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Facts
The Assessee filed a return of loss for AY 2018-19, and the assessment was completed by the National E-assessment Center. Subsequently, the PCIT invoked revisionary jurisdiction under Section 263 of the Income Tax Act, alleging that the Assessing Officer failed to include income under Section 56(2)(x)(c)(B) related to the purchase of shares where the Fair Market Value (FMV) exceeded the purchase consideration, thus deeming the assessment erroneous and prejudicial to the revenue's interest.
Held
The Tribunal observed that the Assessing Officer had conducted an elaborate inquiry and adopted a plausible view in the original assessment. Citing Supreme Court precedents like Malabar Industrial Co. Ltd., the Tribunal held that if two plausible views are possible and the AO adopts one, it cannot be considered an erroneous order prejudicial to the revenue unless that view is unsustainable in law. The PCIT's order was found to be erroneous and was accordingly quashed.
Key Issues
Whether the PCIT was justified in invoking Section 263 to set aside an assessment order when the Assessing Officer had conducted proper inquiries and adopted a plausible view regarding the valuation of shares and the applicability of Section 56(2)(x)(c)(B) of the Income Tax Act.
Sections Cited
263, 56(2)(x)(c)(B), 143(3), 143(3A), 143(3B), 143(2), 142(1), 14A, Rule 8D
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Income Tax Appellate Tribunal, DELHI BENCH ‘E’: NEW DELHI
per share, the FMU value of the share is Rs. 2392 as per DCF Method and the
NAV of the share is Rs. 835. Thus, it is the case of the assessee that the Page 15 of 18
16 ITA No.1535/Del/2023 M/s Ozone Overseas (P) Ltd. vs. PCIT
assessee has brought shares at more than NAV. The ld. A.O. after examining
the valuation and other particulars of the investment has made no addition.
The Ld. PCIT observed that as per the provision of Section 56(2) (x)(c)(B) of the
Act where a person received any previous year, any property other than
immovable property the aggregate fair market value of such property has
exceed the purchase consideration is liable to be included in the income of the
assessee as income from other source, therefore, an amount of Rs. 6,19,382 x
97 i.e equal to 6,00,80,054/- is liable to be income of the assessee. The option
to adopt either NAV or DCF Method for valuing the shares has been given to an
Assessee in the statute itself. When the A.O. has appreciated this option
availed by the Assessee, his order cannot be construed as erroneous.
From the above, it is observed that it is not a case wherein the Assessing
Officer failed to conduct enquiry rather it is the case wherein the Assessing
Officer has conducted an elaborate enquiry and adopted one of the two views
which was plausible view. The question would be as to whether in such
circumstances the power u/s 263 of the Act would be invoked or not. The
above said question is no longer res-integra and the said issue is well settled in
several decisions. In the case of Malabar Industrial Co. Ltd. vs. Commissioner
of Income Tax, (2000) 243 ITR 83 (SC). The Hon’ble Supreme Court held as
follows :-
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17 ITA No.1535/Del/2023 M/s Ozone Overseas (P) Ltd. vs. PCIT
“The phrase “prejudicial to the interests of the Revenue” has to be
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 interests of the Revenue. For example, when an Income-tax
Officer adopted one 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 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.”
Further, the Hon’ble Supreme Court in the case of Pr. CIT vs. Canara
Bank Securities Ltd., S.L.P.(C) No. 25651 of 2019, vide order dated 14th
October, 2019 dismissed the Department’s appeal affirming the view taken by
the Bombay High Court in ITA No.1761 of 2016, dated February 11, 2019,
wherein the High Court held that the question whether the income should be
taxed as business income or has arisen from other source was a debatable
issue and the Assessing Officer had taken the plausible view that it was a
business income after due enquiries and therefore not open for the
Commissioner to take such an order in revision. Therefore, following the ratio
laid down by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. vs.
Commissioner of Income Tax (supra) and other decisions mentioned above, we Page 17 of 18
18 ITA No.1535/Del/2023 M/s Ozone Overseas (P) Ltd. vs. PCIT are of the considered opinion that the impugned order of the Ld. PCIT is found to be erroneous, accordingly, order impugned of the Ld. PCIT is hereby quashed. 15. In the result, appeal filed by the Assessee is allowed. Order pronounced in open Court on 23rd February, 2024.
Sd/- Sd/- (M. BALAGANESH) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 23/02/2024 Pk/R.N, Sr ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT
ASSISTANT REGISTRAR ITAT, NEW DELHI
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