld.AO should have carried out necessary enquires/verification in respect of the projections on which the premium was based and whether it was far from the actual position as was evident from the books of accounts filed by the assessee in response to the notices issued during the assessment proceedings. 4.2. The Ld. PCIT was of the opinion that such necessary enquires/ verification was necessary more so when the financials of the company had not undergone much change. The Ld.DR placed reliance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.]" 4.6. The revisionary proceedings initiated in the present facts of the case is due to no enquiries or verification made by the Ld.AO even though there were sufficient materials available on the record during the assessment proceedings. Merely because assessee furnished all relevant information as called for, is not sufficient to hold that the view adopted by the Ld.AO is a plausible view after the insertions of Explanation 2 to section 263. In support we refer on the decision of the Hon'ble supreme court in cased of CIT vs. Amitabh Bacchan (supra). We therefore reject the arguments advanced by the Ld.AR on this aspect and the decisions relied on the preposition advanced are distinguishable. 4.7. The Ld. PCIT was satisfied that order passed by the Ld.AO was erroneous in so far as prejudicial to the interest of revenue more so when in the course of assessment proceedings though assessee filed all details as called for in respect of excess share premium, the Ld.AO summarily a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. It empowers the Commissioner to initiate suo moto proceedings, either in a case where the assessing officer takes a wrong decision without considering the materials available on record, or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. In order to ascertain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. 4.11.1. In the present facts, it is clear from the order sheet entry reproduced herein above that, the Ld.AO accepted assessee's valuation and the price determined by the assessee's merchant banker to be the market value of shares. The Commissioner in such circumstances is within his powers to regard such order as erroneous on the ground that, in the circumstances of the case, the Ld.AO should have made further inquiries before accepting the claim made by the assessee. The reason is obvious, unlike Civil Court which bases its decisions on the evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He must discharge both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on which the assessee determined the share value at premium. It was incumbent on him to verify by making necessary enquiries, more so when in the immediately preceeding assessment year in assessee's own case the valuation report by the merchant banker was rejected on similar facts. 4.14. In case of Malabar Industrial Co. Ltd.(supra) Hon'ble Supreme Court, we refer to following observation as under: "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall the orders passed without applying the principles of natural justice or without application of mind." 4.15. In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials on record, if an assessing officer makes addition to the income of an assessee, the same also would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of the revenue. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case. Accordingly based on the above discussions we hold that provision of section 263 has been rightly invoked in the present facts of the case and grounds- raised by the assessee stands dismissed. 5. However in the impugned order dated 27/03/24 passed u/s. 263 of the act it is noted that the Ld. PCIT directed to bring the share premium to taxation and to make fresh assessment after giving sufficient opportunity to the assessee to furnish the details with respect to the issue involved and passed the order in accordance with law. In our understanding, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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