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Income Tax Appellate Tribunal, ‘B’ BENCH, KOLKATA
Before: Shri Rajpal Yadav, Vice-(KZ) & Shri Girish Agrawal
Per Rajpal Yadav, Vice-President (KZ):- The present appeal is directed at the instance of assessee against the order of ld. Principal Commissioner of Income Tax, Burdwan dated 29.05.2020 passed under section 263 of the Income Tax Act, 1961 for assessment year 2015-16.
The Registry has pointed out that appeal is time-barred by 685 days, but it is to be observed that the impugned order was passed on 29.05.2020 after the COVID period started and the appeal has been filed before the Tribunal in June, 2022. The period of limitation is being excluded by the Hon’ble Supreme Court in its order, passed time to time in suo motu Writ Petition No. 3 of 2020. The directions have been issued by the Hon’ble Court and have been extended from time to time and if the
ITA No. 344/KOL/2022 Assessment Year: 2015-2016 Bhiringhee Mining & Minerals Pvt. Limited COVID period is being excluded keeping in view the Hon’ble Supreme Court’s order, then there is no substantial delay in filing the appeal on the part of the assessee. Therefore, we condone the delay and proceed to decide the appeal on merit.
The solitary grievance of the assessee is that the ld. CIT has erred in taking cognizance under section 263 and thereby setting aside the assessment order dated 29.11.2017 passed under section 143(3) of the Income Tax Act.
Brief facts of the case are that the assessee has filed its return of income electronically on 30.09.2015 declaring total income of Rs.2,75,97,105/-. The case was selected for scrutiny assessment and a notice under section 143(2) was issued and served upon the assessee. The ld. Assessing Officer has passed the assessment order under section 143(3) on 29.11.2017. One of the issues pointed out by the ld. Assessing Officer relates to the transfer of shares by the assessee on 21.10.2014 @ Rs.40/- per share. According to the ld. Assessing Officer, the value ought to have been taken at Rs.40.41 per share as per Income Tax Rules, 1962. Hence, he made an addition of Rs.4,10,000/-.
The ld. Commissioner perused the assessment record and formed an opinion that assessment order is erroneous as much as prejudicial to the interest of revenue. Therefore, he took cognizance under section 263 and issued a show-cause notice to the assessee. The copy of the show-cause notice is available at pages no. 11 & 12 of the paper book, which reads as under:- “OFFICE OF THE PR.COMMISSIONER OF INCOME TAX, BURDWAN AAYAKAR BHAWAN : CITY CENTRE : DURGAPUR- 713216 F. No: Pr.CIT/BWN/Tech-263/2019-20/7580 Date: 13.03.2020 To The Director M/s Bhiringhee Mining and Minerals Pvt Ltd. Old Court More, G T Road. Bhiringhee, Durgapur - 713203.
ITA No. 344/KOL/2022 Assessment Year: 2015-2016 Bhiringhee Mining & Minerals Pvt. Limited
Sub: - Show Cause Notice u/s 263 of the I.T.Act, 1961 in the case of M/s Bhiringhee Mining and Minerals Pvt Ltd., PAN-AAFCB9026K, A.Y. 2015-16 - Matter reg. sir Please refer to the above subject.
On being selected for scrutiny through CASS assessment was completed in the instant case u/s 143(3) on 29.11.2017 assessing total income of Rs. 2,80,07,110/- foY the A.Y. 2015-16.
On subsequent perusal of the said assessment order and assessment record the following discrepancies were noticed:
2.01. The A.O. has made addition of Rs.4,10,000/- U/s 56(2)(viib). The ground of addition is that the assessee company issued shares at a disount of Rs.0.41 per equity share. The discount arrived by the AO is further based on the difference between fair market value of each share which is Rs.40.41 per share and the actual sale price of such share which is at Rs.40/-. But the secctin 56(2)(viib) states as following “where company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of share that exceeds the face value of such share the aggregate consideration received for such share as exceeds the fair market value of the excessive consideration shall be chargeable to income tax under the Head ‘income from other sources’.
2.02. The A.O. has accepted the valuation report of shares of the assessee company under Rule 11 UA(2)(b) given by the Chartered Accountant without any enquiry whatsoever. The review of the same is more pertinent form the facts that in the calculation sheet of the valuation of shares as on 21-10-2014, the profit after tax (PAT) for the F.Y.2014-15 has been taken as Rs.22,50,000/- whereas actual PAT for the year ending on 31-03-2015 is Rs. 1,84,32,026/-. Thus, the estimation used in the valuation is far beyond the reality and the AO during the scrutiny was required to verify the veracity of the claim as made by the assessee.
2.03.Therefore, it is ample clear that in respect of valuation report of shares of the assessee company was accepted during the scrutiny proceeding without making any inquires or verification made for the assessment year under consideration.
3.In view of the above, the assessment order dated 29.11.2017 passed by the assessing officer, is erroneous in so far as it is prejudicial to interest of revenue, attracting action u/s 263 of the IT Act 1961. I, therefore intend to revise/set aside the said assessment order u/s 263 of The Income Tax Act, 1961 and accordingly, if you have to say anything or file written submission the same may be done on or before 24.03.2020 either by person or through authorized representative.
4.In case you would like to appear personally or through authorized representative, the same may be done on 24.03.2020 at 12:30 PM in my office situated at 7th floor, Aayakar Bhawan, Chowringhee Square, Kolkata - 700069. Yours faithfully, Sd/- (SAMAR BHADRA) PR. COMMISSIONER OF INCOME TAX, BURDWAN”
ITA No. 344/KOL/2022 Assessment Year: 2015-2016 Bhiringhee Mining & Minerals Pvt. Limited
The ld. CIT thereafter passed the impugned order and set aside the assessment order with a direction to pass a fresh assessment order.
The ld. Counsel for the assessee while impugning the order of ld. CIT contended that the ld. CIT has erred in pointing out error in the valuation of the shares made by the assessee under Rule 11UA(2)(b). According to him, ld. CIT was of the opinion that valuation ought to be done on 31.03.2015 that is on the closure of the accounts after taking into the profits ending on 31.03.2015. He took us through the Rule 11UA(2)(b). He pointed out that the valuation of shares is to be determined for the purpose of section 56(2)(viib) on the date of allotment/transfer of such shares. He further took us through section 56(2)(viib) and pointed out that a deemed gift in the hands of transferee of lower price charged by the transferor would be considered on the date of transfer. Thus if both these provisions are read conjointly, then, it would come out that the valuation of shares are to be determined on the date of valuation when shares are issued by the asseessee and if the details are examined with this angle, then the appointed date of valuation is 21.10.2014. The assessee has already taken the profit as on that date into consideration while determining the valuation.
The ld. Counsel further contended that this aspect has been examined by the ld. Assessing Officer and it has been discussed in the impugned order. The ld. Assessing Officer has not accepted the valuation adopted by the assessee, rather held that price of the shares are to be taken at Rs.40.41 per share as against Rs.40/- per share adopted by the assessee, because according to the ld. Assessing Officer, the valuer has determined the value at 40.41. Thus the difference of Rs.0.41 per share has been added to the total income of the assessee. According to him, this indicates that the ld. Assessing Officer has made an enquiry and applied his mind on the issue.
ITA No. 344/KOL/2022 Assessment Year: 2015-2016 Bhiringhee Mining & Minerals Pvt. Limited 8. In his next fold of submission, he contended that if a hypothetical example is being taken on the line of argument advanced by the ld. CIT in the impugned order, then also there is no prejudice to the revenue and no 263 can be invoked. Elaborating his this fold of argument, he contended that, for example, if for argument sake the view point of the ld. CIT is adopted, then the profit at the end of the year of Rs.1,84,32,026/- is required to be taken into consideration in the valuation, then the value of the shares will be more and that means, the assessee will be charging lesser price for the shares transferred by it and the alleged deemed gift if any taxable under section 56(2)(viib) will be in the hands of recipient. The assessee is not the recipient. Section 56(2)(viib) is at all not applicable in the hands of the assessee. Again there is no prejudice to the revenue.
On the other hand, ld. CIT(DR) relied upon the order of the ld. CIT and also pointed out that defects in the valuation of the assessee.
We have heard the ld. Representatives and with their assistance gone through the record carefully. Before we embark upon an enquiry on the facts and issues agitated before us to find out whether the action u/s 263 of the Act, deserves to be taken against the assessee or not, it is pertinent to take note of this section. It reads as under:- “263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
ITA No. 344/KOL/2022 Assessment Year: 2015-2016 Bhiringhee Mining & Minerals Pvt. Limited [Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income Tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) “record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
ITA No. 344/KOL/2022 Assessment Year: 2015-2016 Bhiringhee Mining & Minerals Pvt. Limited (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
A bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing
ITA No. 344/KOL/2022 Assessment Year: 2015-2016 Bhiringhee Mining & Minerals Pvt. Limited Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263.
(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law.
ITA No. 344/KOL/2022 Assessment Year: 2015-2016 Bhiringhee Mining & Minerals Pvt. Limited (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.
(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.
(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
In the light of above, if we examine the facts and circumstances, then we are of the view that the impugned order is not sustainable for the following reasons:- (a) The assessee has worked out the valuation on the date of valuation provided in the Rule 11UA(2)(b).
(b) The Rule nowhere contemplates that this valuation will be taken up after considering the profit at the end of the year. It is very
ITA No. 344/KOL/2022 Assessment Year: 2015-2016 Bhiringhee Mining & Minerals Pvt. Limited specific that it should be the date when the shares are allotted/ issued.
Apart from the above, we find that there is no prejudice to the revenue because the assessee is not the recipient of alleged deemed gift under section 56(2)(viib). Hence, the twin conditions required to be fulfilled under section 263, i.e. erroneousness of the impugned order, vis- a-vis prejudice caused to the revenue are missing. The alleged deemed gift by charging lower price of shares is not taxable in the hands of assessee. It is chargeable in the hands of receipt, therefore, there is no loss of revenue in the hands of assessee. Accordingly, we allow this appeal of the assessee and quash the impugned order.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on October 11, 2022. Sd/- Sd/- (Girish Agrawal) (Rajpal Yadav) Accountant Member Vice-President (KZ) Kolkata, the 11th day of October, 2022
Copies to : (1) Bhiringhee Mining & Minerals Pvt. Limited, Old Court More, G.T. Road, Bhiringhee, Durgapur-713203
(2) Principal Commissioner of Income Tax, Burdwan Aayakar Bhawan, City Centre, Durgapur-713216, West Bengal (3) Commissioner of Income Tax, Kolkata- ; (4) The Departmental Representative (5) Guard File