ACRON HOSPITALIY PRIVATE LIMITED ,MUMBAI vs. PRINCIPLE COMMISSIONER OF INCOME TAX -6, MUMBAI

The solitary grounds raised

The ld. PCIT invoked the revisionary jurisdiction u/s. 263 of the Act for the reason that the assessment order was erroneous in so far as it was prejudicial to the interest of revenue and set aside the assessment order dated 15.12.2017, vide an ex parte order dated 26.03.2021.

Aggrieved the assessee was in appeal before the Tribunal, which vide order dated 23.05.2022 and the same remanded back the matter to the ld. PCIT for de nova adjudication. The ld. PCIT then passed the denovo revisionary order u/s. 263 of the Act, dated 13.02.2024, setting aside the impugned order that the same is erroneous and prejudicial to the interest of revenue on the issue of share premium and directed the ld. AO to examine the issue specified afresh and thereby reassess the total income and allowability of the loss claimed by the assessee.

The assessee is in appeal before us, challenging the impugned order of the ld. PCIT.

The learned Authorised Representative ('ld. AR' for short) for the assessee, Mr. Nitesh Joshi contended that prima facie issue pertaining to the limited scrutiny was completely different from the issue for which the ld. PCIT has invoked the revisionary jurisdiction u/s. 263 of the Act. He further submitted that during the scrutiny assessment, the assessee has furnished the complete details sought for by the ld. AO and after duly (A.Y. 2015-16) Acron Hospitality Private Limited considering the same, the ld. AO passed the assessment order by accepting the returned loss claimed by the assessee. The ld. AR brought to our attention to the notice issued by the ld. AO u/s. 143(2) of the Act which pertains to various issues out of which one of the issues was “whether the share application money is genuine and from disclosed sources” for which the assessee is said to have given details of share valuation report along with the ledger account statements, the bank account statements, etc. before the learned Assessing Officer (ld. A.O. for short), as sought for during the assessment proceeding. The ld. AR further contended that as the assessee’s case was selected for limited scrutiny, the assessee had furnished the details only to the extent sought for by the ld. AO, whereas the ld. PCIT had invoked Section 263, for the reason that the assessee company had issued equity shares having face value of Rs. 10 at a premium of Rs. 555/-, where the market value of such shares was Rs, (-)44 and held that the premium received by the assessee was in excess of the market value and have to be taxed u/s. 56(2)(viib) of the Act. Mr. Nitesh Joshi iterated that this issue was never before the ld. AO during the assessment proceeding and a limited scrutiny was not converted to complete scrutiny at any given point of time. He stated that the assessment order was not erroneous and prejudicial to the interest of revenue. The ld. AR relied on the decision of the Tribunal in the case of Pawansut Media Services Private Limited vs. PCIT-7, in order dated 14.10.2021, where on identical facts, the Tribunal has decided this issue in favour of the assessee.

The learned Departmental Representative (‘ld. DR’ for short) Mr. K. R. Subhash for the revenue on the other hand controverted the said fact and submit that the issue of (A.Y. 2015-16) Acron Hospitality Private Limited limited scrutiny also correspondence to the issue for which the ld. PCIT has invoked the revisionary jurisdiction. The ld. DR though agreed that the scrutiny assessment was for limited issue pertaining to the share application money received by the assessee, the ld. PCIT’s order was also on the issue of the share premium received by the assessee which according to the ld. PCIT was in excess of the market value which has to be taxed u/s. 56(2)(viib) of the Act. The ld. DR brought our attention to the reply for the clarification sought for, in the present case, where the ld. DCIT – 14(1)(1), Mumbai had stated that the reason for selection of the case of the assessee for scrutiny was for large increase in ‘share application money’ pending for more than one year as compared to preceding year.” The ld. DR vehemently argued that the issue of limited scrutiny and the revisionary proceedings were one and the same and are not different issues which relates to the share application money/premium received by the assessee. The ld. DR also contended that the assessment order is erroneous and prejudicial to the interest of the revenue so far as the ld. AO has failed to inquire into these issues and has also not considered the submissions made by the assessee for the reason that the assessment order has no discussion about these issues and is nevertheless a speaking order, thereby making the assessment order erroneous and prejudicial to the interest of the revenue. The ld. DR prayed that the ld. PCIT order be upheld and that the appeal of the assessee ought to be dismissed.

We have heard the rival submissions and perused the materials available on record. It is observed that the assessee had three business undertakings viz. (i) Acron Place which is a restaurant having building on land belonging to another company with other assets (A.Y. 2015-16) Acron Hospitality Private Limited of business. (ii) Fortune Select Regina: 102 Room 5 Star category Hotel having and the building with other assets of business. The hotel was run by ITC group of Hotels generating revenue for past six years. (iii) Under Construction Hotel called Acron Waterfront Resort shown in Balance Sheet as Capital Work in Progress under the head Fixed Assets. For the purpose of increasing the capital for the business needs of the assessee company took the valuation of the company and its businesses based on the earning/cash flow basis, net asset value basis and as per which the share capital was allotted on 27.08.2014 for 28,318 shares, 52,211 shares were allotted on 25.10.2014 and 5,18,547 shares were allotted on 20.02.2015 during the year under consideration. The assessee company adopted the audited balance sheet as on 31.03.2014 which was approved in the annual general meeting and had not carried out audit as on the date of allotment of shares. The assessee company obtained valuation report of the three businesses from Mr. Paresh Gaitonde, who was a government approved valuer who has valued each of the businesses as under: Sr. Business Basis of Valuation Value in Rupees No. Unit 1. Acron Restaurant by name Earthen oven, 2,97,78,696 Place operated by ITC Group having unit on leave and license basis valued on book value basis after considering depreciation of 10% 2. Acron 29 room under construction boutique 30,73,85,086 Waterfront hotel on own land. Land Valued on fair Resort market value basis at Rs. 26,44,13,500/- and capital work in progress on the basis of book 4,29,71,585/- 3. Fortune 102 Rooms 5 Star Category Hotel on 136,68,00,000 Select own land with various high-end Ragina amenities and managed by ITC Group.

The assessee contends that the valuation was in accordance with market value of the hotel property situated at Goa after considering the extra FAR/FSI available to the said properties. The assessee further contended before the ld. PCIT that the valuation of shares cannot be as per the book value and further contended that the ld. PCIT ought to have given an alternate fair value of shares if the valuation of the assessee was to be rejected. The assessee submitted that since the balance sheet as on 14.11.2014 was not prepared the valuation report based on audited balance sheet as on 31.03.2014 will be valid and to be considered as the basis for valuation of shares. The assessee also contended before the ld. PCIT that subsequent to 31.03.2014, the assessee company has neither acquired nor disposed off any significant value of assets and therefore the valuation asset report dated 31.03.2014 was to be considered as the fair basis of valuation of shares. It was also stated that the ld. PCIT has adopted the book value of fixed/current assets as on 31.03.2014 at Rs. 45,28,11,206/- and book value of all liabilities at Rs. 54,67,53,670/-, where the book value is said to be negative and thereby added the entire share premium of Rs. 33,24,87,180/- as per Section 56(2)(viib) of the Act. The assessee also pointed out that the ld. PCIT has not referred the matter to (A.Y. 2015-16) Acron Hospitality Private Limited Valuation Officer and that valuation of shares at face value is not practically feasible in any business.

The ld. PCIT rejected the contentions of the assessee and stated that the impugned assessment order is not a speaking order, where the ld. AO has failed to discuss the details of valuation or the business of the assessee and thereby held that the assessment order is erroneous and prejudicial to the interest of revenue. The ld. PCIT relied on several decisions to substantiate that the assessment order was without enquiry or verification on the issue of share premium, thereby setting aside the same to the ld. AO for de novo assessment.

In the above narrated facts, it is pertinent to restrict the finding to the issue where the ld. AO has conducted enquiry for the issues pertaining to the ‘limited scrutiny’ and had passed the assessment order after taking one of the plausible views. For this prima facie, we will have to decided whether the issue related to the revisionary proceedings is the same as the issue for which limited scrutiny was initiated. As per the limited scrutiny notice u/s. 143(2) dated 18.09.2017, the following issues have been identified for examination which are reproduced hereinunder: i. Whether sundry creditors are genuine. ii. Whether value of exports and imports has been shown in return of income. iii. Whether sales turnover/receipts has been correctly offered for tax. iv. Whether the share application money is genuine and from disclosed sources.

In the above 4 issues, the issue of whether the ‘share application money is genuine and from disclosed sources’ pertains to the share transaction entered into by the assessee (A.Y. 2015-16) Acron Hospitality Private Limited viz. Mrs. France Brito for 43,681 shares for face value of Rs. 4,36,810 and premium of Rs. 2,42,42,955/- and Acron Developers Private Limited for 5,55,395 shares for face value of Rs. 55,39,500/- and premium of Rs. 30,82,44,225/-. In the earlier occasion, the bench had directed the ld. DR to provide details as to whether in the assessee’s case there was limited scrutiny or complete scrutiny and whether the limited scrutiny was converted to full scrutiny. The ld. DR made a submission along with the clarification received from DCIT which states that the reason for the limited scrutiny was for 4 issues one of the which was large increase in ‘share application money pending for more than one year as compared to preceding year’ and precisely as per the submission of the ld. DR, the issue was “whether the share is genuine and from disclosed sources”. The reasons along with the issue furnished by the ld. DR is tabulated hereinunder for ease of reference: Reason Code Reason Description Issue Underlying Rationale Information Elements BL02.01 Large increase in Whether the share application share application money pending for money is genuine more than 1 year as and from compared to disclosed preceding year (Part sources. A-BS of ITR) BL06.03 Large increase in Whether sundry Sundry Creditors and creditors reduction in business genuine. income as compared to preceding year (Sundry Creditors in Balance Sheet and Business Income in Part B- TI of ITR) BR01.04 Mismatch in sales Whether sales turnover reported in turnover/receipts Audit Report and ITR has been (A.Y. 2015-16) Acron Hospitality Private Limited (Form 3CD and Total correctly offered Sales / Gross Receipt for tax. in Part A-PLL of ITR) BR04.03 Purchases shown in Whether value of the ITR is less than the exports and Invoice value of imports has been Imports shown in the correctly shown Export Import Data in return of (CBEC Export Import income, Data tab of ITS and Purchases in PEL Account)

From the above, it is evident that the issue pertinent to limited scrutiny was to verify the genuinity of the ‘share application money’ and whether the same is from disclosed sources or not which would come under the preview of Section 68 of the Act. Notably, the ld. PCIT has invoked Section 263 for the purpose that the premium received by the assessee for 5,99,076 equity shares having face value of Rs. 10 at a premium of Rs. 555/- was in excess of the market value and if found to be in excess has to be taxed u/s. 56(2)(viib) of the Act. The provision of Section 56(2)(viib) of the Act is reproduced hereinunder for ease of reference:_ 56 (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :— (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,— (b) any immovable property,— (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty (A.Y. 2015-16) Acron Hospitality Private Limited thousand rupees, the stamp duty value of such property as exceeds such consideration: Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause: Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property;”

From the above said provision, when a company in which the public are not substantially interested receives any consideration for issue of shares which exceeds the face value of such shares then the aggregate consideration if found to be in excess of the fair market value of the share shall be chargeable to tax as income from other sources. The very edifice of this provision is for determination of the valuation of shares and by no stretch of imagination pertains to the genuinity and the source of the money. In the common parlance, there is a huge difference between the term ‘excess’ and ‘genuine’ which are not one and the same.

In the present case, the scrutiny was for verifying why there was a large increase in share application money which was pending for more than one year and whether the share application money is genuine and from disclosed sources, whereas the ld. PCIT had invoked Section 263 for holding that the premium received is in excess of the market value in terms of Section 56(2)(viib) of the Act. We therefore hold that the issue pertaining to the limited scrutiny and the issue in the revisionary proceedings are not (A.Y. 2015-16) Acron Hospitality Private Limited one and the same. The ld. AO cannot go beyond the reasons for which the scrutiny proceeding was initiated in a limited scrutiny, unless he converts the same to a complete scrutiny. There is no doubt that the assessment order is not a speaking order, where there are no discussions on any of the issues for which the scrutiny was initiated but the ld. PCIT’s direction to reassess the income on the issue of excess value of the premium could not be reassessed when the same does not form part of the assessment proceedings. Thus, we are of the considered view that the assessment order is neither erroneous nor prejudicial to the interest of the revenue with regard to the issue raised by the ld. PCIT in his revisionary order and thereby allow the grounds raised