M/s. B.S. Engineering Works Pvt. Ltd, Pune V. Pr. Commissioner of Income-Tax-1, Pune

ITA 249/PUN/2020

AI Insights

The case involves M/s. B.S. Engineering Works Pvt. Ltd., which appealed against the order of the PCIT, Pune, concerning the assessment year 2014-15. The PCIT had revised the assessment order initially passed by the Assessing Officer, which accepted the returned income, due to the non-examination of the applicability of section 56(2)(viib) of the Income Tax Act, 1961, related to the receipt of share premium. The Tribunal examined whether the revision by the PCIT was justified and whether the initiation of penalty proceedings under section 271F was appropriate. The Tribunal found that the revision was justified but quashed the direction for penalty proceedings.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137145 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 09-01-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 16-02-2020
• Other Referred Cases: Ahmedabad Electricity Co. Ltd. vs. CIT, VMT Spinning Co. Ltd. vs. CIT, CIT vs. Indian Bank
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Initiation of penalty proceedings; Fair market value
• Section: 263; 143(3); 139(4)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.249/PUN/2020 िनधाᭅरण वषᭅ / Assessment Year : 2014-15 M/s. B.S. Engineering Works Pvt. Ltd., J-405, MIDC Bhosari, Pune- 411026. PAN : AAFCB1911P Vs. Pr. CIT-1, Pune. Appellant Respondent आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of ld. Pr. Commissioner of Income Tax - 1, Pune [‘the PCIT’] dated 28.03.2019 for the assessment year 2014-15. 2. Briefly, the facts of the case are that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing of precision machined components. The Return of Income for the assessment Assessee by : Shri Neelesh Khandelwal Revenue by : Shri Keyur Patel Date of hearing : 10.01.2023 Date of pronouncement : 23.01.2023 ITA No.249/PUN/2020 2 year 2014-15 was filed on 31.03.2016 declaring Rs.Nil income. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward-1(2), Pune (‘the Assessing Officer’) vide order dated 28.11.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) accepting the returned income. Subsequently, the ld. PCIT, after reviewing of the assessment records, found that the assessee company had received share application money of Rs.24,00,000/- along with securities premium of Rs.1,50,00,000/- from one Mr. Babban Singh (one of the Directors of the assessee company) and issued 24,000 shares on 31.07.2013 i.e. fully paid up at Rs.725/- each including securities premium of Rs.625/- per share as against face value of Rs.100/- each. The ld. PCIT was of the opinion that the share premium received by the appellant company of Rs.1,28,07,936/- was required to be treated as “Income from other sources” u/s 56(2)(viib), as the Assessing Officer had failed to enquire into the applicability of the provisions of section 56(2)(viib) of the Act, the ld. PCIT formed an opinion that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. Further, the ld. PCIT was of the opinion that the return of income filed by the appellant company belatedly u/s 139(4) on 31.03.2016. Hence, ITA No.249/PUN/2020 3 the ld. PCIT was of the opinion that the penalty proceedings should be initiated u/s 271F of the Act. Accordingly, the ld. PCIT issued a show-cause notice vide letter dated 11.03.2019 calling upon the appellant to show cause as to why the assessment order dated 28.11.2016 passed by the Assessing Officer u/s 143(3) should not be set-aside in exercise of powers vested with him u/s 263 of the Act. In response to show-cause notice, the appellant filed a detailed submission as to how the provisions of section 56(2)(viib) were not applicable to the facts of the present case, for the reasons that : (i) The shares were issued as consideration towards takeover of business and, therefore, no actual inflow of funds. (ii) The fair market value of shares after effecting the above takeover of business. 3. However, the ld. PCIT rejected the above contentions of the appellant and set-aside the assessment order with direction to the Assessing Officer to examine the applicability of section 56(2)(viib) r.w. Rule 11UA of the Income Tax Rules, 1962 as well as the Assessing Officer also initiate penalty proceedings u/s 271F of the Act. ITA No.249/PUN/2020 4 4. Being aggrieved, the appellant is in appeal before us in the present appeal. 5. It is contended before us that the provisions of section 56(2)(viib) have no application, as no share premium was received. The consideration was received towards share premium of Rs.725/- towards consideration of takeover of the business from one Mr. Babban Singh. He submits that the assessment order cannot be termed as “erroneous and prejudicial to the interests of the Revenue”. As regards to the initiation of penalty proceedings u/s 271F, it is submitted that it is beyond the jurisdiction of the ld. PCIT in exercise of powers of revision u/s 263 to direct the Assessing Officer to initiate penalty proceedings placing reliance on the following decisions : (a) Ahmedabad Electricity Co. Ltd. vs. CIT, 66 Taxman 27 (Bombay). (b) VMT Spinning Co. Ltd. vs. CIT, 74 taxmann.com 33 (P&H). (c) CIT vs. Indian Bank, 55 taxmann.com 372 (Madras). 6. On the other hand, ld. CIT-DR placing reliance on the order of the ld. PCIT passed u/s 263 submits that no interference is called for. ITA No.249/PUN/2020 5 7. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the validity of assumption of jurisdiction u/s 263 by the ld. PCIT. The Parliament had conferred the power of revision on the Commissioner of Income Tax u/s 263 of the Act in case the assessment order passed is erroneous and prejudicial to the interests of revenue. In order to invoke the power of revision, the above two conditions are required to be satisfied cumulatively. References in this regard can be made to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and in the case of CIT vs. Max India Ltd., 295 ITR 282 (SC). The error in the assessment order should be one that it is not debatable or plausible view. In a case where the Assessing Officer examined the claim took one of the plausible views, the assessment order cannot be termed as an “erroneous”. 8. Now, we proceed to examine the facts of the present case to decide whether the Assessing Officer had examined the applicability of provisions of section 56(2)(viib) relates to the receipt of share premium in question. No doubt, the Assessing Officer had called for the details of the share premium, the justification of share premium and also applicability of provisions ITA No.249/PUN/2020 6 of section 56(2)(viib) vide notice dated 16.08.2016 vide Query No.6, which is placed at page nos. 1 to 4 of the Paper Book. In response to above query, the appellant filed an explanation stating that the provisions of section 56(2)(viib) have no application to the facts of the present case, not being the company in which the public are substantially interested. Whereas the fact is that the appellant is a company in which the public are not substantially interested. Thus, it is apparent that the Assessing Officer accepted the claim, on the wrong premises. Therefore, the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. To this extent, we confirm the power of revision exercised by the ld. PCIT u/s 263 of the Act. As regards to the direction of the ld. PCIT to the Assessing Officer to initiate the penalty proceedings u/s 271F of the Act, it is settled position of law that the penalty proceedings should be initiated based on the satisfaction reached by the Assessing Officer and the penalty proceedings cannot be initiated at the instance of the higher authorities. Moreover, we find that the penalty proceedings u/s 271F is independent of the assessment proceedings. Therefore, the ld. PCIT in exercise the power of revision vested with him u/s 263 cannot direct the Assessing Officer to initiate the penalty ITA No.249/PUN/2020 7 proceedings u/s 271F of the Act. On this score, the order of revision passed by the ld. PCIT is quashed. 9. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on this 23 rd day of January, 2023. Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 23 rd January, 2023. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The Pr. CIT-1, Pune. 4. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “A” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 5. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.