Sreenidhi International Private Limited , Hyderabad V. Income Tax Officer, Ward-3(3), Hyderabad

ITA 53/Hyd/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 5013 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Assessment Year: 2014-2015
• Appeal Filed On: 15-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: S RAMA RAO
• Keywords: Opportunity of being heard; Fair market value; Valuation report; Prejudicial to interest; Set aside
• Section: 56; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER I.T.A. NO. 53/HYD/2019 ASSESSMENT YEAR: 2014-15 SREENIDHI INTERNATIONAL PRIVATE LIMITED, HYDERABAD [PAN: AAFCS5355L] VS INCOME TAX OFFICER, WARD-3(3), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S.RAMA RAO, AR FOR REVENUE : SMT. NIVEDITA BISWAS, DR DATE OF HEARING : 21-01-2021 DATE OF PRONOUNCEMENT : 09-02-2021 O R D E R PER BENCH : THIS ASSESSEES APPEAL FOR AY.2014-15 ARISES FROM TH E PCIT-3, HYDERABADS ORDER DATED 09-11-2018 PASSED IN F.NO.PR.CIT-3/HYD/263/2018-19 INVOLVING PROCEEDINGS U/S.143(3) OF THE INCOME TAX ACT, 1961 [IN SHORT, THE ACT]. 2. WE NOTICE DURING THE COURSE OF HEARING THAT THE ISSU E INVOLVED IN THE INSTANT LIS IS VERY MUCH A PRECISE ONE . THE PCITS REVISION ORDER UNDER CHALLENGE HAS EXERCISED SECTION 263 JURISDICTION BY HOLDING THAT THE REGULAR ASSESSMENT FRAMED IN ASSESSEES CASE DT.27-12-2016 IS ERRONEOUS SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE SINCE TH E ITA NO.53/HYD/2019 :- 2 -: ASSESSING OFFICER HAD NOT CARRIED OUT ANY ENQUIRY; WH ATSOEVER, REGARDING THE ASSESSEES SHARE PREMIUM OF RS.54 LAKH S. 3. LEARNED COUNSEL IS VERY MUCH FAIR IN NOT DISPUTIN G THE CLINCHING FACT THAT THE ASSESSING OFFICERS ASSESSMENT H AD INDEED NOT CARRIED OUT ANY FACTUAL VERIFICATION OF ASS ESSEES SHARE PREMIUM IN ISSUE. WE QUOTE MALABAR INDUSTRIAL C O. VS. CIT [243 ITR 83] (SC), CIT VS. MAX INDIA LTD., (2007 ) [295 ITR 282] (SC), CIT VS. KWALITY STEEL SUPPLIERS COMPLEX (2017) [395 ITR 1] (SC) AND ITO VS. DG HOUSING PROJECTS LTD (2012 ) [343 ITR 329] (DELHI) THAT SUCH A FAILURE IN AN ASSESSING OFFICERS PART TO CARRY OUT ENQUIRY(IES) DURING SCRUTINY ASSESSM ENT IS ERRONEOUS AND CAUSING PREJUDICIAL TO INTEREST OF THE RE VENUE. 4. NEXT COMES YET ANOTHER SIGNIFICANT ASPECT OF VALUATI ON OF ASSESSEES SHARES SOLD. THE PCIT HAS DEALT WITH THIS ISSUE AS UNDER: 6. ON EXAMINATION OF RECORD, AND AFTER, CONSIDERIN G THE SUBMISSIONS MADE BY THE ASSESSEE'S A.R. IT IS NOTICED THAT THE CALCULATION SHEET ATTACHED TO THE SUBMISSIONS AS ANNEXURE-5 IS INCORR ECT FOR THE FOLLOWING REASONS:- I) THE ASSESSEE'S ADOPTION OF THE FIGURES IN THE BA LANCE SHEET AS AT 31-03-2014 IS NOT CORRECT, SINCE THE PREMIUM WAS CO LLECTED ON SHARES BEFORE 31-03-2014, AND THEREFORE THE ASSESSEE SHOUL D HAVE WORKED OUT FAIR MARKET VALUE OF SHARES BASED ON THE BALANC E SHEET FOR THE IMMEDIATELY PRECEDING YEAR, I.E, FOR THE Y.E. 31.03 .2013. II) SECONDLY, THE FAIR MARKET VALUE OF THE SHARES O F THE ASSESSEE- COMPANY NEED TO BE WORKED OUT AS SPECIFIED UNDER RU LE 11UA BY APPLYING THE FORMULA (A-L)/(PE) X (PV) WHICH, IN TH E ASSESSEE'S CASE, WORKS OUT AS UNDER: A- TOTAL VALUE OF ASSETS AS PER BALANCE SHEET AS AT 31.03.2013 IS RS. 31,17,38,209; WHEREAS THE ASSESSEE WORKED THE VALUE OF ITS ASSETS AT RS. 68,47,43,117/- AS ON 31.03.2014, WHICH IS NO T CORRECT. ITA NO.53/HYD/2019 :- 3 -: L- TOTAL LIABILITIES EXCLUDING PAID UP EQUITY SHARE CAPITAL, RESERVES BY WHATEVER NAME CALLED AND SHARE APPLICATION MONEY.(I .E RS.31, 17,38,209- RS.4,25,00,700- RS.28,36,259- RS.34,00,0 00) IS RS.26,30,01,250 WHEREAS THE ASSESSEE WORKED OUT ITS TOTAL LIABILITIES AS ON 31.03.2014 AT RS. 25,98,14,191 WHICH IS NOT C ORRECT. A-L = RS. 4,87,36,959/- (I.E RS. 31,17,38,209- RS. 26,30,01,250) WHEREAS THE ASSESSEE HAS WORKED OUT THE SAME AT RS. 42,49,28,926/- AS ON 31.03.2014 WHICH IS NOT CORREC T. FAIR MARKET VALUE (FMV) OF ASSESSEE'S SHARES IS (48 736959X10/ 42500700) RS. 11.46 PER SHARE, WHICH MEANS THE PREM IUM WILL BE ONLY RS.1.46 PER SHARE SINCE THE FACE VALUE OF THE SHARE IS RS.10/- THE ASSESSEE HAS COLLECTED PREMIUM OF RS. 90 PER SH ARE. THE EXCESS COLLECTION OF PREMIUM PER SHARE BY THE ASSES SEE IS RS. 88.54 (RS.90- RS.1.46). THEREFORE EXCESS PREMIUM ON 60,00 0 SHARES ISSUED DURING THE FINANCIAL PERIOD UNDER CONSIDERATION WOR KS OUT RS. 53,12,400/- WHICH NEEDS TO BE BROUGHT TO TAX AS PER THE PROVISIONS OF SECTION 56(2)(VIIB) OF THE INCOME TAX ACT, 1961 IN THE ASSESSEE'S CASE. 7. THE ASSESSEE'S CONTENTION THAT IT HAS NOT RECEIV ED THE SHARE PREMIUM OF RS. 54,00,000 DURING THE YEAR IS INCORRE CT. AS PER THE AUDITED BALANCE SHEET OF THE ASSESSEE-COMPANY AS AT 31.03.2014 (NOTE 3) THE ASSESSEE'S BROUGHT FORWARD SHARE CAPIT AL IS RS. 4,25,00,700 BEING THE VALUE OF 42,50,070 SHARES. IT 'S SHARE CAPITAL AS AT 31.03.2014 HAS BECOME RS. 4,31,00,700, WHICH MEA NS THERE IS AN INCREASES OF RS. 6,00,000 CONSEQUENT TO ISSUE OF 60 ,000 SHARES DURING THE F.Y.2013 -14. SIMILARLY, VIDE NOTE-4 RES ERVES AND SURPLUS IT IS OBSERVED THAT THE SECURITIES PREMIUM RESERVE INCREASED FROM RS. 2,25,06,300 OF PREVIOUS YEAR TO RS. 2,79,06,300 DUR ING THE F.Y.2013- 14, AN INCREASE BY RS. 54,00,000 INDICATING RECEIPT OF SHARE PREMIUM DURING THE FY 2013-14. WHEN ITS BOOKS OF ACCOUNT RE VEAL THE CORRECT PICTURE OF THE SHARE ISSUE TRANSACTION, IT IS CLEAR LY SHOWS THAT THE ASSESSEE ATTEMPTED TO CREATE A CONFUSION BY MIXING SHARE APPLICATION MONEY WITH SHARE PREMIUM. 8. IN VIEW OF THE ABOVE, THE SHARE PREMIUM COLLECTE D BY THE ASSESSEE DURING THE FINANCIAL PERIOD UNDER CONSIDERATION IS APPARENTLY EXCESSIVE, WHEN THE PROVISIONS OF SECTION 56(2)(VII B) R.W RULE 11UA ARE APPLIED TO THE FACTS OF THE ASSESSEES CASE. THIS ASPECT WAS MISSED BY THE THEN AO WHO COMPLETED THE ASSESSMENT U/S.143 (3) DT.27.12.2016 FOR THE A.Y.2014-15. 9. IN THE LIGHT OF THE ABOVE FACTS OF THE CASE, THE ASSESSMENT ORDER PASSED U/S.143(3) DATED 27-12-2016 FOR THE A.Y.2014 -15 IS CONSIDERED ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF THE REVENUE. THEREFORE THE SAID ORDER IS SET ASIDE AND THE ASSES SING OFFICER IS DIRECTED TO REDO THE ASSESSMENT IN ACCORDANCE WITH THE LAW AFTER ITA NO.53/HYD/2019 :- 4 -: ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASSES SEE AND AFTER DUE VERIFICATION OF SUBMISSIONS MADE BY ASSESSEE. 5. MR.RAMA RAO VEHEMENTLY CONTENDED DURING THE COURSE OF HEARING THAT THE PR.CIT HAS ERRED IN LAW AND ON FACTS I N REVISING THE IMPUGNED REGULAR ASSESSMENT BY ADDING TH E VALUATION OF SHARES SOLD ON 31-03-2013 WHEREAS THE A SSESSEE HAD INFACT GONE BY ITS AUDITORS CERTIFICATE AS ON 31-03 -2014 AT PG.17 OF THE PAPER BOOK. LEARNED COUNSEL THEREFORE SUBMITTED THAT THE PR.CITS VERY ASSUMPTION OF JURISDICTION BY ADO PTING THE SAID VALUATION DATE IS NOT SUSTAINABLE IN THE EYES O F LAW WHICH RENDERS THE ENTIRE REVISION ACTION INVALID. 6. SMT.BISWAS, ON THE OTHER HAND STRONGLY SUPPORTED PR.CITS ORDER FOR THE REASON THAT AS IT IS AN ADMITTE D FACT THAT THE ASSESSING OFFICER HAD NOT CONDUCTED ANY ENQUIRY. 7. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RIVAL CONTENTIONS. WE FIRST OF ALL WISH TO REFER TO SECTION 56 (2)(VIIB) OF THE ACT, WHEREIN THE LEGISLATURE HAS USED THE CLINCHIN G STATUTORY EXPRESSION WHERE, THE COMPANY, NOT A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTEREST, RECEIVES I N ANY PREVIOUS YEAR. IT IS THEREFORE VERY MUCH APPARENT TH AT THE IMPUGNED STATUTORY PROVISION COMES INTO PLAY ONLY QUA THE AMOUNT RECEIVED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION ONLY AND NOT OTHERWISE. CO UPLED WITH THIS SECTION 56(IIB) EXPLANATION (II) STIPULATES FAIR MARKET VALUE OF THE SHARES AS ON THE DATE OF ISSUE OF SHARES ONLY. WE ADOPT THE FOREGOING CLINCHING STATUTORY EXPRESSIONS AND ADVERT TO FACTS OF THE CASE. PAGE 12 IN THE ASSESSEES CASE FI LE INDICATES THAT IT HAD AN OPENING BALANCE OF RS.34 LAKHS AS ON ITA NO.53/HYD/2019 :- 5 -: 01-04-2013 FOLLOWED BY RECEIPT OF THE REMAINING AMOU NT OF RS.26 LAKHS AS ON 27-09-2013 IN CASH. MEANING THERE BY THAT THE AMOUNT RECEIVED IN THIS YEAR IS RS.26 LAKHS ONLY. WE THEREFORE SEE NO REASON TO SUSTAIN THE PCITS REVISION DIRECTIONS QUA THE FORMER COMPONENT OF OPENING BALANCE OF RS.34 LAKHS FOR THIS PRECISE REASON ALONE. THE ASSES SEES ARGUMENTS TO THIS EXTENT ARE ACCEPTED. 7.1. NEXT COMES THE BALANCE FIGURE OF RS.26 LAKHS REC EIVED IN CASH ON 27-09-2013. MR.RAO HAS SOUGHT TO PLACE RELIA NCE ON THE ASSESSEES VALUATION REPORT AT 31-03-2014. THE SAM E COULD NOT FORM THE FAIR MARKET VALUE BENCHMARK AS ON 27-09-2 013 BEING IN PRIOR POINT OF TIME IN OTHER WORDS. WE CONCLU DE THAT THE ASSESSEES SUBSEQUENT VALUATION REPORT FAILS TO COM PLY THE LEGISLATURE EXPRESS ON THE DATE OF ISSUE OF SHARES C ONDITION (SUPRA). THERE IS ADMITTEDLY NO OTHER SUPPORTIVE MATERIA L PRODUCED AT ASSESSEES BEHEST. WE THUS AFFIRM THE PCIT S IMPUGNED REVISION ACTION QUA THE REMAINING SUM OF RS.26 LAKHS 8. THIS ASSESSEES APPEAL IS PARTLY ALLOWED IN ABOVE TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH FEBRUARY, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.GO DARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 09-02-2021 TNMM ITA NO.53/HYD/2019 :- 6 -: COPY TO : 1.SREENIDHI INTERNATIONAL PRIVATE LIMITED, 1-2-283/ 23/1, DOMALGUDA, HYDERABAD. 2.THE INCOME TAX OFFICER, WARD-3(3), HYDERABAD. 3.PR.CIT-3, HYDERABAD. 4.D.R. ITAT, HYDERABAD. 5.GUARD FILE.