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TMI Blog2015 (12) TMI 1615X X X X Extracts X X X X X X X X Extracts X X X X ..... ctricity Holdings Ltd (South Asia). On 11.8.2010, the RPG Cellular and South Asia transferred their shares to M/s. Universal Industrial Funds Ltd (Universal). Thus, the said assessee-company has become the 100% subsidiary of the „Universal‟. The assessee purchased 1,67,350 shares of KEC International Ltd (in short KEC); 30,96,800 shares of Zensar Technologies Ltd (Zensar); 6,30,500 shares of Spencer & Co. Ltd and 24,75,000 preference shares of South Asia from the said Universal. In order to finance the said acquisition of shares from the Universal, assessee issued Optional Fully Convertible Debentures (OFCDs) @ Rs. 100/- each to Instant Holdings Ltd (Instant Holdings) with the premium of Rs. 90/- on each share having face value of Rs. 10/-. These debentures were converted into the shares with the premium of Rs. 90/-. Thus, the Instant Holdings has become a successor company to the originally formed company named M/s. Idea Tracom (P) Co Ltd. This conversion of shares into OFCDs has happened in 2010. The rate at which the assessee-company acquired the shares of KEC International Ltd; Zensar Technologies Ltd and Spencer & Co. Ltd is lesser than the market value the Univers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the fact that: (i) An appeal on this issue has been filed before the CIT (A) which is pending for disposal. (ii) There was detailed inquiry carried on by the AO before passing the assessment order and therefore it cannot be inferred that there was nonapplication of mind or enquiries. (iii) It was also argued that no fresh enquiries in the guise of revision can be carried out by the Department u/s 263 of the Act. (iv) Likewise, it was submitted that no revision was possible merely on the surmises and conjunctures. The assessee particularly objected to the observation that the difference between market value of shares transferred (Rs. 91.53 Crs) and sale consideration (Rs. 54.20 Crs) must have been received outside the books of accounts from the transferee company. (v) It was also argued that neither there was any error in the assessment order nor any prejudice has been caused to the Revenue. (vi) The AO has taken one view which was possible and therefore, revision proceedings are outside the pale of section 263 as interpreted by various judicial pronouncement. (vii) It was vehemently argued that when the assessment order has been passed after considered al the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e letters dated 16/1/14, 29/1/14, 17/2/14 etc and mentioned that the AO verified all the issues/matters raised by the CIT. In this regard, assessee relied on documents placed in the APB from pages 1 to 42. 10. Further, Ld Counsel for the assessee relies on specific question raised in the questionnaires to demonstrate that the AO is aware of all the aspects of the issues raised by the CIT. ie (i) improper enquiries and illogical conclusions of the AO (ii) questioned the addition of Rs. 11.34 cr u/s 56(1) of the Act on account of excess premium collected from INSTANT and failed to make addition on account of investment in shares purchased from UNIVERSAL (iii) form vs substance. CIT also alleged on the hurriedly done transfer of shares of the assessee/ownership, investment in purchase of share without having own funds, purchase of said shares for lower consideration than the prevailing market rate. He proceeded to specify the relevant questions specific to the twin issues of investment in shares and the sources of funds and the relevant questions and the annexures are as under: Notice under sub-section [1] of section 142 of the Income Tax Act, 1961, dated 20.5.2013. 8. List of Asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed at Annexure 17. 51. The bank statement of ITPL showing receipt of amount for allotment of debentures is enclosed at Annexure 18. Also, the bank statement of instant Holdings Limited showing payment of amount for allotment of debentures is enclosed at Annexure 19. 53. The return of allotment of shares to instant Holdings Limited pursuant to section 75(1) of the Companies Act, 1956 filed with the Registrar of companies in Form 2 is enclosed herewith at Annexure 20. 54. The party wise details of investments made during the captioned AYs is enclosed at Annexure 21. 55. The Demat statement of holdings for 31st March, 2011 is enclosed at Annexure 22." 11. Relevant annexures are scanned and are made part of this order as under:- Annexure-12 11.1. The above annexure shows the purchase value of the shares of KEC / Zensar / Spensar. Rs. 54,20,93,678/- is the gross consideration payable by the assessee to the Universal. 11.2. The facts relating to the market value of each of the scrip were also submitted. The FMV of Rs. 508.78 per share of KEC International is evident from the Page 34 of the assessee‟s paper book. 11.3. Similarly, Rs. 172.89 pp per share is the FMV of Z ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the APB, Ld Counsel submitted that the FMV of the share of Zensar Tech. Ltd is Rs. 172.89pp. Pages 36 to 40 throw adequate light on the FMV/NAV of the share of Spencer and Co Ltd. Thus, the AO is privy to the details of FMV of all three shares purchased and the same is higher than the purchase price paid to Universal. The same is interpreted by Ld counsel before us by stating that the assessee is beneficiary in all these transactions involving M/s Universal and therefore, the assessee‟s substantial gain is obvious and irrefutable. It is not correct to allege that there is any loss to the revenue out of these transactions and therefore, the assessment order of the AO is prejudicial to the interest of revenue. 14. On the allegation of lack of Application of mind of the AO: Further, bassed on the extent of information gathered by the AO in the assessment which is evident from the questionnaires and replies, which formed part of the PB, Ld counsel also made out that it is not proper to allege that the AO has not verified the said issue of purchase of the shares for lessor consideration and applied his mind to this or any other related issues pointed out by the Principle CIT. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. He submitted that the Assessee raised funds by way of OFCDs of Rs. 100/- each and the „Instant‟ subscribed for the said debentures and paid the consideration of Rs. 54.20 cr to the assessee. Subsequently, assessee converted the OFCDs in to shares by fixing the premium of Rs. 90/- for each share with par value of Rs. 10/-. The case of the AO is that the premium is inflated and he fixed the intrinsic value of each share is only Rs. 69/-. Ld DR questions why any prudent persons sells his shares for lower consideration. Therefore, he questions the decision of the AO who invoked the provisions of section 56(1) of the Act (para 4.7 of the AO) for addition of Rs. 11.34 cr as discussed above. The difference amount of Rs. 21/- per each share is considered as „income from other sources‟ and certainly not as „share application money‟ (para 4.8 of the AO). But, for the Principle CIT, it is wrong way of making assessment drawing 'illogical conclusion'. Principle CIT is of the view that instead of making addition on account of „premium‟ issue, AO should have made addition on account of lower purchase consideration paid by the assessee to &bdq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settled legal proposition that the Principle CIT needs to demonstrate the meeting the twin conditions of (i) erroneous nature of the AO‟s order and (ii) the loss of revenue. 20. Thus, the CIT attached the order of the AO from various angles as discussed above (i) improper enquiries and illogical conclusions of the AO (ii) questioned the addition of Rs. 11.34 cr u/s 56(1) of the Act on account of excess premium collected from INSTANT and failed to make addition on account of investment in shares purchased from UNIVERSAL (iii) form vs substance. DECISION OF THE TRIBUNAL 21. We heard both the parties and perused the orders of the revenue, documents filed before us in the form of the Paper Book and the case laws. The said documents main refers to the facts on the questionnaires and the replies thereto relating to various issues ie the investment details of the assessee and all the related concerns, fair market value of the shares of Zenser, Spencer and KEC and the Share purchase particulars by the assessee from UNIVERSAL, relevant correspondence pertaining to the OFCDs subscribed by the INSTANT etc. 22. Further, we find the CIT raised various issues alleging the AO‟s fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Honble High courts on the subject concerned. It is binding on the IT Authorities when such interpretations are affirmed by the Apex court. In the back ground of the same, an „incorrect assumption of the law‟ constitutes an acceptable ground for the CIT to assume jurisdiction. Further, when the AO adopts one of the courses permissible in law and it has resulted in the loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as and erroneous order prejudicial to the interests of the revenue, unless the view taken by he ITO is unsustainable in law. 25. Further, on the issue of application of the mind of the AO, in the case of Gabriel India Ltd (supra), the Jurisdiction High Court has also held that where the AO has made enquiries with regard to nature of the claim as evidenced by the detailed explanations furnished by the assessee in the assessment proceedings, the order of the AO cannot be called to be erroneous and prejudicial to the interest of revenue. Recording the loss of revenue by the CIT is the requirement of the revisionary order of the CIT. Such loss of revenue should be obv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares from the said Zensar, KEC, Spencer and Co Ltd and the transactions are considered by the AO genuine. Fact of verification of the share purchase transaction is very much on records. We find the AO is aware of and informed of the facts relating to the purchase price of the said shares, being lessor than that of the FMV. Considering the facts narrated by the Sri Mehta, we find that the AO conducted necessary enquiries in to various aspects of the said purchase transactions and opined to make addition on account of „excess premium‟ only and invoked the provisions of section 56 of the Act and not on account of the said share purchase transactions involving Zensar, KEC, Spencer and Co Ltd. Therefore, we find no error in the order of the AO, whether of legal or factual nature on that account. c. AO's illogical conclusions vs revisionary powers: On these allegations of the CIT we find that so long as (i) the conclusion are taken and (ii) verification is done by the AO on an issue, on the ground of "illogicality" is no sustainable ground for assumption of jurisdiction validly. Referring the expressions ie „illogical conclusions‟ used in the revision order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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