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2018 (12) TMI 525 - AT - Income TaxRevision u/s 263 - audit objection basis for taking up the revision - transfer of shares physically, in the event of family arrangements - excess share premium for the transactions between the relatives which required to be taxed u/s 56(2)(vii)(b) - Held that:- As gone through the provisions of 56(2)(vii)(c) and this provision was brought as an anti-abuse measure, seeks to tax the understatement in consideration as the income in the hands of the recipient (of the corresponding asset) as against the donor in the case of Gift Tax Act. The transactions between close the relatives are outside the scope of application of 56(2)(vii)(c). The legislature in its wisdom excluded the transaction of close relatives for the purpose of taxation under the income from other sources. Even the gifts received from the close relatives u/s 56(2)(v) are outside the scope of 56(2). Though the shares are allotted to the assessee, the entire shareholding of the company is retained by the family and no share was allotted to the outsiders. In this case, though the assessee had received the excess shares, renouncement was from the close relatives and the assessee is at liberty to transfer the shares to other relatives or shareholders at any point of time without attracting the taxation u/s 56(2)(vii)(c). Therefore, surrender of the rights of the close relatives in favour of the another close relative is covered for exemption u/s 56(2)(vii)(c) of the Act. In the basis of audit objection in the instant case, it is evident from the order u/s 263 that the case was taken up for revision on the basis of audit objection. The Revenue did not bring any other decision of Hon’ble Apex Court or the jurisdictional High Court to support their view. Therefore, respectfully following the decisions cited supra, we hold that the audit objection is not the basis for taking up the revision under section 263 and the Pr.CIT is not permitted to take up the case for revision only on the basis of audit objection. Respectfully following the view taken in SOHANA WOOLLEN MILLS. [2006 (9) TMI 157 - PUNJAB AND HARYANA HIGH COURT] and the Coordinate Bench of ITAT Chandigarh, we are unable to sustain the order of the Ld. Pr. CIT and accordingly, we set aside the order of the Ld.Pr. CIT and allow the appeal of the assessee. Since we have decided the appeal in favour of the assessee on application of section 56(2)(vii)(c) of the Act in case of close relatives and on audit objection, we consider it is not necessary to adjudicate the remaining grounds/ propositions put forth by the Ld.AR during the appeal hearing. Accordingly, the appeal of the assessee is allowed.
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