BHAGYASHRI CREATION PVT LTD,SURAT vs. PCIT-1, SURAT

The assessee in its without prejudice submissions, submitted that assessee- company had taken loan from their directors and their relatives aggregating to Rs.98.00 lakh during assessment year 2015-16 and amount of Rs.24.00 lakh during assessment year 2017-18 and only Rs.1.00 lakh was received in assessment year 2018-19. All supporting documents in the form of ledger account of all the parties from whom the said amount of loan of Rs.1.23 crores taken, was also filed. Copy of tax audit report in Form-3CA-CD for assessment (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. year 2015-16 duly shown the loan from the parties of Rs.98.00 lakh was also filed are Annexure-3, copy of bank statement highlighting the entries were also furnished. The assessee reiterated that only Rs.1.00 lakh was received during the year under consideration. The loans were obtained from their directors and relatives. The assessee-company vide their special resolution passed by the directors of the company in an extraordinary general meeting held on 01.03.2017 and agreed to convert the loan amount availed from the directors and their relatives in equity shares. The loans were taken from directors and relatives with the condition of being converted into equity shares on future date. Therefore, in pursuance to such condition, the loan from the directors and their relatives of Rs.1.23 crores to the assesse-company was converted into fully paid-up equity shares in assessment year 2018-19, copy of special resolution was also filed. The assessee further submitted that only Rs.1.00 lakh is received during the year under consideration. The assessee submitted that notice under section 263 for making addition under section 68 in assessment year 2018-19 is baseless and bad in law.

In other without prejudice submission, assessee stated that section 68 can be made applicable only when any sum found credited in the books of account of an assessee maintains in previous year. Thus, no addition can be made as no credit received in assessment year 2018-19. In other without prejudice submission, assesse submitted that no addition can be made on account of loan which was taken by assessee-company during earlier years. The assessee has only converted loan into equity shares and no addition can be made during the year under consideration. The assesse also relied on various case law and (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. finally submitted that twin condition for invoking jurisdiction under section 263 is not available in the present case. The Assessing Officer passed assessment order after due application of his mind and it is not a fit case for exercising jurisdictional power under section 263 on the issue raised in the show cause under section 263 and notice issued may be dropped.

The reply of assessee was not accepted by Ld. PCIT. The Ld. PCIT in para-5.1 of impugned order recorded that after careful consideration and submission of assessee issued fresh show cause notice passed on 05.03.2024. Contents of such show cause is recorded on pages 20 to 22 of impugned order. In the second show cause notice dated 05.03.2024, the ld PCIT mentioned that case was selected for scrutiny on the issue of “large share premium received during the year (verify the applicability of 56(2)(viib) or any other relevant section” or any other relevant section. Since consideration of share issued by the assessee (wrongly mentioned received) by the assessee-company was in question, provision of section 56(2)(viib) attracts. The Assessing Officer made reference for valuation of share to the technical unit of faceless assessment system, vide letter dated 13.02.2021. However, technical unit does not have fundamental valuer, empanelled valuation experts, designated expert to determine the FMV of the assessee’s share for obtaining valuation report. The reference of Assessing Officer was returned back by technical unit vide report dated 08.03.2021. The Assessing Officer made reference to Valuation Officer vide his letter dated 19.02.2021. No report was received from Valuation Officer, the Assessing Officer passed assessment order without making any addition on this account and that without completing enquiry on the issue.

The Ld. PCIT not accepted the reply of assessee. The ld PCIT in para-6.1 of impugned order recorded that contention of assessee is that only loan was converted into equity share during the year. Such contention is not acceptable. The scrutiny assessment was completed in faceless manner. The correspondence made by Assessing Officer and the assessee is available on ITBA portal. The Ld. PCIT referred the notice dated 10/11.12.2019 and by referring such show cause notice, the LD. PCIT held that document furnished by assessee were not sufficient enough to establish the creditworthiness of (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. the persons who had given share capital and share premium during assessment, assessee not produced the copy of share certificate issued. Thus, assessee failed to produce all the documents. Consideration for share premium received by assessee was in excess of FMV. Thus, provision under section 56(2)(viib) attracts. The Assessing Officer made reference to valuation unit. No report was received from Valuation unit was received as this unit does not have any valuer. The Assessing Officer made reference to Valuation Officer, report for valuer was not received. Thus, while passing the assessment order, the Assessing Office has not made proper inquiry and passed assessment order without application of his mind. The Ld. PCIT by referring the provision under section 263 held that both limbs of section 263 are satisfied and assessment order dated 08.04.2021 is erroneous and in so far as prejudicial to the interest of Revenue. The assessment order was made without making proper or verification which should have been made during assessment proceedings. The assessment order was set aside with a direction to pass fresh assessment order after giving reasonable and sufficient opportunity of being heard to assessee. Aggrieved by the impugned order dated 22.03.2024 passed under section 263, assessee has filed present appeal before Tribunal.

We have heard the submission of Ld. Authorized Representative (Ld.AR) of the assessee and Ld. Commissioner of Income-tax- Departmental Representative (Ld.CIT-DR) for the Revenue and have gone through the order of Ld. PCIT carefully. The Ld. AR of the assessee submits that case was selected on specific issue of ‘share premium’. During assessment, Assessing (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. Officer sought requisites details about the issuance of share, share application and share premium vide show cause notice 11.12.2019. The assessee furnished complete details of persons to whom shares were allotted, number of shares and premium were also furnished. All the share subscribers were either family members of the director of assessee-company or their relatives. The assessee also furnished Form-PAS-3 furnished before Registrar of Company (ROC) along with special resolution passed in the extraordinary meeting held by assessee-company on 28.05.2017. The assessee also furnished the other requisites details. The assessee specifically stated that security premium amount was not received during the year under consideration. The assessee received unsecured loan of Rs.98.00 lakh in assessment year 2015-16 and unsecured loan of Rs.24.00 lakh in assessment year 2017-18 which were converted into share application and share premium. Only Rs. 1.00 lakh was received during the current financial year. The assessee explained that there was no fresh credit in the books of assessee. The Assessing Officer on consideration of required details accepted such details and no addition was made. In response to show cause notice issued by ld. PCIT, the assessee filed detailed written submission. The submission of assessee are recorded in impugned order. Before Ld. PCIT, assessee submitted that no amount of share application or share premium was, in fact, received during relevant financial year. Rather, it was received as unsecured loan from the family members and relatives of director of assessee-company in assessment years 2015-16 and 2016-17 and only Rs.1.00 lakh was received during the year under consideration. All the details were again along with reply (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. was again filed before Ld. PCIT. The ld. PCIT has not found any error in the reply filed by assessee. The ld. PCIT has not verified the issue and simply set aside the assessment order without making any independent verification of fact for his satisfaction. The ld. PCIT should have given his reasoning/ finding as to why, the view taken by Assessing Officer is not sustainable in law. The Ld. PCIT has failed to do so and simply held that Assessing Officer should have conducted more inquiry. Such, course of action by Ld. PCIT is not in accordance with mandate of Section 263. Once the Assessing Officer on making necessary inquiry has taken a legally sustainable view, that cannot be substituted by the different view of Ld. PCIT. The Ld. AR of the assessee submits that twin condition as enunciated in Section 263 does not fulfil in the present case. The Ld.AR of the assessee further submits that even newly inserted Explanation-2(a) to Section 263 does not authorize to give unfettered power to Ld. PCIT to revive each assessment, if in his opinion is passed without making inquiries or verification which should have been made. To support his various contention, Ld. AR of the assessee relied upon the following decisions:  Narayan Tatu Rane vs. ITO [2016] 70 taxmann.com 227 (Mumbai-Trib.)  CIT vs. Smt. Padmavathi [2020] 120 taxmann.com 187 (Mad)  Mahesh Reddy vs. PCIT [2024] 167 taxmann.com 297 (Bangalore-Trib.) 8. On the other hand, Ld. Commissioner of Income-tax-Departmental Representative (Ld.CIT-DR) for the Revenue supported the order of Ld. PCIT.

We have considered the submission of both the parties and have gone through order of authorities below carefully. we have also deliberated on the various case laws relied by the ld AR of the assessee as well as by ld. PCIT. On perusal (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. of assessment order, we find that there is no detailed discussion in the assessment order, however, on perusal of record, we find that before accepting the contention of assessee, the Assessing Officer issued show cause notice to the assessee for seeking various details on share application, share capital account and share premium about details creditworthiness of investors capital account and balance-sheet. The assessee is response to the show cause notice, filed it detailed reply and furnished all details including the valuation report about the value of shares. All the details are still available in ITBA portal. Such fact is also accepted by Ld. PCIT in para-3 of impugned order. We find that in response to show cause notice issued by Ld. PCIT under section 263, the assessee filed detailed written reply, extracted of which are recorded by Ld.PCIT in impugned order, which is running into 17 pages . The relevant part of rely of assessee have already been recorded by us and same is not being repeated for the sake of repetitions. We find that Ld. PCIT has not given any finding on the specific reply of assessee that there is no credit in the books of assessee in the current financial year and that unsecured loan availed from family members and relatives of directors of assessee-company was converted into share application and share premium. Similar stand was taken by assessee before Assessing Officer. We also find that assessee also furnished valuation report of share as per Rule11UA of the Income-tax Rules, 1962. No comments on such valuation report was made by Ld. PCIT.

We find that Hon’ble Madras High Court in Smt. Padmavathi (supra) it was held by that where commissioner while invoking his power under section 263 faults with Assessing Officer, on the ground that he did not make proper enquiry, in (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. absence of clarity as to why in opinion of commissioner, enquiry was not proper, invocation of power under section 263 was not justified. The Hon’ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 194 Taxman 436 (Delhi) also held that when in the assessment proceedings, the Assessing Office called his necessary details on the issue of assessment and assessee furnished all details of the subject issued and the LD.PCIT also initiated action under section 263, on the same facts available on record and no other fresh material filed before him was discussed, it cannot be said that Assessing Officer has not applied his mind to the issue details submitted by assessee. Once the Assessing Officer was satisfied and accepted the explanation of assessee, if the Ld. PCIT has any grievance, he should examine and give a particular finding as to why the order is erroneous. There is distinction between ‘lack of enquiry’ and ‘inadequate enquiry’. If there is an enquiry, even inadequate that could not by itself give occasion to Ld. PCIT to pass order under section 263, merely, because he is of difference of opinion. We have independently examined the facts of the present case and find that during the year the assessee merely converted unsecured loan into share application money and share premium, which was received in earlier year. Thus, the credit in the books of account does not relate to the year under consideration except Rs.1.00 lakh, which has been honestly disclosed by ld AR of the assessee. Thus, the view taken by Assessing Officer in accepting the contention of assessee is not erroneous as he has taken a legally sustainable view. In our considered view, twin condition prescribed in Section 263 of the Act is not satisfied in the present case. Thus, the order passed by Ld. PCIT (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. under section 263 of the Act is not justified and the same is set aside. In the result, the grounds of appeal