SAPPHIRE FOODS INDIA LIMITED,MUMBAI vs. DCIT, CIRCLE 3(3)(1), MUMBAI, MUMBAI
IN THE INCOME-TAX APPELLATE TRIBUNAL “F” BENCH,
MUMBAI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER
&
SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER
ITA 5399/MUM/2024
(A.Y. 2016-17)
Sapphire
Foods
India
Limited,
7th
Floor,
A Wing, Prism Tower, Link
Road,
Mindspace,
Goregaon
West,
Mumbai
400 062, Maharashtra v/s.
बनाम
Deputy
Commissioner of Income Tax, Circle – 3(3)(1),
Income Tax Department, Room
No. 609, 6th Floor, Aaykar
Bhavan,
Maharishi
Road,
Mumbai 400 020, Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AANCS5595A
Appellant/अपीलार्थी
..
Respondent/प्रतिवादी
Appellant by :
Ms. Aarti Sathe / Asavari Kadam, AR
Respondent by :
Shri Vivek Perampurna (CIT DR)
Date of Hearing
07.05.2025
Date of Pronouncement
23.05.2025
आदेश / O R D E R
PER PRABHASH SHANKAR [A.M.] :-
The present appeal arising from the appellate order dated
28.08.2024 is filed by the assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless
Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 147 r.w.s 144B of the Income-tax Act, 1961
[hereinafter referred to as “Act”] dated 30.03.2022 for the Assessment
Year [A.Y.] 2016-17. P a g e | 2
A.Y. 2016-17
Sapphire Foods India Limited, Mumbai
The grounds of appeal are as under: 1. On the facts and circumstances of the case and in law: A. ON JURI ICTION 1. On the facts and circumstances of the case and in law, the Appellant submits that the addition of Rs. 30,30,25,394/- to their total income by way of reopening the assessment is bad in law inasmuch as the juri ictional conditions as laid down under the Act before initiating the reassessment proceedings have not been fulfilled and therefore the entire reassessment proceedings for the present Assessment Year (“AY”) 2016-17 are invalid and must be set aside. 2. On the facts and circumstances of the case and in law, the Appellant submits that the entire reopening has been based on a change of opinion inasmuch as the transaction of investment in the shares of Sapphire Hospitality and Recreation Private Limited (“SHRPL”) a specific query was raised vide notice dated 11th August 2018/ 3rd October, 2018 during the course of the original assessment proceedings which was duly replied to by the Appellant vide letter dated 13th November, 2018 and thereafter the scrutiny assessment order under section 143(3) was passed. Thus, an assessment cannot be reopened to verify the same details and facts as produced, discussed and decided upon at the time of the original assessment unless there is new information or material which suggest that there is escapement of income, which is not the case, and therefore, the entire reassessment proceedings are void, illegal and ought to be set aside. 3. On the facts and circumstances of the case, the Appellant submits that it is settled law that even if the original assessment order is silent in respect of certain transactions on which a query was raised during the course of original assessment, yet reopening the assessment on the same issue i.e. investment in shares of SHRPL, would amount to a change of opinion in as much as there has been an application of mind by the Ld. AO at the time of passing the original assessment order under section 143(3). The reopening proceedings are therefore initiated on a complete non-application of mind and hence, they are liable to be quashed and set aside. 4. On the facts and circumstances of the case and in law, though the Appellant did not challenge the reopening of assessment before the CIT(A), the same goes to the very root of the matter therefore, even if it is not raised at the first instance before the assessing authority, it could be raised before the appellate authority at a later stage. Therefore, the ground challenging the validity of the assessment
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Sapphire Foods India Limited, Mumbai order on the basis of illegal initiation of the proceedings under section 148 can be raised for the first time before this Hon'ble Tribunal.
5. On the facts and circumstances of the case and in law, though the assessment has been reopened within 4 years from the end of the present AY 2016-17, yet there has been a ‘reason to believe’ that income chargeable to tax has escaped assessment which has not happened in the facts of the present case and hence the reopening is bad in law.
B. On Merits
I] Wrong section quoted in the reassessment order:
6. The Ld. CIT(A) erred in holding that the mistake on the part of the Ld. AO in quoting section 56(2)(viib) instead of 56(2)(viia) of the Act is a curable defect under section 292B of the Act inasmuch as the Appellant by way of letter dated 28th July, 2021 and the letter dated 28th March, 2022 filed in response to the Show Cause Notice
(“SCN”) dated 16th March, 2022 proposing variations, as per the draft assessment order, to the total income of the Appellant had submitted that provisions of section 56(2)(viib) are not applicable and provisions of section 56(2)(viia) are also not applicable to their case. Hence the addition of Rs. 30,30,25,394/- is erroneously upheld by the CIT(A) on a misappreciation of facts and law.
7. The Ld. CIT(A) erred in upholding the mistake made by the Ld. AO in quoting the incorrect section inasmuch as section 56(2)(viib) applies in case of issue of shares by a company, not being a company in which the public are substantially interested. However, in the present case, the Appellant was only an investor in the shares of SHRPL and not the issuer of shares, therefore, the impugned order has to be set aside as the same is passed in misappreciation of facts and legal provisions.
II] Without prejudice to the above grounds, no addition can be made even under section 56(2)(viia) on investment in the shares of SHRPL:
8. The ld. CIT(A) erred both in facts and in law in upholding the addition made by the Ld. AO of Rs. 30,30,25,394/- by taxing the differential amount i.e. 3,03,63,266 shares @ Rs. 9.98 per share which was the difference between issue price of Rs. 26.27 (i.e. issue price for investment of 2,89,29,198 shares) and Rs. 16.29 (i.e. issue price for 3,03,63,266 shares received against conversion of loan) on an incorrect interpretation of the facts and legal provisions. It is P a g e | 4
A.Y. 2016-17
Sapphire Foods India Limited, Mumbai submitted that under section 56(2)(viia) what can be brought to tax is the difference between the aggregate FMV of the shares and the consideration by an amount exceeding Rs. 50,000/- (Rs. Fifty
Thousand Only). In the facts of the present case, the FMV of 3,03,63,266 shares as per rule 11UA of the Income-tax Rules, 1962
(“the Rules”) was calculated at Rs. 12.76 per shares, whereas the actual issue price of the said shares were Rs. 16.29 per share which is higher than the FMV. Therefore, the question of addition under section 56(2)(viia) does not arise at all. It is also submitted that the transaction of investment of Rs. 76,00,00,000/- in 2,89,29,198
shares @ Rs. 26.27 per share of SHRPL is completely different than the transaction of conversion of loan given by the Appellantto
SHRPL into an investment of Rs. 49,46,17,612/- in 3,03,63,266
shares of SHRPL @ Rs. 16.29 per share, and hence the difference between the two issue prices of Rs. 9.98 per share (Rs. 26.27-Rs.
16.29) cannot be applied to the investment of 3,03,63,266 shares to invoke the provisions of section 56(2)(viia) of the Act.
9. The Ld. CIT (A) erred in applying the provisions of section 56(2)(viia) of the Act without appreciating that the computation of Fair Market
Value ("FMV") of 3,03,63,266 shares, which was an investment made by the Appellant in SHRPL, was done in accordance with rule
11UA of the Income-tax Rules, 1962 (“the Rules”) which came to Rs.
12.76 per share. The Appellant submits that whereas they received the shares of SHRPL at Rs. 16.29 per share which is more than the FMV of Rs. 12.76 per share and hence, the question of any addition u/s. 56(2)(viia) of the Act does not arise at all.
10. The Ld. CIT(A) erred in upholding the order of the Ld. AO of making an addition of Rs. 30,30,25,394/- to the Appellant’s total income under section 56(2)(viia) without appreciating that the FMV of the shares was determined by the Appellant as per the prescribed method by rule 11UA of the Rules and also the Ld. AO had not brought any contrary material on record to show that the valuation as submitted by the Appellant under rule 11UA was incorrect. In view thereof the impugned order has been passed without appreciating the facts and law and hence it is liable to be set aside.
11. The Ld. CIT(A) erred in holding that the Appellant failed to provide the basis of above valuation of shares purchased (by way of conversion of loan into equity shares) at Rs. 16.29 per share since the Appellant failed to provide audited financial statements of SHRPL for the relevant FY inasmuch the same was provided to the Ld. AO via letter dated 28th July 2021 during the course of P a g e | 5
A.Y. 2016-17
Sapphire Foods India Limited, Mumbai reassessment proceedings which was once again referred to in the letter dated 16th March 2022.Similarly, in the written submissions filed before the Ld. CIT(A) the Appellant had once again referred to the letter dated 28th July 2021. Therefore, the requisite details as asked for were provided by the Appellant which was not appreciated by the Ld. AO and CIT(A).
Additional Grounds of Appeal
Based on the facts and in the circumstances of the case and in law, the Appellant respectfully craves leave to submit the following ground before Your Honours against the impugned order dated
28th August 2024 passed by the CIT(A), National Faceless Appeal
Centre (NFAC) under section 250 of the Act.
13. On the facts and circumstances of the case and in law, the Appellant submits that the addition of Rs. 30,30,25,394/- (Rs. Thirty
Crores Thirty Lakhs Twenty-Five Thousand Three Hundred and Ninety-Four Only) to their total income by way of reopening the assessment is bad in law inasmuch as the juri ictional conditions as laid down under the Act before initiating the reassessment proceedings have not been fulfilled and therefore the entire reassessment proceedings for the present Assessment Year (“AY”)
2016-17 are invalid and must be set aside.
14. On the facts and circumstances of the case and in law, the Appellant submits that the entire reopening has been based on a change of opinion inasmuch as the transaction of investment in the shares of Sapphire Hospitality and Recreation Private Limited
(“SHRPL”) a specific query was raised vide notice dated 11th August,
2018/ 3rd October, 2018 during the course of the original assessment proceedings which was duly replied to by the Appellant vide letter dated 17th November, 2018 and thereafter the scrutiny assessment order under section 143(3) was passed. Thus, an assessment cannot be reopened to verify the same details and facts as produced, discussed and decided upon at the time of the original assessment unless there is new information or material which suggest that there is escapement of income which is not the case, and therefore, the entire reassessment proceedings are void, illegal and ought to be set aside.
15. On the facts and circumstances of the case, the Appellant submits that it is settled law that even if the original assessment order is silent in respect of certain transactions on which a query was raised
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Sapphire Foods India Limited, Mumbai during the course of original assessment, yet reopening the assessment on the same issue i.e. investment in shares of SHRPL, would amount to a change of opinion inasmuch as there has been an application of mind by the Ld. AO at the time of passing the original assessment order under section 143(3). The reopening proceedings are therefore initiated on a complete non- application of mind and hence, they are liable to be quashed and set aside.
16. On the facts and circumstances of the case and in law, though the assessment has been reopened within 4 years from the end of the present AY 2016-17, yet there has been a ‘reason to believe’ that income chargeable to tax has escaped assessment which has not happened in the facts of the present case and hence the reopening is bad in law.
3. It may be stated here at the outset that the assessee admittedly did not raise the above additional grounds on the validity of the proceedings u/s 148 of the Act and consequent reassessment order before both the authorities below. We find that the grounds are basically legal grounds which go to the very root of the matter therefore, even if not raised at the first instance before the assessing authority, it could be raised before the appellate authority at a later stage. The additional grounds are pure questions of law and the facts necessary for adjudication of the additional grounds are already on record. In the case of National Thermal Power Co. Ltd. vs. CIT 229 ITR 383 (SC), it was held by the hon’ble Apex Court that the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee, in accordance with law. If a valid claim is made for the first time as long as the relevant facts are on record in respect of P a g e | 7
A.Y. 2016-17
Sapphire Foods India Limited, Mumbai that item, there is no reason to restrict the powers of the tribunal.
Respectfully following the ratio, we admit the additional grounds for adjudication at this stage.
The assessee has claimed that the impugned issue was already examined by the AO during original assessment proceedings specific query was raised vide notice dated 11th August, 2018/ 3rd October, 2018 which was duly replied to by the assessee vide letter dated 17th November, 2018 and thereafter the scrutiny assessment order under section 143(3) was passed. Thus, an assessment cannot be reopened to verify the same details and facts as produced, discussed and decided upon at the time of the original assessment unless there is new information or material which suggest that there is escapement of income which is not the case, and therefore, the entire reassessment proceedings are void, illegal and ought to be set aside. It is evidently a case of change of opinion which is not permissible under the law.
Facts of the case in brief are that original assessment order was framed u/s 143(3) on 17.12.2018. Later it was found by the AO that the assessee during the year had made investment in shares of Sapphire Hospitality and Recreation P.Ltd (henceforth ‘SHRPL’) of Rs 125.46 cr. Further, as per note no.36 of accounts, during the year itself it had given
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Sapphire Foods India Limited, Mumbai a loan of Rs 49.46 cr to this company which was converted into 30363266 shares at Rs 16.29 per share. The details of shares are as under:
No. of share
Value of shares
Value per share
59292463
Rs 1,25,46,20,000
-
30363266
Rs 49,46,17,609
Rs 16.29
28929197
Rs 76,00,02,397
Rs 26.27
Therefore, the differential shares 28929197 were invested at the rate of Rs 26.27 per share and 30363266 at discounted rate of Rs 16.29 per share. The AO was of the view that the difference of Rs 9.98 per share should have been treated as income from other sources. Consequently, he concluded that there was understatement of income by Rs
30,30,25,394/-which formed the basis of reopening u/s 148 of the Act.
1 The ld.AO found that the assessee company had subscribed shares of a closely held company violating the provisions of section 56(2)(viib) of the Act in as much as shares were purchased over and above the fair market value thereof. He was of the opinion that the methodology to be adopted for the purpose of arriving at the fair valuation of such shares under this section has been specifically stated under rule 11UA(2) separately for equity shares and shares other than equity shares. Sub-clause (b) under this sub-rule states that the fair
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A.Y. 2016-17
Sapphire Foods India Limited, Mumbai market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or a Chartered Accountant in respect of such valuation. He observed that the valuation exercise done by the assessee was without furnishing a Certificate from a Chartered Accountant or from a Merchant
Banker and was not acceptable. Thus, he held that the valuation of the share by assessee was in excess by Rs.9.98 per share which was considered as excessive in terms of provisions of section 56(2)(viib) of the Act and accordingly the quantum of amount charged in excess by the assessee while subscribing to shares was determined as income from other sources. Thus the amount of Rs. 30,30,25,394/- was held as amount excessively charged in terms of provision of section 56(2)(viib) of the Act and the same was added to the income of the assessee under the head ‘Income from Other Sources’
6. In the subsequent appeal filed by the assessee before the first appellate stage, the ld.CIT(A) admitted that case of the assessee’s came within the purview of section 56(2)(viia) and not u/s 56(2)(viib) of the Act as mentioned in the assessment order. With regard to the findings of the AO, before him the assessee claimed that that purchase
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Sapphire Foods India Limited, Mumbai of shares at Rs.16.29 per share was more than the fair market value as computed in accordance with Rule 11UA of the Income Tax Rules. The appellant in this respect has given the computation which is reproduced hereunder:
Sapphire Hospitality Recreation Pvt Ltd
WORKING OF 11 UA AS AT 31 MARCH 2015
Amounts
Total Assets as per the Balance Sheet
Less: Prepaid taxes
1,17,57,73,542
Prepaid taxes
3,79,655
Add: Provision reduced from Assets
Provision for doubtful advances
_
Diminution in value
_
Net Assets (A)
1,17,53,93,887
Total Liability as per the Balance Sheet
1,17,57,73,542
Less:
Share Capital & Reserve
36,96,06,869
Net Liability [B]
80,61,66,673
Net Assets [A] - [B]
36,92,27,214
No. of shares outstanding
2,89,29,198
Value per share
12.76
6.1
The ld.CIT(A) pointed out that the valuation given was not supported by the audited financial statements of SRHPL.It failed to provide the basis of above valuation viz. audited financial statements of SRHPL during assessment as well as in appeal proceedings which in itself questions the sanctity of the valuation provided by it under Rule 11UA. Moreso, the very fact that the assessee had during the same year purchased shares of SRHPL for two different rates viz.
Rs.26.27 per share and Rs.16.29 per share indicated that the shares
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A.Y. 2016-17
Sapphire Foods India Limited, Mumbai purchased at Rs.16.29 per share was less than the fair market value.
Accordingly, the addition made by the AO of Rs.30,30,25,394/- was upheld.
7. Before us, the ld.AR has contested the addition mainly on two grounds. Firstly, it is stated that the AO applying the provision of section 56(2)(viib) in place of section 56(2)(viia) as the assessee company is an investor and not an issuer of shares. It is contented that the assessment order is vitiated on this ground itself. Secondly, on merits, it is stated that as explained before the authorities, the Fair Market Value of the impugned share was Rs 12.76 per share only which was much less than the shares purchased at Rs 16.29 and Rs 26.27. Therefore, there was no case of application of section 56(2)(viia) as well.
8. In so far as the issue regarding wrong quoting of section is concerned, we find that the ld.CIT(A) has admitted the error committed by the AO by holding that such a mistake was curable in terms of provisions of section 292B of the Act. Therefore, CIT(A) corrected the mistake of the AO and held that appropriate provision to be applied is section 56(2)(viia) .Accordingly the assessment order was considered as valid and in as per law.
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Sapphire Foods India Limited, Mumbai
We have carefully considered the issue in hand We are of the considered view that the ld.CIT(A) has correctly held that this mistake could not be considered as fatal and led to nullity of the entire assessment order. 22. The provisions of section 292B read as under: "292B - No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return o f income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act." 9.1 It may be stated here that in the case of Sardar Harbindersingh Sehgal v CIT, (227 ITR 512 Gau), the Hon'ble Court held that the notice to be valid in view of section 292B of the Act as it conformed to the substance of the Act and was to effectuate the purpose of the Act. Defects or omissions, if any, in the notice did not cause any prejudice to the petitioners. The court went on to state that it can assume juri iction only when the notice on the face of it is illegal and that the court must not adopt a hyper technical approach to quash a notice because it does not conform to all the niceties expected by an assessee in such a notice. The court has to adopt a broad and pragmatic view in construing such a notice in order to find out whether in substance and effect it is in conformity with or according to the intent and purpose of the Act. An inconsequential technicality must not be P a g e | 13 A.Y. 2016-17
Sapphire Foods India Limited, Mumbai allowed to defeat justice. Relevant paras are reproduced as below for reference:
“42. This Section 292B came up for interpretation in the following decisions :
(i) In CIT v. R. Giridhar [1984] 145 ITR 246 (Kar). There the Karnataka High Court pointed out that if an action in substance and effect is in conformity with and according to the intent and purpose of the Act, the defect or omission cannot invalidate the action.
(ii) In I. Devarajan v. Tamil Nadu Farmers Service Co-operative Federation [1981] 131
ITR 506 (Mad). That is a case from the Madras High Court. That was with regard to the warrant of search. The court held as follows (page 534) :
" Learned counsel then pointed out that Form No. 45 had not been properly filled up and that the exercise of power under Section 132 in the present case is invalid and illegal. What is pointed out is that in the whole body of the first page of Form No. 45, after the following words 'whereas information has been laid before me and on the consideration thereof 1 have reason to believe that. . .' a part of the form has been left intact while the rest has been scored. This, according to learned counsel, shows that the authorities did not apply their mind properly and that in a serious matter like this, where the right of property guaranteed under Articles 19 and 31 is interfered with under the powers conferred by the statute, then the provision of the statute would have to be strictly complied with, and any defect in compliance will render the whole action invalid and illegal. We do not find that the omission to score the whole of first page after the words extracted already, was such as to mislead anyone or that the search in pursuance thereof can be characterised as an illegal exercise of the powers. At the most, there may be some irregularity in not scoring out that part of the form. But that does not in any way affect the exercise of the power by the authorities concerned. What is sought to be emphasised in the form is if summons were issued for production, then the required books or documents would not be produced, and that the assets represented by undisclosed income had not been or would not be disclosed. The fixed deposits, the savings bank account, etc., have been referred to in the authorisation. The authority has specified the assets, which required examination by a search. The form has been duly filled up. We are unable to find any infirmity in the authorisation as such. In addition, Section 292B provides that no proceeding taken in pursuance of any of the provisions of the Act shall be invalid by reason of any mistake or defect in the proceeding if it is in effect in conformity with or according to the intent or purpose of the Act. Thus, any defect in the form is cured by this provision, as the proceeding has been taken according to the intent or purpose of the Act. There is thus no substance in this contention also."
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Sapphire Foods India Limited, Mumbai
In CIT v. Smt. Phoolmati Devi [1983] 144 ITR 954. That is a case of the Allahabad High Court. The court pointed out as follows (page 958) : " Relying upon Section 292B of the Income-tax Act inserted by the Taxation Laws (Amendment) Act of 1975, learned counsel submitted that the defect of non-service of notice was fairly a technical objection and as such the same should not come in the way of the validity of the acquisition. We are unable to agree. Section 292B may apply to a case where service has already been effected, but there is a technical mistake in the notice." 44. I respectfully agree with the decision regarding interpretation of Section 292B of the Act and hold that the impugned notice is also valid in view of Section 292B of the Act, as it conformed to the substance of the Act and wanted to effectuate the purpose of the Act. Further, defects or omissions, if any, in the notice did not cause any prejudice to the petitioners and they are inconsequential in nature. 9.2 In the case of Narendra Kumar Gill vs ITO, dated 22 December, 2020 in ITA 1532/Del/2017,it was observed as below: “23. A careful reading of the Section point towards the benefit envisaged to all the stakeholders whether it is the citizen or the state. In our case, the assessee as well as the revenue. Even, the revenue is precluded from treating the "return of income" filed by the assessee as null and void in cases where there has been a mistake, defect or omission in such return of income. The mistakes in the return such as wrong quoting of the Section or provision pertaining deduction, exemption or wrong filing of the column o r wrong typing of PAN or address are not to be treated as fatal to make a valid return invalid. Section 292B has been invoked to benefit the assesses where the returns have been filed in correct juri iction. In the case of Nicholas Applegate South East Asia Fund Ltd. Vs ADIT, the Co-ordinate Bench of ITAT held that the question of application of Section 292B cannot be prejudged by finding that return, notice, etc. is not as per the requirement of the statute and is/are invalid; the finding that the return or no tice etc. is invalid or to what extent it is invalid is unnecessary and counterproductive; if in substance and in effect return, notice or assessment is in conformity with or according to intent and purpose of the Act, the mistake defect or omission is to be ignored as per the underlining philosophy of Section 292B. There is a marked difference between want of basic or inherent juri iction and exercise of authority which has not been vested with the Assessing Officer. In the instant case, the Assessing Officer has rightly invoked the provisions of Section 148 by recording the reasons and by issue of notice to the proper person to which it was intended to . The Co-ordinate Bench of the Tribunal in ITA No. 3875/Mum/2005 in the case of NASE Asia Fund Ltd. held that, "10. On a plain reading of this section, it is observed that the return of income, etc., shall not be considered as invalid merely by ·defect or omission in such return if it is in substance and effect in conformity with the intent and purpose of this Act. The rationale behind this section is that the return of income, assessment notice, summons or other proceedings should not be 'held to be invalid due to technical mistakes, which otherwise do not have much impact to touching its legality provided such P a g e | 15 A.Y. 2016-17
Sapphire Foods India Limited, Mumbai return, assessment notice, summons or other proceedings, etc., are otherwise in conformity with the purpose of the Act. The 'purpose of the Act is to charge income tax on the total income of the assessee. This 'purpose' is best fulfilled if the correct income is determined and tax is charged thereon. It involves the making of assessment by the AO in which the particulars at income as furnished by the assessee are scrutinized for determining the correct total income. There may be a case in which the assessee has intentionally or unintentionally claimed wrong deductions or exemptions etc., to which he is not entitled. In that case the AO makes the disallowances as per law. Still in another situation the assessee may have stated the correct income and no disallowance etc. are required. The 'purpose of the Act' is achieved when the correct total income is determined either by way of making adjustments by the Assessing Officer and enhancing the stated income to the correct income or by the assessee himself by furnishing the correct particulars of income, not warranting any enhancement by the AO. It, therefore, transpires that if a return has been furnished by the assessee which is otherwise in substance and effect in conformity with or according to the intent and purpose of this Act, then any technical defect in it would not render it to be invalid. In such a situation the provisions of section 292B would come to the rescue of the assessee and thus debar the revenue authorities from declaring such return to be invalid".
24. Similarly, when the proceeding (issue of notice in this case) is in substance and effect in conformity with or according to the intent and purpose of the Act, the action of the AO cannot be faulted with. Section 292B meant to save only those notices in which the re is in advertent error. Its saves those notices which in substance and effect issued according to the interest and purpose of the Act. In the present case, there is an in advertent error in the notice issued by the AO reflecting only the PAN column of the notice mentions PAN of the "HUF" instead of the 'individual' whereas the body of the notice and the address shows that the notice is clearly meant for the assessee himself.
The provisions of Section 292B have been further clarified the Circular No. 179 of CBDT date d 30.09.1975 that this provision has been made to provide against purely technical objects without substance coming in the way of validity of the assessment proceedings. In the case of CIT Vs Masonellan India Ltd. 245 ITR 568 (Ker.), the Hon'ble
Court held that Section 292B can be invoked if the action was in substance and in effect in conformity with the intent and purpose of the Act. The entire proposition arises from the established jurisprudence that substance over form is the underlying philosophy of Section 292B. If in substance and in effect the notice is in conformity and with or according to the intent and purpose of the Inco me Tax Act, the mistake is to be ignored. Quoting a wrong PAN in the presence of numerous evidences to prove the intent and the purpose is a subject matter of Section 292B in the instant case. If the significance of word "substance " and "effect" is kept in mind then there is no justification to treat the notice as in valid. In the case of Shrish M. Dalvi 287 ITR 24 2
(Mum), the Hon'ble Court observed that as long as the defect or mistake has not caused prejudice to the assessee, the mistake was protected under the umbrella of Section 292B of the Act. The procedural provision has to be examined from the stand point of substantial complaints. Where such violation has occasioned prejudice to the assessee then only the assessee is protected from the rigors of wrong exercise of juri iction. As long as, no prejudice is occasioned to the assessee, as in this case the notice issued is protected by the provisions of Section 292B.”
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Sapphire Foods India Limited, Mumbai
3 In view of the facts of the case and in the light of decisions relied upon in the preceding paras, we are of the considered opinion that quoting of wrong sub-section in the assessment order and notices are curable and inadvertent mistakes on part of the AO which would not lead to nullity of the entire assessment proceedings. Moreover, the ld,CIT(A) has rectified the same in view of the plenary powers of the AO conferred on him and also in the light of the provisions of section 292B of the Act. To cap it all, there was no prejudice caused to the assessee by this error on part of the AO which stood rectified in the impugned order. The ground no. 6 and 7 in this regard are dismissed.
In so far as the merits of the case are concerned, we find that the ld.CIT( A) has rejected the valuation worked out by the assessee only on the ground that the said valuation lacked any basis inasmuch the assessee did not submit the financials of SHRPL which the ld.AR has vehemently challenged by stating that the said audited financial were duly furnished before both the AO and the ld CIT(A).
1 We find that the ld.CIT(A) did not appreciate the valuation report submitted by the assessee in correct perspective. Therefore, we consider it appropriate to remand the issue back to him to take into account the audited financials of SHRPL and decide the merits of the case in accordance with the provisions of the Act. Needless to state, he
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Sapphire Foods India Limited, Mumbai would allow proper opportunity of hearing to the assessee in this regard.
The ground no. 8,9,10 and 11 are, therefore, allowed for statistical purposes.
We also find that the original ground no. 1 to 5 and additional ground no.13 to 16 relating to validity of reopening and consequential assessment order were not before the ld.CIT(A) as admitted by the assessee before us. Accordingly, we remand these grounds as well to his file for due consideration. The ld.CIT(A) would adjudicate in accordance with law and on allowing opportunity of hearing to the assessee. The above grounds are therefore allowed for statistical purposes. 12. In the result, the appeal is partly allowed. Order pronounced in the open court on 23.05.2025. AMIT SHUKLA PRABHASH SHANKAR (न्याययक सदस्य /JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER)
Place: म ुंबई/Mumbai
ददनाुंक /Date 23.05.2025
Lubhna Shaikh / Steno
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Sapphire Foods India Limited, Mumbai
आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to :
अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file.
सत्यावपि प्रवि ////
आदेशानुसार/ BY ORDER,
उि/सहायक िंजीकार (Dy./Asstt.