RISSALA DECOR PVT LTD,GURGAON vs. PR. CIT, GURGAON

(A) This appeal by Assessee is filed against the impugned revisionary order dated 05.03.2019 of Learned Principal Commissioner of Income Tax, Gurgaon, [“Ld. Pr.

CIT”, for short], for Assessment Year 2014-15. Grounds taken in this appeal of Assessee are as under:

1. 1. That the learned Pr.CIT erred in law and on facts in invoking the provisions of Section 263 of the Income Tax Act 1961 and passing the order dated 05:03.2019. The order-passed and the various directions given are bad in law, arbitrary, erroneous and uncalled for in view of the facts and circumstances of the case and the material on record. The order there fore deserves to be quashed.

2. MAINTAINABILITY / VALIDITY OF REVISIONARY PROCEEDINGS U/S 263 TOWARDS JUSTIFICATION OF SHARE PREMIUM WITH REGARD TO FMV OF EQUITY SHARES COMPUTED UNDER "DCF" METHOD: That in view of the written replies dated 21st January ,2019 and 2.1 11th February,2019 to the notice U/s 263 with all the enclosures filed including affidavits from investors in the equity shares and the ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. oral arguments advanced before him during the hearings^ the learned Pr.CIT erred in law and in facts in still holding that the order passed by the AO was erroneous and prejudicial to the interest of revenue without contracting the various claims, through any cogent material or on any proper basis. The order U/s. 263 therefore, deserves to-be-quashed. 2.2 That on facts and circumstances of the case and in law, the Pr.CIT had erred in invoking provisions of section 263 without appreciating the fact that the FMV of Equity Shares Issued determined by the assessee under "DCF" method prepared by Chartered Accountant was based on the projections (estimations) only could not be compared with the actuals and AO had no authority to change valuation method adopted by the assessee. The AO had passed the assessment order accepting the FMV of equity Shares determined under "DCF" method after detailed examination of facts in the Appellants' case and position of law had followed one of the course permissible in law and accordingly order dated 5th March 2019 passed by the Pr.CIT under section 263(1) of the I.T. Act, 1961 is without jurisdiction, void an initio and deserves to be quashed. 2.3 That without prejudice to the above, the learned Pr.CIT erred in law and on facts without appreciating the fact that provisions of Sec 56(2)(viib) cannot be invoked in the case of the assesses company -because by virtue of cash being brought in to the assessee company by close relatives for allotment of equity shares with premium the benefit has only passed to the close relative directors and there is no scope in the Act to tax when cash or asset is transferred by a -close-relative to other close relatives. 2.4 That on facts and circumstances of the case and in law, the Pr.CIT order under section 263 setting aside the assessment be cancelled and AO's order -under section 143(3) dated 12.05.2016 be restored.

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. had followed one of the possible course permissible in law, then it was not open to the Pr.CIT to treat the assessment order erroneous and prejudicial to the interest of revenue within meaning of section 263 of the Act. There fore the the Pr.CIT order under-section 263 setting aside-the assessment be cancelled and AO's order under section 143(3) dated 12.05.2016 be restored.

(B) Assessment Order dated 12.05.2016 under Section 143(3) of Income Tax Act, 1961 (“I.T. Act”, for short) was passed by the Assessing Officer (“AO”, for short), wherein the returned loss of Rs. 1,17,84,680/- was accepted by the AO. The Assessment Order is reproduced below for ready reference:

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd.

(B.1) Vide show caused notice dated 29.11.2018, the Learned Principal Commissioner of Income Tax, Gurgaon (“Ld. PCIT”, for short), initiated revision proceedings under Section 263 of the I.T. Act. The aforesaid notice is reproduced below for ready reference:

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd.

(B.3) Subsequently, order under Section 263 of I.T. Act dated 05.03.2019 was passed by the Ld. PCIT is reproduced below for ready reference:

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd.

”

(C) The present appeal has been filed by the Assessee against the aforesaid order dated 05.03.2019 passed by Ld. PCIT under Section 263 of I.T. Act. In the course of appellate proceedings in Income Tax Appellate Tribunal (“ITAT”, for short) a Paper Book containing 138 pages was filed from the assessee’s side, having the following particulars:

1. Auditor’s report report for the FY 2013-14 relevant to AY 2014-15 2. Equity Share Valuation report under Rule 11UA (2)(b) under ‘DFCF’ Method 3. Return filed on 05/11/2014 vide E Filing Act. No: 401465931051114 4. Notice issued u/s 142(1) dated 02/05/2016 issued by AO 5. Reply dated 04th May 2016 in response to notice issued u/s 142(1) 6. Reply dated 04th 09th May 2016 in response a notice issued u/s 142(1) 7. Assessment Order dated 12/05/2016 passed u/s 143(3) 8. Show cause notice dated 29/11/2018 issued u/s 263 by Pr. CIT, Gurgaon 9. Written submission dated 21/01/2019 with Paper Book submitted before Pr. CIT 10. Written submission dated 11/02/2019 with Affidavits submitted before Pr. CIT Affidavits of Share Applicants. Page 9 of 34

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd.

(C.1) In addition the following documents were also filed from the assessee’s side:

“1. During the FY 2014-15 relevant to AY 2015-16, Equity Shares 1,35,366 Nos were issued to 7 Share holders except to Sh. Ajay Ahlawat as per list enclosed.

4. CIT(A) in appeal No. 419/17-18 vide order dated 29/06/2018 deleted the addition. Appeal order copy is enclosed.

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd.

(C.2) Moreover, synopsis was also filed from the assessee’s side which is reproduced below for ready reference:

“

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd.

”

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd.

(C.3) In addition a further write-up, vide letter dated 19.12.2019 was also submitted from the assessee’s side which is reproduced below for ready reference:

“

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd.

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd.

”

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd.

(D) On the other hand, written submissions were filed by the Learned Commissioner of Income Tax (Departmental Representative) [“Ld. CIT(DR)”, for short] which is reproduced below:

“

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd.

”

(E) Although, the assessee has taken numerous grounds of appeal, the core issue in the present appeal is whether the aforesaid impugned revisionary order dated 05.03.2019 passed by Ld. Pr. CIT under Section 263 of I.T. Act is in accordance with law. At the time of hearing before us, the Learned Authorized Representative (“AR”,

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. for short) of the assessee took us through the various materials filed from the assessee’s side, in the course of appellate proceedings in ITAT, already mentioned in the foregoing paragraphs (C) (C.1), (C.2) and (C.3) of this order. He drew our particular attention to the fact that the AO had considered the Discounted Cash Flow Method (“DCF”, for short) for determining the share premium in the respect of equity share issued by the assessee. However, he fairly admitted that no enquiries were conducted at the end of the AO, and further that no materials were placed from assessee’s side before the AO during assessment proceedings, to establish the genuineness of cash credit within the meaning of Section 68 of I.T. Act, in respect of issue of equity share at premium.

(E.1) On the other hand, the Ld. CIT(DR) drew our attention to the facts that the assessee’s case was selected for scrutiny through CASS for the purpose of verification of large share premium received during the year. She further submitted that the verification of large share premium involved two aspects: firstly, the AO was required to verify the genuineness within the meaning of Section 68 of I.T. Act in respect of the entire amount of share capital received by the assessee during the year. Secondly, the Ld. CIT(DR) contended that the AO was required to verify whether the amount of share premium paid for each equity share was not excessive, having regard to provisions of law. In the present case, the Ld. CIT(DR) submitted, the AO had completely failed in carrying out the aforesaid first aspect of verification; although, she fairly accepted that verification in regard to quantum of share premium paid (as

per DCF method) was carried out by the AO. The Ld. CIT(DR) contended that having Page 29 of 34

CIT under Section 263 of I.T. Act. She further submitted that the judicial precedents in the cases of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi), Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC), referred to by the Ld. Pr. CIT in his impugned revisionary order dated 05.03.2019 passed under Section 263 of I.T. Act, were squarely applicable to the facts of the case. She further placed reliance on the written submissions filed during appellate proceedings in ITAT, which have already been reproduced by us in foregoing paragraph (D) of this order. The Ld. CIT(DR) further submitted that although numerous case laws and judicial precedents have been cited from assessee’s side in the various materials [mentioned already in foregoing paragraphs (C), (C.1), (C.2) and (C.3) of this order]; the facts were distinguishable and were of no help to the assessee having regard to the facts and circumstances of the present case. In his rejoinder, the Ld. AR of the assessee once again reiterated the submissions and contentions raised in various materials [mentioned already in foregoing paragraphs (C), (C.1), (C.2) and (C.3) of this order]. However, he failed to explain how any of the judicial precedents and case laws cited from the assessee’s side will advance the case of the assessee in the facts and circumstances of the present case.

(F) We have heard both sides patiently. We have perused the materials available on record carefully. We have also considered the various judicial precedents and case laws mentioned in the records which were brought to our attention in the course of Page 30 of 34

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. appellate proceedings in ITAT. Limitation Period for passing Assessment Order under Section 143(3) of I.T. Act is prescribed under Section 153(1) of I.T. Act. According to these provisions, the deadline for passing Assessment Order under Section 143(3) of I.T. Act, was 31.12.2016. However, we find that the aforesaid order has been passed on 12.05.2016; which is several months ahead of deadline prescribed under I.T. Act for passing Assessment Order under Section 143(3) of I.T. Act read with Section 153(1) of I.T. Act. Further, it is not in dispute that the case was selected for scrutiny with the main reason of verification of large share premium received during the year.

Moreover, it is also not in dispute that the AO had completely failed in carrying out any verification in respect of the share capital issued during the year for the purpose of ascertain the genuineness of these cash credits within the meaning of Section 68 of I.T. Act. It is well settled that it is the initial burden of the assessee to prove identity of the person, genuineness of the transaction and financial capacity of the person; as far as transactions covered by Section 68 of I.T. Act are concerned. From perusal of various materials filed from the assessee’s side during the appellate proceedings in ITAT, already mentioned in the foregoing paragraphs (C), (C.1), (C.2) and (C.3) of this order, it is evident that although some materials were placed from assessee’s side before the Ld. Pr. CIT in the course of revision proceedings under Section 263 of I.T.

Act in an attempt to prove the genuineness of cash credit within the meaning of Section 68 of I.T. Act in respect of share capital issued at premium, no such materials were placed from the assessee’s side before the AO during the assessment proceedings; and further, that no effort was made by the AO to ascertain the genuineness of cash credits within the meaning of Section 68 of I.T. Act. Thus, we

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. conclude that the aforesaid Assessment Order dated 12.05.2016 was passed without making inquiries or verifications which should have been made for ascertaining the genuineness of the cash credits within the meaning of Section 68 of I.T. Act. We also note that by virtue of Explanation 2 to Section 263 of I.T. Act, w.e.f 1- 6-2015, an order passed, in the opinion of the Principal Commissioner or Commissioner of Income Tax, without making inquiries or verifications which should have been made, shall be deemed to be erroneous in so far as it is prejudicial to the interests of Revenue. Having regard to amended provisions of Section 263 of I.T. Act w.e.f. 1-6-2015 and having regard to undisputed facts, the aforesaid judicial precedents and case laws relied upon by the assessee, have no application to present appeal before us and fail to advance the case of the assessee. The Ld. AR of the assessee had also failed to explain how, in the specific facts and circumstances of this case, the judicial precedents cited from the assessee’s side, advance the case of the assessee. It can be readily inferred, considering the undisputed facts, that the Assessment Order was passed by the AO without making inquiries and verifications which should have been made for ascertaining the genuineness of cash credits within the meaning of Section 68 of I.T. Act. This, by itself, is sufficient for us, to uphold the impugned revisionary order dated 05.03.2019 of learned of Pr. CIT, passed under Section 263 of I.T. Act. Coupled with that, is the fact, as we have already noted earlier, that the Assessment Order has been passed several months ahead of the deadline prescribed under I.T. Act. When an Assessment Order is passed several months ahead of prescribed deadline without making enquiries and verifications which should have been made;

ITA No.- 2895/Del/2019 M/s Rissala Décor Pvt. Ltd. it can be said that the order was passed without due application of mind, and in avoidable haste; and that makes a stronger case for exercise of jurisdiction under Section 263 of I.T. Act. Further, the judicial precedents in the cases of Gee Vee Enterprises v. Addl. CIT (supra), Rampyari Devi Saraogi v. CIT (supra) and Smt. Tara Devi Aggarwal v. CIT (supra); cited in the impugned revisionary order dated 05.03.2019 of the Pr. CIT passed under Section 263 of I.T.

Act are squarely applicable to the facts of the case especially having regard to amended provisions of Section 263 of I.T. Act w.e.f. 1-6-2015. Furthermore, the judicial precedents and case laws mentioned by the Ld. CIT(DR), already reproduced in foregoing paragraph (D) of this order, also strengthen the case of Revenue. In view of the foregoing, we are of the view that the impugned revisionary order dated 05.03.2019 passed by Ld. Pr. CIT under Section 263 of I.T. Act is in accordance with law, having regard to specific facts and circumstances of the present appeal before us. Therefore, we decline to interfere with the aforesaid impugned revisionary order dated 05.03.2019 of Ld. Pr. CIT passed under Section 263 of I.T. Act. Accordingly, the aforesaid impugned revisionary order dated 05.03.2019 of Ld. Pr. CIT passed under Section 263 of I.T. Act, is upheld and the appeal is dismissed.

Order is pronounced in Open Court on 03/01/20.