UPDATER SERVICES LIMITED [UPDATER SERVICES PRIVATE LIMITED, CHENNAI V. PCIT, CHENNAI-2

ITA 429/CHNY/2022

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M/s Updater Services Ltd. appealed against the order of the Principal Commissioner of Income Tax (Central), Chennai-2, which invoked revisionary jurisdiction under Section 263 of the Income Tax Act, 1961, concerning the assessment year 2017-18. The appeal contested the validity of the revisionary order, arguing that the issues raised were already considered during the original assessment. The Tribunal examined whether the original assessing officer had adequately considered the survey findings and the legal applicability of the cited sections concerning the buyback of shares. The Tribunal concluded that the original assessment did not address the survey findings, thus validating the revisionary order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133943 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-04-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 26-05-2022
• Laws Referred To: Income Tax Act, 1961, Companies Act, 1956
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: FARHA SULTANA; MUKESH KUMAR LD. ARS
• Keywords: Revision of order; Proportionate interest; Fair market value; Valuation report; Set aside
• Section: 263; 143(3); 142(1); 133A; 143(2)

Judgement Text

आयकर अपीलीय अिधकरण ‘बी’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI माननीय +ी मनोज कु मार अ/वाल ,लेखा सद4 एवं माननीय +ी मनोमोहन दास, ाियक सद4 के सम8। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI MANOMOHAN DAS, JUDICIAL MEMBER आयकर अपील सं./ ITA No.429/Chny/2022 (िनधा@रण वष@ / Assessment Year: 2017-18) M/s Updater Services Ltd. (Formerly known as Updater Services Pvt. Ltd.) No.2/302-A, UDS Salai, Off Old Mahabalipuram Road Thoraipakkam, Chennai-600 097. बनाम/ V s. PCIT (Central) Chennai-2. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAAC U - 6 8 4 5 -J (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ की ओरसे/ Appellant by : Ms. Farha Sultana (CA) & Shri Mukesh Kumar (CA) – Ld. ARs थ की ओरसे/Respondent by : Shri S. Senthil Kumaran (CIT) –Ld. DR सुनवाई की तारीख/Date of Hearing : 18-04-2023 घोषणा की तारीख /Date of Pronouncement : 21.04.2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. By way of this appeal, the assessee assails the validity of revisionary jurisdiction u/s. 263 as exercised by Ld. Principal Commissioner of Income Tax (Central), Chennai-2 (Pr.CIT) vide order dated 30-03-2022 against the assessment framed by Ld. Assessing Officer (AO) u/s.143(3) of the Act on 26-12-2019. The grounds raised by the assessee read as under: 1. General Ground 1.1 The order passed by the learned Principal Commissioner of Income-tax (Central) Chennai - 2 ('learned PCIT') under Section 263 of the Income Tax Act, ITA No.429/Chny/2022 - 2 - 1961 ('the Act') to the extent prejudicial to the Appellant is erroneous, bad in law, and contrary to the facts and circumstances of the case. 2. Jurisdictional validity of the order passed under Section 263 of the Act 2.1 The order passed by the learned PCIT is bad in law to the extent that the explanation in respect of non-applicability of Section 115QA to buy back of shares was already considered during the assessment proceedings and submission of the Appellant being accepted. 2.2 The order passed by the learned PCIT is bad in law to the extent that the revision of the assessment order under Section 263 of the Act relates to applicability of Section 56(2)(viia) of the Act to a transaction of buy back of shares. 3. Non-applicability of Section 115QA of the Act 3.1 The learned PCIT erred by not appreciating the fact that the scheme of buy back of shares was undertaken in accordance with Section 391 to 394 of the Companies Act, 1956 and was approved by the Hon'ble Madras High Court and hence the provisions of Section 77 A of the Companies Act, 1956 are not applicable to the present case. 3.2 The learned PCIT erred in not appreciating that the provisions of Section 115QA of the Act are not applicable to buy back of shares effected under Section 391 to 394 of the Companies Act, 1956 prior to 01 June 2016. 4. Non-applicability of Section 56(2)(viia) of the Act 4.1 The learned PCIT erred in law in law in holding that the provisions of Section 56(2)(viia) of the Act are applicable to a transaction of buy back of shares. 4.2 The order passed by the learned PCIT is erroneous to the extent it directs the learned Assessing Officer to verify the facts of the case and applicability of Section 56(2)(viia) of the Act despite the Appellant having submitted all the facts of the case during the course of the revision proceedings. 4.3 Without prejudice to the above, the learned PCIT has erred in dismissing the valuation report submitted by the Appellant during the revisionary proceedings and consequently concluding that the Appellant has bought back shares at less than the fair market value. 2. The Ld. AR advanced arguments and submitted that a possible view was taken by Ld. AO while framing the assessment. The prime argument revolves around that fact that the assessee was subjected to survey proceedings wherein certain statements were recorded. The officer conducting the survey was the same officer who framed the assessment and therefore, the survey findings were duly considered while framing the assessment. The Ld. CIT-DR, on the other hand, averred that survey reports were not, at all, considered by Ld. AO while framing the assessment. This being so, the order was erroneous as well as prejudicial to the interest of the revenue. In support the ITA No.429/Chny/2022 - 3 - assessment records were placed before the bench. The copy of consequential assessment framed u/s 143(3) r.w.s. 263 on 30-03-2023 has also been placed on record. The written submissions have also been filed by both the sides which have duly been considered while adjudicating the appeal. Having heard rival submission and after perusal of case records, the appeal is disposed-off as under. During arguments, the undisputed fact that emerges is that though notice u/s 142(1) was issued by Ld. AO, however, no query was raised with respect to the three issues as flagged in the revision order. The assessee being resident corporate assessee is stated to be engaged in the business of facility management of providing housekeeping, management services in several states across India. Assessment and Revisionary Proceedings 3.1 From the records, it emerges that the assessee’s return of income was subjected to scrutiny and notice u/s 143(2) was issued on 21-08-2018. Notice u/s 142(1) was issued on 23-08-2019 calling for requisite details from the assessee. In response, the assessee furnished details on 21-11-2019 and 28-11-2019 based on which the assessment was framed. 3.2 In the meantime, the assessee was subjected to survey u/s 133A on 12-02-2019 wherein certain statements were recorded. However, the said facts or survey findings have nowhere been mentioned in the assessment order. The Ld. AO made sole disallowance u/s 36(1)(va) and framed the assessment on 26-12-2019. 3.3 Subsequently upon perusal of case records, Ld. Pr. CIT invoked revisionary jurisdiction u/s 263 and put the assessee to show-cause notice on 10-03-2021. It was alleged that certain issues were found ITA No.429/Chny/2022 - 4 - during survey proceedings u/s 133A. Three issues were identified in the survey proceedings i.e., (i) the assessee bought back the shares, however, the assessee did not pay any tax u/s 115QA; (ii) the shares were bought back from group company for value less than fair market value which attracts the provisions of Sec. 56(2)(viia); (iii) the assessee facilitated purchase of shares through working capital and accordingly, proportionate interest was to be disallowed. 3.4 It was further noted by Ld. Pr. CIT in the impugned order that no question / clarification were asked for by Ld. AO in notices issued u/s 142(1). The assessment order omitted to consider the flagged issues and therefore, the order was erroneous and prejudicial to the interest of the revenue. The assessee, vide replies dated 18-03-2022 and 21-03- 2022, assailed the revision jurisdiction on legal grounds as well as on merits. It was, inter-alia, stated that Assessing Officer Shri Sankar Pandi, ACIT, Corporate Circle 3(2), Chennai was privy to all the documents submitted during the survey proceedings. However, the same was rejected by Ld. Pr. CIT on the ground that no such clarification / explanation was sought by Ld. AO from the assessee during the course of assessment proceedings. The fact that Ld. AO was privy to survey proceedings, was not relevant since notice u/s 142(1) was issued by Assessing Officer Anuradha S, ACIT Corporate Circle 3(2) Chennai who also passed the assessment order u/s 143(3). Therefore, the order was passed without making due inquiries or verifications which should have been made. The assessee’s arguments, on merits, were also dealt with in detail by Ld. Pr. CIT in the impugned order and it was ultimately held the aforesaid provisions would apply to the case of the assessee. Accordingly, the assessment ITA No.429/Chny/2022 - 5 - order was set aside with a direction to Ld. AO to redo the assessment after considering the observations made on the issues flagged in revisionary order after affording opportunity of hearing to the assessee. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. From the above stated facts, the undisputed position that emerges is that the impugned issues as flagged in the revisionary order were not considered by Ld. AO during the course of original assessment proceedings. No such query was ever raised in notices issued u/s 142(1) during the course of original assessment proceedings. Apparently, Ld. AO has failed to consider the survey findings while finalizing the assessment of the assessee which would certainly make the order erroneous and prejudicial to the interest of the revenue. The Ld. AR has advanced arguments to submit that Ld. AO was privy to all the documents submitted during the survey proceedings. However, the same would not be a relevant fact since the availability of material on record is one aspect whereas considering the same with due application of mind is another aspect. Unless there was an application of mind on the survey findings, mere availability of the survey reports on record would not lead to a conclusion that Ld. AO had considered all the aspects while framing the assessment. In fact, this would be a fit case for invocation of jurisdiction u/s 263. Non consideration of survey findings would certainly make the order erroneous as well as prejudicial to the interest of the revenue. The Ld. AR has cited various case laws to support the fact that when one of the possible views was taken by Ld. AO, the revisions u/s 263 would not be valid. However, in the present case, we find that no such view has ITA No.429/Chny/2022 - 6 - been taken by Ld. AO. Accordingly, the cited case laws are not applicable to the facts of the present case. 5. The Ld. AR, in the written submissions, has made elaborate arguments on merits to assail the impugned issues as flagged by Ld. Pr. CIT. The same has extensively been dealt with by Ld. Pr. CIT in the impugned order. Nevertheless, we are not concerned with the merits of the case at this juncture and the scope of this appeal is limited to adjudicate whether the revision u/s 263 was validly exercised or not. In the light of above stated facts, we do not find any infirmity in the jurisdiction of Ld. Pr. CIT. However, our adjudication would not be construed as any expression on the merits of the case and the assessee is at liberty to contest the impugned issues on merits before lower authorities. 6. The appeal stand dismissed in terms of our above order. Order pronounced on 21 st April, 2023. Sd/- (MANOMOHAN DAS) ाियक सद4 /JUDICIAL MEMBER Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद4 / ACCOUNTANT MEMBER चे,ई / Chennai; िदनांक / Dated : 21-04-2023 EDN/- आदेश की Sितिलिप अ /ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आयु5/CIT 4. िवभागीय ितिनिध/DR 5. गाड फाईल/GF