MAYANK JASHWANTLAL SHAH,MUMBAI vs. PR CIT 4, MUMBAI

The only issue in this appeal of assessee is against the revision order passed by PCIT under section 263 of the Act setting aside the assessment framed by the Assessing Officer despite the fact that he was unable to satisfy the twin conditions for invocation of revision proceedings under section 263 of the Act but order being erroneous and prejudicial to the interest of the Revenue. For this assessee has raised the following two grounds: -

“1. The learned CIT erred in passing an order under section 263 and setting aside the assessment framed by the Assessing Officer, although he was unable to satisfy the twin conditions of the Assessing Officer’s order being, erroneous and prejudicial to the interest of the Revenue.

Briefly stated facts are that the original assessment was framed under section 143(3) of the Act by the Assessing Officer vide order dated 30.01.2015 for the assessment year 2012-13. The PCIT-4, Mumbai subsequently issued show cause notice under section 263 of the Act for revising the assessment framed by the Assessing Officer vide notice dated 26.08.2016 as to why the order of the Assessing Officer be not held as erroneous and prejudicial to the interest of the Revenue. According to PCIT on examination of assessment records and form No. 26AS it reveals that the assessee has received interest income of ₹4,06,26,679/- but actually the assessee credited the total interest of ₹2,26,35,701/- in its computation of income. As against the interest income credited in the computation of income at ₹2,26,35,701/-, the assessee has offered net interest income of ₹2,23,66,329/-. According to PCIT the differential amount remained untaxed and Assessing Officer has not carried out any enquiry in this regard. Hence, he issued show cause notice for revising the assessment. Hence, the PCIT after considering the submissions of the assessee noted that the assessee has received total interest of ₹4,06,26,679/- as per 26AS but offered interest only to the tune of

We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the assessee, his family members and group concerns totally held 100% stake in company Biochem Pharmaceutical Industries Ltd. The said company was taken over by Cadila Health Care Limited under a Share Purchase Agreement dated 21.12.2011, pursuant to which the shares of the assessee, his

We noted that in response to query raised by the Assessing Officer, the assessee has given the details of Escrow Deposit, the interest earned and the disbursement of interest to Cadila Health Care, his family members and group concern stake holders. The details have been reproduced by the Assessing Officer in the assessment order. The assessee explained to Assessing Officer that all the beneficiaries of the interest incomes have declared the same in their individual returns of income and offered the same for tax. The copies of these returns with computations oft incomes were also furnished by the assessee before the AO as well as before the CIT(A) and even now before us. The Assessing Officer clearly missed out on a simple principle that if the funds for investment have emanated from one person, then logically

In view of these facts, now we will discuss the facts of this case in the first place. The assessee, his family members and their group concerns held 100% stake in Biochem Pharmaceutical Industries Limited. The company and its business were to be taken over by Cadila Healthcare Ltd by purchase of the 100% shares. The consideration for purchase of shares in such event is worked out by making a valuation of the assets and its liabilities. The purchase price is thus fixed by valuing the net worth of the company- assets minus liabilities. There is always an apprehension in mind of the purchaser that further liabilities may arise which has not been provided in books of accounts. Therefore, when a price is struck between the purchaser and seller for transfer of shares in company based on a net worth perception of the business taken over, the price is made subject to a rider that - further liabilities relating to the period when the seller owned the company surface In future, the incremental liabilities have to be re-imbursed by the seller. Some estimation is made by the seller and the buyer of this probable incremental liabilities and an amount to the extent of this

Now, tax has to be deducted at source by the escrow banker from the interest paid on fixed deposits and this will mean that a tax deduction certificate has to be issued by the bank as to who is the ultimate beneficiary of the interest - whether Cadila Health Care or the

In view of these facts, we are of the view that the AO as well as CIT(A) erred in holding that the entire interest belongs to assessee whereas, the assessee has passed on its share in proportion to the actual beneficiaries. It is only the assessee’s family members and group entities who have received the interest through the assessee and passed it to its real owner.

The assessee has filed complete details before the AO and AO after going through the details of interest as is mentioned in letter dated 05.10.2016 filed before Pr.CIT, the AO framed the assessment originally. The PCIT without looking into these details passed Revision Order for verification purpose only. Even in AY 13-14, i.e. immediately succeeding year in assessee’s own case the CIT(A) allowed the claim of the assessee in regard to distribution of proportionate interest received on account of Cadila Health Care Limited as well as Biochem Pharmaceutical industries Limited. Even the same Assessing Officer framed assessment in the hands of the assessee’s brother Shri Sheyans Jaswantlal Shah while framing assessment under section 143(3) of the Act for AY 2012-13 and accepted the interest declared in