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Facts
The assessee purchased unlisted equity shares, and the Assessing Officer (AO) framed an assessment under Section 143(3) accepting the declared valuation. Subsequently, the Pr. Commissioner of Income Tax (PCIT) initiated revisionary proceedings under Section 263, alleging that the AO's order was erroneous and prejudicial to the revenue due to an under-assessment based on incorrect share valuation, as the PCIT used the consolidated balance sheet instead of the standalone balance sheet.
Held
The Tribunal held that the AO had conducted proper inquiries into the share valuation and accepted the assessee's explanation, making the assessment neither erroneous nor prejudicial to the revenue. The PCIT wrongly considered the consolidated balance sheet for valuation instead of the standalone balance sheet. As the twin conditions for invoking Section 263 (erroneous and prejudicial to revenue) were not met, the PCIT's jurisdiction was invalid, and the order under Section 263 was quashed.
Key Issues
Validity of revisionary jurisdiction exercised by the PCIT under Section 263 when the Assessing Officer had conducted a detailed inquiry and taken a plausible view regarding the valuation of unlisted shares based on a standalone balance sheet.
Sections Cited
263, 143(3), 56(2)(x)(c), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
This is an appeal preferred by the assessee against the revisionary order of the ld. Pr. Commissioner of Income Tax(hereinafter referred to as the “Ld. PCIT”] dated 24.01.2025 for the AY 2021-22.
The only issue raised by the assessee in the various grounds of appeal is against the invalid exercise of jurisdiction u/s 263 of the Act by the ld PCIT and consequently, order passed by the ld. PCIT u/s 263 of the Act was also invalid and nullity in the eyes of law.
The facts in brief are that the ld. AO framed the assessment u/s 143(3) of the Income-tax Act, 1961 (the Act) on 29.12.223, assessing the total income at ₹12,13,10,290/- as against the NIL income declared by the assessee. According to ld. PCIT, the order passed by the ld. AO u/s
The ld. AR vehemently submitted before us that the ld. PCIT has invalidly invoked jurisdiction u/s 263 of the Act to revise the assessment by mis-construing the facts qua the valuation of shares. The ld. AR submitted that during the year the assessee acquired the share of M/s Ankit Polyfabs Pvt. Ltd. to the tune of 1,95,500/- for a consideration of ₹1,86,76,115/- meaning thereby that the shares were purchased at ₹95.53 per share. The ld. AR submitted that according to ld. PCIT, the value of per share was Rs. 244.78. the ld. AR submitted that the ld. PCIT has wrongly taken the total assets of the assessee company at ₹12,17,80,199/- for calculation of fair market value of the shares which was incorrect as he had taken the total assets from the consolidated balance sheet of the said company by considering the
The ld. AR also referred to the notice issued by the ld. AO u/s 142(1) of the Act on 13.11.2023 along with detailed questionnaire and at point no.26, the ld. AO specifically asked about the unlisted equity shares acquired by the assessee and called for the necessary details in respect thereof. The ld. AR submitted that the assessee filed point wise reply vide submission dated 27.12.2023, a copy whereof is available at paper book. The ld. AR submitted that in Para no.14 in the written submissions , the assessee submitted details of purchase of shares, bills for the said transaction for purchase of shares made, payments and market value of the company whose unlisted shares were purchased. The AR therefore submitted that only after considering the reply of the assessee, the AO accepted the contentions/explanation of the assessee with regard to valuation of equity shares and no addition was made u/s 56(2)(x)(c) of the Act. The ld AR argued that the ld. AO had made a detailed enquiry during the course of assessment proceedings and therefore, the assessment order is neither erroneous nor prejudicial to the interest of the Revenue. The ld AR argued that the jurisdiction u/s 263 is only available if the twin conditions are satisfied. The ld. AR in defense of his argument relied on the decision of Malabar Industrial Co.
The ld. DR on the other hand relied heavily on the order of ld. PCIT by submitting that the fair market value of the share has to be determined on the basis of consolidated balance sheet and not on the basis of stand- alone balance sheet of the assessee and therefore, the revisionary
We have heard the rival contentions and perused the materials available on record. The undisputed facts are that the assessee has been allotted 1,95,500/- equity shares of M/s Ankit Polyfabs Pvt. during the year for total consideration of ₹1,86,76,115/-. The fair market value of the shares was determined on the basis of total assets as on 31.03.2021 as per the balance sheet (standalone basis), which were ₹4,75,03,712/- and by dividing by total number of share subscribed 4,97,500/- which comes to ₹95.48 per share. However, the shares were issued to the assessee at a price of ₹95.53, which is higher than the fair market value as calculated above and therefore, the provisions of Section 56(2)(x)(c) of the Act are not applicable. In this case the assessment was framed u/s 143(3) of the Act vide order dated 29.12.2023. We note that during the course of assessment proceedings, notice was issued by the ld. AO u/s 142(1) of the Act dated 13.11.2023 calling upon the assessee to furnish various details including the details of share purchases during the year specifically in point no.26, the issue was raised by the ld. AO. The said question was replied by the assessee during the assessment proceedings by furnishing all the details and the ld. AO framed the assessment accepting the submissions of the assessee and no addition was made u/s 56(2)(x)(c) of the Act qua the purchase of shares by the assessee . However, the ld. PCIT on perusal of the assessment record noted that the fair market value of the shares should have been ₹244.78. The ld. PCIT determined the market value of shares on the basis of total assets as per the consolidated balance sheet which were ₹12,17,18,199/- and not on the basis of standalone balance sheet. The ld. PCIT included in the total assets for the purpose of valuation , the assets belonging to associates and subsidiary companies which in our opinion is wrong and can not be accepted. In our opinion, the order
" that to exercise of jurisdiction by the Commissioner suo moto under the provisions of Section 263 of the Act, he has to be satisfied of twin conditions, namely (1) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revemie. If one of them is absentif the order of the Income Tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue recourse can not be had to Section 263(1) of the Act" In the same case it has also been held that "The phrase 'prejudicial to the interests of the revenue' has to read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interest of the revenue, for example, when an Income Tax Officer adoptedon of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law.”
2.The assessee does not have control over the pen of the Assessing Officer. Once the Assessing Officer carries out the investigation but does not make any addition, it can be taken that he accepts the plea and stand of the assessee. 3.In such cases, it would be wrong to say that the Revenue is remediless. The power under Section 263 of the Income Tax Act, 1961, can be exercised by the Commissioner of Income Tax, but by going into the merits and making an addition, and not by way of a remand, recording that there was failure to investigate. There is a distinction between the failure or absence of investigation and a wrong decision/conclusion. A wrong decision/conclusion can be corrected by the Commissioner of Income Tax with a decision on merits and by making an addition or disallowance. 4.There may be cases where the Assessing Officer undertakes a superficial and random investigation that may justify a remit, albeit the Commissioner of Income Tax must record the abject failure and lapse on the part of the Assessing Officer to establish both the error and the prejudice caused to the Revenue. Recording the aforesaid, the special leave petition is dismissed.
Similarly, where the learned AO has taken a plausible view of one of the two possible views even then the order passed by the learned AO cannot be said to be erroneous and prejudicial to the interest of the Revenue unless the view taken by the ITO is not in accordance with law or contrary to the facts on record. The case of the assessee find support from the decision of the Hon'ble Apex Court in the case of Max India Ltd. (supra) and Ultratech Cement Ltd. Vs State of Rajasthan (supra) where two view existed and AO has taken one view, it can not
Considering the facts of the above case, in the light of ratio laid down in the decisions above, we are of the considered view that the jurisdiction u/s 263 was invalidly invoked by the ld. PCIT. Accordingly, we are inclined to quash the order passed u/s 263 of the Act.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 11.11.2025.