2024 (12) TMI 103 - AT - Income Tax

Revision u/s 263 - unexplained cash credit u/s 68 r.w.s. 115BBE - assessee had invested 328, 29, 84, 000 equity shares of face value of Rs. 10 per share amounting to aggregate unquoted investments in its subsidiary company - HELD THAT - We failed to understand from where the ld. PCIT picked the value of Rs. 10/-. Perusal of clause (b) of share transfer agreement would definitely show that the face value of the shares were Rs. 10/-. However the assessee has not acquired these shares at Rs. 10/- rather acquired these shares at Rs. 13.52 as certified by the auditors of the assessee company and as disclosed by the assessee in its return of income and further documents. It is the settled position of law that for invoking the provisions of section 263 there has to be some error in the order of the AO and the error should be of such nature that it would be prejudicial to the interest of revenue. Unless this twin condition is satisfied the provisions of section 263 cannot be invoked. In the case at hand we find from the records that the CIT has made certain factually incorrect observations while declaring the order of the AO as erroneous. However the material on record would prove beyond doubt that the assessee has paid an amount of Rs 3282, 98, 42, 109/- for acquiring total 252, 41, 61, 440 shares. Therefore we are of the considered view that there was no error on the part of AO while framing the assessment. Hence we allow the appeal of the assessee.

Summary

Issues:
Jurisdiction under section 263 of the Income Tax Act, 1961.

Analysis:
The judgment pertains to an appeal arising from an order passed under section 263 of the Income Tax Act, 1961 for the assessment year 2017-18. The appellant, a company, had filed its original return declaring income under normal provisions and u/s 115JB. The assessment was completed by the AO, following which the Principal Commissioner of Income Tax (PCIT) issued a notice proposing to revise the order. The PCIT observed discrepancies related to the acquisition of shares in a subsidiary company and alleged unexplained cash credits leading to a tax shortfall. The appellant contested the notice, providing explanations and supporting documents. The PCIT, however, maintained that the appellant had paid an excess amount for acquiring shares, leading to an erroneous assessment prejudicial to revenue. The appellant challenged this decision before the ITAT.

The ITAT analyzed the facts and submissions. It noted that the appellant had acquired shares as per a Share Transfer Agreement at a price higher than the face value mentioned by the PCIT. The ITAT emphasized that the error in the assessment should be prejudicial to revenue to invoke section 263. It found that the PCIT had made factually incorrect observations regarding the share acquisition, as evidenced by the agreement and supporting documents. The ITAT concluded that there was no error on the part of the AO in framing the assessment, as the appellant had paid the correct amount for the shares. Consequently, the ITAT allowed the appeal of the assessee, ruling in favor of the appellant.

In summary, the judgment revolves around the validity of the jurisdiction assumed by the PCIT under section 263 of the Income Tax Act, 1961. The ITAT found that the PCIT's observations were factually incorrect, and the appellant had paid the correct amount for the shares as per the agreement. Therefore, the ITAT allowed the appeal, emphasizing that for section 263 to apply, there must be a prejudicial error in the assessment, which was not the case here.