DRUMS FOOD INTERNATIONAL P. LTD., MUMBAI V. PR. CIT -6, MUMBAI

ITA 568/MUM/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4174 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 14-04-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Keywords: Revision of order; Valuation report; TDS; Set aside
• Section: 263; 143(3); 142(1); 56(2); 143(1); 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER & SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No. 568/Mum/2021 (A.Y:2015-16) Drums Food International Pvt Ltd Unit No. 912, 9 th floor Hubtown Solaris, N.S Phadke Marg, Andheri (E), Mumbai – 400 069. Vs. PCIT – 6 Room No. 501, 5 th Floor, Aayakar Bhavan, MK Road, Mumbai – 400020. ./ज आइआर ./PAN/GIR No. : AACCD7235M Appellant .. Respondent Appellant by : Dr. K. Shivaram, Sr. Adv.AR Respondent by : Mr.Surendra Kumar, CIT-DR Date of Hearing 25.04.2022 Date of Pronouncement 30.06.2022 आद श / O R D E R PER PAVAN KUMAR GADALE JM: The assessee has filed the appeal against the order of the Principle Commissioner of Income Tax (Pr.CIT)-6, Mumbai passed u/s 263 of the Act. The assessee has raised the following grounds of appeal: 1. The learned Pr. CIT erred in revising u/s 263 r.w Explan ation 2 the assessmen t order passed u/s. 143(3) dt.10.11.2017 with respect to the issue of valuation of shares without appreciating th at the said assessment order was ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 2 - neither erroneous nor prejud icial to the intere st of the revenue and hence the order of revision is bad in law. 2. The learned Pr. C IT f ailed to appreciate that asse ssee had f urnished all detail s pertain ing to the issue of valuation of sh ares during the course of assessment proceedings and the learned Assessing Off icer has accepte d the valuation af ter making proper enquiry and due application of mind and thus the assessment ord er was neither erroneous nor prejudicial to the interest of the revenue and hence the order of revision is bad in law. 3. The learned Pr.CIT failed to appreciate that on the issue of valuation of shares the Assessing Off icer had adopte d a possible vie w which view was no t unsustainable in law and thus the asse ssment order cannot be te rmed as erroneous and prejudicial to the intere st of the revenue and hence the ord er of revision is bad in law. 5. Wi thou t prejudice to above the learned PCIT erred in observing that th e appellan t h as not f urnished an y explanation as regard s valuation as on the date of issue of sh ares where as the Le arned PC IT has f ailed to consider that the ne w valuation report giving the v aluation as per Rul e 11UA as on date of issue of share s which was f iled in the revision proceedings was al so inconformity with v alu ation ad opted by the appellant and no inf irmity is f ound in the valuation report of the valuer & hence the order of revision is bad in law. 6. Wi thou t pre judice to above, the learned PC IT has no jurisdiction to decide the issue on merit in revision jurisdiction by applying the Wrong principle of law and relying on the case ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 3 - laws which are no t applicable to the f ac ts of the appel lant & hence the revision order may be set aside. 7. Wi thou t prejud ice to above the learned PC IT ought to have d irected the Assessing Of f icer to consider the v aluation report d t 31/7/2020 which was f urnished bef ore the PC IT which is conf orming the v alue of the share issued & hence the revision order may be directed to be modif ied accordingly. 8. The appellan t craves leave to add, amend , al ter or delete an y of the above ground s of appeal. 2. The brief facts of the case are that the assessee is a private limited company and is engaged in the business of manufacturing and distribution of food and dessert items. The assessee has filed the return of income for the A.Y 2015-16 on 30.09.2015 disclosing a total loss of Rs.4,92,98,559/- and the return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questionnaire are issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and filed the details and the case was discussed. The Assessing Officer (A.O) on perusal of the financial statements and Tax Audit Report found that the assessee has claimed the interest on TDS of Rs. 8,806/- and was not disallowed in the ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 4 - computation of income, therefore the A.O has made the disallowance of Rs. 8,806/-. Further the A.O found that, in the profit and loss account the assessee has claimed rates and taxes of Rs.12,110/- which pertains to the F.Y 2013-14 and F.Y 2012-13 and are in the nature of prior period expenditure was disallowed and assessed the total loss of Rs.4,92,77,643/- and passed the order u/s 143(3) of the Act dated 10.11.2017. 3. Subsequently, the PCIT on perusal of the assessment records and the A.O order is of the opinion that the A.O has not verified/examined the facts in respect of allotment of shares at a premium in the financial year 2014-15 and issued notice u/s 263 of the Act as under: 3.The assessee company had issued 67260 equity shares (f ace value of Rs.100/- and securities premium of Rs.900) in the F.Y.2014-15, receiving securities premium of Rs.6,21,84,000/-. As per the valuation report submitted by the assessee, the shares have been valued at Rs. 1050.98 appx. In the valuation report, two methods were considered by the valuer. As per DCF method, value per equity share is estimated at Rs.1536.28 and as per PIE method, it was estimated at Rs.565.68, and to arrive at the value, the valuer has used equal weight average to arrive at the value of Rs. 1050.98 per share. ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 5 - It was also noticed that in the f .Y. 2013-14, the assessee company has issued 12,51,768 equity shares race "value of the Rs. 100/- and securities premium of approx Rs.387.41), thus, receiving securities premium of Rs.9,75,37,940/-. In the valuation report submitted, it is noticed that equity capital in F. Y. 2012-13 has been considered for determination of Weighted Average Cost of Capital (WACC). The eff ect of issue of shares in F. Y. 2013-14 has not been considered. The valuation should change with the issue of shares. Thus, the valuation of shares should have been done in the year when the shares have been issued. Only valuation report cannot be relied upon. The applicability of Rule 11UA can be known only af ter the valuation of shares is done again. 4 In view of the above, it is clear that the assessment order passed u/s 143(3) of the Act, dated 10/11/2017, is erroneous in so far as it is prejudicial to the interest of revenue. Within the meaning of Sec. 263 of the Act. Hence, it is proposed to revise the af oresaid order u/s 263 of the Ac t. 4. In compliance to notice, the assessee has filed the detailed submissions on the allotment of shares and applicability of the provisions and Rule 11 UA of the I T Rules as under: According to us the above notice u/s 263 is not justified on f ollowing grounds which are without prejudice to one another: 1. The assessment order dated 10/11/2017 is neither erroneous nor prejudicial to the interest of the /revenue ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 6 - as same is passed after making necessary enquiries and af ter application of /mind and the order of Revision is nothing but change of opinion. During the course of assessment proceedings, Ld AO had asked specif ic query wi th respect to huge share premium. Assessee addressed the said issue by filing various submissions f rom time to time. Hence, the Assessment order was passed af ter full application of mind. 2. Exercise of revisionary jurisdiction us 263 with respect to Share Application money is not in accordance wi th law as the said issue was specif ically enquired into by the Ld A. O. The AO has asked specif ic query on huge share premium and verified all submission with respec t to the same even f rom the point of view of Section 68. Hence, it is impermissible us 263 to hold that enquiry should have been done in a particular manner. 3. Unless the vie w of AO is unsustainable in law, Revision of order cannot be made. Exercise of revision us 263 cannot be resorted to f or substitution of one vie w f or the other. The view adopted by the Ld AO on applicability of Section 56(2) (vib) in the f acts of the present case is a possible vie w. In the f acts of the present case Notice u/s 263 does not state that the view adopted by AO is unsustainable in law. In f act in earlier year also, no addition of share premium was made in the hands of the Assessee. The provisions of Sec tion 56(2) (viib) are anti- abuse provisions and same may be invoked only if there is evasion of taxes. Hence, revision tantamount to change of opinion which is not permissible u/s 263. 4. Without prejudice to above as there is no loss to the revenue, since the valuation is as per Rule 11UA and the value adopted by the AO is the same, hence revision is not justif ied. ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 7 - 5. The PCIT has dealt on the facts, information and the judicial decisions and provisions of law in respect of the valuation report and allotment of shares and finally observed that the order passed by the A.O is erroneous and prejudicial to the interest of the revenue and invoked the explanation (2) to Sec. 263 of the Act and relied on the judicial decisions and observed that the assessment order passed u/s 143(3) of the Act is set aside and cancelled and directed the A.O to frame a fresh assessment and the assessee should be provided adequate opportunity of hearing and passed the order u/s 263 of the Act dated 30.03.2021. Aggrieved by the revision order, the assessee has filed an appeal before the Hon’ble Tribunal. 6. At the time of hearing, the Ld. AR submitted that the Pr.CIT has erred in set aside the order of the A.O, as the order was passed after due verification and application of mind. The assessee has filed the details in the course of hearing on the claim and allotment of shares and emphasized on the correspondences on the allotment of shares and other information. The ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 8 - Ld. AR explained that the assessee has substantiated the facts of allotment of shares and was filed on record. The AO was satisfied with the submissions and took the possible view. The Ld.AR substantiated the submissions with the paper book and judicial decisions and prayed for allowing the appeal. 7. Contra, the Ld. DR submitted that the assessee has not explained the facts in respect of the valuation of shares before the lower authorities though the assessee has produced the books of accounts and other information .Further on this disputed issue, there is no findings by the AO and has not applied his mind and also there is no specific disclosure in the assessment order and supported the order of the Pr.CIT. 8. We heard the rival submissions and perused the material on record. The sole crux of the disputed issue as envisaged by the ld. AR that the order passed by the Pr.CIT is devoid of merits and the A.O passed the order after making the enquiries and does not satisfy the twin conditions i.e erroneous and prejudicial to the interest of the revenue. The Ld. AR ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 9 - further submitted that the Pr.CIT has only considered the facts that the AO has not conducted the enquiry but no specific findings are recorded. During the F.Y 2014-15 the shares were allotted to the share holders as per the valuation report dated 05.07.2013 obtained from the Govt registered valuer and the method prescribed under Rule 11 UA as per DCF method. The shares were valued as per weighted average method, consequently the assessee has issued the shares of face value of Rs100 at a premium of Rs.900,Rs.1000 andRs.1050 to the existing share holders and there are no new share holders. The assessee has allotted right issue shares to the existing share holders at a premium and allotment was made on 04.09.2014, 11.11.2014 and 06.02.2015. 9. The assessee has complied with the notice issued under 142(1) of the act dated 20.07.2017 where the questionnaire was issued in particular at S.no. 29, the A.O wanted the details of large share premium received by the assessee and applicability of sec. 56(2) (viib) of the act. The assessee has filed the explanations and letters on 08.08.2017, 31.08.2017, 06.09.2017 and 20.09.2017 and were demonstrated ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 10 - by the Ld.AR at page 65 to 75 of the paper book. Further, the assessee has submitted the details called by the A.O on the shares issued at a premium as under: a) List of shareholders as on first and last date of F.Y.2014-15. b) List of Share Application money received. c) Form PAS 3 f or allotment of shares along with Board Resolution and list of Allottee. d) Minutes of the Board meeting f or allotment of shares. e) Valuation Report issued by M/s. Anmol Sekhri Consultants Pvt. Ltd. Dated 5th July, 2013.[Pg. No. 119- 161] Copy of PAN, IT Return Ackno wledgement and Bank Statement highlighting the payment made f or share application amount of the f ollowing parties:- (i) RSM Enterprises Pvt. Ltd. (ii) Dimple Thakker (iii) Rosalind Rock (iv) Ashutosh Agrawal ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 11 - (v) Sainath Ramanathan (vi) Samir Palod (vii) Manu Chandra (vili) Ankur Goel (ix) Blue Lagoon Vanijya Pvt. Ltd (x) Shiv Chandra (xi) Tejshree Madhu (xii) Deepak Mittal (xiii) Shripad Nadkarni g) Explanation on valuation report by the Government approved valuer dated 05.07.2013 for issue of shares at premium 10. The AO after considering these facts is of the opinion that the explanations were fair and there is no reason to make further enquiries and passed the assessment order. The Ld. AR submitted that the PCIT has issued the notice that the equity capital in F.Y 2012-13 has been considered for determination of weighted average cost and the effect of issue of shares in F.Y 2013-14 is not changed. Whereas the valuation has been done in the year in which the shares are ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 12 - issued and applicability of Rule 11UA of the I T Rules. The Ld. AR referred to the submissions and reply to the revision notice at page 181 and 196 of the paper book and the valuation report of M/s Galactico corporate services Pvt Ltd dated 31-07-2020 as per Rule 11UA placed at page 169 to 180 and demonstrated that the shares issued does not attract provisions of 56(2)(viib) of the Act. The Ld. AR contended that the A.O has passed the order after making enquiries on allotment. The Ld. AR submitted that the Pr. CIT has only directed the AO to make enquires whereas the A.O in the notice u/s 142(1) of the Act has called for information and discussed on the issue and the Pr. CIT has not considered these facts which are on record and the case was discussed by the A.O in the assessment proceedings therefore there cannot be any non application of mind by the A.O. Further the A.O has considered one of the possible views based on the information and it is not necessary that the AO should put all the discussions and observations in the assessment order as per explanation (2) to Sec. 263 of the Act the Authority ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 13 - has invoke the provisions only that there no verification / enquiry conducted by the A.O. 11. We are of the opinion that the A.O has made verification of the facts on the aspects of allotment of shares but on the valuation, it is not clear whether valuation report was considered on record. We considering the facts and circumstances are of the view that it is a matter of verification and the Ld. AR also could not substantiate whether the valuation report dated 31-07-2020 filed before the Pr.CIT is similar and filed on the A.O. s record. We find the notice U/sec263 of the Act is dated 21-03-2020 and the valuation report was filed subsequently in the revision proceedings and further the Assesseement order was passed U/sec143(3) of the Act on 10-11- 2017. We are in agreement with the findings of the Pr.CIT that AO has not completed the assessment by adopting proper valuation of shares. Considering, the fact that the assessee itself filed the valuation report only during revisionary proceedings. We notice that Pr.CIT directed the AO to redo the assessment afresh. From the records, we observe that AO has not considered only the valuation of shares but he has ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 14 - framed the assessment by duly collecting the information from the assessee, the Ld. AR has made detailed submissions on this aspects. Therefore, we are inclined to modify the directions of the Pr.CIT and direct the AO to redo the assessment by adopting the valuation report submitted by the assessee in revisionary proceedings. Hence the AO has to only look after this aspect and need not disturb the whole assessment order. Therefore the grounds of appeal are partly allowed in favour of the assessee. 12. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 30.06.2022. Sd/- Sd/- ( S RIFAUR RAHMAN) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 30.06.2022 KRK, PS /Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. आ र आ / The CIT(A) ITA No. 568/Mum/2021 Drums Food International P Ltd, Mumbai - 15 - 4. आ र आ ( ) / Concerned CIT 5. "#$ % & &' , आ र ) र*, Mumbai / DR, ITAT, Mumbai 6. % +, - . / Guard file. ान ु सार/ BY ORDER, " & //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai