PAWANSUT MEDIA SERVICES PVT LTD,NEW DELHI vs. PR. CIT - 7, NEW DELHI

ORDER PER R.K. PANDA, A.M. This appeal filed by the Assessee is directed against the order dated 30.03.2021 of the Ld. PCIT-7, Delhi, passed under section 263 of the I.T. Act, 1961, relating to the A.Y. 2015-2016.

2.1. Subsequently, the Ld. PCIT examined the records and noted that the case was selected for limited scrutiny on the following reasons : i) Low income in comparison to very high investments. ii) Large increase in investment in unlisted equities during the year. iii) Low income in comparison to high loans/ advances/investment in shares.

2.2. He noted that during the year under consideration the assessee has invested in equity shares of the following 3 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. companies which is hit by the provisions of Section 56(2)(viia) of the Income Tax Act, 1961 :

2.3. However, the A.O. during the course of assessment proceedings has not examined the issue of applicability of provisions of Section 56(2)(viia) of I.T. Act for basis of determination of Fair Market Value [“FMV"]. Similarly, the other reason for scrutiny was investment in unlisted equity shares during the year. However, although the A.O. has examined with regard to source of investment

4 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. and income derived from this investment, however, the A.O. has not examined the fair market value of investment. He, therefore, was of the opinion that the order passed by the A.O. on 15.12.2017 under section 143(3) of the I.T. Act, 1961 appears to be erroneous in so far as it is prejudicial to the interests of revenue. He, therefore, issued a show cause notice to the assessee to explain as to why the order passed by the A.O. should not be set aside.

2.4. It was submitted by the assessee that the A.O. after considering the various written submissions filed by the assessee from time to time has completed the assessment. Relying on various decisions, it was submitted that the order of the A.O. is neither erroneous nor prejudicial to the interest of Revenue as the parameters laid down by the Hon’ble Supreme Court have never been crossed and no loss to the Revenue has ever caused due to the same. It was also submitted that the provisions of Section 56(2)(viia) of the I.T. Act, 1961 is grossly inapplicable to the transactions subjected for revisional powers under section 263 of the I.T. Act, 1961. The A.O. had already

5 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. examined the valuation provided by the assessee company during the course of on-going proceedings to his satisfaction. It was argued that the proceedings initiated under section 263 of the I.T. Act, 1961 should be dropped.

2.5. However, the Ld. PCIT was not satisfied with the arguments advanced by the assessee. After going through the assessment order and the assessment records, he noted that the aspect of valuation of Shares/Fair Market Value as required for the purposes of Section 56(2)(viia), which is intrinsically connected with the issue of investment in unquoted equity shares has not been enquired into at all. Therefore, the judicial precedents cited in support of its claim by the assessee and the A.O. do not apply to the facts of the present case, since there is a lack of enquiry on the aspect of valuation of the shares in terms of Section 56(2)(viia) read with Rules 11U/11UA of the Income Tax Rules. Therefore, the PCIT observed that the assessment order is erroneous as well as prejudicial to the interests of Revenue to this extent. He further noted that ideally the Assessment Order should be a self-contained speaking order

6 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. explaining the reasons of acceptance or rejection of the contention of assessee, summarising the enquiries conducted and the findings therein. However, from perusal of the Assessment Order dated 15.12.2017, it is seen that all such required elements are missing therein and it is not reflected if any enquiry relevant to the issue under consideration in the present proceedings has been conducted. The Ld. PCIT relying on various decisions held that since there was no enquires conducted by the A.O. on the issue of valuation of shares in terms of Section 56(2)(viia) read with Rules 11U/11UA of the Income Tax Rules the order passed by the A.O. without making any enquiry or verification which should have been done has made the order erroneous in so far as it is prejudicial to the interests of Revenue. He, therefore, set aside the order passed by the A.O. under section 143(3) of the I.T. Act, 1961 and directed him to pass necessary consequential order, after giving due opportunity of being heard to the assessee.

7 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. 3. Aggrieved with such order of the Ld. PCIT the assessee is in appeal before the Tribunal by raising the following grounds :

8 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi.

9 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi.

3.1. Learned Counsel for the Assessee referring to the assessment order submitted that the case was selected for limited scrutiny and was never converted to full scrutiny. Referring to the Office Note attached to the assessment

10 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. order, he submitted that the case was selected for scrutiny for the following reasons :

1. Low income in comparison to very high investments.

2. Low income in comparison to high loans/ advances/investment in shares.

3. Large increase in investment in unlisted equities during the year.

3.2. He submitted that the A.O. has made due enquiries before completing the assessment and the Revenue has not proved anything to be wrong. Referring to the reply given before Ld. PCIT, copy of which is placed at Pages 6 and 8 of the paper book, he submitted that he has never stated that the reply given by the assessee is wrong. Further the Ld. PCIT has not done any enquiry himself. Referring to pages 23 and 24 of the paper book, Learned Counsel for the Assessee drew the attention of the Bench to the queries put by the A.O. during the course of assessment

11 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. proceedings and specifically drew the attention of the Bench to Question Numbers.8, 9 and 10 at Page No.24 which are as under :

“8. Please furnish detail & justification of low income in comparison to high loans/advances/ investments in shares and explain the reason thereof.

9. Please furnish detail and justification of low income in comparison to very high investments.

10. Please furnish details of large increase in investments in unlisted equities during the year. Also file details of funds deployed for such investment.”

3.3. Referring to the reply given by the assessee, copy of which is placed at Page Numbers 25 to 27 of the paper book, he submitted that assessee has given the list of investment during the year with valuation as on 31.03.2015. He submitted that the limited scrutiny was never converted

12 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. to full scrutiny. Referring to the decision of Hon’ble Delhi High Court in the case of PCIT vs., M/s. Brahma Centre Development Pvt. Ltd., vide ITA.No.116 & 118/2021 Dated 05.07.2021, the Learned Counsel for the Assessee drew the attention of the Bench to Page Numbers 7 to 16 of the order and submitted that the Hon’ble Delhi High Court in the said decision has held that the standard to be adopted while dealing with the issue as to whether or not an A.O. has carried out an enquiry or verification, all that the Court is required to ascertain is as to whether the A.O. applied his mind. The fact that the A.O. has not given reasons in the assessment order is not indicative, always, of whether or not he has applied his mind. He submitted that it has been held that inadequacy in conduct of enquiry cannot be the reason based on which powers under Section 263 of the I.T. Act can be invoked to interdict an assessment order. He submitted that it has further been held that the error should be one that is not debatable or a plausible view. Section 263 of the Act invests a power of revision in a superior officer and, therefore, by the very nature of the power, does not allow for 13 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. supplanting or substituting the view of the A.O. The appreciation of material placed before the A.O. is, exclusively within his domain which cannot be interdicted by a superior officer while exercising powers under Section 263 of the Act only on the ground that if he had appraised the said material, he would have come to a different conclusion. He accordingly submitted that the issue stands decided in favour of the assessee by the recent decision of the Hon’ble Delhi High Court in the case of PCIT vs., M/s. Brahma Centre Development Pvt. Ltd., (supra) and, therefore, the order of the PCIT is to be set aside and the grounds raised by the assessee should be allowed.

14 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. 1. Jalgaon People’s Co-op Bank Ltd., vs., PCIT [2021] 127 taxmann.com 243 (Pune-Tribu.).

2. Vedanta Ltd., vs., CIT [2021] 124 taxmann.com 435 (Bombay).

3. Babulal S. Solanki vs., ITO, Ward-7(1)(1) [2019] 104 taxmann.com 155 [Ahmedabad – Tribu.].

4. Kerala State Electricity Board Ltd., vs., DCIT [2019] 111 taxmann.com 353 [Cochin-Tribu.].

5. PCIT vs., Venus Woollen Mills [2019] 105 taxmann.com 287 [Punjab & Haryana].

6. Jeevan Investment & Finance (P.) Ltd., vs., CIT [2017] 88 taxmann.com 552 [Bombay].

15 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. 9. Subhlakshmi Vanijya (P.) Ltd., vs., CIT [2015] 60 taxmann.com 60 [Kolkata-Tribu.].

10. S. Manickavasagam vs., ITO vide ITA.No.382/ Mad./2007 Dated 17.12.2008.

16 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. 17. Order of ITAT, Delhi Bench in the case of Perfetti Van Melle India Pvt. Ltd., vide ITA.No.3046/Del./ 2016 dated 11.01.2019.

17 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. 23. Shree Manjunathesware Packing Products & Camphor Works vs., CIT [1998] 231 ITR 53 [SC].

18 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. 5.1. We find the A.O. vide notice dated 142(1) dated 03.08.2017 has asked the assessee, inter alia, to furnish the following details :

“8. Please furnish detail & justification of low income in comparison to high loans/advances/ investments in shares and explain the reason thereof.

19 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. 5.3. We find before the Ld. PCIT the assessee had filed the date-wise chart of notice issued by the A.O. as well as the submission of the assessee to such notice as per Para- 2.2 of the reply dated 20.07.2020 which reads as under :

20 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. 5.4. Further the submission of the Learned Counsel for the Assessee that limited scrutiny was never converted to full scrutiny could not be contradicted by the Ld. D.R.

5.5. We find a somewhat identical issue had come-up before the Hon’ble Delhi High Court in the case of PCIT vs., M/s. Brahma Centre Development Pvt. Ltd., (supra). In that case the order under section 143(3) was passed on 31.01.2017 and 27.09.2017 for the A.Ys. 2012-13 and 2013- 14 wherein the A.O. accepted the interest earned by the assessee against the fixed deposits were adjusted i.e., deducted from the value of the inventory and not credited to the P & L A/c. The Ld. PCIT noted that the Tax Auditor in the Report filed in Form No.3CD had observed that interest earned on fixed deposits pertain to “Other Income” and had not been credited to the P & L A/c. The interest earned on fixed deposits in A.Y. 2012-13 was Rs.9,47,04,585/- whereas in A.Y. 2013-14, the interest earned on fixed deposits was Rs.4,32,91,517/-. The Ld. PCIT invoking the powers under section 263 of the Act held that the orders had been passed without making any enquiries as to whether the 21 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. interest earned by the assessee had any nexus with the real estate project, the construction of which was undertaken by the assessee. He accordingly held that the orders passed by the A.O. were erroneous in so far as they were prejudicial to the interests of the Revenue. The assessee filed an appeal before the Tribunal and the Tribunal set aside the order passed under section 263 and allowed the appeal filed by the assessee. When the Revenue preferred an appeal before the Hon’ble Delhi High Court, the Hon’ble High Court in ITA.Nos.116 & 118/2021 order dated 05.07.2021 dismissed the appeal filed by the Revenue by observing as under :

“Issue no. (ii) : 10. The standard to be adopted while dealing with the issue as to whether or not an AO has carried out an enquiry or verification, all that the Court is required to ascertain is as to whether the AO applied his mind. 10.1. The fact that the AO has not given reasons in the assessment order is not indicative, always, of whether or not he has applied his mind. Therefore, scrutiny of the record, is necessary and while scrutinising the record the Court has to keep in mind the difference between lack of enquiry and perceived inadequacy in enquiry. Inadequacy in conduct of enquiry cannot be the reason based on which powers under Section 263 of the Act can be invoked to interdict an assessment order. The observations made in this behalf, by the Division Bench of this Court, in Commissioner of Income-tax vs. Sunbeam Auto Ltd., [2010] 189 Taxman 436 (Delhi) / [2011 ] 332 ITR 167 (Delhi) being apposite, are extracted hereafter. “12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income - tax under section 263 of the 22 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi.

23 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi.

24 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi.

5.6. Since in the instant case the A.O. had indeed made enquiries as per the reasons for which the case was selected for limited scrutiny and the case was not converted to full scrutiny, therefore, respectfully following the decision of the Hon’ble Delhi High court in the case of PCIT vs., M/s. Brahma Centre Development Pvt. Ltd., (supra), we hold that the Ld. PCIT was not justified in assuming the jurisdiction under section 263 of the I.T. Act, 1961. We, therefore, set aside the Order of the Ld. PCIT and allow the grounds raised by the assessee on this issue.

5.7. So far as various decisions relied on by the Ld. D.R. are concerned, we are of the considered opinion that these are distinguishable and not applicable to the facts of 25 ITA.No.534/Del./2021 Pawansut Media Services Pvt. Ltd., Delhi. the present case especially when the case of the assessee which was selected for limited scrutiny was never converted to full scrutiny and the assessee had submitted all the details as called for by the A.O. from time to time for the reasons for which the case was selected for limited scrutiny. The grounds raised by the assessee are accordingly allowed.

Order pronounced in the open Court on 14.10.2021.