M/s. Maa Ambe Realcon Pvt. Ltd., , Kolkata V. ITO, Ward - 8(1), Kolkata , Kolkata

ITA 587/KOL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4826 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 03-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Keywords: Opportunity of being heard; Principle of natural justice; Fair market value; Set aside
• Section: 143(3); 133(6); 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, KOLKATA BEFORE SRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO.587/KOL/2018 (ASSESSMENT YEAR: 2013-14) M/S. MAA AMBE REALCON PVT. LTD....................... APPELLANT [PAN :AABCF5642H] VS. ITO, WARD-8(1), KOLKATA. ................................................................RESPONDENT APPEARANCES BY: SHRI RAJAT AGARWAL, FCA, APPEARING ON BEHALF OF THE APPELLANT. DR. P.K. SRIHARI, CIT(DR), APPEARING ON BEHALF OF THE RESPONDENT. DATE OF CONCLUDING THE HEARING : MAY 9 TH , 2019 DATE OF PRONOUNCING THE ORDER : MAY 31 ST ,2019 O R D E R PER J. SUDHAKAR REDDY :- THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE PRINCIPAL COMMISSIONER OF INCOME TAX-3, KOLKATA (HEREINAFTER THE PR. CIT), DATED 08.02.2018 PASSED U/S 263 OF THE INCOME TAX ACT, 1961 (THE ACT), REVISING THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) ON 16.10.2015. 2. THE ASSESSEE IS A COMPANY AND IS IN THE BUSINESS OF INVESTMENT AND REAL ESTATE. IT FILED ITS RETURN OF INCOME ON 20.08.2013 DECLARING TOTAL INCOME OF RS.5,08,900/-. THE REASON FOR SELECTION OF THIS CASE FOR SCRUTINY, AS PER THE ASSESSING OFFICER, WAS RECEIPT OF LARGE SHARE PREMIUM BY THE ASSESSEE COMPANY. THE ASSESSING OFFICER AT PAGE 2 OF HIS ORDER RECORDS AS FOLLOWS: THE REASON WAS THOROUGHLY VERIFIED ON ENQUIRY U/S 133(6) OF THE ACT CALLING THE DETAILS FROM THE SUBSCRIBERS. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 16.10.2015 DETERMINING TOTAL INCOME OF RS.6,44,450/-. 3. THE PR. CIT ISSUED A SHOW CAUSE NOTICE ON 11.01.2018 PROPOSING REVISION U/S 263 OF THE ACT ON THE GROUND THAT THE ASSESSING OFFICER FAILED TO VERIFY AS TO HOW THE FAIR MARKET VALUE OF PREFERENCE SHARES WERE ADJUSTED TO RS.105.21/- PER SHARE ON THE BASIS OF APPRECIATION IN VALUE OF PROPERTY, WHICH WAS NOT PRESCRIBED IN RULES 11U AND 2 I.T.A. NO.587/KOL/2018 M/S. MAA AMBE REALCON PVT. LTD RULES 11UA OF THE INCOME TAX RULES, 1962. THE FAIR MARKET VALUE OF THE SHARES IN ACCORDANCE WITH THE METHOD PRESCRIBED IN RULES 11U AND RULES 11UA OF THE INCOME TAX RULES, 1962, WAS 94.57/-. THE ASSESSEE ISSUED THE PREFERENCE SHARES AT RS.100 PER SHARES (FACE VALUE OF RS.10 AND PREMIUM OF RS.90/- PER SHARE) THOUGH THE ADJUSTED VALUE WAS RS.105.21/-. THE PR. CIT IN HIS SHOW-CAUSE NOTICE, CONSIDERED THE FAIR MARKET VALUE AT RS.94.57/- AND AS THE SHARES WERE ISSUED AT RS.100/- PER SHARE, THE EXCESS AMOUNT (I.E. RS.100 94.57 = 5.437,30,000) RS.39,63,900/- WAS IN HIS OPINION TO BE TREATED AS INCOME FROM OTHER SOURCES. THE ASSESSEE REPLIED STATING THAT A CA CERTIFICATE DATED 3 RD OCTOBER, 2012 WAS FURNISHED BEFORE THE ASSESSING OFFICER SHOWING THE FAIR MARKET VALUE PER SHARE AT RS.94.57 UNDER RULE 11U AND 11UA AND THE BASIS FOR ARRIVING AT THE ADJUSTED VALUE PER SHARE AT RS.105.21/-. HE SUBMITTED THAT THE ASSESSING OFFICER VERIFIED THE SHARE VALUATION AS WELL AS GENUINENESS OF THE TRANSACTION. HE ALSO POINTED OUT THAT RULE 11U AND RULE 11UA ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE, AS SECTION 56(2)(VIIB) OF THE ACT READ WITH EXPLANATION (A)(II) MAKES IT CLEAR THAT WHEN THE VALUATION DONE IS HIGHER THAN WHAT WAS FAIR MARKET VALUE UNDER RULES 11U AND 11UA, THE HIGHER VALUATION IS TO BE TAKEN. THE ASSESSEE SUBMITTED THAT THERE IS NO LOSS OF REVENUE AS THE VALUATION IS HIGHER THAN THAT ARRIVED AT BY APPLYING RULE 11U AND 11UA AND HENCE NO PREJUDICE IS CAUSED TO THE REVENUE. HE ALSO RELIED ON A NUMBER OF CASE LAWS IN SUPPORT OF HIS CONTENTION THAT THE PROPOSED REVISION OF THE ASSESSMENT IS BAD IN LAW. WE WOULD REFER TO THESE CASE LAWS AS AND WHEN NECESSARY. 4. THE LD. PR. CIT PASSED THE ORDER U/S 263 OF THE ACT ON 8 TH FEBRUARY 2018, WHEREIN HE HAS CONSIDERED THE ABOVE REPLY OF THE ASSESSEE AND CAME TO THE CONCLUSION THAT THE ASSESSING OFFICER HAD PASSED THE ORDER, IN QUESTION, WITHOUT APPLICATION OF MIND AND HAD FAILED TO MAKE NECESSARY INQUIRIES, WHICH WERE CALLED FOR, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. HE RELIED ON CERTAIN CASE LAWS IN SUPPORT OF HIS CONCLUSIONS, WHICH WE WOULD BE DISCUSSING AS AND WHEN NECESSARY. THE LD. PR. CIT CAME TO THE CONCLUSION THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE SET ASIDE THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 263 OF THE ACT AND DIRECTED THE ASSESSING OFFICER TO CONDUCT FRESH ASSESSMENT PROCEEDINGS ONLY ON THIS ISSUE AND PASS A FRESH ASSESSMENT ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. 3 I.T.A. NO.587/KOL/2018 M/S. MAA AMBE REALCON PVT. LTD 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE, MR. RAJAT AGARWAL, SUBMITTED THAT THE ORDER PASSED U/S 263 OF THE ACT BY THE PR. CIT IS BAD IN LAW FOR THE REASON THAT THE ASSESSING OFFICER HAS VERIFIED THE ISSUE OF VALUATION OF SHARE PREMIUM BY EXAMINING THE VALUATION CERTIFICATE ISSUED BY CHARTERED ACCOUNTANT AND THEREAFTER TOOK A PLAUSIBLE VIEW. HE SUBMITTED THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IS IN ACCORDANCE WITH LAW AND THAT IT WAS WRONG ON THE PART OF THE LD. PR. CIT TO HOLD THAT THERE IS NO APPLICATION OF MIND. HE FURTHER SUBMITTED THAT THE FAIR MARKET VALUE SHALL BE (A) THAT WHICH WAS DETERMINED IN ACCORDANCE WITH THE METHOD PRESCRIBED OR (B) AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER, BASED ON THE VALUE OF THE ASSETS (TANGIBLE AND INTANGIBLE) OF THE COMPANY AS ON THE DATE OF ISSUE, WHICHEVER IS HIGHER. HE EMPHASISED THAT THE VALUE ARRIVED BY THIS CHARTERED ACCOUNTANT IS AS PER EXPLANATION (A)(II) OF SECTION 56(2)(VIIB) OF THE ACT AND AS THE FAIR MARKET VALUE DETERMINED, IS OF HIGHER VALUE THAN THAT DETERMINED UNDER THE METHOD PRESCRIBED, THIS VALUE HAS TO BE TAKEN AND HENCE NO PREJUDICE IS CAUSED TO THE REVENUE. HE FURTHER SUBMITTED THAT THE ASSESSMENT WAS REVISED BY THE LD. PR. CIT, ONLY BECAUSE THERE WAS AN AUDIT QUERY IN THE ASSESSEES CASE. HE REFERRED TO PAGE 19 OF THE PAPER BOOK AND SUBMITTED THAT IN ITS REPLY TO AUDIT QUERY NO.14, THE DEPARTMENT STATED THAT AS PER EXPLANATION A(II) OF SECTION 56(VIIB), IT WAS FOUND THAT THE ASSESSEE HAD RIGHTLY TAKEN THE FAIR MARKET VALUE OF SHARES AT 105.21. HE ARGUED THAT THE STAND OF THE DEPARTMENT BEFORE THE AUDIT AND THE FINDING IN ITS ORDER U/S 263 OF THE ACT ARE CONTRADICTORY AND CONFLICTING. HE SUBMITTED THAT THERE IS NO ERROR, MUCH LESS, AN ERROR WHICH CAUSED PREJUDICE TO THE REVENUE IN THE ORDER OF THE LD. ASSESSING OFFICER. HE PRAYED THAT THE ORDER PASSED U/S 263 OF THE ACT BE SET ASIDE AND THAT THE APPEAL SHOULD BE ALLOWED. HE RELIED ON NUMBER OF CASE LAWS WHICH WE WOULD BE DISCUSSING AS AND WHEN NECESSARY. 6. THE LD. DEPARTMENTAL REPRESENTATIVE, DR. P. K. SRIHARI, SUBMITTED THAT, A REPLY TO AN AUDIT QUERY CANNOT BE A BASIS ON WHICH AN ORDER U/S 263 OF THE ACT CAN BE QUASHED. HE SUBMITTED THAT THESE ARE INDEPENDENT PROCEEDINGS AND THAT THE AUDIT QUERY AND REPLY ARE ONLY INFORMATION BASED ON WHICH PROCEEDINGS U/S 263 OF THE ACT ARE TAKEN UP INDEPENDENTLY BY LD. PR. CIT. HE SUBMITTED THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND IN THE ASPECT AS TO WHETHER ANY INCOME IS CHARGEABLE TO TAX U/S 56(2)(VIIB) OF 4 I.T.A. NO.587/KOL/2018 M/S. MAA AMBE REALCON PVT. LTD THE ACT. HE SUBMITTED THAT NECESSARY INQUIRIES WHICH WERE TO BE CONDUCTED BY THE ASSESSING OFFICER, WERE NOT CONDUCTED AND HENCE THERE IS AN ERROR IN THE ASSESSMENT ORDER WHICH CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE. HE RELIED ON THE ORDER OF THE PR. CIT AND PRAYED THAT THIS MAY BE UPHELD. 7. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION ON THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSING THE PAPERS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAWS CITED, WE HOLD AS FOLLOWS. 8. A PERUSAL OF THE ASSESSMENT ORDER DOES NOT INDICATE THAT AN ENQUIRY WAS MADE BY THE ASSESSING OFFICER. ON THE ISSUE OF TAXABILITY OF THE SHARE PREMIUM U/S 56(2)(VIIB) OF THE ACT. THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND NOR CONDUCTED ANY ENQUIRY OR VERIFICATION ON THIS ASPECT OF APPLICABILITY OR OTHERWISE OF SECTION 56(2)(VIIB) OF THE ACT. TO THAT EXTENT THE ORDER OF THE LD. PR. CIT IS CORRECT AS SUCH NON-APPLICATION OF MIND TO AN ISSUE BY THE ASSESSING OFFICER OR NOT CONDUCTING ESSENTIAL ENQUIRIES AND VERIFICATION, THAT WERE REQUIRED TO BE CONDUCTED, BY THE ASSESSING OFFICER RESULTS IN THE ASSESSMENT ORDER BECOMING ERRONEOUS. 9. WE NOW EXAMINE AS TO WHETHER THERE IS PREJUDICE TO THE CAUSE OF REVENUE. THE ASSESSEE HAD FURNISHED A CA CERTIFICATE BEFORE THE LD. ASSESSING OFFICER AS WELL AS BEFORE THE LD. PR. CIT. EXPLANATION(A)(II) TO SECTION 56(2)(VIIB) OF THE ACT STATES THAT, WHEN THE VALUATION IS DONE IN ACCORDANCE WITH EXPLANATION(A)(II) TO SECTION 56(2)(VIIB) OF THE ACT AND SUCH VALUATION IS HIGHER THAN THE VALUATION OF SHARES AS PER SECTION 56(2)(VIIB) EXPLANATION(A)(I) OF THE ACT I.E. UNDER RULE 11U AND 11UA WHICH ARE PRESCRIBED, THE HIGHER VALUATION DONE SECTION 56(2)(VIIB) EXPLANATION(A)(II) HAS TO BE ACCEPTED, AS IT IS HIGHER OF THE TWO. IN FACT THIS IS THE REPLY GIVEN BY THE DEPARTMENT TO THE AUDIT QUERY NO.14 ISSUED ON 27.04.2016, WITH RESPECT TO THIS ISSUE, IN THE CASE OF THE ASSESSEE. THUS, THE LD. PR. CIT WAS CONSCIOUS OF THE CORRECT POSITION OF LAW. THE ACT MANDATES THAT THE LD. PR. CIT, WHILE EXERCISING HIS POWER U/S 263 OF THE ACT, HAS TO CONDUCT ENQUIRIES AND COME TO A CONCLUSION THAT, THERE IS AN ERROR IN THE ASSESSMENT ORDER AND THAT SUCH AN ERROR HAS CAUSED PREJUDICE TO THE INTEREST OF REVENUE. THE PREJUDICE CAUSED TO REVENUE IS NOT BROUGHT OUT BY THE LD. PR. CIT. WHEN SPECIFICALLY THE DEPARTMENT STATES BEFORE THE AUDIT, THAT THE ASSESSEE HAS CORRECTLY TAKEN FAIR MARKET 5 I.T.A. NO.587/KOL/2018 M/S. MAA AMBE REALCON PVT. LTD VALUE OF SHARES AT RS.105.21/- IN ACCORDANCE WITH EXPLANATION(A)(II) TO SECTION 56(2)(VIIB) OF THE ACT, THERE CANNOT BE LOSS OF REVENUE. WHEN THERE IS NO LOSS OF REVENUE THERE IS NO PREJUDICE CAUSED TO THE INTEREST OF REVENUE. THE TERM PREJUDICE TO THE INTEREST OF THE REVENUE HAS BEEN WAS DESCRIBED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. COMMISSIONER OF INCOME-TAX [2000] 243 ITR 83 (SC) AT PARA 9 HELD AS FOLLOWS:- THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER; IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS NOT AN EXPRESSION OF ART AND IS NOT DEFINED IN THE ACT. UNDERSTOOD IN ITS ORDINARY MEANING IT IS OF WIDE IMPORT AND IS NOT CONFINED TO LOSS OF TAX. THE HIGH COURT OF CALCUTTA IN DAWJEE DADABHOY & CO. VS. S.P. JAIN AND ANOTHER [31 ITR 872], THE HIGH COURT OF KARNATAKA IN COMMISSIONER OF INCOME- TAX, MYSORE VS. T. NARAYANA PAI [98 ITR 422], THE HIGH COURT OF BOMBAY IN COMMISSIONER OF INCOME-TAX VS. GABRIEL INDIA LTD. [203 ITR 108] AND THE HIGH COURT OF GUJARAT IN COMMISSIONER OF INCOME-TAX VS. SMT. MINALBEN S. PARIKH [215 ITR 81] TREATED LOSS OF TAX AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. MR. ABARAHAM RELIED ON THE JUDGMENT OF THE DIVISION BENCH OF THE HIGH COURT OF MADRAS IN VENKATAKRISHNA RICE COMPANY VS. COMMISSIONER OF INCOME-TAX [163 ITR 129] INTERPRETING PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE HIGH COURT HELD, IN THIS CONTEXT, IT MUST BE REGARDED AS INVOLVING A CONCEPTION OF ACTS OR ORDERS WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVENUE. THERE MUST BE SOME GRIEVOUS ERROR IN THE ORDER PASSED BY THE INCOME-TAX OFFICER, WHICH MIGHT SET A BAD TREND OR PATTERN FOR SIMILAR ASSESSMENTS, WHICH ON A BROAD RECKONING, THE COMMISSIONER MIGHT THINK TO BE PREJUDICIAL TO THE INTERESTS OF REVENUE ADMINISTRATION. IN OUR VIEW THIS INTERPRETATION IS TOO NARROW TO MERIT ACCEPTANCE. THE SCHEME OF THE ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO AN ERRONEOUS ORDER OF THE INCOME-TAX OFFICER, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. IT HAS BEEN HELD BY THIS COURT THAT WHERE A SUM NOT EARNED BY A PERSON IS ASSESSED AS INCOME IN HIS HANDS ON HIS SO OFFERING, THE ORDER PASSED BY THE ASSESSING OFFICER ACCEPTING THE SAME AS SUCH WILL BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE - RAMPYARI DEVI SARAOGI V. CIT [1968] 67 ITR 84 (SC) AND IN SMT. TARA DEVI AGGARWAL V. CIT [1973] 88 ITR 323 (SC) . 6 I.T.A. NO.587/KOL/2018 M/S. MAA AMBE REALCON PVT. LTD 12. IN VIEW OF THE ABOVE DISCUSSION, AND IN OUR VIEW THERE IS NO LOSS OF REVENUE, WE HAVE NO HESITATION IN HOLDING THAT THE ORDER PASSED UNDER SECTION 263 OF THE ACT IS BAD IN LAW AS THERE IS NO PREJUDICE IS CAUSED TO REVENUE. NOTHING IS TAXABLE U/S 56(2)(VIIB) OF THE ACT AND HENCE THERE IS NO LOSS OF REVENUE ON THIS ISSUE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. KOLKATA, THE 31 ST MAY, 2019. SD/- SD/- [ S.S.VISWANETHRA RAVI ] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31.05.2019 (RS, SR. PS) COPY OF THE ORDER FORWARDED TO: 1. MAA AMBE REALCON PVT. LTD., 46C, CHOWRINGHEE ROAD, 5F, EVEREST, 5 TH FLOOR, KOLKATA 700071. 2. . ITO, WARD-8(1), KOLKATA. 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES