KEYA FOODS INTERNATIONAL PRIVATE LIMITED,CHERTHALA vs. ACIT, CIRCLE, ALAPPUZHA, ALAPPUZHA

Assessee by : Shri. A. Gopalakrishnan, CA Revenue by : Shri. M. Rajasekhar, CIT(DR) Date of hearing : 06.12.2022 Date of Pronouncement : 19.12.2022 O R D E R

Per Padmavathy S, Accountant Member

by the assessee are as under:

1. The Learned Principal Commissioner of Income Tax ( hereinafter referred to as Ld. Pr. CIT in this grounds of Appeal) grossly erred Page 2 of 11 in law as well as on facts of the case by treating the order of the Assessing Officer ( hereinafter referred to as AO) dated 28-11- 2019 as erroneous and prejudicial to the interest of the Revenue.

2. The Ld. Pr. CIT erred in law as well as on facts of the case by setting aside/cancelling the original assessment order of the AO dated 28-11-2019 by passing order u/s 263.

3. The Ld. Pr. CIT erred in law as well as on the facts of the case in wrongly setting aside the Assessment Order dated 28-11-2019 despite there being complete application of mind by the AO on the subject matter of the two issues taken into consideration and it was nothing but a case of change of opinion, based on which, assumption of jurisdiction u/s 263 is not permissible. The impugned order dated 25-03-2022 therefore, lacks valid jurisdiction u/s 263 of the Act and hence, the same may kindly be quashed.

4. The Ld. Pr. CIT seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly invoking Section 263 of the Act as if the same conferred unbridled power upon the CIT even though the facts and circumstances of the case did not justify the application of the said section. Hence, the impugned finding that the assessment order passed u/s 143(3) dated 28-11-2019 was erroneous and prejudicial to the interest of the revenue to the extent of short assessment of Rs.1,85,43,540/ being the share premium received during-the year, deserves to be completely quashed and set-aside.

5. The Id. Pr. CIT seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act without recording a specific and categorical finding that the subjected assessment order passed u/s 143(3) dated 28-11-2019 is erroneous and prejudicial to the interest of the revenue, in the absence of which the entire proceedings u/s 263 is vitiated. Therefore, the impugned order dated 25-03-2022 u/s 263 of the Act may kindly be quashed.

6. The ld. Pr. CIT seriously erred in law as well as on the facts of the case in as in jurisdiction u/s 263 of the Act by wrongly and incorrectly holding that the subjected assessment order u/s 143(3) dated 28-12-2019 was passed without making proper Page 3 of 11 enquiries or verification with respect to : a. Allotment of 61,45,646 shares of Face Value @ Rs. 10 with premium @ Rs. 3.0173 - per share to the parent holding company for total consideration of Rs. 8,00,00,000/ on the basis of the valuation report certified by a Chartered Accountant and receipt of large share premium taxable u/s 56(2)(viib) and any other relevant section of the Act with a direction to the AO to properly to examine applicability of Section 56(2)(viib) to the share premium received and also to make necessary additions to the total income. The AO had examined the applicability of section 56(2)(viib) to the share premium received with reference to the valuation report certified by the Chartered Accountant in pas

7. The assumption of jurisdiction-u/s 263 and the directions so given there under, being contrary to the provisions of law and facts on record, the proceedings initiated u/s 263 of the Act and the impugned order dated 25-03-2022 deserves to be quashed.

2. The assessee is a private limited company engaged in the business of trading of herbs, spices, seasoning, soups, snacks, paste and pickle. The assessee filed the return of income for Assessment Year 2017-18 on 29.10.2017 declaring Nil income showing a loss of Rs.16,23,07,947/-. The case was selected for scrutiny under CASS and a notice under section 143(2) of the Act was duly served on the assessee. The AO called on the assessee to produce books of accounts and bank statements. The AO completed the assessment accepting the loss returned by the assessee. The PCIT, on perusal of records, noticed that the assessee had issued 61,45,646 equity shares at a premium of Rs.3.017/- per share for a total consideration of Rs.8 Crores to its holding company on 09.09.2016. The PCIT was of the view that the valuation of shares obtained by the assessee should not have been accepted by the AO for the reason that company is showing Page 4 of 11 declining performance and the valuation higher than the face value is not reliable. Further the assessee had claimed a sum of Rs.11.14 lakhs towards unclaimed balance returned back as per the auditor report in Form 3CD and according to the PCIT this amount was not included in assessee’s total income which fact has not been properly verified by the AO. The PCIT, for these reasons, issued a show cause notice to the assessee. The assessee submitted that the fair market value of shares was taken into account based on the valuation report dated 31.10.2016 certified by Chartered Accountant and not based on report dated 22.11.2013 as contended. The assessee accordingly submitted that the provisions of Rule 11UA are full complied with. The assessee also submitted that the AO during the course assessment has verified the documentary evidences and has applied his mind before accepting the valuation report. With regard to unclaimed balance as returned back, the assessee submitted that it has included he said amount under the head “other income” in the financial statement of the company and the said amount was not deducted while computing the income for the Assessment Year 2017-18. The PCIT, after considering the submissions of the assessee, held that the AO ought to have made enquiries into these issues during the course of assessment and has incorrectly assumed the facts of the case without application of mind. Accordingly, the PCIT held the Order of Assessment to be erroneous and prejudicial to the interest of the Revenue and set aside the same denovo to pass a speaking order. Page 5 of 11 3. Aggrieved, the assessee is in appeal before the Tribunal. The learned AR submitted that during the course of original assessment, the assessee has submitted the valuation report as certified by a Chartered Accountant. The learned AR submitted that there is no violation of Rule 11UA since as per the requirements of the said Rule, the assessee has obtained a fair market value as certified by a Chartered Accountant. The learned AR also submitted that the AO during the course of assessment has verified these valuation reports and has accepted the same after application of mind. Therefore, there is no error prejudicial to the interest of the Revenue in the Order of Assessment. The learned AR drew our attention to the notice dated 21.01.2019 where the AO has called for specific details and a write up with regard to the large share premium received by the assessee to verify the applicability of section 56(2)(viib). The ld AR further submitted that the assessee in response to the said notice has furnished a reply dated 08.02.2019 with the write up along with the valuation report dated 31.10.2016. The ld AR also submitted that the shares were issued on premium based on this valuation report and not based on the report dated 22.11.2013 as has been held by the PCIT. 4. On the issue of unclaimed balance returned back, the learned AR submitted that the amount is already assessed to tax in the other income forming part of the statement of Proft and Loss Account for the year ended 31.03.2017. This fact has been considered by the AO while completing the assessment under section 143(3) of the Act and therefore the order of the AO is not erroneous or prejudicial.

ITA No.608/Coch/2022 Page 6 of 11 5. Learned AR placed reliance in the case of Malabar Industries Company Ltd., Vs. CIT (2000) 243 ITR 83 (SC), Pulp Steel and Mining Pvt. Ltd., Vs. PCIT Reliance Payments Solutions Pvt. Ltd., Vs. PCIT (2022) 136 taxmann.com 277 (Mumbai Tribunal).

Revision of orders prejudicial to revenue. 263. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or 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 89[or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests 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, 90[including,— **** Page 8 of 11 Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 94[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 95[Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more Page 9 of 11 elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income tax officer. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It is because the Income tax officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion ………….. There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.