Appeal Details
Counselvise Citation
[2022] 106 COUNSELVISE.COM (IT) 6399 (ITAT-JAIPUR)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
15-09-2022
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2017-2018
Appeal Filed On
17-04-2022
Judgement Text
vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 126/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2017-18 Shri Kalyan Buildmart Pvt. Ltd. D-44, Subhash Marg C- Scheme, Jaipur cuke Vs. Principal Commissioner of Income Tax-2, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAKCS 1090B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Rajeev Sogani (CA) & Sh. Rohan Sogani (CA) jktLo dh vksj ls@ Revenue by : Sh. Prathviraj Meena (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 17/08/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 16/09/2022 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by the assessee aggrieved from the order of the Pr. Commissioner of Income Tax, Jaipur-2 [ Here in after referred as Ld. PCIT ] for the assessment year 2017-18 dated 30.03.2022 as per provision of section 263 of the Act, which in turn arises from the order passed by the DCIT, Central Circle-01, Jaipur passed under Section 143(3) of the Income tax Act, 1961 (in short 'the Act') dated 30.12.2019. 2 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 2. Aggrieved form the order of the ld. PCIT the assessee has marched this appeal on the following grounds; “1. In the facts and circumstances of the case and in law, ld. PCIT has erred in assuming jurisdiction u/s 263 when the order of the ld. AO is neither erroneous nor prejudicial to the interest of the revenue. The action of the ld. PCIT is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the order passed u/s 263. 2. The assessee company craves its right to add, amend or alter any of the grounds on or before the date of hearing.” 3. Succinctly, the fact as culled out from the records is that the assessee company e-filed its return of income for the aforementioned assessment year on 30-10-2017 declaring a total income of Rs. Nil/- (Loss of Rs. 5,41,872/-). The case of assessee company was taken up for scrutiny u/s 143(3) of the Income Tax Act, 1961 ("The Act") on the basis of Computer Assisted Scrutiny Selection (CASS) and statutory notice u/s 143(2) of the Act, dated 10-08-2018 was issued and served upon the assessee company. 3.1 In compliance to the said notices AR of the assessee filed details / information online. The reasons for scrutiny selection were verified from the online submissions of the assessee company. After examination of the information and other details placed on record, the returned income of the assessee was accepted. 3 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 4. After culmination of the assessment proceedings, the Pr. CIT called for the assessment records of the assessee company. From the record she observed that the assessee company’s case was selected for Limited Scrutiny due to large share premium received during the year under consideration. She observed that the assessment was completed u/s. 143(3) of the Income Tax Act, 1961 [ here in after referred as “Act” ] by the assessing officer on returned income. On perusal of the assessment record, it was noticed by her that :- “i. The assessee company has not provided any justification regarding change of valuation method of share premium and the share premium calculated by the assessee company on discounted cash flow projection method is not acceptable. ii. The fair market value of unquoted equity share price comes Rs. 780/-, therefore, the share premium price calculated by assessee is comes at very higher side i.e. Rs.4350/- & Rs.6470/- because the actual result of the company are as under: Year ended March 31, 2015 Year ended March 31, 2016 Year ended March 31, 2017 Year ended March 31, 2018 Year ended March 31, 2019 Year ended March 31, 2020 (29586) (449227) (104886) (3990292) (4055151) (42180725) As per profit & loss statement of the company, it shown heavy fosses, however, company allotted share premium at very higher side, which is not justifiable. (iii) With this there is change in the share holding pattern of the company and 53.66% of the shareholding now vests with M/s KGK Infrastructure (India) Pvt. Ltd., and 22.67% of the shareholding now vests with Sh. Vinay Kumar Ghisilal Kothari. Total 76.67% shareholding now vests with above mentioned both investor. The assessee has received share capital and share premium from Shri Vinay Kumar Kothari, Hongkong. As per section 6(3)(ii) of the Act. The assessee company is resident in India if its place of business effective management in India in that year. This fact has not been verified by the AO It is 4 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur pertinent to mentioned that this provision became effective from 01:04.2016 relevant to A.Y, 2016-17 and the case has been selected in limited scrutiny with one of the parameters being share whether share premium is from disclosed sources. (iv) Further, it is not brought on record whether the amount of share capital and share premium are from disclosed sources, whether this money had been assessed to tax before being invested in the assessee company. (v) After enlisting the facts as above and having huge Unsecured Loans, starting the year with an opening balance and during the year payments of Rs.2,03,50,000/ having been made to them, inflating the book value of the assets to create an artificial share premium value to disguise the routing of money as share capital and share premium, all this in a company which has a turnover of NIL in A.Y. 2017-18, should have evoked a greater scrutiny. There are no bills invoices of addition to fixed assets and as to when were they put to use. The Assessing Officer has not verified the claim of depreciation to the extent of Rs.6,13,624/- as to how the assessee utilized these assets in this year. (vi) With a NIL turnover, maintaining the unsecured loan to the tune of Rs.7,31,25,000/- and raising the book value of fixed assets (net of depreciation) to Rs.3,89,19,099/- in A.Y. 2017-18 and then transferring the majority shareholding to a company & an Individual from where share capital and share premium has flown in on the basis of Asset Based method, speaks of a broader nexus of creating bogus assets and creation of bogus share premium. The authenticity of the credits, share capital and share premium has not been established. 4. Therefore, due to above reasons, it is concluded as that the share premium rate to be ascertained as calculated at Rs.790/- (Share Price of Rs. 10+Share Premium of Rs.780), totaling of Rs.6,06,45,140/- (790*76766) and excess share premium so generated of Rs.37,44,21,870/- (435067010-60645140) without any authenticity of sources being disclosed. Consequently, excess premium charged by assessee was considered as income from other sources under section 56(2)(vii) of the Act. 5. In view of the above, it appears that the assessment order passed u/s 143(3) of the IT Act 1961 in your case for AY 2017-18 on 30.12.2019 is erroneous in so far as it is prejudicial to the interest of the revenue. 6. I, accordingly, propose to modify the order on the above issue under the power vested with me u/s 263 of the IT Act, 1961. You are, hereby, allowed an opportunity of hearing and to show cause as to why the order passed u/s 143(3) on 30.12.2019 by the DCIT, Central Circle-1, Jaipur may not be revised u/s 263 of the IT Act 1961. 5 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 7. In this connection you may file your submission, if any, on or before 18.02.2022 by e-mail at jalpur.pcit2@incometax.gov.in. If you fail to file any reply, the matter will be decided on merit on the basis of material available on record.” 5. In response to the above show cause notice, the assessee company has filed its reply on 18.02.2022 which is reproduced here in below : The assessee Company is in receipt of notice u/s 263 dated 10.02.2022. Our humble submissions in response to above notice are as under: 1. Assessment Proceedings: 1.1. The assessment was completed vide order u/s 143(3) dated 30.12.2019 by DCIT, CENTRAL CIRCLE -1, JAIPUR. 1.2. The case was selected for limited scrutiny. Following issue was identified for examination in limited scrutiny: i. Share Premium 1.3. During the course of assessment proceedings, ld. AO issued the following notices, which were duly responded to by the assessee Company: 1.4. A d e tailed Show Cause Notice dated 24.12.2019 was issued by the ld. AO. The said Show Cause Notice was duly replied by the assessee Company vide response letter dated 26.12.2019. 1.5. Since the issue identified in the limited scrutiny was “Share Premium” the assessee Company was asked to furnish necessary details along with evidences to justify the share premium received by the assessee Company. 1.6. The assessee Company furnished following Valuation Certificates obtained by it from the External Valuer in accordance with the law prescribed in this regard: S. Date of Name of Valuer PB S. No. Date of Notice PB Reply Date PB 1 09.08.2018 1-4 04.09.2018 5 2 26.04.2019 6-7 08.05.2019 8 13.05.2019 9 19.12.2019 10 3 24.12.2019 11-12 26.12.2019 13-18 6 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur No. Certificate 1 18.03.2016 PC Modi & Co., Chartered Accountants. 19-23 2 10.08.2016 PC Modi & Co., Chartered Accountants. 24-25 3 31.10.2016 PC Modi & Co., Chartered Accountants. 26-27 4 14.02.2017 PC Modi & Co., Chartered Accountants. 28-29 1.7. On the basis of details submitted by the assessee Company in response to exhaustive queries raised by ld. AO the share premium received by the company was found by the ld. AO genuine, fully justified and in accordance with the law. Accordingly, returned income was accepted and no addition was made u/s 56(2)(viib). 2. Issues raised in the Notice u/s 263: Revisionary jurisdiction u/s 263 is proposed to be assumed for the following purported reasons mentioned in the notice: i. No justification was provided regarding the change in valuation method and the share price calculated on the basis of discounted cash flow projection was not acceptable. ii. The share price comes to 780 against 4,350 and 6,470 because of the actual results of the Company for subsequent years. iii. The share premium received from Shri Vinay Kumar Kothari, Hongkong, is share premium received from a resident Company in terms of section 6(3)(ii). iv. Nothing was brought on record, whether share capital and share premium received by the Company were from disclosed sources. v. Inflation of book value of assets to create artificial share premium. No invoices for additions to fixed assets placed on record nor any verification of claim of depreciation of 6,13,624. vi. The authenticity of credits, share capital and share premium has not been established. 3. Our responses to various issues raised in the notice u/s 263 are as under: Issue i. No justification was provided regarding the change in valuation method and share price calculated on basis of discounted cash flow projection was not acceptable. Response 7 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur i.a Under the law, the assessee Company is free to use any of the various methods allowed under the law. i.b Valuation methods allowed under section 56(2)(viib) Explanation are as under: OR OR i.c Discounted Cash Flow method is very well prescribed method under Rule 11UA(2)(b) and, therefore, its adoption by the assessee Company is well within the law and its proposed rejection is contrary to the law in this regard. i.d There is no prohibition for change of method and ld. AO was aware of this legal position. Issue ii. The share price comes to 780 against 4,350 and 6,470 because of the actual results of the Company for subsequent years. Response ii.a The notice u/s 263 does not provide any basis for arriving at share price of 780/- . Please provide the calculations for deriving the value at 780/-. So that necessary submission in this regard can be made. Section 56(2)(viib) Explanation As may be determined in accordance with such method as may be prescribed in Rule 11UA(2) As may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature (A-L) X (PV)/(PE) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method. 8 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur ii.b In the Notice loss of the F.Y. 2019-20 is taken at 4,21,80,725, whereas the loss as per audited financial statement for the said year is only 42,18,072. Photocopy of audit profit & loss is enclosed. [PB 30 ] This error has impacted your view point on the matter. ii.c Discounted Cash Flow Method (DCM) presumes matching of minds between investor and investee regarding probable future cash flows as on the date of the agreement between the two. Any variation, subsequently, effected by subsequent developments, has no bearing on the valuation so arrived at and agreed by the two parties. ii.d Enough examples are available in the Indian stock market, where future prospects have been used as basis for arriving at the share price which subsequently have not gone true. ii.e Reliance is placed on the following judicial pronouncements:- 1. Cinestaan Entertainment (P.) Ltd. [2019] 106 taxmann.com 300 (Delhi - Trib.) : As per section 56(2)(viib) read with rule 11UA assessee has an option to do valuation of shares and determine fair market value either on DCF Method or NAV method, and Assessing Officer cannot examine or substitute his own value in place of value so determined. [PB 31-50 ] 2. Rameshwaram Strong Glass (P.) Ltd. [2018] 96 taxmann.com 542 (Jaipur - Trib.) : Where assessee company determined Fair Market Value of shares issued at premium on basis of Discount Cash Flow method in accordance with rule 11UA(2)(b) read with section 56(2)(viib) and valuation report was prepared as per guidelines given by ICAI and no fault was found in same, Assessing Officer was unjustified in changing method of valuation of shares at premium to Net Asset Value method. The case law has been enclosed. [PB ] Issues iii. The share premium received from Shri Vinay Kumar Kothari, Hongkong, is share premium received from a resident company in terms of section 6(3)(ii). & iv. Nothing was brought on record, whether share capital and share premium received by the Company were from disclosed sources. Responses iii. & iv. A During the course of assessment proceedings, following documents were submitted for establish the identity, genuineness and creditworthiness of the share premium received: a) Name of Subscriber b) Address c) Residential Status 9 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur d) Permanent Account Number [PAN] ii. & iv. B For calculation of share price u/s 56(2)(viib) read with rule 11UA(2), following valuation certificates were submitted vide submission dated 13.05.2019 :- iii. & iv.c The income tax return of Shri Vinay Kumar Kothari was also filed to substantiate his Non- Resident status. [PB] iii. & iv. d It is submitted that the provisions of section 6(3)(ii) and the place of effective management (POEM) is not relevant because the non-resident subscriber is not a company. The relevant portion of section is reproduced below: Section 6(3) of income tax act, 1961 A company is said to be a resident in India in any previous year, if— (i) it is an Indian company; or (ii) its place of effective management, in that year, is in India. Explanation.— For the purposes of this clause "place of effective management" means a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made. Issue v. Inflation of book value of assets to create artificial share premium. There were no invoices of addition of fixed assets placed on record nor any verification of claim of depreciation of 6,13,624. Response v.a The net worth of the assessee company subsequently increased because the share capital raised earlier was utilised for payment of liabilities. The assets remaining at same level decrease in liabilities resulted into increase in net worth. v.b During the course of assessment proceedings, vide submission dated 13.05.2019, it was clearly conveyed that no additions to fixed assets have been made during the year. v.c This fact was also evident to ld. AO from the fixed assets schedule annexed and forming part of the audited financial statements, therefore, there is no question of any bills/ invoices in respect of additions to fixed assets for the year. S. No. Date of Certificate Name of Valuer 1 18.03.2016 PC Modi & Co., Chartered Accountants 2 08.10.2016 PC Modi & Co., Chartered Accountants 3 31.10.2016 PC Modi & Co., Chartered Accountants 4 14.02.2017 PC Modi & Co., Chartered Accountants 10 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur v.d The assets were continuing from the preceding year, depreciation thereon was allowed in the immediately preceding year. These assets continued to be used, during the year under consideration, as similar business activities were carried on during the year. Ld. AO was fully justified in allowing depreciation of 6,13,624. Issue vi. The authenticity of credits, share capital and share premium has not been established. Response vi.a As has been submitted, complete details of the share subscriber and also share premium were furnished. These details were analysed by ld. AO who found the same satisfactory. Change in shareholding pattern had no impact on the issue under consideration in limited scrutiny. vi.b It is reiterated that the issue of share premium was to be examined in limited scrutiny. The issue was to be examined with reference to section 56(2)(viib) and not with reference section 68. Ld. AO had no jurisdiction to make enquires u/s 68. Accordingly, ld. AO appropriately did not transgress his jurisdiction. His action was well in accordance with the law. 4. The assessment was completed on the basis of exhaustive enquiries made by ld. AO and detailed submissions along with relevant documents placed on record by the assessee Company. Thus, no error can be attributed to such an order passed by the ld. AO. 5. Explanation 2 to Section 263, inserted vide Finance Act, 2015, cannot override the basic requirements of Sub-Section (1) of Section 263. In this regard, reliance is placed on the below mentioned judicial pronouncements: i. Torrent Pharmaceuticals Ltd. [2018] 173 ITD 130 (Ahmedabad- Trib.) ii. Eveready Industries India Ltd [2020] 181 ITD 528 (Kolkata -Trib.) iii. M/s Amira Pure Foods Pvt. Ltd, ITA No. 3205/DEL/2017, ITAT Delhi Bench. iv. Shri Narayan Tatu Rane, I.T.A. No. 2690/Mum/2016, ITAT Mumbai Bench. 6. The case was selected for limited scrutiny for verification of “Share Premium”. The case was not converted for full scrutiny and, therefore, the ld. AO had no jurisdiction to enquire issues other than Share Premium. 7. In the present case ld. AO was conducting limited scrutiny and not complete scrutiny. It was not the case that a large number of complicated issues were involved or a large number of documents were placed on record, rendering it probable that the 11 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur ld. AO had missed some facts. Reliance is placed on the judgment of Coordinate Bench of ITAT Jaipur in case of Smt. Lata Phulwani v. Pr. CIT - ITA No. 246/JP/20 "Even otherwise, it is clear from the assessment order that the case was selected for limited scrutiny only on the issue of investment made in the agricultural land and deduction under section 54F of the IT Act. Therefore, the question of lack of enquiry does not arise when the AO has taken up the scrutiny and issued the notice under section 142(1) along with a questionnaire calling for all the details relevant to the acquisition of the land as well as of construction of house." 8. After responding to all the queries of ld. AO and after satisfying him in respect of all the issues raised following alternative submission was made vide response letter dated 26.12.2019: - “Further, as per explanation of section 56(2)(viib), the fair market value of the share shall be the value (1) as per rule 11UA or (ii) as may be substantiated by the company to the satisfaction of AO based on the value on the date of issue of shares of its assets whichever is higher. The intrinsic value of the land alone is Rs. 165.04 crores (Copy of DLC rate, JDA Patta of Land and calculations are attached herewith marked as Annexure-D) excluding the construction cost, as against the net worth of Rs. 67.69 crores as shown in the valuation certificate dated 14th February 2017. Hence, if your goodself is not satisfied with the first method of NAV as per rule 11UA, the other valuation method (intrinsic value method) may be considered, which is in accordance with the law in this regard, and the consideration for allotment of 12092 equity shares on 21.03.2017 to M/s. KGK Infrastructure India Pvt Ltd does not exceeds the fair value of the shares and as such no addition u/s 56(2)(viib) is called for in the hands of assessee company.” 9. Ld. AO after knowing the DLC value of land rightly reached to the conclusion that the share premium received by company was fully justified from whatever angle it may be examined. 10. It is submitted that in the immediately preceding assessment year the company had issued shares at premium of 11,440. The said premium was found justified in terms of the provisions of section 56(2)(viib). Assessment was completed vide order u/s 143(3) dated 29.12.2018 without making any addition u/s 56(2)(viib). Copy of the assessment order is enclosed. [PB ] 11. Certain judicial precedents were also brought to the knowledge ld. AO vide submission dated 26.12.2019. Ld. AO concluded the assessment after appreciating these judicial precedents. 12. Any assessment order passed after adequate enquiry and which is in accordance with the prevalent judicial view cannot be said to be erroneous even if another view is also possible. Adopting one of the possible views is not an error. 12 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 13. Where the assessee has furnished the requisite information and the Assessing Officer has completed the assessment after considering all the facts, the order cannot be termed as erroneous. Reliance is placed on the following judicial pronouncements: i. CIT v Ratlam Coal Ash Co (1988) 171 ITR 141 (MP) ii. Ashok Kumar Parasramka v ACIT (1998) 65 ITD 1 (Cal) iii. CIT v Mehrortra Brothers (2004) 270 ITR 157 (MP) iv. CIT v Parameshwar Bohra (2004) 267 ITR 698 (Raj) v. Paul Mathews & Sons v CIT (2003) 263 ITR 101 (Ker) vi. CIT v Arvind Jewellers (2003) 259 ITR 502 (Guj) vii. CIT v Hastings Properties (2002) 253 ITR 124 (Cal) viii. CIT v Goal (JP) (HUF) (2001) 247 ITR 555 (Cal) ix. CIT v Amalgamations Ltd. (1999) 238 ITR 963 (Mad) x. CIT v Macneill Magore Ltd. (1998) 232 ITR 945 (Cal) 14. Where the Assessing Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be considered erroneous simply because the Commissioner does not feel satisfied with the conclusion. 15. Provision of section 263 no where allows to challenge the judicial wisdom of Id. AO or to replace her wisdom in the guise of revision unless the view taken by Id. AO is not at all sustainable in law. Extent of enquiry can be stretched to any level by forcing the AO to go through the assessment process again and again this proposition is not authorised by the law. Reliance is placed on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Ganpat Ram Vishnoi, 296 ITR 292 (Raj.) wherein at para 11 of the Hon'ble Court held as under: "Jurisdiction under section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something." In view of the above there is no error in order of ld. AO nor any prejudice is caused to the revenue, therefore, the proceedings-initiated u/s 263 may please be dropped.” 6. From the reply of the assessee in the proceeding before her, she has stated that the she has considered the facts of the case and the material available on record and her observation on the submission of the assessee is extracted from the order here in below:- 13 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur “I have considered the facts of the case and the material available on record and the submission made by the assessee. It is seen that company has overvalued its shares and the share premium charged by the company has no scientific basis and the projections given by M/s PC Modi and company are not consonant with the financials of the company. The calculation of share premium was ascertained on the basis of discounted cash flow projection method for 10 years (i.e. from financial year 2016-17 to 2025-26) by M/s. P.C.Modi & Company, which is not acceptable due to following reasons: On discounted cash flow projection method, the Net operating profit after tax (projected) was calculated in AY 2016-17 & 2017-18 at -2.66 and onwards it was calculated at 422.81 in AY 2018-19 (growth rate of 15,995 times from AY 2017- 18) and 1017.40 in AY 2019-20 (growth rate of 140 times from AY 2018-19), thereafter it was calculated 1246.78 in AY 202021(growth rate of 22 times), and almost double in AY 2021-22 of Rs. 2059.60(growth rate of 65 times) It is pertinent to mention here that while determining FMV on basis of DCF method, Chartered Accountant had relied only on information about future projections provided by management, assessee could not conclusively establish that such projection done by its management was on a scientific basis - Since assessee could not ensure that cash flow projection done by its management was on reliable estimate and achievable, DCF method was not workable. However as per balance sheet from 31st March, 2015 to 31st March, 2020, the profit after tax was negative in all subsequent years as given below: Year ended March 31, 2015 Year ended March 31, 2016 Year ended March 31, 2017 Year ended March 31, 2018 Year ended March 31, 2019 Year ended March 31, 2020 (29586) (449227) (104886) (3990292) (4055151) (42180725) Therefore, it is ascertained that cash flow projection done by its management was not reliable but arbitrary and imaginary. As per profit & loss statement of the company, it has shown heavy losses, however company allotted share premium at very higher side, which is not justifiable. (i) Due to allotment of shares by the company, the share holding pattern has changed and now the majority of the share holding i.e. 53.56% of the shareholding vests with M/s. KGK Infrastructure (India) Pvt. Ltd. and 22.67% of the shareholding is with Sh. Vinay Kumar Ghisilal Kothari. Total 76.23% shareholding is now with the above mentioned investors. Company has received share capital and share premium from Shri Vinay Kumar Kothari, Hongkong. 14 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur (ii) Further, it is not verifiable whether the amount of share capital and share premium received by the company from its share holders are from disclosed sources and whether this money had been assessed to tax before being invested in the assesse company. (iii) Thus, it is observed that company has not done any business during the year, and has a NIL turnover. Further, with this NIL turnover, along with the unsecured loan to the tune of Rs. 7,31,25,000/- and raising the book value of fixed assets (net of depreciation) to Rs.3,89,19.099/-in AY 2017-18 and then transferring the majority shareholding to a company & an Individual from where share capital and share premium has flown in on the basis of Asset Based method. The authenticity of the credits share capital and share premium has not been established.” 7. Based on the submission and discussion she has taken a view which in the proceeding before her under section 263 of the Act and the same is extracted here in below:- “9. Therefore, due to above reasons, it is concluded that the share premium rate to be ascertained as calculated at Rs.790/-(Share Price of Rs.10+ Share Premium of Rs.780), totaling of Rs.60645140/-( 790*76766) and excess share premium so generated of Rs.37,44,21,870/- (435067010 60645140) without any authenticity of sources being disclosed. Consequently, excess premium charged by assessee was to be considered as income from other sources under section 56(2)(vii) of the Act. 1. From the above facts and circumstances of the case and having regard to the material available on record, I am of the considered opinion that the Assessing Officer failed to carry out necessary inquiry and failed to consider/apply his mind to the information available on record and as such the assessment was made without application of mind on the given facts on record. This in turn has resulted in passing of an erroneous order by the Assessing Officer in the case due to non-application of mind to relevant material, reflecting non appreciation of facts which is prejudicial to the interest of the revenue. 2. Thus, I am of the considered opinion that the order passed U/s 143(3) on 30.12.2019 is erroneous and prejudicial to the interest of the revenue and that action u/s 263 is justified in this case. In reaching such conclusion, I am aided by the following judicial rulings. 15 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 1. The Hon'ble Supreme Court in the case of Malabar Industrial Limited V/S CIT2431TR has held that An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind". 2. Delhi ITAT in Agro Portfolio Vs ITO, New Delhi(2018) 94 Taxmann112 has held that "For all these reasons, we are of the considered opinion that there has not been any possibility of verifying the correctness or otherwise of the data supplied by the assessee to the merchant banker, in the absence of which the correctness of the result of DCF method cannot be verified. This left no option to the AO but to reject the DCF method and to go by NAV method to determine the FMV of the shares Without such evidence, it serves no purpose even if the matter is referred to the Department's Valuation Officer. We, therefore, do not find any illegality or irregularity in the approach of conclusions are by the authorities ITA No. 2189/Del/2018 below. While confirming the same, we dismissed the appeal as devoid of merits." 1. Accordingly, by virtue of powers conferred on the undersigned under the provisions of section 263 of the Income Tax Act 1961, I hold that the order under Section 14(3) of the IT Act dated 30.12.2019 for AY 2017-18 passed by the Assessing Officer is erroneous in so far as it prejudicial to the interest of revenue as the said order has been passed by the Assessing Officer in a routine and perfunctory manner. The order of the Assessing Officer is therefore liable to revision under the clause (a) & (b) of Explanation (2) to section 263 of the Income Tax Act. Therefore, the assessment order on the aforesaid issue is set aside to be made afresh de-novo in the light of observations made in this order. The AO is directed to examine and verify the issue of share premium in view of the provisions of law after allowing adequate opportunity of being heard to the assessee before passing the fresh assessment order. Hence, the assessment order is set aside as discussed above.” 8. Aggrieved from the said order of the ld. Pr. CIT the assessee carried the matter in appeal before us, challenging the order passed u/s. 263 of the Act. On merits the ld. AR appearing on behalf of the assessee submitted a 16 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur detailed written submission in respect of the various grounds raised by them and the same is extracted here in below: GROUND NO. 1 LD. PCIT ERRED IN ASSUMING JURISDICTION UNDER SECTION 263 1. PROCEEDINGS BEFORE LD. AO 1.1. Case of assessee company was selected for Limited Scrutiny for the purpose of verification of Share Premium received by it during the relevant previous. [PB: 1] 1.2. Notice under Section 142(1) was issued, by the ld. AO, specifically asking for details which, inter-alia, included (i) calculation of share premium; (ii) basis for determination of share premium; (iii) justification, with documentary evidence, apropos share premium received. [PB : 6- 7] 1.3. Following documents/details were submitted by the assessee company, before the ld. AO :- 1.3.i Audited Financial Statements, along with all the schedules [PB : 5]; 1.3.ii Calculation as regards the Share Premium received on issue of shares [PB: 5]; 1.3.iii Valuation certificates/report issued by Chartered Accountant, justifying the share premium received [PB : 19-29]. 1.4. Show Cause Notice was issued to the assessee company, by the ld. AO, on 24.12.2019 [PB : 11-12]. In such Show Cause Notice, aspects regarding the valuation of shares were asked from the assessee. Against the Show Cause Notice, detailed submissions were filed by the assessee company before the ld. AO [PB: 13-18]. 1.5. On the basis of details submitted by the assessee company in response to exhaustive queries raised by ld. AO, share premium received was found by the ld. AO to be genuine, fully justified and in accordance with the law. Accordingly, returned income was accepted and no addition was made u/s 56(2)(viib). 2. SUBMISSIONS 2.1. Before ld. PCIT elaborate submissions were filed, which are also placed in Paper Book from Pages 33 to 42, which may please be considered in correct perspective. 17 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 2.2. Summarised position of the issues raised by the ld. PCIT, for assuming jurisdiction under Section 263, and the consequent reply filed by the assessee company is as under: - ISSUE RAKED UP BY LD. PCIT CONTENTION BEFORE LD. PCIT No justification was provided regarding the change in valuation method and share price calculated on basis of discounted cash flow projection was not acceptable • As per Explanation to Section 56(2)(viib), read with, Rule 11UA, assessee company at its own option can choose (i) Intrinsic Value Method [Rule 11UA(2)(a)]; or (ii) Discounted Cash Flow Method [Rule 11UA(2)(b)], for valuation of its shares. [PB : 35] • There is no prohibition, under ITA, w.r.t change of method and ld. AO was aware of this legal position. • Alternatively , the value of the shares were substantiated before the ld. AO by using Intrinsic Value Method, considering the DLC/Market Value of the land, owned by the assessee company, which was accepted by the ld. AO [PB : 17] [PB : 41]. Share price comes to Rs. 780 against Rs. 4,350 and Rs. 6,470 because of the actual results of the company for subsequent years. • No basis provided by ld. PCIT for arriving at the share price of Rs. 780, inspite of specifically requested for the same in the submissions filed before ld. PCIT [PB : 36]. • Ld. PCIT considered the loss for FY 2019-20 at Rs. 4,21,80,725, whereas, the actual loss, as per Audited Financial Statements was Rs. 42,18,072. Audited Profit & Loss was provided to ld. PCIT [PB: 30]. Discrepancy in the SCN was brought to the notice of the ld. PCIT [PB : 36] • Valuation as per DCF method is done on a particular date, at the terms agreed between the investor and investee, at the time of making investment. Actual results cannot be substituted, later on. For this proposition, reliance was placed on Cinestaan Entertainment (P.) Ltd. [2019] 106 taxmann.com 300 (Delhi - Trib.); Rameshwaram Strong Glass (P.) Ltd. [2018] 96 taxmann.com 542 (Jaipur - Trib.); Avigna Housing Pvt. Ltd., ITA NO. 521/Chny/2019. [PB : 37] The share premium received from Shri Vinay Kumar Kothari, Hongkong, is share premium received from a resident company in terms of section 6(3)(ii). • Identity, creditworthiness of all the subscribers, along with the genuineness of the transaction was established by submitting various details, which, inter-alia included Name of Subscribers; Address: Residential Status; Permanent Account Number; Income Tax Return, [PB : 38] • Reports/Certificates from Chartered Accountant, as regards valuation of shares, in terms of Rule 11UA, read with Section 56(2)(viib) were submitted. [PB : 38] 18 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur Nothing was brought on record, whether share capital and share premium received by the Company were from disclosed sources. • Section 6(3)(ii) regarding Place of Effective Management (“POEM”) was not relevant in the present case. POEM is applicable in the case of corporate entity, whereas, in the present case, the investor shareholder is a non-resident individual. [PB : 38] Inflation of book value of assets to create artificial share premium. There were no invoices of addition of fixed assets placed on record nor any verification of claim of depreciation of Rs. 6,13,624. • Liabilities decreased as the share capital received previously was utilized for paying off the liabilities. Assets remained at the same level. Due to reduction of liability, net worth of the assessee company increased. [PB : 39] • No additions were made to the Fixed Assets, during the year. Fact conveyed to ld. AO and evident from Audited Financial Statements. [PB : 39] • Assets continuing from preceding year, on which depreciation claimed by assessee company. [PB : 39] The authenticity of credits, share capital and share premium has not been established. • Complete details of the share subscribers and also share premium furnished. [PB : 39] • Change in shareholding pattern had no impact on the issue under consideration in limited scrutiny. • Share premium was to be examined in limited scrutiny. • Issue was to be examined with reference to Section 56(2)(viib) and not with reference Section 68. • Ld. AO had no jurisdiction to make enquires u/s 68. Accordingly, ld. AO appropriately did not transgress his jurisdiction. Action of the ld. AO was well in accordance with the law. 2.3. Regarding whether jurisdiction could be assumed by the ld. PCIT, in the present case, following contentions were raised by the assessee company, before ld. PCIT:- Contention Raised Case Laws • Assessment was completed by ld. AO on the basis of exhaustive enquiries and detailed submissions filed by assessee company. • Explanation 2 to Section 263, inserted vide Finance Act, 2015, cannot override the basic requirements of Sub-Section (1) of Section 263. [PB : 40] • Torrent Pharmaceuticals Ltd. [2018] 173 ITD 130 (Ahmedabad- Trib.) • Eveready Industries India Ltd [2020] 181 ITD 528 (Kolkata -Trib.) • M/s Amira Pure Foods Pvt. Ltd, ITA No. 3205/DEL/2017, ITAT Delhi Bench. • Shri Narayan Tatu Rane, I.T.A. No. 2690/Mum/2016, ITAT Mumbai Bench. • Case was selected for limited • Smt. Lata Phulwani, ITA No. 19 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur scrutiny for verification of share premium and was not converted into full scrutiny. Resultantly, ld. AO had no jurisdiction to enquire on issues other than Share Capital. • Being a limited scrutiny, it was not the case that large number of complicated issues were involved or large number of documents were placed on record, rendering it probable for the ld. AO to miss certain facts/legal position. [PB : 40] 246/JP/2020 • Where ld. AO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be considered erroneous simply because the PCIT does not feel satisfied with the conclusion. • Provisions of Section 263 nowhere allows to challenge the judicial wisdom of the ld. AO or to replace the wisdom in the guise of revision, unless the view taken by the ld. AO is not at all sustainable in Law. • Extent of enquiry can be stretched to any level by forcing the AO to go through the assessment process again and again this proposition is not authorised by the law. [PB : 42] • Ganpat Ram Vishnoi, 296 ITR 292 (Raj.) 2.4. Ratio laid down in the below mentioned decisions is relevant for the case at hand, in deciding that working adopted by the ld. AO, during the course of assessment proceedings, was based on the plausible view available as per law and that nothing contrary to law was done by the ld. AO. Although the legal position has already been discussed hereinbefore, however, further reliance is placed by the assessee company on the case laws provided in the table below:- Case Law (Further relied upon) Ratio laid down • Karmic Labs Pvt. Ltd., ITA No. 3955/Mum/2018 It is beyond the jurisdiction of the Assessing Officer to change the 20 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur • Flutura Business Solutions (P.) Ltd. [2020] 117 Taxmann.com567 (Bangalore – Trib) • Him Agri Fresh (P.) Ltd. [2021] 90 ITR(T) 95 (Amritsar- Trib) method of valuation adopted by the assessee company, for the purpose of Section 56(2)(viib), if the same is within the purview of Rule 11UA. • Vodafone M-Pesa Ltd. [2020] 114 taxmann.com 323 [Mumbai- Tribunal] • Flutura Business Solutions (P.) Ltd. [2020] 117 Taxmann.com567 (Bangalore – Trib) When Fair Market Value has been determined based on the Discounted Cash Flow Method, then such method of valuation cannot be rejected by comparing the projections with the factual results. 2.5. Point by point rebuttal of the contentions raised by ld. PCIT, in disregarding the submissions of the assessee company, in her order from Pages 18 to 21, are set out here under: - 2.5.i Assessee company has overvalued its shares and the share premium charged by the company has no scientific basis and the projection given by PC Modi & Company are not in consonant with the financials of the company; 2.5.ii It has been held by ld. PCIT that the cash flow projection done by the management was not only reliable but arbitrary and imaginary. Ld. PCIT has compared the projections, considered for valuation of shares, with the actual results of the company in the subsequent years. It is reiterated that the Chartered Accountant while valuing the shares of the company has adopted the method as prescribed under the law. The projections, as regards operations of the company, considered by the Chartered Accountant is as on the date of valuing the shares. Subsequent position is not to be considered. Attention is drawn towards the various case laws, in this regard, cited above. Even for listed securities, it is seen that the price at which the shares are allotted/valued, at the time of their listing, drops subsequently. 2.5.iii Ld. PCIT has stated that the shareholding pattern of the assessee company has changed. The said observation is of no relevance. As long as the shares have been issued to the shareholder, in accordance with the method as prescribed under the law, any change in shareholding due to such fresh issue of shares is only incidental. It cannot render the entire procedure for issue of shares as erroneous, least any prejudice to revenue is caused. 2.5.iv It is not verifiable whether the amount of share capital and share premium received by the company from its shareholders from disclosed sources and whether this money has been assessed to tax before being invested in the assessee company. 21 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur Case of the assessee company was selected for limited scrutiny for the purpose of verifying the share premium received by it. Ld. AO, was well aware of this fact and the legal position. ld. AO was only required to verify the factual position considering the provisions of Section 56(2)(viib). Even otherwise, ld. AO exceeded his jurisdiction, during assessment proceedings, and asked for the details of the shareholders. Such details were provided by the assessee company, which were found to be in order by the ld. AO. Ld. PCIT has not commented on whether the provisions in relation to POEM were applicable or not in the instant case. 2.5.v Ld. PCIT recomputed the value of the shares to be Rs. 790. In spite of specifically requesting [PB: 36] for the basis for arriving at Rs. 790 as the value of share, computed by the ld. PCIT, no such calculation was provided. Attention was also drawn to the fact that ld. PCIT had erroneously considered excess loss, however no such adjusted working has been provided by the learn it PCIT in her order. 2.6. In the present case, no cogent basis has been provided by ld. PCIT for disregarding the calculation adopted by the assessee company for the purpose of valuing its shares. Under such circumstances, jurisdiction cannot be assumed under Section 263 by ld. PCIT. [Trimex Fiscal Services (P.) Ltd. [2020] 113 taxmann.com 441 (Kol.-Trib)] 2.7. Assessee company submitted the Income Tax Return of Shri Vinay Kothari, to establish that he was a non-resident, for the relevant previous year. 2.7.i Accordingly, the provisions of Section 56(2)(viib) were not applicable on the amount received oh account of issue of shares to him. 2.7.ii Section 56(2)(viib) is only applicable to shares issued to residents. 2.7.iii Ld. PCIT has stated that the ld. AO has not considered the amount received from Shri Vinay Kothari from the point of view of Section 68. 2.7.iv Although, it is reiterated, that the proceedings before the ld. AO was limited to verification of the share premium received. Even otherwise, it is a settled proposition that once the identity of the non- resident remitter is established and the money comes through banking channel, it cannot be treated as deemed income under Section 68. [Russian Technology Center (P.) Ltd. 2013 Taxmann.com 400 (Delhi-Trib)] 2.8. Mere inadequacy of an enquiry or insufficiency of material on record can be a ground to invoke powers under Section 263. Under identical set of facts, as in the present case, in the case of Dada Ganpati Gaur Products (P.) Ltd. 22 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur [2021] 214 TTJ (Chd.) 908, jurisdiction under Section 263 was assumed by the ld. PCIT for the reason that the ld. AO, in such case, had not examined the applicability of Section 56(2)(viiib). A valuation report had already been filed by the assessee company before the ld. AO. In such valuation report the assessee company had followed DCF method for the purpose of valuing it equity shares. Jurisdiction under Section 263 was assumed by ld. PCIT. Thereafter, order of the ld. PCIT was quashed by Hon’ble ITAT by holding that there was no cogent and convincing reason for rejecting the valuation report and since ld. AO had passed the assessment order after conducting proper verification of the details furnished and considering the explanation given by the assessee, order of ld. PCIT, under Section 263, was to be set aside. 2.9. Moreover, Explanation to Section 56(2)(viib) stated that the value of the shares arrived at by the company can also be substantiated to the satisfaction of the ld. AO. Assessee company, in the assessment proceedings, calculated the value of shares, through Intrinsic Value Method, by considering the DLC/Market Value of the land held by it. 2.10. Assessment order can be revised under section 263 only if the twin conditions of “error in the order” and “prejudice cause to the revenue” coexist. Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd [2000] 109 Taxman 66 (SC) held that “...A bare reading of this provision makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suomotu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied with twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1)...” 2.11. From the exhaustive material, already on record, and the enquiries conducted by ld. AO, it is abundantly clear that no prejudice, in any manner, was caused to the interest of the revenue:- 2.11.i Hon’ble Calcutta High Court in Dawjee Dadabhoy and Co. v. S.P. Jain [1957] 31 ITR 872 (Cal.) at page 881 has explained the meaning of the expression "prejudicial to the interest of the Revenue" the following terms: “..The words ‘prejudicial to the interests of the Revenue’ have not been defined, but it must mean that the orders of assessment challenged are such as not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. It can mean nothing else...” 2.11.ii G.R. Thangamaligai [2003] 259 ITR 129 (MAD.) 23 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur “In the absence of any finding that there is loss of revenue, interference under section 263 of the Act was not justified. 2.11.iii Eveready Industries India Ltd [2020] 181 ITD 528 (Kolkata -Trib.) “...The Hon'ble Supreme Court, held that for invoking powers conferred by S.263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue...” 2.12. Unless prejudice to the interest of the revenue is “established”, any assumption of jurisdiction under Section 263, by the ld. PCIT, directing revision of order, is unjustified. 2.13. Even otherwise, Section 263 proceedings are not meant for correcting each and every error of the ld. AO. [Torrent Pharmaceuticals Ltd. [2018] 173 ITD 130 (Ahmedabad - Trib.)]. 2.14. Hon’ble ITAT, Mumbai Bench, in the case of Reliance Payment Solutions Limited, ITA No. 1010/Mum/2021, held that “...as long as the action of the Assessing Officer cannot be said to be lacking bonafides, his action in accepting an explanation of the assessee cannot be faulted merely because it could have been lawful to make mere detailed inquiries or because he did not write specific reasons of accepting the explanation. As for learned PCIT s observations regarding accepting the explanation “without appropriate evidence”, there is nothing to question the bonfides of the Assessing Officer or to elaborate as to what should have been “appropriate evidence. The fact remains that the specific issue raised, in the revision order was specifically looked into, detailed submissions were made and these submissions were duly accepted by the Assessing Officer. Merely because the Assessing Officer did not write specific reasons for accepting the explanation of the assessee cannot be reason enough to invoke powers under section 263, and non-mentioning of these reasons do not render the assessment order “erroneous and prejudicial to the interest of the revenue...” 2.15. Hon’ble ITAT, Jaipur Bench, in the case of Annu Agrotech Private Limited, ITA No. 09/JP/2021, apropos assumption of jurisdiction under Section 263 by the ld. PCIT, laid down the following ratio:- 2.15.i Ld. PCIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, Section 263 cannot be invoked; 24 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 2.15.ii Section 263 cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous; 2.15.iii Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. If the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law; 2.15.iv The law is well settled that the assessment order cannot be held to be erroneous simply on the allegation of inadequate enquiry. Unless there is an established case of total lack of enquiry; 2.15.v In case of limited scrutiny, scope of examination of the AO is restricted towards the reason for which the case of the assessee was selected for limited scrutiny. AO cannot proceed to examine issues, which are beyond the scope of limited scrutiny. Resultantly, Section 263 cannot be invoked for such issues; 2.15.vi Valuation done under Rule 11UA by expert is binding upon AO, as held in Rameshwaram Strong Glass Pvt Ltd vs. AO 195 TTJ465; 2.15.vii Ld. PCIT cannot proceed on mere suspicion and substitution of opinion while assuming jurisdiction under Section 263; 2.15.viii Ld. PCIT cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. 2.16. Ld. PCIT has misplaced reliance on the decision of Hon’ble ITAT, Delhi Bench in the case of Agro Portfolio (P.) Ltd. [2018] 94 taxmann.com 112 (Delhi-Trib). 2.16.i The said case is not in relation to assumption of jurisdiction under Section 263. 2.16.ii In the said case there was a categorical finding of the ld. AO that the assumptions taken by the valuer in the report were totally erroneous. Resultantly, such report was rejected by the ld. AO, in the aforementioned case. 25 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 2.16.iii However, in the present case the valuation reports/Certificates submitted by the assessee company were found to be in order by the ld. AO. 2.16.iv Even otherwise, assessee company was able to substantiate the value adopted by for the purpose of valuation by other methods, i.e. Intrinsic Value Method. Subsequent to verification of all the submissions, including the valuation report, ld. AO came to the conclusion that the valuation was in accordance with the prescribed method, as per Section 56(2)(viib), read with, Rule 11UA. 2.16.v The case law cannot be applied in the present case because the factual position in the present case is completely different from the factual position as was existent in the case law relied upon by the ld. PCIT. 2.17. Ld. PCIT at page 20 of her order, calculated excess share premium generated by the assessee company on issue of shares. For the purpose of this calculation, ld. PCIT has considered the number of shares issued by the assessee company to be 76,766. However, the fact remains that the assessee company, during the relevant previous year, issued 81,766 shares. This shows complete non-application of mind by the ld. PCIT. In view of the above factual and legal position, ld. PCIT has grossly erred in assuming jurisdiction under section 263. Thus, the entire such proceedings initiated by the ld. PCIT deserves to the quashed.” 9. The ld. AR of the assessee has also relied upon the following judicial decisions driving home to the various contentions raised by the ld. AR of the assessee: • Copy of order of Hon'ble ITAT, Jaipur Bench in the case of Annu Agrotech Pvt Ltd, ITA No. 09/JP/2021 • Copy of order of Hon'ble ITAT, Chandigarh Bench in case of Dada Ganpati Gaur Products Pvt Ltd [2021] 224 TTJ (Chd) 908 • Copy of order of Hon'ble ITAT, Kolkata Bench, [2020] 113 taxmann.com 441 (Kolkata- Trib.) • Copy of order of Hon'ble ITAT, Jaipur Bench, in the case of Rameshwaram Strong Glass (P.) Ltd. [2018] 96 taxmann.com 542 (Jaipur-Trib.) • Copy of order of Hon'ble ITAT, Amritsar Bench, in the case of M/S Him Agri Fesh Pvt Ltd, ITA No. 224/Asr/2018 26 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur • Copy of order of Hon'ble ITAT, Bangalore Bench in the case of Fluture Business Solutions (P.) Ltd. [2020] 117 9 taxmann.com 567 (Bangalore- Trib.) • Copy of order of Hon'ble ITAT, Mumbai Bench, in the case of Vodafone M Pesa Ltd. [2020] 114 taxmann.com 323 1 (Mumbai- Trib) • Copy of order of Hon'ble ITAT, Mumbai Bench, in the case of Karmic Labs Pvt Ltd, ITA No. 3955/Mum/2018 • Copy of order of Hon'ble ITAT, DELHI Bench, in the case of Cinestaan Entertainment (P.) Ltd. [2019] 106 taxmann.com 300 (Delhi-Trib) • Copy of order of Hon'ble ITAT, in the case of Avigna housing PVT.LTD [TS-751- ITAT -2020(CHNY) • Copy of order of Hon'ble ITAT, in case of Reliance Payment Solutions Limited [ TS-199-ITAT-2022 (Mum) • Copy of order of Hon'ble ITAT, Jaipur Bench in the case of Lata Phulwani, ITA No. 246/JP/2020 • Copy of order of Hon'ble High Court of Rajasthan, in the case of Ganpati Ram Bishnoi [2006] 152 Taxman 242 (Rajasthan) • Copy of order of Hon'ble ITAT, Ahmedabad Bench, in the case of Torrent Pharmaceutical Ltd. [2018] 97 taxmann.com 671 (Ahemdabad-Trib) • Copy of order of Hon'ble ITAT, Kolkata Bench in the case of Everready Industries India Ltd. [2020] 114 taxmann.com 610 (Kolkata- trib) • Copy of order of Hon'ble ITAT, Delhi Bench, in case of M/s Amira Pure Food Pvt. Ltd., ITA No. 2690/Mum/2016 • Copy of order of Hon'ble ITAT, Mumbai Bench, in the case of Shri Narayan Taturan, ITA No. 2690/Mum/2016 • Copy of order of Hon'ble ITAT, Delhi Bench, in the case of Russian Technology Centre (P.) Ltd. [2013] 37 taxmann.com 400 (Delhi- trib.) 10. During the process of hearing the ld. AR of the submitted that they have not been given any basis of the price that the PCIT has derived in her order. Thus, the ld. DR directed to submit the same which he has submitted and was submitted to the ld. AR for comments. The ld. AR in addition to the above written submission already submitted also commented upon the 27 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur valuation of share referred by the ld. PCIT in her order and the same is reiterated here in below :- “Assessee company is in receipt of the report of the ld. PCIT, as regards the basis adopted by ld. PCIT for valuing the shares of the assessee company at Rs. 790 per share. In this regard, below mentioned submissions may please be considered:- 1. It is reiterated that ld. PCIT in her Show Cause Notice issued to the assessee company, during the course of proceedings before her, calculated the value of the shares of the assessee company at Rs. 790. During the course of proceedings before her, it was specifically asked by the assessee company for the basis of such valuation. However, no basis was provided to the assessee company by the ld. PCIT. The current basis has been provided only pursuant to the letter written by the ld. CIT-DR to ld. PCIT asking for such basis. No opportunity was provided to the assessee company to rebut the basis in the proceedings before ld. PCIT, which is against the principles of natural justice. For this reason alone, even without considering the merits of the case, order of ld. PCIT deserves to be quashed, as being against the principles of natural justice. 2. Without prejudice to the above, following submissions may please be considered with respect to the valuation of shares by the assessee company. 2.1 For Section 56(2)(viib), Fair Market Value (“FMV”) of the shares is higher of 2.2 (i) FMV as determined as per Rule 11UA (“1 st Method”); or (ii) FMV as may be substantiated by the taxpayer to the satisfaction of the Assessing Officer, based on the value of the assets, on the date of issue of shares (“2 nd Method”). WHICHEVER IS HIGHER 2.2 Relevant explanation, forming part of Section 56(2)(viib) is set out hereunder:- “...Explanation. —For the purposes of this clause:- (a) the fair market value of the shares shall be the value— (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher...” 2.3 As per the 1 st method, i.e. Valuation in accordance with Rule 11UA, valuation has to be done in accordance with Rule 11UA(2) for the purpose of 2 nd Method 1 st Method 28 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur Section 56(2)(viib). Valuation of Shares as per Rule 11UA (2) has to be done on the Valuation Date . Further, for the purpose of determining the value of shares on the basis of Net Asset Value Method [Rule 11UA(2)(a)], the Book Value of the Assets/Liabilities has to be considered as per the Balance Sheet. 2.4 For the purpose of Rule 11UA, Balance Sheet has been defined in Rule 11U. As per the said definition, whenever any valuation is to be done as per Rule 11UA(2), Balance Sheet of the company as drawn upon on the Valuation Date, which has been audited by the Auditor of the company has to be considered. If in case the Balance Sheet on the valuation date is not drawn up, then the Balance Sheet drawn up as on the date immediately preceding the Valuation Date which has been approved and adopted in the Annual General Meeting of the shareholders of the company is to be considered. 2.5 Definition of Balance Sheet, relevant for the purpose of Rule 11UA(2), as provided in Rule 11U(b) is as under:- “....for the purposes of sub-rule (2) of rule 11UA, the balance sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under section 224 of the Companies Act, 1956 (1 of 1956)26 and where the balance sheet on the valuation date is not drawn up, the balance sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company..” 2.6 Further, Valuation Date has also been defined in Rule 11U(j) to mean “..the date on which the property or consideration, as the case may be, is received by the assessee....” 2.7 In the present case, shares were issued by the assessee company, during Financial Year 2016-17, relevant Assessment Year being AY 2017-18. Accordingly, assessee company considered the Balance Sheet position as on the date of issue of shares. Whereas, ld. PCIT, in her report, has determined the value of shares based on the Balance Sheet position as on 31.03.2015. 2.8.1 Relevant dates on which shares are issued by the assessee company are as under:- 2.9 Whenever shares are issued to the prospective investor, such investor is always concerned with the value of the shares as on the date when such investor is subscribing to the shares of the company. Investor is never bothered with the position of the company one year prior to the date when it subscribes to the Date of Issue of Shares by Assessee Company Date of Valuation Report 20-May-1618-Mar-16 19-Sep-1610-Aug-16 16-Jan-171-Nov-16 21-Mar-1714-Feb-17 Valuation by ld. PCIT as on March 31, 2015 29 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur shares of the company. This is the reason why even under the relevant rule for valuation of shares, i.e. Rule 11UA, valuation date for the purpose of valuing the shares is the date on which the consideration is received by the assessee on issue of shares. 2.10 Ld. PCIT has sought to value the shares of the company based on the Balance Sheet position as on 31.03.2015, which was more than one year prior to the date on which shares were issued. Thus, mechanism adopted by ld. PCIT is totally erroneous and deserves to be ignored. 2.11 Even otherwise, ld. PCIT has ignored the legal position that apart from Rule 11UA(2), Section 56(2)(viib) also prescribes another method for valuation of shares of the company (Refer Para 2.2. above). According to such method, the value of the shares, to be substantiated by the company to the satisfaction of the Assessing Officer, has to be based on the value of the assets held by the company, as on the date of issue of shares. 2.12 Assessee company, during the course of proceedings before the ld. AO, had categorically mentioned that considering the Fair Market Value of the land held by the assessee company, which at that point of time when the shares was issued was Rs. 165 crores (Approx). Thus, value at which shares were issued by the assessee company were fully justified. In this regard, attention is drawn towards the submission made by the assessee company before the ld. AO, which is placed at Paper Book Page 17. Such factual position was also brought to the notice of the ld. PCIT at Page 9 (PB: 41) of the submissions made before her. Thus, the valuation of the shares adopted by the assessee company was in accordance with law and was, therefore, rightly accepted by the ld. AO, during the course of assessment proceedings.” 11. In addition to the above written arguments the ld. AR of the assessee submitted that one of the agencies of the government of India, i.e. RBI for monitoring the inward and outward flow of money has prescribed the rule and regulations and following that regulator terms and the valuation of shares the same is done in accordance with that regulation. For that he relied upon the RBI regulation submitted in the paper book. He also submitted that both the allotment of shares to the NRI is very well informed to the RBI and RBI based on the application not only adopted the 30 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur investment but has also accepted the valuation based on the workings given to them. The both approval letters of the RBI are made available in the paper which are dated 01.11.2016 and 23.03.2017. The same are approved in terms of the nature of the investment to be made by the NRI and also on the issue of valuation method to be adopted. Once the one regulator has accepted the modus operndi. Not only that the valuation method adopted by the assessee company for offering the shares to NRI is also in accordance with the valuation method prescribed under Rule 11 UA of the Income Tax Rules. Once the option the is available in the said rule and the assessee has adopted one method and the AO has not objected to that method, the ld. PCIT cannot take a plea as to why the assessee has not adopted a particular method of valuation. The assessment was selected for the limited scrutiny due to large share premium. The ld. AO vide notice dated 26.04.2019 asked the assessee company to file the details of basis on which share premium was determined justifying with documentary evidences in support. The assessee company was also requested to submit the calculation of share premium. The assessee company has submitted their reply on the issue on 13.05.2019. In that reply the assessee company has furnished the details pertaining to shares issued at premium. The assessee company also submitted the copies of the valuation certificate 31 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur issued by the chartered accountant justifying the aforesaid share premium and the calculation of share premium how derived. Based on these documents the ld. AO has issued a show cause notice to the assessee on 24.12.2019 proposing to disturb the valuation of share adopted by the company. The said show cause notice is extracted here in below : “Please refer to the above. As you are aware that assessment proceedings in your case for the AY 2017 18 is pending before me and which is going to be barred by limitation by 31-12-2019. Notice u/s 143(2) and 142(1) has already been issued and served upon you. You are directed to furnish the following details/information. 1. Please refer to the balance sheet and the share valuation report furnished by you. From the previous balance sheets and ITRS of the assessee company it is evident that the assessee company has not been generating any revenue for the past few years. Also, the assessee company has taken loans from Punjab National Bank against commercial plot situated at Khasra No. 141/1, 142, 406/148, 403/148 and 404/148 Village Chainpura, Near Jawahar Circle, Sanganer. It is also evident from the record that construction of commercial building has been stalled by the Jaipur Development Authority due to 'State Hanger Security' issues and as a result of JDA's Intervention the management has decided not to carry out any major work till final decision. 2. As per the company's audit report and balance sheet, the borrowing cost incurred on the project was added to capital work in progress. Further, while valuing the assets of the company for the purpose of calculating book value of the shares, it is evident that the borrowing cost has been added to capital work in progress which has been shown as asset for the company. 3. As per accounting standard 16, paragraph 18 and as per accounting slandered 10, paragraph 20, this treatment of borrowing cost by the company is not permissible. Given the fact that the project has been held up for many years, the company cannot capitalized the interest expense or the borrowing cost. Rather it has to book the borrowing cost / interest expenses as expense in its profit and loss account. However, you have not complied with these standards and as a result of this mistreatment of the borrowing cost / interest expenses, your capital work in progress has been inflated by 66 Cr. during the year under consideration. You are hereby required to show cause as to why your borrowing cost should not be removed from the schedule of assets for the purpose of valuation of shares. As the current valuation of your shares is exaggerated and exceeds the current fair market value.” 32 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur From the above show cause notice ld. AR of the assessee submitted that the ld. AO not only perused the details submitted by the assessee but applied mind and has considered to issue the show cause notice. The same was replied by the assessee and was considered by the assessing officer. In this reply the assessee dealt with the provision of rule 11UA provision of section 56(2)(viib) and the ld. AO applied his mind on the issue and considered the submission of the assessee company. Thus, when the issue raised by PCIT has already been duly considered by the ld. AO the PCIT merely his opinion on the issue is different cannot review the order of the ld. AO to correct each and every alleged mistake in the order of the AO. The ld. AR of the assessee further without prejudice the submission made before the AO submitted before us that the provision of section 56(2)(viib) can only be adopted when the shares are issued to resident share holders where in this case the investor is non resident and the applicable provision for investment in the shares of Indian company is subjected to regulations by the RBI and the same is also followed and the necessary approval / sanction of the investment made by the NRI is approved by the RBI and necessary approval letter dated 01.11.2016 and 23.03.2017 submitted so as to demonstrate the assessee has also complied that the provisions as the provision of section 56(2)(viib) is not applicable to NRI share holder. Not 33 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur only that the ld. AR submitted that PCIT is insisting as to why the other method of valuation is not adopted by the assessee company and in that the ld. AR submitted that the law permit the assessee company to choose any one method of valuation and the same has been adopted and approved by the one of the regulator of the country. As regard the contention that when in the first allotment net asset was low and in the subsequent valuation the same is estimated at higher value and in that respect the ld. AR of the assessee submitted the ld. PCIT has not appreciated the fact that before issue of the share there was debt and after the first issue the debt has been paid off and that is why the DCF method the valuation of the share came high on account of the ratio improved on account of the lower debt of the company and there are the undisputed facts available on the record of the assessing officer. As regards the NRI investor the assessee submitted the return of income, PAN details so as to establish the credit worthiness of the investor. As regards the applicability of the provision of section 56(2)(viib) the assessee company has already submitted their submission vide point no. 4 of the assessee’s submission in the assessment proceeding vide letter dated 04.09.2018. The same is not disputed by the ld. AO after going through the submission of the assessee company. Not only that the ld. AO has issued the show cause notice after 34 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur analyzing the details submitted by the assessee on that very particular issue. The ld. AR of the assessee in para 4 and 5 submitted that accounting aspect, para 6 deals with the provision of section 56(2)(viib) via a vis the method of valuation adopted and also submitted the legal decision on the validity of the valuation aspect vide their reply dated 26.12.2019. Thus, the ld. AR of the assessee submitted that the aspect of valuation, applicability of provision of sections 56(2)(viib) and rule 11UA & U, justification for charging premium coupled with the valuation estimated all these things were ragged and discussed by the AO. Based on the submission the AO feel it deem not make any addition and considered the submission of the assessee and thus, the concluded assessment. Now, the PCIT under the grab of section 263 cannot held the order passed by the AO after detailed examination as to erroneous and prejudicial and in fact the ld. PCIT miserably failed to established as why the order is subjected to review under the provision of section 263 of the Act. The ld. PCIT based on the view placed that the valuation as per the net asset value is coming very low whereas looking to the present state of affairs the company’s major asset being under litigation the projections are not depict the correct picture. In the response the ld. AR of the assessee submitted that the dispute with the JDA is settled and if the JDA current land rate applied for the land will be 35 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur more as compared to the valuation done by the company on discounted cash flow method (DCF). Thus, the contentions of the PCIT is mere guess work on these aspect of valuation. Even the PCIT has not given the working in the proceeding u/s. 263 for adopting the value at Rs. 790 for each share at page 20 of his order which the ld. DR has given in the proceeding before ITAT. The ld. AR also submitted before us that why the same is not correct. The valuation of share as per rule 11U be considered as on the date of issue of share and not based on the past historical data which the PCIT has adopted thus, the PCIT has not perused that valuation rule while commenting on the valuation of the shares. Even the fact that the shares are issued to NRI and provision of section 56(2)(vii) of the act is not applicable in the present set of circumstances is also not dealt. In point no. iv of the show cause issued PCIT has contended that the AO has not brought on record the fact that the whether the investment made is from the disclosed sources and whether this money had been assessed to tax before being invested in the assessee company. In this regard the ld. AR of the assessee submitted that the issue has been raised by the PCIT without verifying the fact that the details regarding the investor were submitted by filling the ITR, PAN and balance sheet of the investor thus, the requirement of section 68 has already been met with in the assessment proceeding and 36 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur the issue is raised is without considering the facts already on record submitted vide reply dated 26.12.2019 to the AO. The ld. PCIT in her SCN in point no. v and vi raised those issues which were not subject matter of the scrutiny as the assessment was selected for limited issue. Not only that the ld PCIT in para 4 of her SCN take a rate of valuation and the working was also not provided to the assessee in the proceeding and the order has been passed without providing due opportunity of being heard on the issues raised and thus, the order passed by the PCIT u/s. 263 deserves to be quashed. The ld. AR of the assessee submitted that even after insertion of explanation 2 in section 263 the law mandated the ld PCIT to take a decision and has to demonstrate which the are condition that has been prescribed is not fulfilled in the order passed by the AO. For that he draw our attention to explanation 2 of section 263 the same is extracted here in below: Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 94 [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 95 [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 37 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 12. The ld. AR of the assessee explained that none of the condition specified is applicable in the present facts of the case. He further submitted that a) The AO has not granted any relief or claim in the present case which is the subject matter in the case. The order is passed after making enquiry in the proceeding. The AO has not violated any direction or instruction of the board. The order has also not violated any binding judicial decision. b) whether the issue raised by the PCIT has been raised by the AO in the proceeding before him ? Yes the ld. AR demonstrate before us that the AO has raised the issue has which the PCIT is contending. c) Whether the necessary enquiry on the issue has been conducted? Yes he has after considering the submission of the assessee issued a show cause notice to d) Whether the ld. AO has applied his mind on the issue and taken a plausible view after considering the issue which the PCIT is raising? Yes the issue was deliberated in the SCN and the submission were made before him on all the possible aspect of the issue before him and the same has considered after raising considered after applying due mind and thus, the explanation of 2 of section 263 will not apply. 38 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 13. Thus, the ld AR of the assessee submitted that ld. AO after raising the relevant issue and analyzing the same based on the facts submitted taken a plausible view which the PCIT is not permitted to take in accordance with the various case laws relied upon and particular this coordinate bench decision in the case of Annu Agrotech Private Limited in ITA no. 09/JP/2021. Based on these arguments he submitted that the order passed by the ld. PCIT deserves to be quashed. 14. Per contra, the ld. DR supported the order of the PCIT and has argued on various aspect of the case. He has stated that the ld. PCIT has arrived a a particular price only from the detailed balance sheet already on record and even working done by the PCIT is submitted to AR for his comments. The ld. DR submitted a circular of the RBI stating that the investor being NRI is not permitted to invest in the company engaged in the business of the real estate. The valuation done by the assessee is much higher side the company is not earning any income as there exist a dispute of property with the JDA and the matter is pending in the High Court as reported in the balance sheet of 2016 vide note no. 24 of the audited accounts, so the projected earning or revenue adopted in the valuation are not real. The valuation done by the assessee company on DCF is not 39 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur correct method of valuation. As the company has never made profit in the recent past how the revenue can be estimated. Not only that while making the valuation weightage average cost of capital is presumed @ 16 % and on that growth is estimated at 5 %. The AO has accepted the imaginary valuation and it is the provision of 263 where the higher officer looks the proceeding conducted by the officer under his charge. Company is incurring loss and once the assessee has adopted one method and for another the another method of estimation of DCF is not in accordance with the law even the AO has not considered the fact that NRI is eligible to invest in the company as per RBI circular. He further submitted that the transaction undertaken by the company with the NRI is required to be seen in terms of the provision of section 92E & F where in the definition of the arm’s length price is given. Section 92C prescribed the various method for that transactions is also required to be seen. AO has not verified that whether the investor is related person or not?. Since, these transaction are with NRI whether the applicability of the TRO report is to be obtained or not is also not verified by the AO. He has invited attention to note no. 24 in the account as referred the presumption made are not in real terms and correct when the property is under dispute and there is not possibility to achieve the estimation made in the DCF projections. Thus, based on these facts which 40 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur are factually examined by the PCIT and the valuation made by the PCIT is the only option available with the assessee and be considered as correct one and therefore, the order of the PCIT setting a side the assessment made by AO be sustained. 15. The ld. AR has also filed the written submission against the various contentions / averments made by the ld. DR in the course of appeal proceedings. The same is also extracted here in below:- During the course of hearing before the Hon’ble Bench on 03.08.2022, ld. DR, as part of his oral submissions, raised certain issues. The contentions raised by the ld. DR, along with the rebuttal from the side of the assessee company, are set out here under:- Contention raised by ld. DR Rebuttal of the assessee company Assessee company issued shares to a Non-Resident, during the relevant previous year, which were valued on the basis of Discounted Cash Flow Method (“DCF”) and Net Asset Value Method (“NAV”). Shares issued to a Non- Resident can only be valued on the basis of DCF Method, in accordance with the regulations of the Foreign Exchange Management Act • As regards valuation of shares by company, registered/incorporated in India, at the time of issue of shares to a Non-Resident, as per regulations of FEMA, the same is to be done in accordance with the “internationally accepted pricing methodology”. • The same is in accordance with RBI Notification No. FEMA 306/2014-RB, dated May 23, 2014, issued by the Reserve Bank of India (“RBI”), relevant for the issue of shares during the relevant previous year. Such circular was also referred by the Chartered Accountant firm, in the Valuation Report, while carrying out the valuation of shares of the company [PB: 19] • Thus, method of valuation has been left for the issuing entity to decide. The same can either 41 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur (“FEMA”). be on the basis of DCF or NAV, as both such methods are recognised internationally. • During the course of hearing before the Hon’ble bench, ld. DR submitted A.P.(DIR Series) Circular No 49. It is submitted that the said circular is not relevant, for the relevant previous year, because it pertains to the Year 2010, and subsequently RBI vide circular referred above, has clarified the position as regards the valuation of shares. Also, the circular as has been submitted by the ld. DR pertains to “transfer of shares from a resident to a non-resident”, whereas, in the present case, the shares were freshly issued by the assessee company. Any company engaged in the business of Real Estate Development cannot issue shares and receive money, on that account, from a Non- Resident as per FEMA Regulations. • As per the relevant regulations concerning the Foreign Direct Investment, any company which is engaged in development of townships, construction of residential/ commercial premises etc can issue shares to any entity/person who is a Non-Resident as per FEMA Regulations. Such Non-Resident cannot invest directly or indirectly in business which pertains to only buying and selling of land, including agriculture land. [Relevant Regulation copy enclosed Page 1-12] • Form FC-GPR was filed by the assessee company for both the trenches of receipt of money on account of issue of shares to Shri Vinay Kothari (Non-Resident). Such form was filed with RBI. • The same have also been approved by the RBI. [Copy Enclosed Page 13-16] • Thus, allegation of the ld. DR is on account of misinterpretation of the law as regards FEMA on issue of shares to Non-Resident. Construction on the land owned by the assessee company had been stopped by the Jaipur • It is submitted that the investors of the assessee company were aware that whatever construction was done by the assessee company was very much in accordance with 42 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur Development Authority (“JDA”) and the company was in losses. law. • As in any business, more so in the real estate business, there are legal issues which might temporarily bring the construction activities to a standstill, however, promoter/investor is always aware and factor in such kind of situations while making the investment. • It is pertinent to note that subsequently the embargo placed by the JDA on construction of the building on the land owned by the assessee company was withdrawn. • Assessee company was given clean chit and was allowed to carry out the construction activities. • Subsequently, Writ Petition [S.B. Civil Writ Petition No. 15767/2015] filed by the assessee company before the Hon’ble Rajasthan High Court, against order of the JDA, was subsequently withdrawn by the assessee company [Copy of the Order of Hon’ble Rajasthan High Court is enclosed 17-18]. • Assessee company was not into losses on account of operational activities, but on account of certain fixed expenses which had to be incurred, pending commencement of sale. Looking at the time location of the land, being situated just next to the Jaipur International Airport, the project is likely to make substantial profits. This aspect has been considered by the investors before making investment. • Also, ld. DR ignored the fact that the land which was owned by the assessee company was worth approx. Rs. 165 crores. This factual position had already been submitted by the assessee company to the ld. AO, during the course of assessment proceedings. Accordingly, ld. AO was satisfied as regards the valuation of shares by the assessee company. [PB : 17] 43 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur • Ld. DR also raised the issue that who would invest in the private limited company making losses. It is submitted that the shareholders to whom shares were issued by the assessee company were all part of the group to which the assessee company belonged. They were fully aware of the future potential of the business of the assessee company and accordingly made the investment. The assessee company is a private limited company, which cannot issue shares to the public at large. Without prejudice to the above, it is submitted that the issues which have been raked by the ld. DR, during the course of hearing before the Hon’ble Bench were not even raised by ld. PCIT in her Show Cause Notice (“SCN”), dated 10.02.2022, issued to the assessee company, while assuming jurisdiction under Section 263. These issues were raised by the ld. DR, for the first time before the Hon’ble Bench. This is nothing but tantamount to issuance of a fresh SCN to the assessee company by the ld. DR. It is a settled legal position that the proceedings under Section 263 can only be restricted to the Show Cause Notice issued to the assessee company and no issues can be raked up beyond the SCN. Attention is drawn towards the decision of Hon’ble Bombay High Court in the case of Universal Music India Pvt. Ltd., in Income Tax Appeal No. 238 of 2018 [Copy Enclosed Pages 19-26]. Question of law for adjudication before the Hon’ble High Court was as under:- “(a) Whether on the facts, in the circumstances of the case and as per law, the Hon’ble ITAT has erred in holding that in the revision proceedings the CIT cannot travel beyond the reasons given by him for revision in the show-cause notice without appreciating that the power of revision under Section 263 of the I.T. Act is not contingent on the giving of a notice to show cause ?” Hon’ble Bombay High Court held that:- “...In the case at hand, there is a finding by the Tribunal, as noted earlier, that no issue was raised by the CIT in respect of particulars of payment made to persons 44 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur specified under Section 40A(2)(b) of the Act and even the show cause notice is silent about that. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law...” Hon’ble High Court referred to the decision of Hon’ble Supreme Court in the case of Amitabh Bachchan [2016] 69 taxmann.com 170 (SC) for the ratio that opportunity of being heard should be afforded to the assessee before passing any order under Section 263. Relevant extract of the decision of Hon’ble Apex Court, as relied upon by the Hon’ble Bombay High Court is as under:- “..What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. Reference in this regard may be illustratively made to the decisions of this Court in Gita Devi Aggarwal vs. CIT [1970] 76 ITR 496 and in CIT v. Electro House [1971] 82 ITR 824 (SC). Paragraph 4 of the decision in Electro House (supra) being illumination of the issue indicated above may be usefully reproduced hereunder..” Even otherwise, after having submitted even on merits, ld. DR cannot raise issues before the Hon’ble Bench in order to rake up additional issues to hold the order of ld. AO erroneous.” 16. In addition to the above counter reply of the ld. AR he has submitted that the both the transaction are approved by the RBI not only that the method of valuation adopted by the assessee is also accorded approval. For that he filed the copy of the approval letter of RBI dated 01.11.2016 and 23.03.2017. As regards the case flow on account of the litigation he has filed the status of the court case and the matter is also resolved. Therefore, the ld. AR submitted that on of the angle the order is not erroneous and 45 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur PCIT is not permitted to review the order which are passed in accordance with the law. 17. We have heard the rival contentions, carefully considered the finding recorded in the impugned order passed under S. 263, the rival contentions raised by both the parties and the material placed on record as well as gone through the judicial pronouncements relied upon by both the parties to drive home to their contentions. From the fact, we noticed that the assessee is a private limited company and filed return for the year under consideration which was taken up for limited scrutiny to verify the share premium received by the company. For this year the ld. AO has called for the details required to complete the assessment based on the reason of selection under CASS, assessee submitted the details called for and ld. AO taken a plausible view on the issue. Whereas the ld. Pr. CIT considered that the same has not been seen by the AO in light of the observations made by her in the proceedings before her as depicted by her in the show cause notice issued by her. The bench notes that the prerequisite exercise of jurisdiction by the learned Principal CIT under section 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The Principal CIT has to be satisfied of twin conditions, 46 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, provision of section 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue's interest, then the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 47 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 83 (SC). We also draw strength from the decision of the Hon'ble Supreme Court in the case of CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282 (SC) wherein it was held that: "The phrase 'prejudicial to the interests of the Revenue' in s. 263 of the IT Act, 1961, has to be read in conjunction with the expression 'erroneous' order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law." Thus, based on this decision it is also noteworthy to mention that one of the pre-requisites before invoking S. 263 and the allegation of the Ld. Pr. CIT is that there has been incorrect assumption of fact and law by the Assessing Officer. However, despite our deep and careful consideration of the material on record including the finding recorded in the subjected Assessment order dated 30.12.2019 and in the findings recorded in the order under challenge, we do not find any incorrectness and incompleteness in the appreciation of facts made by the AO after hearing the arguments of both the parts. In the light of these observations, we do not agree on this aspect to this extent with Ld. Pr. CIT. 48 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 18. We now proceed to consider whether the AO has also incorrectly appreciated and assumed the law while making the subjected assessment to be termed, as erroneous and prejudicial to the interest of the revenue? The facts are not disputed that the case of the assessee was selected for limited scrutiny. On the issue of the selection of the case the assessing officer has first called for the information from the assessee on the issue under disputed vide notice dated 26.04.2019. It is also not in dispute that the assessee has provided all the relevant details in the assessment proceedings. The ld. AO based on the information provided by the assessee applied his mind. Then on the issue of share valuation and other related issues as pointed out by the DR in his arguments that the assessee incurred loss, the property is under dispute, commercial activity is stopped, the method of accounting adopted while making the valuation of shares etc. on all the related issues a detailed show cause notice was issued to the assessee company on 24.12.2019 asking them to give the reply on the issue which related to issue on hand. The DR only demonstrate that the valuation basis of estimating the growth and income estimate are wrong based on the current state of facts. Whereas, the ld. AR also proved that the all these were pessimistic view of the matter. The dispute is resolved and legal matter is also in favour of the company and merely on these 49 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur ground order cannot be termed as erroneous. The losses are temporary event which will not decide the valuation of shares when there is clear cut future better profit is visible by the investor. Even the ld. AR has converted the ld. DR arguments that the necessary investment is not permitted under FEMA by placing on record the approval granted by the regulator (RBI) on two different occasion in the same year. Thus, the investment made by the NRI is in its merits and allowed by the RBI. The ld. AR also brought to our notice that even the valuation done by the company is accepted even by the RBI and has not raised any question on it and the same is in accordance with the method of valuation prescribed under the income tax rules. As regards the issue of arm’s length price and applicability of section 92E & F on the transactions, the ld. AR submitted that this provisions are not applicable on the transaction done by the assessee company with that with NRI. Not only that the issue of applicability of these sections and report of the TPO is not raised in the show cause notice and the ld. DR cannot raise this issue at this stage. As regards the applicability of these sections the ld. DR relied on the Vodaphone judgement which holds that in these types of transactions the chapter X dealing with all such provisions are not applicable. He further submitted that on 10.10.2014 a press release is also issued that the department has accepted the Vodaphone judgement and 50 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur thus, the arguments of the DR on these TP provisions at this stage is not relevant but in fact are not applicable also. The ld. AR of the submitted various aspects argued by him were not part of the SCN issued by the PCIT. 19. It is not disputed by both the parties that the case of the assessee was selected for limited scrutiny and issue to be examined was increase in share premium. In the assessment proceeding the ld. AO has examined the issue as it is evident form the submission made in the form of paper book filed by the assessee. As the case was for this limited purpose the same has been examined and verified by the ld. AO in that framework. The ld. Pr. CIT evidently did not place on record any apparent error on the part of the AO so as to substantiate that order passed by the ld. AO is prejudicial to the interest of revenue. He only mentioned that the detailed investigation was required to be conducted in order to verify the share premium. There is no further defect found from the record from the material that has been collected by the ld. AO to verify the point raised in the limited scrutiny. The contentions raised by ld. DR on aspects in detailed discussed in the arguments of the ld. AR of the assessee. Since, in this case ld. AO has clearly conducted the enquiry and revenue did not pin point the error on the 51 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur part of the assessing officer the order passed after due application of mind cannot be subjected to proceeding u/s. 263 of the Act. At this stage it is required to be noted that the ITAT Mumbai bench in the Mrs. Khatiza S. Oomerbhoy addressed the issue of 263 proceeding elaborately after referring to number of cases on revisionary powers vested in the Commissioner of Income-tax under section 263 of the Act and summed up the fundamental principles emerging from several cases as under- (i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 of the Act cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view with which the does not agree. If cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under law (vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the Commissioner of Income-tax, while exercising his power under 52 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur section 263 of the Act is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer. (vii) The Assessing Officer exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the Commissioner of Income-tax does not fee stratified with the conclusion. (viii) The Commissioner of Income-tax, before exercising his jurisdiction under section 263 of the Act must have material on record to arrive at a satisfaction and (ix) If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the Assessing Officer allows the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 20. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and revenue did not demonstrate the error remain on the part of the ld. AO. In fact, when the ld. AO has conducted the required enquiry and not violated any of the conditions mentioned for revision of order as required by Explanation 2 of Section 263 of the Act, the order passed by the Assessing Officer could not be deemed to be erroneous so as to be prejudicial to the interests of the revenue. In the present case none of the condition laid down is fulfilled in the show cause notice for revision issued and also not specifically dealt with 53 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur what are the reasons so as to make the revision of order u/s. 263. Therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 of the Act. Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 of the Act, had dislodged the view that was taken by the AO, as regards the issue of share premium for which the ld. AO has already done the required exercise and taken a plausible view. 21. Thus, we found from the above discussion and evidences placed before us that the issue has already been raised in the assessment proceedings. Based on the contentions and judicial precedent cited by the assessee the assessing officer satiated himself and has taken a plausible view and has considered the transaction of Share Premium and thereby the investment in the assessee company made by the shareholders duly explained by the assessee. Even the requirement of proving the identity, capacity of the investor and genuineness of the transaction is proved by placing on record all the related proof of the investor. Based on the set of evidence before him the AO has taken a view which is also one of the views and there is no clear finding of the ld. Pr. CIT as to why and how the view taken by the assessing officer is not legally correct when he has asked the 54 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur relevant information and taken a view in the matter once in asking the details and second by issue of show cause notice to the assessee. The ld. AR of the assessee based on the similar set of circumstance relied on the decision of the Honurable Jurisdiction High Court in the case of CIT Vs. Ganpat Ram Bishnoi 152 Taxman 242 where in the court observed that : 10. From the record of the proceedings, in the present case, no presumption can be drawn that the Assessing Officer had not applied its mind to the various aspects of the matter. In such circumstances, without even prima facie laying foundation for holding that assessment order is erroneous and prejudicial to interest in any matter merely on spacious ground that the Assessing Officer was required to make an enquiry, cannot be held to satisfy the test of existing necessary condition for invoking jurisdiction under section 263 of the Income-tax Act. 11. Undoubtedly, the jurisdiction under section 263 is wide and is meant to ensure that due revenue ought to reach the public treasury and if it does not reach on account of some mistake of law or fact committed by the Assessing Officer, the CIT can cancel that order and require the concerned Assessing Officer to pass a fresh order in accordance with law after holding a detailed enquiry. But when enquiry in fact has been conducted and the Assessing Officer has reached a particular conclusion, though reference to such enquiries has not been made in the order of the assessment, but the same is apparent from the record of the proceedings, in the present case, without anything to say how and why the enquiry conducted by the Assessing Officer was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. As the exercise of jurisdiction by the CIT is founded on no material, it was liable to be set aside. Jurisdiction under section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something. 12. The finding of the Tribunal that the ITO had passed assessment order after relevant enquiries and considering the aspects of the matter required by the CIT to be considered by him is a finding of fact and on the basis of which, the jurisdiction assumed by the CIT being non-existent must be held to be not sustainable. 55 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur 22. The ld. AR of the assessee also cited the decision of this coordinate bench on similar issue in ITA No. 09/JP/2021 in the case of Annu Agrotech Private Limited where in the coordinate bench after analyzing various court ruling held that; “17. The Ld. Pr.CIT also alleged that the AO did not make enquiries and verification on the issue of large share premium received by the assessee and the applicability of S.56(2)(viib) and other relevant sections even though this was not the reason for scrutiny selection. Alternatively and without prejudice to above, even otherwise on merits, there has been due and proper application of mind inasmuch as the AO raised directly relevant queries which were duly replied by the assessee as well. The assessee also submitted the computation as to how the assessee derived the amount of the premium which was also admitted by the Ld. CIT in para 3 pg 4 of the Impugned Order. In addition, thereto, the assessee also submitted a report of the expert dated 10.10.2015 under Rule 11UA which are at page Nos. 46-58 of the paper book which fully justified charging premium @ Rs 50 per share. Hence, the AO was fully justified in not applying in S. 56(2)(viib). There appears no valid basis to compute excessive value of Rs 1.73 per share which is not supported by any expert report but mere suspicion. In other words, it was nothing but a substitution of opinion by the Ld. Pr.CIT. Therefore, on this aspect also the subjected assessment order could not be covered u/s 263 as it was neither erroneous nor prejudicial to the interest of the revenue. He also got valuation done u/r 11UA by expert which is binding upon AO, as held in Rameshwaram Strong Glass Pvt Ltd vs. AO 195 TTJ465 (Jp). The allegation of the Ld. CIT that various evidential documents were furnished itself goes to show that the AO did not make requisite enquiries, is not a good basis to invoke S.263 and is mere suspicion and substitution of opinion. Moreover, once all the details were made available before the CIT, he should not have decided the issues instead of setting aside to the AO. We draw strength from the decision in the case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113): “ . . . From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income- tax Officer is „erroneous in so far as it is prejudicial to the interests of the Revenue ‟ . It is not an arbitrary or unchartered power, it can be exercised only on fulfillment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by 56 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. In the case of Elder IT Solutions (P.) Ltd. vs CIT [2015] 59 taxmann.com 232 (Mumbai - Trib.), it was held that: “18. In the case in hand, there is no dispute that the AO called for financial details of these companies and also examine the parties in order to satisfy himself about the genuineness of the transaction. Therefore, on the basis of the record available before him, the AO accepted the claim of the assessee. The Commissioner has not found any fault with the details and records filed by the assessee in support of the claim but has cited the reasons that the AO has not conducted the proper enquiry. When the entire record was available with the Commissioner then he ought to have given a concluding finding that the view taken by the AO is contrary to the law as well as facts emerging from the records. However, the Commissioner has not given any such finding and restored the matter to the record of the AO which is not permissible as per the provisions of section 263 when the AO has conducted the enquiry and allowed the claim of the assessee on the basis of the examination of the record as well as the parties in person. We further note that the assessee has also filed the bank statements of these companies showing the transaction of payment of share premium as well as loans to the assessee. The transactions were also reflected in the return of income filed by these companies, therefore, in any case if the Department has any doubt about the genuineness of arranging the funds by these share applicant companies, the enquiry and investigation should have been conducted in those cases as held by the Hon'ble Delhi High Court in the case of Lovely Exports (P.) Ltd. (supra) which has been confirmed by the Hon'ble Supreme Court by dismissing the special leave petition filed by the Department.” Considering the totality of facts and circumstances, facts of the present case and as well as the judicial pronouncements, we found merit in the contention of the ld. AR, therefore, we quash the order passed by the ld. Pr.CIT U/s 263 of the Act.” 23. Being consistent from the decision of the jurisdictional high court and the decision of the coordinate bench and after giving our careful 57 ITA No. 126/JP/2022 Shri Kalyan Buildmart Pvt. Ltd., Jaipur vs. Pr. CIT-2, Jaipur consideration of the facts, detailed deliberated arguments advanced by both the parties as discussed here in above, ongoing through the materials available on the record, the orders of the lower authorities and judgments cited by both the parties and in the entirety of facts and circumstances of the case, the bench note that there is no basis to hold that the order passed by the Assessing officer is erroneous so far as prejudicial to the interest of the Revenue. Thus, the order of the ld. Pr. CIT is hereby set- aside and that of the Assessing officer order dated 30.12.2019 is sustained. 24. Resultantly, the appeal filed by the assessee is allowed. Order pronounced in the open court on 16/09/2022. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 16/09/2022 * Ganesh Kumar vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Shri Kalyan Buildmart Private Ltd., Jaipur 2. izR;FkhZ@ The Respondent- Pr. CIT-2, Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 126/JP/2022) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar
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