INDOSPACE PARK CHAKAN 1 PHASE 2A PRIVATE LIMITED,PUNE vs. PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), PUNE, PUNE

आदेश / ORDER

PER R.S. SYAL, VP : This appeal by the assessee is directed against the order

dated 03-01-2023 passed by the Pr.CIT under section 263 of the

Income-tax Act, 1961 (hereinafter called `the Act’) in relation to

the assessment year 2018-19.

is engaged in the business of developing and operating industrial

and logistics park. The case of the assessee was selected for

limited scrutiny on the ground of “Large share premium received

2 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

during the year”. During the course of assessment proceedings,

the Assessing Officer (AO) required the assessee to furnish

necessary details through ITBA portal in respect of share

premium received. In response, the assessee furnished its reply

along with the details electronically stating that during the year

under consideration, it issued 1554 Equity shares of face value of

Rs.10/- to Rohan Builders and Developers Pvt. Ltd. at

Rs.6,526.96 per share. In addition, 8406 Equity shares of face

value of Rs.10/- were issued to Indospace Ventures II, a company

incorporated in Mauritius, also at Rs.6,526.96 per share. All the

necessary details in respect of the share transactions, namely,

Income-tax returns, Bank statements, Share Valuation

Certificates, Share Certificates and justification for the quantum

of share premium were furnished before the AO. It was also

submitted that the assessee had suo motu offered to tax a sum of

Rs.1,84,305/- u/s.56(2)(viib) of the Act, being, excess amount

received on allotment of shares vis-à-vis the fair market value in

the case of shares allotted to Rohan Builders and Developers Pvt.

Ltd. As regards the allotment of share to Indospace Ventures II,

the assessee submitted that this company was a non-resident and

hence, the provisions of section 56(2)(viib) of the Act were not

3 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

applicable. After examination of all the details/documents and

verification of the facts, the AO got satisfied and completed the

assessment u/s.143(3) of the Act on 17-02-2021 determining total

income at Rs.11,99,000/-, being, the same amount as was offered

for taxation. The ld. PCIT, on perusal of the record, observed that

the AO merely accepted the assessee’s contention by reproducing

the same in the assessment order. In his opinion, no analysis

whatsoever was done on the submissions made by the assessee.

He further observed that the valuation report of KCPL and

Associates LLP contained value at Rs.1,591.94 per share under

the Net Asset Value – Book value method and at Rs.6,408.36

under the Discounted Free Cash Flow (DFCF) method. Such

latter value was determined on the basis of projected cash flow for

the period 01-10-2016 to 30-06-2018. He observed that the cash

flow statement was based on the estimates provided by the

assessee company. In his opinion, the AO did not verify the

justification for excess share premium and there were no follow

up queries. He, therefore, held the assessment order to be

erroneous and prejudicial to the interest of the Revenue.

Consequently, he set-aside the assessment order and directed the

AO to frame the assessment afresh after applying his mind.

4 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

Aggrieved thereby, the assessee has come up in appeal before the

Tribunal.

relevant material on record. The assessee issued right shares to its

two existing shareholders, namely, Rohan Builders and

Developers Pvt. Ltd. and Indospace Ventures II, Mauritius. The

shares with face value of Rs.10/- each were issued at Rs.6,526.96

per share. Such amount was worked out on the basis of the

valuation report, determining the value of each share at

Rs.6,408.36. The difference between the value determined in the

valuation report at Rs.6,408.36 per share and the issue price of

Rs.6,526.96 per share, to the extent of shares issued to the

resident shareholder, was suo motu offered for taxation u/s

56(2)(viib). Since the case was selected under limited scrutiny for

verifying the higher amount of share premium, the AO raised

queries in this regard, which were properly answered by the

assessee. A copy of the AO’s notice dated 23-09-2019 issued u/s

143(2) of the Act is available at page 1 of the paper book, through

which the necessary details in respect of share premium were

called for. The assessee furnished relevant details, firstly, on

03-10-2019 and then, on 10-01-2020. Copy of replies have been

5 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

placed at pages 5 and 6 onwards of the paper book. Notice u/s

142(1) was issued by National e-Assessment Centre on

09-11-2020 seeking details of share premium, such as, Name and

address of the shareholders; PAN of the shareholders; Face Value

and Premium on each share; Number of shares allotted to each

shareholder; Total value of the shares allotted to each shareholder;

and Payment received from each shareholder during the financial

year. The assessee was further required to furnish documentary

evidence to substantiate the Identity and Income-tax returns of the

shareholders along with the valuation report. The assessee replied

on 24-11-2020, whose copy is available at page 10 onwards of the

paper book, submitting details with respect to fresh issue of

Equity shares during the year. The details included Name and

Address of the shareholders; PAN Numbers; Face Value;

Premium on each share; No. of shares allotted; Total value of

shares allotted; and Premium received from each shareholder.

The assessee also furnished documentary evidence, such as,

Income-tax returns, Audit report of the parties, Bank statements

etc. to substantiate the Identity and Creditworthiness of the share-

applicants as well as proof of genuineness of the transactions.

The assessee also supplied a copy of valuation report to the AO

6 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

and justification for quantum of share premium on issue of equity

shares. Thereafter, the assessee also discussed applicability of

section 56(2)(viib) on the issue of shares by the company by

stating that this section applied only to the residents and not to the

non-residents. In that view of the matter, the transaction with

Indospace Ventures II, Mauritius was claimed to be outside the

purview of section 56(2)(viib) of the Act. The assessee also

placed on record computation of working of earning per share and

share premium. All the necessary documents and evidence in this

regard were enclosed with such letter. The assessee also

submitted before the AO the valuation report submitted by KCPL

and Associates LLP, whose copy is available at page 19 onwards

of the paper book, computing the value of Equity shares of the

company under NAV - Book Value method at Rs.1,591.94 per

share and under the DCFC method at Rs.6,408.36 on the basis of

projected cash flow statements for the period 01-01-2016 to 30-

06-2018. It is on the basis of such detailed submissions made

before the AO that the Officer got convinced. After discussing the

relevant issue in the assessment order, the AO did not choose to

make any addition on this count. The ld. PCIT made out a case

for revision on the ground that the AO failed to conduct enquiries,

7 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

examine and verify the reasonableness of the share premium. That

is how, he held the assessment order to be erroneous and

prejudicial to the interest of the revenue. In oppugnation, it is

evident from the assessment order passed u/s.143(3) of the Act

that the AO did call for all the necessary details, which were duly

submitted by the assessee. The AO got satisfied with such a

detailed information submitted by the assessee and recorded:

“After examination of details/documents and verification of the

facts, vis-à-vis reason for scrutiny, returned income is accepted”.

It is palpable that there is an apparent contradiction between the

view point of the ld. PCIT about the AO not conducting any

enquiry to examine and verify the reasonableness of share

premium and the point of view of the AO getting satisfied about

the amount of share premium after examination of

details/documents. However, such contradiction does not require

any specific resolution as the key to the contradiction is evident

from the above discussion about the AO conducting thorough

enquiry, seeking necessary details, getting the information and

then getting satisfied about the appropriateness of the amount of

share premium.

8 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

order is erroneous and prejudicial to the interest of the Revenue.

In the present context, there can be two broad situations, viz., one,

where the AO does not initiate the taking up of an issue which

apparently requires consideration at his end during the course of

the assessment proceedings or where he initiates and seeks

information but the assessee fails to supply the same and still the

claim of the assessee gets accepted; and two, where the AO

initiates the taking up of the issue which requires consideration at

his end by calling for necessary details from the assessee and such

details are also filed by the assessee. The second situation can

have further two sub-situations, viz., one, where the assessee files

reply and the AO allows the claim silently without considering

the necessary material filed by the assessee or without making

any discussion in the assessment order and two, where the

assessee files reply and the AO decides the issue expressly after

properly considering the merits by dealing with the issue in the

assessment order. There is no bar on revising an assessment order

at the threshold on the ground that the AO did not make proper

verification in the first broad situation. However, in the second

sub-situation of the second situation, where the assessee justifies

9 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

his claim by filing necessary evidence and the AO, on

examination of such evidence, gets satisfied and allows the claim

after discussing the issue in the assessment order, the revision can

be validly done only by pointing out distinctively where the AO

went wrong in allowing the claim and how the action of the AO

was erroneous and prejudicial to the interest of the Revenue.

Revision in such circumstances cannot be ordered simply by

saying that the AO failed to make proper enquiry and thereafter

directing the AO to make necessary verification. Unlike the first

situation, the Pr. CIT needs to expressly set up a case that the

view taken by the AO was erroneous, which caused prejudice to

the revenue. Simply saying that the AO did not apply his mind to

the issue, without elaborating the flaws in the approach of the AO,

does not clothe the Pr. CIT to revise the assessment order.

Service Pvt. Ltd. (2022) 449 ITR 407 (Cal) to justify the

revisionary order. In our opinion, this judgment does not advance

the case of the Revenue. It was a case in which the revisionary

order was upheld when the relevant information was not filed by

the assessee before the AO. This transpires from para 3 of the

judgment, recording that: `the assessing officer has not verified

10 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

the computation of fair market value of the shares since relevant

and tangible material was not placed before the assessing officer

by the assessee during the course of assessment proceedings

under section 143(3) of the Act.’ This deciphers that the case of

Trimex (supra) falls within the first situation discussed above of

the AO having not made any enquiry on the relevant issue or the

assessee not supplying the relevant information and still the claim

getting accepted. In such a situation, there can be no fetters on

the Pr. CIT to revise the assessment order by holding the AO

failed to make proper verification. However, the extant case falls

in the second sub-situation of the second situation discussed

supra, where the AO did initiate the taking up of the issue of

share premium, which was properly replied by the assessee

furnishing all the necessary details including the particulars of the

shareholders and valuation report etc. and the AO accepting the

claim by expressly getting satisfied with a specific mention of the

same in the assessment order. At this juncture, it is pertinent to

mention that the share premium was realized by the assessee from

the existing shareholders on right issue of shares. Further, it is

nobody’s case that either the assessee or the shareholders are

penny stock companies. The AO having received and considered

11 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

the relevant details and passed a speaking order, could have been

subjected to revision only on specifically pointing out the mistake

in the assessment order. Au contraire, the ld. PCIT proceeded on

incorrect assumption of fact that: `the AO, while framing

assessment failed to conduct enquiries to examine and verify the

reasonableness and genuineness of share premium receipt of

Rs.1,01,27,356/- from M/s Rohan Builders …as the claim of

share premium receipt of Rs.1,01,27,356/- has been allowed

without verification & examination’. This assertion is contrary to

the record inasmuch as the AO did conduct enquiries and the

necessary details/evidence were also filed by the assessee, whose

copies have been placed on record. Then, at the end of the

revisionary order, the ld. PCIT has reiterated the above incorrect

assumption of fact: `The AO, while framing assessment, has

failed to conduct enquiries to examine and verify the issues

involved and the AO has failed to apply his mind and verify the

issues involved’. It is explicitly manifest that the ld. PCIT, except

for harping on the fact that the AO did not make proper enquiry,

which is factually incorrect, failed to specifically point out where

the AO went awry, thereby failing the first jurisdictional

condition of showing the assessment order to be erroneous. On

12 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

the contrary, we are confronted with a situation in which the AO

did make enquiry and the assessee also furnished replies along

with the necessary evidence, which were duly examined by the

AO before accepting the genuineness of the transaction. In such

circumstances, it was incumbent upon the ld. PCIT to specifically

point out where the AO went wrong in accepting the assessee’s

explanation. His action in generalizing the issue to the effect that

the AO failed to make enquiry to examine and verify the

reasonableness and genuineness of share premium, cannot be

accorded our imprimatur when all such details were already on

record and examined by the AO. If the view point of the ld. PCIT

is approved, it would give a licence to Pr. CITs to revise any

assessment order in the second situation category cases without

first satisfying the jurisdictional condition of showing the defect

in the approach of the AO in accepting the assessee’s claim.

value of Rs.10/- at a price of Rs. 6,526.96 per share. The shares

were right issued to the existing shareholders. The assessee

justified the receipt of share premium at this level with the help of

report of a valuer. Such report was drawn on 05-12-2016, when

the assessee issued shares at the same amount of premium in the

13 ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

immediately preceding assessment year 2017-18 to Indospace

Ventures II, Mauritius. Assessment for the A.Y. 2017-18 was

completed u/s.143(3) without casting any doubt or aspersion over

the reasonableness of the amount of premium charged on the

shares. It is the same amount of premium which has been charged

by the assessee during the year under consideration on fresh issue

of shares within a gap of six months from the last issue of shares,

that has been doubted by the ld. PCIT in the present case.

ld. PCIT was not justified in revising the assessment order passed

u/s 143(3) of the Act. The revisionary order is hereby set aside

and quashed.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 21st June, 2023 सतीश

ITA No.249/PUN/2023 Indospace Park Chakan 1 Phase 2A Pvt. Ltd.

आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The Respondent 2. 3. The Pr. CIT concerned 4. DR, ITAT, ‘A’ Bench, Pune गाड� फाईल / Guard file. 5.

आदेशानुसार/ BY ORDER,

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 20-06-2023 Sr.PS 2. Draft placed before author 21-06-2023 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. **