Ecotech Builders Private Limited, Noida V. Pr,CIT, Noida

ITA 1601/DEL/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1649 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-05-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 23-05-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Fair market value; Valuation report
• Section: 263; 143(3); 142(1); 56(2)

Judgement Text

1 ITA no. 1601/Del/2023 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 1601/DEL/2023 [Assessment Yr: 2018-19 Ecotech Builders Pvt. Ltd., A2/701, 7 th Floor, Aspire-1, Supertech Emarald Court, Sector 93A, Noida. PAN- AABCE 8534 D Vs Pr. Commissioner of Income-tax, Noida. APPELLANT RESPONDENT Assessee represented by Shri Kamal Kishan Jetley, Adv.; Shri Sudhir Gupta, CA; & Shri S.M. Manzar, AR Department represented by Shri T James Singson, CIT( DR) Date of hearing 16.05.2024 Date of pronouncement 13.06.2024 O R D E R PER ANUBHAV SHARMA, JM: The assessee has come in appeal against the order dated 30.03.2023 passed by the Principal Commissioner of Income Tax, Noida (hereinafter referred as 2 ITA no. 1601/Del/2023 ‘Revisional Authority’) u/s 263 of the Income-tax Act, 1961 (hereinafter referred as the “Act”), pertaining to the assessment year 2018-19. 2. The assessee’s case was selected for scrutiny assessment on the issue of share premium and the assessment order was passed on the returned income. However, Principal Commissioner of Income Tax, Noida, was not satisfied and on the basis of examination of the assessment record concluded that as the assessee furnished valuation report of an Auditor, which was accepted by the Assessing Officer without examining it, the order is erroneous insofar as it is prejudicial to the interests of Revenue. Revisional Authority was of the view that the valuation report furnished by the Auditor revealed that it was based on the valuation of quoted shares provided under Rule 11UA(1)(c), whereas this is case of valuation of unquoted shares under Rule 11UA(1)(b), which attracted provision of Section 56(2)(b) of the Act and Assessing Officer has failed to examine the issue during the course of assessment proceedings and passed a cryptic order. Assessee has challenged the same raising following grounds: “1. On the facts and circumstances of the case and in law, the order passed by the learned PCIT, Noida u/s 263 of the Income Tax Act, 1961 ('the Ac') dated 31.03.2023 setting aside the assessment framed w/s 143(3) of the Act and holding the same as erroneous and prejudicial to the interest of the revenue, is unlawful, without jurisdiction and void-ab-initio. 2. On the facts and circumstances of the case and in law, the Ld. PCIT erred in exercising jurisdiction u/s 263 by setting aside the assessment order even though the issue involved has been discussed and scrutinized by the Ld. 3 ITA no. 1601/Del/2023 AO in detail while framing the assessment u/s 143(3) of the Act and after due consideration of assessee's submissions and legal position arrived at his independent opinion which can not be termed as erroneous. 3. On the facts and circumstances of the case and in law, the Ld. PCIT erred in holding the assessment order passed by Ld. AO u/s 143(3) even when the Ld. AO is not required to give detail reasons in respect of issue under assessment when he has called for explanation regarding the issue and has dealt with the issue and adopted one of the possible views and the assessment order passed by the Ld. AO could not be branded as erroneous and pre-judicial to the interest of revenue. 4. On the facts and circumstances of the case and in law, the Ld. PCIT erred in law by assuming jurisdiction u/s 263 of the Act when the Ld. AO after considering the submissions made by the assessee has already taken a possible view which is not in agreement with the opinion of Ld. PCIT and the Ld. PCIT wants the matter to be investigated in a particular manner as held by the Honb'le Income Tax Appellant Tribunal - Delhi in the Sunray Cotspin (P) Ltd, Gurgaon vs Pr.CIT. 5. Without prejudice to the above, Ld. PCIT erred in the facts and in the circumstances of the case by not appreciating the fact that discrepancies pointed out by Ld PCIT were nothing more than the inadvertent clerical error committed by clerk of the Valuer which has no bearing on the fair market value of shares and when such discrepancies cannot form basis and reasons for invoking the provisions of section 263 of the Act when such an error was never prejudicial to the interest of revenue. 6. Without prejudice to the above grounds of appeal the appellant reserves right to make addition /alteration to the above ground of appeal and also reserves the right to bring on additional grounds of appeal, before and during the course of hearing of this appeal, as consider fit and necessary.” 3. On hearing rival sides it comes up that primarily the case of the assessee is that in the assessment proceedings u/s 143(3) of the Act, and before passing the 4 ITA no. 1601/Del/2023 assessment order dated 11.03.2021, the Assessing Officer had specifically raised queries about shares issued by the assessee and the premium charged vide notice u/s 142(1) dated 10.02.2020, made available at page 45 of the paper book and the assessee was able to establish the identity, creditworthiness and genuineness of the investors and also file valuation report of expert. 4. Learned AR has submitted that Assessing Officer was satisfied with the reply and accepted the returned income. It is submitted that there was inadvertent error in the valuation report, where Section 56(2)(viia) of the Act was mentioned instead of Section 56(2)(viib). It was pointed out that in proceedings before the PCIT, even the valuer issued a report correcting the inadvertent mistake along with undertaking to that effect that the fair value and the share value being same, however, the impugned order was still passed, holding that there was no inquiry and the assessment is cryptic. 5. Learned DR, on the contrary, defended the order of PCIT and submitted that there was no justification in the valuation report and the assessment order is ambiguous and cryptic. 5 ITA no. 1601/Del/2023 6. After taking into consideration the factual circumstances cited and submissions made, it comes up that during the assessment proceedings u/s 143(3) of the Act, a specific query was raised by way of notice u/s 142(1) of the Act whereby the assessee was asked to respond on following aspects: “1) With respect to the fresh issue of share during the FY 2017-18 (AY 2018-19), kindly submit the below specified details: a) Name and address of the shareholders. b) PAN of the shareholders. c) Face Value and premium on each share. d) Number of shares allotted to each shareholder. e) Total value of the shares allotted to each shareholder. f) Payment received from each shareholder during the financial year. 2) Provide documentary evidence to substantiate the identity and ITR of last 3 years of shareholders to substantiate creditworthiness the shareholders as well as the proof of genuineness of transaction in respect of fresh credit of the share capital/premium account. 3) The valuation report with respect to the working of EPS and justification for the quantum of premium. 4) The comparison of the working of EPS and share premium with the immediately prior instance, wherein the shares were allotted with premium. 5) The year wise details of dividend declared during the year and three earlier years.” 7. The assessee has responded to same by providing following information to the aforesaid five queries by reply dated 25.02.2020, a copy of which is available at pages 52-53 of the paper book. The relevant extract being as follows: 6 ITA no. 1601/Del/2023 “We are writing on behalf of our client M/s Ecotech Builders Private Limited, regarding your Notice u/s 142(1) of the Income Tax Act, 1961 issued to them for the assessment year 2018-19. Under the instructions from our client, as required by your goodself, find enclosed the following details / documents and information for your kind reference and record: 1. Copy of complete set of financial statements (including Balance Sheet, Profit & Loss account, schedules, notes etc.) including auditor's report thereon, for the Assessment Year 2018-19 is given in Annexure-1 enclosed herewith for your kind reference and record. 2. Copy of Income Tax Return for the Assessment year 2018-19 along with acknowledgement is given in Annexure-2 enclosed herewith for your kind reference and record. 3. Details of shareholder to whom shares were allotted by the assessee during the Assessment Year 2018-19 is given in Annexure 3 enclosed herewith for your kind reference and record. 4. Copy of acknowledgement of income tax return filed by the shareholder for the 3 Assessment Years i.e 2016-17, 201-18 and 2018- 19 along with the copy of the financial statements of the shareholder is given in Annexure 4 enclosed - herewith for your kind reference and record. 5. Copy of valuation report as obtained by the assessee for the purpose of issue of shares is given in Annexure 5 enclosed herewith for your kind reference and record. 6. It is humbly submitted that the assessee has not declared any dividend in last three years including the year under consideration i.e 2018-19.” 7 ITA no. 1601/Del/2023 8. We have also gone through the valuation report of independent valuer, made available at page 168 of the paper book, which was field before the Assessing Officer and we find that the valuer had mentioned about the method of valuation as follows; “Accordingly, we have assessed the fair value of equity shares of the Company as on the date of issuing this report based on the Fair Market Value (FMV) Method in terms of the rules 11U & 11UA of the Income Tax Rules, 1962, specified under section 56(2) (viia) of the Income Tax Act, 1961.” 8.1 But when we go thoroughly to the report and computation it comes up that the computation is arrived by applying the following formula; Assets-Liabilities Fair Market value (FMV)= Total Amount of x Paid up value of Paid up Equity Equity shares Share Capital as Per balance sheet 8.2 The said formula is applicable in case of determination of fair market value in case of unquoted shares only. 9. Thus, there appears to be substance in the contention of learned AR that during assessment proceedings the Assessing Officer had raised all the relevant queries to which assessee had duly replied with all evidences. The valuation report is based on the correct method of valuation except for error in mentioning a wrong sub-section. It also comes up that in fact the investor is none other than the parent 8 ITA no. 1601/Del/2023 company M/s Home & Soul Infratech Private Limited. Thus, for the reason of lack of inquiry or that the assessment order is not elaborate and does not indicate all the facets of the inquiries made and the conclusion drawn, the assessment order cannot be termed as erroneous insofar as prejudicial to the interests of Revenue. 10. We are inclined to sustain the grounds raised. Accordingly, the appeal is allowed. The impugned order u/s 263 of the Act is quashed. Order pronounced in open court on 13.06.2024. Sd/- Sd/- (G.S. PANNU) (ANUBHAV SHARMA) VICE PRESIDENT JUDICIAL MEMBER *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI