TMI Blog2021 (3) TMI 1193X X X X Extracts X X X X X X X X Extracts X X X X ..... ect and the provisions of Section 56(2)(viib) of the Act has been wrongly interpreted by Ld. PCIT by directing the Ld. A.O to tax an amount under a section namely 56(2)(viib) for the consideration received for issue of equity shares which is not applicable to the Non Residents, the proceedings u/s 263 of the Act deserves to be quashed. Whether the Ld. A.O has made sufficient enquiry with regard to the alleged transaction of allotment of equity shares to resident and non resident companies? - There was a specific enquiry from the Ld. A.O to which the specific reply along with supporting documents were submitted by the assessee during the course of scrutiny assessment proceedings itself. It can be safely concluded that the Ld. A.O had raised queries which were complied by the assessee. Considering these facts in totality, it can be safely concluded that the Assessing Officer made complete enquiry regarding share capital and share premium received from Non resident companies and also called for a report from Ld. TPO on the arms length price of this international transaction. It is a settled position of law that the powers under section 263 of the Act can be exercised by the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that issue of shares at a higher premium than the value determined as per Rule llUA(2)(b) of Income tax Rules to non-resident foreign companies was examined by the ACIT and after proper application of mind, he did not make any addition u/s 56(2)(viib) of the Act because the provision of section 56(2)(viib) are not applicable to non-resident. After proper enquiries, assessment order was passed U/S 143(3) of the Act, not only having detailed discussion regarding issue of share at a premium but also after refining the matter to TPO. Therefore, the order cannot be said to be erroneous and prejudicial to the interest of Revenue because the AO did not commit any error, whatsoever, by ignoring the provisions contained in Section 56(2)(viib) of the Act while completing the assessment, as alleged. 2.That the Ld. Pr. Comm. Of Income Tax erred in law in not considering, vital fact that the provisions of Section 56(2)(viib) of the Act are applicable only in case where consideration against issue of shares is received from any person being a resident as reproduced hereunder :- Where a company, not being a company in which tile public are substantially interested, receives, in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the order of Ld. TPO assessment u/s 143(3) r.w.s. 92CA(3) of the Act was completed by Ld. A.O on 27.12.2017 accepting the returned income of the assessee after thoroughly discussing all the issues including the instant issue of issue of share capital to two non resident companies (discussed in para 6 of the assessment order from page 7 to 12). 4. Subsequently Ld. Pr. CIT invoking the power u/s 263 of the Act called for the assessment records and after going through the same issued following show cause notice dated 19.02.2020 to the assessee:- In this case, the assessee filed return of income for the AY 2014-15 on 25.11.2014 declaring total loss of ₹ 4,14,66,430/-. The case was selected for scrutiny through CASS. The assessment was completed u/s 143(3)/92CA(3) 29.11.2017 by the AO (ACIT-2(1), Ujjain] at the total assessed loss and declared in the return of income, which is considered erroneous and prejudicial to the interest of revenue for the following reasons:- On perusal and examination of records, it is noticed that assessee company issued total number of shares 4,00,000 @10 per share face value and share premium received for ₹ 95,27,75,180/- on 3,90, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed submissions were filed by the authorised representative of the assessee and after perusing the same Ld. PCIT set aside the assessment order u/s 143(3) r.w.s. 92CA(3) of the Act holding it to be erroneous and prejudicial to the interest of revenue summarily observing as follows:- 3.1 The case records of the assessee were gone through and it was observed that the assessee claimed share premium at a very high rate in comparison to the rate valued by the firm of Chartered Accountants, in the case of J Oil Mills and Toyota Tsusho on the apparent ground that these were not residents of India. The facts of the case, performance of the business results of the assessee and its overall worth including track records of the Promoter Group i.e. Ruchi Soya, as may be observed from the balance sheet, did not justify in any manner, the rate of share premium charged by the assessee. During the course of assessment proceedings the AO did not examine this aspect of the case and completed the assessment proceedings. Thus, the action of the AO is erroneous and prejudicial to the interest of revenue. 4. In view of the given facts and circumstances, the assessment order of the AO is er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed u/s 143(3)/92CA(3) was considered as erroneous as well as prejudicial to the interest of Revenue. SUBMISSIONS : At the outset, we submit that questions involved for adjudication regarding validity of order passed u/s 263 of the Act by the Principal Commissioner of Income tax are :- I) Whether provisions of Section 56(2)(viib) of the Act were applicable in relation to issue of shares at a premium by the appellant to Nonresident companies?. II) Whether enquiries in depth were made by the AO with regard to issue of shares at a large premium or there was lack of enquiry ?. III) Because the AO did not discuss the reasons for non-applicability of Section 56(2)(viib) in the assessment order, can it be considered as erroneous and prejudicial to the interest of Revenue ?. IV) Whether twin conditions required u/s 263 of the Act were satisfied to justify the order passed by the Pr. Commissioner of Income tax ?. Our submissions for kind consideration are as under :- Applicability of section 56(2)(viib) of the Act : We submit that provisions of Section 56(2)(viib) of the Act are applicable only where any consideration for issue of shares is received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fair at the language used . b) Vodafone International Holdings B.V. vs. Union of India (2012) 341 ITR 1 (SC) Held The Court has to give effect to the language of the section when it is unambiguous and admits of no doubt regarding its interpretation, particularly when a legal fiction is embedded in that section. A legal fiction has a limited scope and cannot be expanded by giving purposive interpretation particularly if the result of such interpretation is to transform the concept of chargeability. II. Enquiries in depth by the A.O. Kind attention is invited to assessment order which evidently proves that adequate enquiries were made by the Asstt. Commissioner of Income tax 2-(1), Ujjain regarding shares issued at a premium as under :- i)Vide First notice u/s 142(1) of the Act dated 30.05.2016 specific querry was raised regarding issue of shares at a premium and applicability of provisions of section 56(2)(viib) of the Act[wrongly typed at 36(viib)] a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by audit report u/s 92(E) of the Act.(Page 62 to 64 of P.B II) v)Considering the fact that shares were issued to Non-Resident Companies,by giving reference to Audit report furnished u/s 92B of the Act (form 3CEB),approval was obtained by the ACITfrom Pr. CIT, Ujjain, to refer the case to Dy. Commissioner of Income tax (TPO). DCIT (TPO) verified the issuance of equity shares to both non-resident companies at a premium at arms length price and passed the order on 11.09.2017(Page 33 to 35 of P.B). vi) Vide Para-6.2.3. of the assessment order, the said transaction of issuance of shares at a premium was disclosed and benchmarked. (Page 42 43 of P.B). vii)The transaction relating to issue of shares to aforesaid two nonresident companies was discussed in Para 6.3.11 of the assessment order passed u/s 143(3) of the Act, with reference to International transaction within the meaning of section 92B of the Act[Page 46 of P.B] viii) The conclusions drawn by Dy. CIT (TPO) were also considered by the AO vide Para 6.5.2 of the assessment order as under :- The Ld. TPO, has considered the issuance of equity shares to both the above mentioned entities as an international transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue Department which were having a direct impact on the income assessed by the AO. Neither there was an escapement of evidence nor there was any evidence now brought to the notice of the revenue department, therefore if that was not the position, then we are not inclined to give our approval to such directions. iv) Flexituff International Ltd vs. Pr. CIT (2019) 3 ITJ online 654 (Indore Bench) (ITA No. 282/Ind/2017 order pronounced on 14.05.2019 Para 18) Held It remains an undisputed fact that the Assessing Officer had made adequate enquires as noted herein above adopting one of permissible view for allowing the assessee s claim for exemption u/s 10A of the Act before the claim of set off of brought forward and current year loss. The Ld. Pr. CIT took a different view of the matter. However that would not be sufficient to permit Ld. Pr. CIT to exercise the power u/s 263 of the Act because when two views are possible and Ld. Pr.CIT does not agree with the view taken by the Assessing Officer, assessment order cannot be treated as erroneous and prejudicial to the interest of the revenue unless the view taken by the Assessing Officer not unacceptable in law As the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order, could not make said order erroneous and prejudicial to interest of revenues - Accordingly, Tribunal set aside revisional order - Whether finding recorded by Tribunal being a finding of fact, no substantial question of law arose there from - Held, yes [Para 11] c)CIT vs.Anil Kumar Sharma - [2011] 335 ITR 83(Delhi) Held Though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Assessing Officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under section 263 would fell into the area of the Commissioner having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this Court. That being the position, the present case would not be one of 'lack of inquiry' and, even if the inquiry was termed as inadequate, that would not by itself give occasion to the Commissioner to pass orders under section 263 of the said Act, merely because he has a different opinion in the matter . d) CIT vs. M/s. Vikas Polymers (2012) 341 ITR 537 (Del) at Page 548. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be had to section 263(1) of the Act . ii) H.H. Maharaja Raja Pawer Dewas - [1982] 138 ITR 518 (MP) Held Under section 263(1) two pre-requisites must be present before the Commissioner can exercise the revisional jurisdiction conferred on him. First is that the order passed by the ITO must be erroneous. Second is that the error must be such that it is prejudicial to the interests of the revenue. If the order is erroneous but it is not prejudicial to the interests of the revenue, the Commissioner can not exercise the revisional jurisdiction under section 263(1).................... unless the prejudice to the interests of the revenue is shown, the jurisdiction under section 263(1) cannot be exercised by the Commissioner, even though the order is erroneous . iii) V. G. Krishnamurthy vs. CIT - [1985] 152 ITR 683 (Kar) HEAD NOTE Section 263 of Income tax Act, can be invoked only when the CIT prima-facie finds that the order made by the ITO was erroneous and was prejudicial to the interest of Revenue. Both these factors must exist simultaneously. If one or the other of the factorsis absent, the Commissioner cannot exercise the suo moto power of revision under section 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to shares issued at a premium to any non-resident, no error was committed by the AO whatsoever while completing the assessment.We also humbly submit that Ld. Pr.CIT did not apply his mind on the documents available on record when it was specifically argued that Provisions of Section 56(2)(viib) of the Act were not applicable in a case where shares are issued at a premium to non-resident. This fact was overlooked by him while passing the order u/s 263 of the Act. It is therefore, prayed that none of the conditions for invoking the provisions of section 263 the assessment order is satisfied the order passed u/s 263 of the Act, deserves to be quashed. 8. Per contra Ld. Departmental Representative vehemently argued supporting the order of Ld. PCIT and also could not controvert the fact that the provisions of Section 56(2)(viib) of the Act are not applicable for the consideration for issue of shares received from non resident companies. 9. We have heard rival contentions and perused the records placed before us and carefully gone through the decisions referred and relied by the Ld. Counsel for the assessee. The assessee has raised 3 grounds of appeal and the effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration received for allotment of equity shares to Non Resident company; (2) Whether the Ld. A.O conducted enquiry with regard to the alleged transaction of issue of equity shares to non resident persons during the year. 13. As regards the first issue is concerned we will first go through the provisions of Section 56(2)(viib) of the Act which reads as follows:- (viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a venture capital fund 67[or a specified fund]; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. 14. From perusal of the above section it is very much clear that it refers to the consideration for issue of shares received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uity shares issued during the year. This reply also included specific information about the consideration received from Non Resident companies for allotment of 196000 shares including certificate of foreign remittances by Bank of Tokyo, certificate of foreign remittance by M/s Mizuho Bank Limited, copy of letter dated 11.3.2014 to HDFC Bank regarding Foreign Direct Investment (FDI), copy of Board s resolution regarding allotment of shares to FDI and copy of certificate issued by Company Secretary regarding issue of shares at a premium to non resident which is to be given to RBI. 16. We further observe that Ld. A.O after receiving the above stated reply referred the matter to Transfer Pricing Officer u/s 92(CA)(1) of the Act for computing the arms length price of the international transaction entered into with Toyoto Tsusho and J Oil Mills for allotment of equity shares at a premium for total consideration of ₹ 55,67,73,280/-. Ld. TPO has also examined the transaction and after perusing the records concluded that no adjustment is required to be made to the arms length price of the transaction. In other words the transaction with Non resident company were accepted at a fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18] 407 ITR 681 (Guj) ; 85 taxmann.com 310 has held that : If the Assessing Officer has adopted a view which is a plausible one, the view would not be open to revision by the Commissioner. 18. Considering the facts of the case in the light of the judicial decisions discussed hereinabove and on a perusal of the facts, we have no hesitation in holding that the assessment under section 143(3) of the Act was framed after detailed enquiries cannot be considered as erroneous and prejudicial to the interests of the Revenue. 19. In the instant case also Ld. A.O had considered various submissions of the assessee and taken a possible view. Therefore merely because Ld. PCIT did not agree to the opinion/information of the Ld. A.O who has conducted sufficient enquiry regarding the issue raised in this show cause notice issued by Ld. PCIT, provisions of Section 263 of the Act cannot be invoked in order to substitute his own information. It has been held in several decisions (few of them have been relied by the Ld. Counsel also) that if the Ld. A.O has made enquiry to his satisfaction and it is not a case of no enquiry then Ld. PCIT cannot assume the jurisdiction u/s 263 of the Act t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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