BHAGYASHRI CREATION PVT LTD,SURAT V. PCIT-1, SURAT

ITA 594/SRT/2024

AI Insights

The case involves Bhagyashri Creation Pvt. Ltd., which appealed against the order of the Principal Commissioner of Income-tax, Surat-1, revising the assessment order for the assessment year 2018-19 under section 263 of the Income Tax Act. The revision was based on the grounds that the original assessment was erroneous and prejudicial to the interests of the revenue, particularly concerning the large share premium received during the year. The Tribunal examined whether the Assessing Officer had adequately inquired into the creditworthiness of the investors and the genuineness of the share premium transactions. After reviewing the submissions and the assessment records, the Tribunal concluded that the Assessing Officer had indeed conducted a thorough inquiry and made a reasoned decision, thus setting aside the revision order.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 29813 (ITAT-SURAT)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2018-2019
• Other Referred Cases: CIT vs. Nirav Modi, Idea Cellular Ltd. vs. CIT, CIT vs. Fine Jewellery India Ltd., Nirma Chemical Works vs. CIT, CIT vs. Gabriel India Ltd., CIT vs. Max India Ltd., Narayan Tatu Rane vs. ITO, CIT vs. Smt. Padmavathi, Mahesh Reddy vs. PCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: SURESH K. KABRA
• Keywords: Set aside; Difference of opinion; Opportunity of being heard; Fair market value; Valuation report; Share purchase agreement; Revision of order; Value adopted by valuation officer
• Section: 143(3); 142(1); 143(2); 263; 68; 22; 13; 20

Judgement Text

" आयकर अपीलीय अिधकरण, सूरत Ɋायपीठ, सूरत IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No. 594/SRT/2024 (AY 2018-19) (Physical court hearing) Bhagyashri Creation Pvt. Ltd. B-416, 3rd Floor, Aastha Textile Tower, Ring Road, Surat-395 002 [PAN : AADCB 9739 M] बनाम Vs Principal Commissioner of Income- tax, Surat-1, Aayakar Bhawan, Near Majura Gate, Surat-395 001 अपीलाथŎ/Appellant ŮȑथŎ /Respondent िनधाŊįरती की ओर से /Assessee by Shri Suresh K. Kabra, CA राजˢ की ओर से /Revenue by Shri Ravi Kant Gupta– CIT-DR सुनवाई की तारीख/Date of hearing 12.02.2025 उद ्घोषणा की तारीख/Date of pronouncement 28.03.2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of Ld. Principal Commissioner of Income-tax, Surat-1 [for short to as “Ld. PCIT”] passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 22.03.2024 for assessment year (AY) 2018-19, in revising the assessment order passed by Assessing Officer under section 143(3) r.w.s. 143(3A) & 143(3B) of the Act dated 08.04.2021. The assessee has raised the following grounds of appeal: “1. The Ld.PCIT-1 has erred and was not just and proper on the facts of the case and in law in considering the assessment order dated 08.04.2021 passed u/s 143(3) as erroneous and prejudicial to the interests of revenue and passing order u/s 263, directing to pass fresh assessment order in the case. 2. PAYER ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 2 2.1 The order u/s 263 passed by the PCIT may be kindly set aside. 2.2 Personal hearing may be granted. 2.3 Any other relief that your honours may deem fit may be granted. 3. The assessee craves leave to add, amend, modify alter or delete any of the grounds at the time of hearing” 2. Brief facts of the case are that case of assessee is a private limited company filed its return of income for assessment year 2018-19 on 31.10.2018 declaring total income at Rs.39,45,500/-. Case was selected for limited scrutiny on the issue of “large share premium received during the year”. The Assessing Officer after issuing notice under section 143(2) and notice under section 142(1) along with questionnaires regarding details of persons who have subscribed share, number of share, value of share which was issued and face value of the share and premium thereof as well as documents filed before Registrar of Companies (‘ROC’ in short) with regard to such issue, working of share valuation for the purpose of share premium and valuation report, if any. The Assessing Officer also sought information about creditworthiness of the investors along with their computation of income and capital account, balance- sheet and bank statement for assessment years 2017-18 and 2028-19. The Assessing Officer noted that on the basis of material available on record no addition was made on the issue and completed assessment under section 143(3) r.w.s.143(3A) and 143(3B) of the Act on 08.04.2021. The assessment order dated 08.04.2021 was revised by Ld. PCIT by exercising his power under section 263, vide order dated 22.03.2024. Before revising the assessment order, Ld. PCIT noted that on verification of case record, it is seen that assessee has claimed to have received share capital and share premium of Rs.1.23 crores during the year from nine persons. During assessment, the ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 3 Assessing Officer had required the assessee to establish the creditworthiness of the persons who had given share capital and share premium by furnishing computation of income, capital account, balance-sheet and bank statement for establishment the genuineness of transaction of share capital and share premium. The assessee failed to furnish these details and documents and failed to establish genuineness of the same. Thus, the amount of Rs.1.23 crores was liable to be added and treated under section 68 of the Act. As the assessee did not furnish anything to establish genuineness of such transaction, the Assessing Officer passed assessment order without application of mind. The action of Assessing Officer in passing assessment order is erroneous in so far as prejudicial to the interest of revenue. On the basis of such observation, Ld. PCIT issued show cause notice dated 08.09.2023. The contents of show cause notice are extracted from pages 3 to 5 of impugned order. In the show cause notice, Ld. PCIT mentioned the similar contents as per his observation, which we have recorded above. In response to show cause notice, the assessee filed its reply dated 14.09.2023. The contents of reply of assessee are extracted/scanned from pages 5 to 41 of impugned order. In the reply, the assessee stated that assessee-company is engaged in the business of manufacturing of textile products such as knitting fabrics. The Assessing Officer initiated the scrutiny proceedings by issuing notice u/s 143(2) dated 28.09.2019. The Assessing Officer issued notice under section 142(1) dated 11.12.2019 and asked the assessee to produce documentary evidence in support of claim on the issue on which case was selected for scrutiny i.e., large share premium received during the year. The ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 4 Assessing Officer also asked to furnish the details of share subscriber, number of share issued valuation of share, premium thereof and their ledger account with other details along with documents filed in ROC in this regard. In response to such show cause notice, assessee submitted list of allottees/share subscriber, their complete address, number of share, face value and premium along with Form-PAS-3 as filed before ROC. The assessee also furnished valuation report under Rule-11UA of the Income Tax Rules, 1962 for determining the value of share and premium thereof. The assessee further stated that they have issued shares on the basis of Fair Market Value (‘FMV’ for short) obtained from Chartered Accountant as prescribed under Rule 11UA(2)(c) of the Income-tax Rule, 1962. All such documents were filed before Assessing Officer. The Assessing Officer passed assessment order under section 143(3) r.w.s 143(3A) and 143(3B) of the Act on 08.04.2021 without making any addition on the subject/issue. Thus, it cannot be stated that Assessing Officer has not verified and considered the details submitted by assessee and therefore, assessment order passed by Assessing Officer cannot be said to be erroneous. 3. The assessee in its without prejudice submissions, submitted that assessee- company had taken loan from their directors and their relatives aggregating to Rs.98.00 lakh during assessment year 2015-16 and amount of Rs.24.00 lakh during assessment year 2017-18 and only Rs.1.00 lakh was received in assessment year 2018-19. All supporting documents in the form of ledger account of all the parties from whom the said amount of loan of Rs.1.23 crores taken, was also filed. Copy of tax audit report in Form-3CA-CD for assessment ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 5 year 2015-16 duly shown the loan from the parties of Rs.98.00 lakh was also filed are Annexure-3, copy of bank statement highlighting the entries were also furnished. The assessee reiterated that only Rs.1.00 lakh was received during the year under consideration. The loans were obtained from their directors and relatives. The assessee-company vide their special resolution passed by the directors of the company in an extraordinary general meeting held on 01.03.2017 and agreed to convert the loan amount availed from the directors and their relatives in equity shares. The loans were taken from directors and relatives with the condition of being converted into equity shares on future date. Therefore, in pursuance to such condition, the loan from the directors and their relatives of Rs.1.23 crores to the assesse-company was converted into fully paid-up equity shares in assessment year 2018-19, copy of special resolution was also filed. The assessee further submitted that only Rs.1.00 lakh is received during the year under consideration. The assessee submitted that notice under section 263 for making addition under section 68 in assessment year 2018-19 is baseless and bad in law. 4. In other without prejudice submission, assessee stated that section 68 can be made applicable only when any sum found credited in the books of account of an assessee maintains in previous year. Thus, no addition can be made as no credit received in assessment year 2018-19. In other without prejudice submission, assesse submitted that no addition can be made on account of loan which was taken by assessee-company during earlier years. The assessee has only converted loan into equity shares and no addition can be made during the year under consideration. The assesse also relied on various case law and ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 6 finally submitted that twin condition for invoking jurisdiction under section 263 is not available in the present case. The Assessing Officer passed assessment order after due application of his mind and it is not a fit case for exercising jurisdictional power under section 263 on the issue raised in the show cause under section 263 and notice issued may be dropped. 5. The reply of assessee was not accepted by Ld. PCIT. The Ld. PCIT in para-5.1 of impugned order recorded that after careful consideration and submission of assessee issued fresh show cause notice passed on 05.03.2024. Contents of such show cause is recorded on pages 20 to 22 of impugned order. In the second show cause notice dated 05.03.2024, the ld PCIT mentioned that case was selected for scrutiny on the issue of “large share premium received during the year (verify the applicability of 56(2)(viib) or any other relevant section” or any other relevant section. Since consideration of share issued by the assessee (wrongly mentioned received) by the assessee-company was in question, provision of section 56(2)(viib) attracts. The Assessing Officer made reference for valuation of share to the technical unit of faceless assessment system, vide letter dated 13.02.2021. However, technical unit does not have fundamental valuer, empanelled valuation experts, designated expert to determine the FMV of the assessee’s share for obtaining valuation report. The reference of Assessing Officer was returned back by technical unit vide report dated 08.03.2021. The Assessing Officer made reference to Valuation Officer vide his letter dated 19.02.2021. No report was received from Valuation Officer, the Assessing Officer passed assessment order without making any addition on this account and that without completing enquiry on the issue. ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 7 The Assessing Officer was not satisfied with the reply of assessee on the issue and for such reason, he made reference to various authorities. The Assessing Officer while finalizing assessment proceedings has not inquired properly into the above mentioned issue of valuation of share capital and share premium from the prospective of section 56(2)(viib) and passed assessment without application of mind. The assessee was asked to give reply on or before 11.03.2024 itself (wrongly mentioned 11.02.2024). The assessee again filed its reply on 18.03.2024. In the reply, assessee submitted that in response to show cause notice issued by Assessing Officer on 11.12.2019, the assessee furnished valuation report along with audited financial statement for financial year 2015-16. The assessee also referred provision of section 56(2)(viib) r.w.s. Rule 11UA in their reply. The assessee reiterated that they have issued share on the basis of FMV on obtaining report from Chartered Accountant as prescribed under Rule 11UA(2)(c). The Assessing Officer scrutinized the valuation report filed by assessee and if he is not satisfied by the valuation report for explanation by assessee-company that he has to record reasons and basis for not accepting valuation report submitted by assessee and only thereafter, he can go for valuation on his own. However, it is evident from the notice and order that neither the Assessing Officer questioned the valuation report nor asked for explanation on the issue. The assessee reiterated that documents were examined by Assessing Office as evident from para-2 of assessment order wherein he has noted about consideration of material on record. Merely because there was no discussion regarding documents filed by assessee on the receipt of premium, the order of Assessing Officer would not ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 8 become erroneous. The Assessing Officer normally discussed only those issues on which he is in disagreement with the assessee. There cannot be any presumption on that account that no enquiry or requisite inquiry were not carried out by Assessing Officer. To support their contention, assessee relied upon decision of Hon’ble jurisdictional High Court in the case of CIT vs. Nirav Modi (390 ITR 292) (ii) Idea Cellular Ltd. (301 ITR 407) and CIT vs. Fine Jewellery India Ltd. (55 taxmann.com 514). The assessee also relied upon the decision of Hon’ble jurisdictional High Court in the case of Nirma Chemical Works (309 ITR 67) wherein it was held that if the assessment order was incorporated the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. Merely, ld. PCIT does not agree with the possible view taken by the Assessing Officer, the assessment cannot be subject-matter of revision. To support such view, assessee relied upon the decisions of Hon’ble Bombay High Court in the case of CIT vs. Gabriel India Ltd. (reported in 203 ITR 108) and Hon’ble Supreme Court in the case of CIT vs. Max India Ltd. 295ITR 282 (SC). 6. The Ld. PCIT not accepted the reply of assessee. The ld PCIT in para-6.1 of impugned order recorded that contention of assessee is that only loan was converted into equity share during the year. Such contention is not acceptable. The scrutiny assessment was completed in faceless manner. The correspondence made by Assessing Officer and the assessee is available on ITBA portal. The Ld. PCIT referred the notice dated 10/11.12.2019 and by referring such show cause notice, the LD. PCIT held that document furnished by assessee were not sufficient enough to establish the creditworthiness of ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 9 the persons who had given share capital and share premium during assessment, assessee not produced the copy of share certificate issued. Thus, assessee failed to produce all the documents. Consideration for share premium received by assessee was in excess of FMV. Thus, provision under section 56(2)(viib) attracts. The Assessing Officer made reference to valuation unit. No report was received from Valuation unit was received as this unit does not have any valuer. The Assessing Officer made reference to Valuation Officer, report for valuer was not received. Thus, while passing the assessment order, the Assessing Office has not made proper inquiry and passed assessment order without application of his mind. The Ld. PCIT by referring the provision under section 263 held that both limbs of section 263 are satisfied and assessment order dated 08.04.2021 is erroneous and in so far as prejudicial to the interest of Revenue. The assessment order was made without making proper or verification which should have been made during assessment proceedings. The assessment order was set aside with a direction to pass fresh assessment order after giving reasonable and sufficient opportunity of being heard to assessee. Aggrieved by the impugned order dated 22.03.2024 passed under section 263, assessee has filed present appeal before Tribunal. 7. We have heard the submission of Ld. Authorized Representative (Ld.AR) of the assessee and Ld. Commissioner of Income-tax- Departmental Representative (Ld.CIT-DR) for the Revenue and have gone through the order of Ld. PCIT carefully. The Ld. AR of the assessee submits that case was selected on specific issue of ‘share premium’. During assessment, Assessing ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 10 Officer sought requisites details about the issuance of share, share application and share premium vide show cause notice 11.12.2019. The assessee furnished complete details of persons to whom shares were allotted, number of shares and premium were also furnished. All the share subscribers were either family members of the director of assessee-company or their relatives. The assessee also furnished Form-PAS-3 furnished before Registrar of Company (ROC) along with special resolution passed in the extraordinary meeting held by assessee-company on 28.05.2017. The assessee also furnished the other requisites details. The assessee specifically stated that security premium amount was not received during the year under consideration. The assessee received unsecured loan of Rs.98.00 lakh in assessment year 2015-16 and unsecured loan of Rs.24.00 lakh in assessment year 2017-18 which were converted into share application and share premium. Only Rs. 1.00 lakh was received during the current financial year. The assessee explained that there was no fresh credit in the books of assessee. The Assessing Officer on consideration of required details accepted such details and no addition was made. In response to show cause notice issued by ld. PCIT, the assessee filed detailed written submission. The submission of assessee are recorded in impugned order. Before Ld. PCIT, assessee submitted that no amount of share application or share premium was, in fact, received during relevant financial year. Rather, it was received as unsecured loan from the family members and relatives of director of assessee-company in assessment years 2015-16 and 2016-17 and only Rs.1.00 lakh was received during the year under consideration. All the details were again along with reply ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 11 was again filed before Ld. PCIT. The ld. PCIT has not found any error in the reply filed by assessee. The ld. PCIT has not verified the issue and simply set aside the assessment order without making any independent verification of fact for his satisfaction. The ld. PCIT should have given his reasoning/ finding as to why, the view taken by Assessing Officer is not sustainable in law. The Ld. PCIT has failed to do so and simply held that Assessing Officer should have conducted more inquiry. Such, course of action by Ld. PCIT is not in accordance with mandate of Section 263. Once the Assessing Officer on making necessary inquiry has taken a legally sustainable view, that cannot be substituted by the different view of Ld. PCIT. The Ld. AR of the assessee submits that twin condition as enunciated in Section 263 does not fulfil in the present case. The Ld.AR of the assessee further submits that even newly inserted Explanation-2(a) to Section 263 does not authorize to give unfettered power to Ld. PCIT to revive each assessment, if in his opinion is passed without making inquiries or verification which should have been made. To support his various contention, Ld. AR of the assessee relied upon the following decisions:  Narayan Tatu Rane vs. ITO [2016] 70 taxmann.com 227 (Mumbai-Trib.)  CIT vs. Smt. Padmavathi [2020] 120 taxmann.com 187 (Mad)  Mahesh Reddy vs. PCIT [2024] 167 taxmann.com 297 (Bangalore-Trib.) 8. On the other hand, Ld. Commissioner of Income-tax-Departmental Representative (Ld.CIT-DR) for the Revenue supported the order of Ld. PCIT. 9. We have considered the submission of both the parties and have gone through order of authorities below carefully. we have also deliberated on the various case laws relied by the ld AR of the assessee as well as by ld. PCIT. On perusal ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 12 of assessment order, we find that there is no detailed discussion in the assessment order, however, on perusal of record, we find that before accepting the contention of assessee, the Assessing Officer issued show cause notice to the assessee for seeking various details on share application, share capital account and share premium about details creditworthiness of investors capital account and balance-sheet. The assessee is response to the show cause notice, filed it detailed reply and furnished all details including the valuation report about the value of shares. All the details are still available in ITBA portal. Such fact is also accepted by Ld. PCIT in para-3 of impugned order. We find that in response to show cause notice issued by Ld. PCIT under section 263, the assessee filed detailed written reply, extracted of which are recorded by Ld.PCIT in impugned order, which is running into 17 pages . The relevant part of rely of assessee have already been recorded by us and same is not being repeated for the sake of repetitions. We find that Ld. PCIT has not given any finding on the specific reply of assessee that there is no credit in the books of assessee in the current financial year and that unsecured loan availed from family members and relatives of directors of assessee-company was converted into share application and share premium. Similar stand was taken by assessee before Assessing Officer. We also find that assessee also furnished valuation report of share as per Rule11UA of the Income-tax Rules, 1962. No comments on such valuation report was made by Ld. PCIT. 10. We find that Hon’ble Madras High Court in Smt. Padmavathi (supra) it was held by that where commissioner while invoking his power under section 263 faults with Assessing Officer, on the ground that he did not make proper enquiry, in ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 13 absence of clarity as to why in opinion of commissioner, enquiry was not proper, invocation of power under section 263 was not justified. The Hon’ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 194 Taxman 436 (Delhi) also held that when in the assessment proceedings, the Assessing Office called his necessary details on the issue of assessment and assessee furnished all details of the subject issued and the LD.PCIT also initiated action under section 263, on the same facts available on record and no other fresh material filed before him was discussed, it cannot be said that Assessing Officer has not applied his mind to the issue details submitted by assessee. Once the Assessing Officer was satisfied and accepted the explanation of assessee, if the Ld. PCIT has any grievance, he should examine and give a particular finding as to why the order is erroneous. There is distinction between ‘lack of enquiry’ and ‘inadequate enquiry’. If there is an enquiry, even inadequate that could not by itself give occasion to Ld. PCIT to pass order under section 263, merely, because he is of difference of opinion. We have independently examined the facts of the present case and find that during the year the assessee merely converted unsecured loan into share application money and share premium, which was received in earlier year. Thus, the credit in the books of account does not relate to the year under consideration except Rs.1.00 lakh, which has been honestly disclosed by ld AR of the assessee. Thus, the view taken by Assessing Officer in accepting the contention of assessee is not erroneous as he has taken a legally sustainable view. In our considered view, twin condition prescribed in Section 263 of the Act is not satisfied in the present case. Thus, the order passed by Ld. PCIT ITA No.594/SRT/2024 (A.Y.18-19) Bhagyashri Creation Pvt. Ltd. 14 under section 263 of the Act is not justified and the same is set aside. In the result, the grounds of appeal raised by the assessee are allowed. 11. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 28/03/2025. Sd/- Sd/- (BIJAYANANDA PRUSETH) (PAWAN SINGH) लेखा सद˟/Accountant Member Ɋाियक सद˟/Judicial Member सूरत / Surat Dated: 28/03/2025 Dkp Outsourcing Sr.P.S* आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to :  अपीलाथŎ/ The Appellant  ŮȑथŎ/ The Respondent  आयकर आयुƅ/ CIT  िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, सूरत/ DR, ITAT, SURAT  गाडŊ फाईल/ Guard File // True Copy // By order/आदेश से, सहायक पंजीकार आयकर अपीलीय अिधकरण, सूरत "