M/S.MGN AGRO PROPERTIES PVT.LTD.,MUMBAI vs. PR.CIT(CENTRAL),MUMBAI-2, MUMBAI

Briefly stated facts necessary for adjudication of the controversy at hand are : the return of income for the year under consideration was filed by M/s. Krishi Raj Trading Ltd. @ Rs.87,93,59,786/-. Assessing Officer (AO) framed assessment under section 143(3) of the Act vide order dated 31.12.2010 at the total income at Rs.1,35,23,232/- under normal provisions and under section 115JB of the Act at Rs.9,27,34,44,000/-. Thereafter, matter went to the CIT(A), then to the Tribunal. The Tribunal set aside the matter to the AO who has framed the assessment under section 143(3) read with section 254 of the Act on 26.04.2017 at the total income under normal provisions at loss of Rs.2,31,025/- and book profit under section 115JB of the Act at the loss of Rs.1,67,64,201/-.

The Ld. PCIT while invoking the provisions contained under section 263 of the Act noticed that during the year under consideration two wholly owned subsidiaries namely M/s. Vikram Capital Resource Pvt. Ltd. and M/s. Midfin Cap Lease Ltd. were amalgamated with the assessee. The transferee companies were holding 90,33,701 shares of M/s. Adani Enterprises Ltd. at the time of amalgamation which were sold during the year under consideration for Rs.869.17 crore. Amalgamation of M/s. Midfin Cap Lease Ltd. and M/s. Vikram Capital Resource Pvt. Ltd. was approved by Hon’ble Gujarat High Court on 08.10.2007. As per the scheme of amalgamation the purchase method had to be followed and accordingly the fair value of assets and liabilities was

Ld. PCIT noticed that M/s. Adani Exports is now merged with M/s. Adani Enterprises Ltd. The book profit of transfer of

Feeling aggrieved from the impugned order passed by the Ld. PCIT under section 263 of the Act the assessee has come up before the Tribunal by way of filing the present appeal.

For ready perusal notice issued by Ld. PCIT under section 263 of the Act is extracted as under: “2. M/s Krishiraj Trading Ltd. (PAN AAACK2257N) is now Now amalgamated with MGN Agro Properties Private Limited (PAN AACCM3422H). Therefore the proceedings u/s. 263 of the Income- tax Act, 1961 in the case of M/s. Krishiraj Trading Ltd. (PAN AAACK2257N) are initiated in the name of MGN Agro Properties Private Limited (PAN AACCM3422H). 3. The return of income for A.Y. 2008-09 was filed BY M/s Krishiraj Trading Ltd, (hereinafter the assessee) on 1 6-09-2008 declaring the total loss at Rs.87,93,59,786/-. The assessment order u/s. 143(3) was completed on 31.12.2010 determining total income under normal provisions at Rs.1,35,23,232/-and u/s.115JB at Rs.927,34,44,000/-. Thereafter, in pursuance of directions of the Hon'ble ITAT, the set-aside order u/s. 143(3) r.w.s. 254 was passed on 26.04.2017. 4. The case records were called for. On perusal of the same, it was seen that during the year, two wholly owned subsidiaries namely, M/s. Vikram Capital Resource Pvt. Ltd and M/s. Mitfin Cap Lease Ltd were amalgamated with the assessee. The transferor companies were holding the 90,33,701 shares of Adani Enterprises Ltd at the time of amalgamation, which were sold during the year for consideration of Rs.869.17 crores. The amalgamation of M/s. Mitfin Cap Lease Ltd. and M/s. Vikram Capital Resource Pvt. Ltd. was approved by Hon'ble Gujarat High Court on 08.10.2007^ Further, as per scheme of amalgamation, the purchase method had to be followed and accordingly, the fair value of assets and liabilities was to be determined as defined in Accounting Standard (AS)-14. It is noticed that the shares of Adani Enterprises were to be revalued as on 01.04.2007 (i.e., the effective date of amalgamation) on the basis of quoted market price on that date. For the purpose of computing net profit on sale of shares as per books, the value'per share of Adani Enterprises as on 01.04.2007 was taken at Rs. 864/- per share (total consideration of Rs. 780.51 crore / 90,33,701 shares). However, the value adopted by the assessee in respect of share of Adani Enterprises Ltd as on 01.04.2007 is found not correct as it was seen from the

AO in its assessment order passed under section 143(3) dated 31.12.2010 made additions as under:

Thereafter, the assessee went in appeal before the Ld. CIT(A) who has deleted all the additions except addition of Rs.1.66 crore under section 14A read with rule 8D vide order dated 04.08.2011.

Assessee then preferred appeal before the Tribunal which has restricted the addition made by the AO and confirmed by the Ld. CIT(A) under section 14(A) to Rs.24,77,461/- vide its order dated 07.03.2016 . Department has also preferred an appeal against the aforesaid addition/relief granted by the Ld. CIT(A) qua short term capital loss of Rs.87.66 crores allowed by Ld. CIT(A) and in the appeal the Tribunal remitted the issue back to the AO for further verification vide its order dated 07.03.2006.

Pursuant to the order passed by the Tribunal the AO framed fresh assessment under section 254 read with section 143(3) of the Act vide order dated 26.04.2017 by disallowing the short term capital loss (STCL) and appeal against the said order is pending before the Ld. CIT(A).

Assessment order dated 26.04.2017 framed by the AO under section 254 read with section 143(3) of the Act being the subject matter of order passed under section 263 of the Act by the Ld. PCIT, has been set aside directing the AO to pass fresh order after computing the book profit under section 115JB of the Act after making necessary enquiries.

However, on the other hand, Ld. D.R. for the Revenue in order to repel the argument addressed by the Ld. A.R. for the assessee contended inter alia that in the original assessment passed by the AO under section 143(3) of the Act the AO has not ascertained and examined the correct book profit on transfer of these shares in the original as well as order passed under section 143(3) read with section 254 of the Act; that even the Ld. CIT(A) in its order dated 04.08.2011 has not examined the issue but he has merely given a reference as to the value of the share in para 2 of

In the backdrop of the aforesaid undisputed facts, order passed by the Ld. Lower Revenue Authorities, argument addressed by Ld. Authorised Representative of the parties to the appeal and case law relied upon the sole question arises for determination in this case is: “as to whether AO has framed the original assessment under section 143(3) and assessment under section 263 read with section 254 of the Act without ascertaining and examining correct value of shares @ Rs.864 per share as adopted in the valuation report as against Rs.210 per share as per scheme of amalgamation approved by the High Court effective from 01.04.2007.”

We have perused the order passed by the co-ordinate Bench of the Tribunal in case of Mrs. Jyoti Harshad Mehta-Legal Heir of Late Husband S. Mehta (supra) which has been decided in favour of the assessee on the ground that the assessment order passed “in consequence of giving appeal effect of the order passed by the Ld. CIT(A) which is not included in the order eligible for revision in the aforesaid explanation of section 263 of the Act and technically it cannot be called to be the order of AO and clause C of

But we are of the considered view that facts of the case at hand are distinguishable because issue as to ascertaining and examining the correct book profit on transfer of 90,33,701 shares of M/s. Adani Enterprises Ltd. @ Rs.210/- per share comes to Rs.189.71 crore and not Rs.780.51 crore as adopted by the assessee was never examined by the AO either in original assessment or in assessment framed under section 143(3) read with section 254 of the Act.

It is apparent on record that the AO has computed the book profit under section 115JB of the Act without making any enquiry or verification qua the correct book profit which is Rs.679.46 crores and not Rs.189.71 crore as taken by the assessee, thus making the assessment order prima-facie erroneous in so far as prejudicial to the interest of the Revenue within the meaning of explanation 2(a) to section 261(3) of the Act.

Hon’ble Bombay High Court in case of CIT vs. Ballarpur Industries Ltd. (supra) held that when the AO had allowed claim without examining it with due verification, exercise of jurisdiction of commissioner under section 263 of the Act was justified. In another case cited as Vedanta Ltd. vs. CIT (2021) 124 taxmann.com 435 (Bombay) Hon’ble Bombay High Court held that when assessment was completed without proper enquiries, the Commissioner was competent to invoke revisionary jurisdiction and direct fresh assessment under section 263 of the Act.

The Ld. D.R. for the Revenue relied upon a decision rendered by Hon’ble Supreme Court of India in case of CIT vs. Shri Arbuda Mills Ltd. (supra) wherein “Commissioner has exercised his powers under section 263 of the Act in respect of the claim relating to 3 items which were decided by the ITO in favour of the assessee and were not subject matter of the appeals by the assessee – assessee contended that order of ITO merged with that of Commissioner (Appeals) so as to exclude jurisdiction of the Commissioner under section 263 of the Act. The question arose before the Hon’ble Apex Court as to whether in view of the amendment in section 263 by the Finance Act, 1989 with retrospective effect, power of Commissioner under section 263 of the Act would extend and would be deemed always to have extended to three items because same had not been considered and decided in appeal filed by the assessee.” Answer to this question was given by the Hon’ble Supreme Court in affirmative.

We have perused the order dated 04.08.2011 passed by the Ld. CIT(A) available at page 72 to 111 of the paper book and order passed by co-ordinate Bench of the Tribunal available at page 124 to 136 of the paper book.

Perusal of the order passed by Ld. CIT(A) and co-ordinate Bench of the Tribunal in assessee’s own case goes to prove that the issue flagged by Ld. PCIT while invoking the jurisdiction under section 263 of the Act as to the cost of acquisition of shares of Adani Enterprises “at the rate of Rs.210 per share which comes to Rs.189.71 crores (for 90,33,701 shares) and not Rs.780.51 crores as adopted by the assessee” has not been examined/verified by the

However, when co-ordinate Bench of the Tribunal restored the matter to the files of the AO with the direction to decide the matter de-novo after thorough examination of the same the issue as to giving finding by the AO that “assessee gains from the sale of shares of Adani Enterprises” was alive and AO was not restricted by the Tribunal to decide the issue as to the short term capital loss claimed by the assessee to the tune of Rs.88.50 crore being fictitious only rather denovo trial was directed to be made. In these circumstances, the contentions raised by the Ld. A.R. for the assessee that when the issue is remanded back, AO passed the order by giving appeal effect and the same cannot be subjected to revision under section 263 of the Act is not sustainable.

Because issue flagged by the Ld. PCIT remained dormant before the AO as well as the Ld. CIT(A) during the initial assessment framed under section 143(3) of the Act and during the assessment framed under section 143(3) read with section 254 of the Act. As discussed in the preceding paras Hon’ble Bombay High Court in case of Ballarpur Industries Ltd. (supra) and in case of Vedant Ltd. vs. CIT (supra) held that when the assessment was completed without proper enquiry the Commissioner was competent to invoke the jurisdiction and direct fresh assessment under section 263 of the Act.

Identical issue has also been decided by the Hon’ble Supreme Court in case of Shri Arbuda Mills Ltd. (supra) as

In the instant case also the issue flagged by Ld. CIT(A) as to not ascertaining and examining the correct book profit on transfer of 9033701 shares of Adani Enterprises at the rate of Rs.201 per share which comes to Rs.189.71 crore and not at the rate of Rs.864 per share which comes to Rs.780.51 crore, which the AO has accepted without ascertaining and examining the correct facts and without making necessary enquiries/verifications which made the assessment order erroneous so far as prejudicial to the interest of the Revenue, was never agitated or decided by the Ld. CIT(A) or Tribunal in original assessment or assessment framed under section 143(3) read with section 254 of the Act. So in these circumstances the Ld. PCIT has the power under section 263 of the Act. So we are further of the view that in the case laws relied upon by the assessee referred to para 12 of the order are not applicable to the facts and circumstances of the case.