INDGLOBAL NETWORK SUPPORT PRIVATE LIMITED, MUMBAI V. PRINCIPAL COMMISSIONER OF INCOME TAX -2, MUMBAI

ITA 5940/MUM/2018

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 3789 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 16-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AWANGSHI GIMSON
• Assessee Lawyers: SONAKSHI JHUN JHUNWALA
• Keywords: Capital asset; Share purchase agreement; Fair market value; Valuation report; Assessment record; Prejudicial to interest; Revenue expenditure; Capital expenditure; Set aside; Capital Gains
• Section: 143(3); 142(1); 56(2); 80HHC; 115JB; 13; 22; 263

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI S . RIFAUR RAHMAN , AM & SHRI RAM LAL NEGI, JM ./ I.T.A. NO . 5940 / MUM/ 2018 ( / ASSESSMENT YEAR: 2014 - 15 ) M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. 5 TH FLOOR, AFL HOUSE, LOK BHARTI COMPLEX, MAROL MAROSHI ROAD, ANDHERI(EAST), MUMBAI - 400 059 / VS. PR. CIT - 2 , 3 RD FLOOR, AAYA KAR BHAVAN, MUMBAI PIN - ./ ./ PAN NO. AA BCI 2069 K ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI NITESH JOSHI & MS. SONAKSHI JHUNJHUNWALA, AR / RESPONDENTBY : SHRI AWANGSHI GIMSON , DR / DATE OF HEARING : 11 .09 .201 9 / DATE OF PRONOUNCEMENT : 27.09.2019 / O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. PR. COMMIS S IONER OF INCOME TAX - 2 IN SHORT 2 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. REFERRED AS LD. PR. CIT , MUMBAI, DATED 30.08.18 FOR A SSESSMENT YEAR (IN SHORT A Y ) 2014 - 15 . 2 . T HE BRIEF FACTS OF THE C ASE ARE THAT ASSESSEE FILED ITS R ETURN OF INCOME FOR AY 2014 - 15 ON 27 - 09 - 2014 DECLARING TOTAL INCOME OF RS. 990 / - UNDER NORMAL PROVISIONS AND RS.990/ - UNDER SECTION 115JB OF THE IT. ACT, 1961 (IN SHORT ACT) . SUBSEQUENTLY, THE CASE WAS S ELECTED FOR SCRUTINY UNDER CASS AND ACCORDINGLY ORDER U/S 143(3) OF THE ACT WAS COMPLETED ON 05.12.2016 DETERMINING TOTAL INCOME AT RS 990/ - . 3. CONSEQUENTLY, PR.CIT WHILE EXAMINING THE RECORDS, IT WAS OBSERVED THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE . TO REACH THAT CONCLUSION, HE ISSUED A SHOW CAUSE NOTICE DATED 07.08.2018 . AS PER THE NOTICE, PR. CIT OBS ERVED THAT THE ASSESSEE COMPANY HAS ISSUED 3050 SHARES OF RS 10 EACH ON THE PREMIUM OF RS 11,990/ - PER SHARE. FURTHER HE OBSERVED F ROM THE ASSESSMENT RECORDS THAT THE ASSESSEE COMPANY IS NOT CARRYING OUT ANY BUSINESS ACTIVITY AND THE ONLY SOURCE OF INCOME IS INCOME FROM OTHER SOURCES I.E. INTEREST. 3 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. 4. CONSIDERING THE ABOVE FACTS AND OBSERVATIONS, PR. CIT COME TO THE CONCLUSION THAT AO FAILED TO NOTE THAT ASSESSEE HAS ISSUED SHARES WITH HEFTY PREMIUM AND OBSERVED THAT THE BALANCE SHEET OF THE ASSESSEE DOES N OT HAVE ANY TANGIBLE OR INTANGIBLE ASSETS EXCEPT NON - CURRENT INVESTMENT BEING INVESTMENT IN SHARE OF THE GROUP COMPANY M/S DACHSER INDIA PVT. LTD AT RS 3,73,50,000/ - . PR.CIT OBSERVED THAT AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY PROVISIONS U/S 56(2)(VIIB ) OF THE ACT SHOULD NOT BE INVOKED . IN REPLY, ASSESSEE STATED THAT THE FAIR MARKET VALUE OF THE ASSESSEE COMPANY'S EQUITY SHARE WAS DETERMINED AT RS 12,000/ - PER SHARE. HOWEVER, PR. CIT OBSERVED THAT ON PERUSAL OF THE VALUATION REPORT IT IS FOUND THAT THE FAIR MARKET VALUE HAS NOT BEEN DETERMINED IN ACCORDANCE WITH THE PROVIS IONS CONTAINED IN SECTION 56(2) (VIIB) R.W.R 11UA OF THE IT RULES AND WAS DETERMINED ON THE BASIS OF THE EXPECTED REALIZABLE VALU E WHICH IS UNDER NEGOTIATION FOR ENCASHMENT. AS PER THE VALUER REPORT, IT WAS STATED IN THE VALUATION REPORT THAT THE NEGOTIATED PRICE IS IN THE RANGE OF RS 120 CRS TO 130 CRS AND THE VALUE OF INVESTMENT IN THE SAID EQUITY SHARE OF DACHSER INDIA PVT. LTD I S TAKEN AT RS. 125 CRS. ACCORDING TO PR. CIT, THE F AIR MARKET VALUE OF EQUITY SHARES 4 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. OF THE ASSESSEE COMPANY WAS DETERMINED MERELY ON THE BASIS OF ASSUMPTION, PRESUMPTION AND SURMISES AND WITHOUT FOLLOWING THE METHOD GIVEN IN RULE 11UA OF IT RULES. 5. IN RESPONSE, LD. AR OF THE ASSESSEE FILED THE WRITTEN SUBMISSION AND PAPER BOOK AND THE SAME IS REPRODUCED BELOW IN SUMMARIZED FORM: - 4.1 SUBMISSION ON JURISDICTION OF SECTION 263 OF THE INCOME TAX ACT 1961 ('THE ACT') 'DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED THE COMPUTATION OF INCOME FOR AY 2014 - 15 AS WELL AS AUDITED FINANCIALS OF THE COMPANY FOR THE YEAR ENDED MARCH 31, 2014 TO THE LD. AO. THE LD. AO HAD GONE THROUGH THE COMPUTATION OF I NCOME, AUDITED ACCOUNTS, RAISED QUERIES AND SOUGHT ENQUIRES IN RESPECT OF ALL THE DETAILS OF INVESTMENTS IN SHARES OF DACHSER INDIA PRIVATE LIMITED AND SEVERAL SUBMISSIONS OF THE ASSESSEE AND MADE AN INFORMED DECISION THAT NO ADJUSTMENTS TO THE TOTAL INCOM E WAS WARRANTED. HE HAS ALSO CONSIDERED THE SUBMISSIONS IN RESPECT OF NON - APPLICABILITY OF SECTION 56(2)(VIJB) QF THE ACT IN THE INSTANT CASE. 5 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. ACCORDING TO PROVISIONS OF SUB - SECTION (1) OF SECTION 263 OF THE ACT, THE JURISDICTION OF REVISION CAN BE EXERCIS ED ONLY IF THE FOLLOWING TWO CONDITIONS ARE SATISFIED: (I.) THAT THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS; AND (II.) THAT IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE.' RELYING ON VARIOUS JUDICIAL PRONOUNCEMENTS AS MENTIONED IN TH E SUBMISSION FILED IT IS SUBMITTED THAT THE ORDER PASSED BY THE AO WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE SINCE THE AO HAS PASSED THE ORDER AFTER DUE EXAMINATION OF THE FACTS IN DETAIL. 4.2SUBMISSION IN RESPECT OF VALUATION OF SHARES: THE EXPLANATION (II) TO CLAUSE (A) OF SECTION 56(2)(VIIB), DOES NOT REFER ONLY TO THOSE ASSETS WHICH APPEAR IN THE BOOKS. IT ALSO DOES NOT STATE THAT THE ASSETS APPEARING IN THE BOOKS ARE TO BE TAKEN AT ITS BOOK VALUE. IT ONLY STATES THAT FMV OF S HARES SHALL BE THE VALUE AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE AO, BASED ON THE VAIUE OF ITS ASSETS, IN EFFECT IT PERMITS VALUATION OF UNDERLYING ASSETS TO ARRIVE FMV OF THE SHARES OF THE COMPANY. NO METHOD HAS BEEN PRESCRIBED T O VALUE THE UNDERLYING 6 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. ASSETS. THE TERM FAIR MARKET VALUE IN RELATION TO A CAPITAL ASSET IS DEFINED U/S 2(22B) OF THE INCOME TAX ACT, 1961 TO MEAN THE PRICE THAT THE CAPITAL ASSET WOULD ORDINARILY FETCH ON SALE IN THE OPEN MARKET ON THE RELEVANT DATE. IN T HE INSTANT CASE THE UNDERLYING ASSET WAS INVESTMENT IN SHARES OF DACHSER INDIA PRIVATE LTD. AND ITS EXPECTED REALIZABLE VALUE HAS BEEN CONSIDERED AS ITS FMV AND SUBSTITUTING FMV OF THESE SHARES, FMV OF THE SHARES OF THE ASSESSEE COMPANY HAS BEEN ARRIVED AT . THE INVESTMENTS HELD BY THE COMPANY WERE DUE FOR ENCASHMENT AND THEREFORE, THE EXPECTED REALIZABLE VALUE IS CONSIDERED AS VALUE FOR THE PURPOSES OF DETERMINING THE FAIR MARKET VALUE OF ASSESSEE COMPANY (THIS IN FACT HAS MATERIALIZED IN THE SUBSEQUENT PER IOD). THIS HAS BEEN PERMITTED AND PRESCRIBED U/S 56(2) (VIIB) OF THE ACT. ULTIMATELY THE FINAL SALE OF SHARES TOOK PLACE IN JULY 2014 AND THE ASSESSEE COMPANY RECEIVED SALE PROCEEDS OF RS. 122.35 CRORES. THE CAPITAL GAINS ON THE SAME HAVE BEEN OFFERED FOR TAX FOR THE FINANCIAL YEAR 2014 - 15 RELEVANT TO A.Y. 2015 - 16. 7 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. 6. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, PR.CIT CAME TO THE CONCLUSI ON THAT THE REQUIREMENT FOR EXERCISE OF THE POWERS UNDER SECTION 263 IS THAT THE ORDER SOUGHT TO BE REVISED SHOULD BE ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. IN THE INSTANT CASE, THE ORDER IS ERRONEOUS AS THE ASSESSEE COMPANY HAS ISSUED 3050 SHARES OF RS.10/ - EACH ON PREMIUM OF RS.11,990/ - PER SHARE. ACCORDING TO PR.CIT ON PERUSAL OF THE VALUATION REPORT , IT IS FOUND THAT THE FAIR MARKET VALUE HAS NOT BEEN DETERMINED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 56(2)(VIIB) R.W.R 11UA OF THE INCOME T AX RULES. HE FURTHER OBSERVED THAT THE ASSESSEE IS NOT CARRYING OUT ANY BUSINESS ACTIVITY AND THE ONLY SOURCE OF INCOME IS INCOME FROM OTHER SOURCES BEING INTEREST RECEIVED. THE FAILURE TO VALUE THE SHARES OF M/S DACHSER INDIA PVT LTD AND ACCEPTING THE FAI R MARKET VA LUE OF THE SHARES AT RS. 12,000/ - PER SHARE AS DETERMINED BY THE ASSESSEE ON THE BASIS OF EXPECTED REALIZABLE VALUE WHICH IS UNDER NEGOTIATION FOR ENCASHMENT, AO HAS MADE THE ORDER ERRONEOUS IN SO FAR IT IS PREJUDICIAL TO THE INTEREST OF REVENUE . 8 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. 7. ACCORDING TO PR.CIT, IT WAS OBSERVED THAT AO DID NOT MAKE THE INQUIRIES WHICH WERE WARRANTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND ACCEPTED THE VALUATION WITHOUT ANY DOCUMENTARY EVIDENCE AS LAID OUT IN THE SHOW CAUSE NOTICE ISSUED DATED 07.08 .2018. THEREFORE, AO DID NOT EXAMINE ANY DOCUMENT ON THE DATE OF VALUATION TO SUPPORT THIS PRICE. IN THE ABSENCE OF EVIDENCE TO CLAIM MARKET PRICE, AO WAS SUPPOSED TO TAKE VALUATION AS PER RULE 11UA OF INVESTMENT IN UNLISTED PRIVATE COMPANY. SINCE AO HAS N OT DONE, SO THE ORDER SUFFER FROM LACK OF ENQUIRY WHICH IS ERRONEOUS AND PREJUDICIAL TO REVENUE. ACCORDINGLY, THE ASSESSMENT ORDER WAS S ET ASIDE TO THE EXTENT AND AO WAS DIRECTED TO VALUE THE SHARES OF M/S DACHSER INDIA PVT LTD IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 56(2)(VI IB) R.W.R 11 UA OF THE IT RULES AND DIRECTED TO REVISE THE ASSESSMENT ORDER. 8. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERRED APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREIN BELOW: - 1) THE LEARNED PRINC IPAL COMMISSIONER OF INCOME TAX ERRED IN SETTING ASIDE THE ASSESSMENT ORDER WITH A 9 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. DIRECTION TO VALUE THE SHARES OF UNDERLYING COMPANY IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 5 6(2)(VIIB) READ WITH RULE 11UA OF THE INCOME TAX RULES, 1962 AND REVISE THE ASSESSMENT ORDER ACCORDINGLY. 2) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT THE ASSESSMENT ORDER PASSED WAS WITHOUT CONDUCTING PROPER ENQUIRIES AND WITHOUT APPLICATION OF MIND ON ALL PERSPECTIVE. 3) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS AN ERRONEOUS ORDER. 4) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT THE ASSESSMENT ORDER PASSED U/S 143(3) IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX OUGHT TO HAVE CONSIDER THAT SECTION 56(2)(VIIB) OF THE ACT PERMITS ANY METHOD OTHER THAN NET ASSET VALUE OR DCF AS PROVIDED IN RULE 11UA OF INCOME TAX RU LES, 1962. 6) THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX OUGHT TO HAVE CONSIDERED THAT THE UNDERLYING INVESTMENT (BY WAY OF SHARES IN A PRIVATE LIMITED 10 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. COMPANY) WAS IN FACT SOLD IN JULY 2014 (IN THE SUBSEQUENT YEAR) AND CAPITAL GAIN ON THE SAM E HAS OFFERED TO TAX IN A. Y. 2015 - 16. 7) THE APPELLANT CRAVES LEAVE TO ALTER, AMEND AND / OR ADD ANY OTHER GROUND OF APPEAL. 9. LD. AR SUBMITTED BEFORE US THAT ALL THE INFORMATION RELEVANT TO THE VALUATION OF SHARE AND INVESTMENT M/S DACHSER INDIA PVT LTD WAS SUBMITTED BEFORE THE AO AND IN SUPPORT OF THAT, HE BROUGHT TO OUR NOTICE AT PAGE NO. 6 OF THE PAPER BOOK I.E. AUDITORS REPORT IN POINT NO. 18. THE AUDITORS ALSO CONFIRM THE ISSUE OF SHARE ALLOTMENT TO THE PARTIES AND COMPANIES COVERED IN THE RE GISTER MAINTAINED UNDER SECTION 301 OF THE ACT AND PRICES AT WHICH SHARES HAVE BEEN ISSUED IS NOT PREJUDICIAL TO THE INTEREST OF THE COMPANY. 10 FURTHER, LD. AR BROUGHT TO OUR NOTICE AT PAGE NO. 12 OF THE PAPER BOOK IN WHICH THE ASSESSEE COMPANY HAS TAKEN UNSECURED LOANS FROM THE SHAREHOLDERS TO T HE EXTENT OF RS. 3,66,50,195 IN THE PREVIOUS ASSESSMENT YEAR AND SUBMITTED THAT SHARES WERE ISSUED TO THE RELATED PARTIES WHO HAVE LENT THE UNSECURED LOANS TO THE COMPANIES. THE LIST OF THE RELATED PARTIES ARE GI V EN IN THE 11 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. SCHEDULE TO THE BALANCE SHEET. HE FURTHER BROUGHT TO OUR NOTICE THAT AO HAS ISSUED NOTICE U/S 142(1) DATED 16.08.16 AND ASKED THE ASSESSEE FOR VARIOUS INFORMATION RELATING TO THE ISSUE OF SHARES, SUBMISSION OF ROC IN FORM 2, ANNUAL RETURNS FOR TH E RELEVANT PERIOD AND SHARE VALUATION REPORT AND DETAILS OF SHARE APPLICATION MONEY ALLOTTED AND PAID UP DETAILS. HE FURTHER BROUGHT TO OUR NOTICE AT PAGE NO. 23 OF THE PAPER BOOK IN WHICH ASSESSEE HAS SUBMITTED THE RELEVANT INFORMATION BEFORE THE AO AS PE R THE NOTICE U/S 142(1) AND ASSESSEE HAS FILED THE DETAILS OF UNSECURED LOANS BEFORE THE AO, WHICH IS PLACED AT PAGE NO. 25 OF THE PAPER BOOK. FURTHER, HE BROUGHT TO NOTICE THAT THE DETAILS OF SHAREHOLDERS WHO WERE ALLOTTED SHARES, WHO ARE THE UNSECURED LE NDERS TO THE COMPANIES AND ALSO PROMOTERS OF THE COMPANY. HE SUBMITTED THAT THE DETAILS OF THE PAN AND SHAREHOLDING WERE SUBMITTED BEFORE AO AND THE SAME IS GIVEN AT PAGE NO. 37 AND 38 OF THE PAPER BOOK. 11 LD. AR FURTHER BROUGHT TO OUR NOTICE THAT AO ISS UED NOTICE ON 27.09.16 FOR INFORMATION RELATING TO SHARE CERTIFICATE , ALLOTMENT OF SHARE IN VIEW OF THE UNSECURED LOANS HAS BEEN 12 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. CONVERTED INTO SHARE APPLICATION MONEY AND DETAILS OF OFFER WITH RELEVANT DOCUMENTS INDICATING THEREIN NUMBER OF SHARES OFFERED FOR SUBSCRIPTION, RETURNED FILED BEFORE ROC, ETC. IN RESPONSE, THE ASSESSEE HAS FILED THE RELEVANT INFORMATION ON 5 TH OCT 2016, WHIC H IS PLACED AT PAGE NO. 42 OF THE PAPER BOOK. FURTHER, THE ASSESSEE HAS FILED A NOTE ON SHARE PREMIUM ON SHARES ALLOTTED, WHICH IS PLACED AT PAGE NO. 46 OF THE PAPER BOOK, IN WHICH ASSESSEE HAS EXPLAINED THE BASIS OF ARRIVING THE SHARE VALUATION ONLY ISSUE , THE SHARES WITH PREMIUM OF RS. 11,990/ - . IN THIS REGARD, HE BROUGHT TO OUR NOTICE THAT THE ASSESSEE WAS IN NEGOTIATION WITH SHAREHOLDERS OF M/S DACHSER INDIA PVT LTD WHEREBY THE JV SHAREHOLDERS OFFERED TO BUY 50% OF SHARE HELD BY THE ASSESSEE IN M/S DACHSER INDIA PVT LTD . THE EX PECTED SALE PRICE WAS IN THE RANGE OF RS. 120 CR TO RS. 130 CR. AND ACCORDINGLY ASSESSEE HAS TAKEN AN AVERAGE VALUE OF RS. 125 CRORES ONLY, THE DETAILS OF WHICH, IS PLACED AT PAGE NO. 49 OF THE PAPER BOOK. 12 LD. AR FURTHER BROUGHT TO OUR NOTICE THAT THE TRANSFER OF SHARES OF M/S DACHSER INDIA PVT LTD HAS TAKEN PLACE FOR SUBSEQUENT AY 2015 - 16 AND ASSESSEE HAS OFFERED THE SAME TO TAX 13 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. UNDER THE HEAD CAPITAL GAINS. THE RELEVANT CALCULATION IS PLACED AT PAGE NO. 55 TO 56 OF THE PAPER BOOK. FURTHER AO HAS ISSUE D NOTICE ON 22.11.16 ASKING FOR CONFIRMATION FROM WHOM ASSESSEE HAS RECEIVED SHARE PREMIUM DURING THE YEAR AND TO FURNISH THE DETAILS OF INVESTMENT MADE IN UNLISTED EQUITIES AND THE SAME WAS FURNISHED BEFORE THE AO ON 28 TH NOV 2016, WHICH IS PLACED AT PAGE NO. 60 OF THE PAPER BOOK. IN THE SAME REPLY, THE ASSESSEE HAS ALSO MADE SUBMISSION WITH REGARD TO SECTION 56(2)(VIIB) OF THE ACT AND SUBMITTED THAT AS PER EXPLANATION 1 OF SECTION 56(2)(VIIB), THE ASSESSEE HAS OPTION TO ARRIVE THE FAIR MARKET VALUE OF THE SHARES AS MAY BE DETERMINED IN ACCORDANCE WITH RULE 11UA OR AS MAY BE SUBSTANTIATED BY THE ASSESSEE TO THE SATISFACTION OF THE AO BASED ON THE VALUE ON THE DATE OF ISSUE OF SHARES OF ITS ASSETS INCLUDING THE INTANGIBLE ASSETS, ETC. WH ICHEVER IS HIGHER. THEREFORE, ASSESSEE HAS OPTION TO CHOOSE BETWEEN THE TWO, WHICHEVER IS HIGHER. IN THE GIVEN CASE, ASSESSEE HAS ADOPTED THE SECOND METHOD AS PER WHICH, THE ASSESSEE HAS SATISFIED THE AO BY SUBMITTING THE RELEVANT FACTS AND VALUATION OF SHARES. AS PER THE SE COND METHOD ADOPTED BY THE ASSESSEE, ASSESSEE HAS ARRIVED THE VALUE OF 12,138/ - BUT FOR ISSUE OF SHARES, IT HAS 14 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. ADOPTED ONLY 12000/ - . ALL THESE DOCUMENTS WERE CLEARLY EXPLAINED TO THE AO IN DETAIL AND ALSO SUBMITTED THE LIST OF SHARE ALLOTTEES AND THEIR PA N DETAILS CLEARLY INDICATING THAT THE SAME WAS BASED ON VALUATION REPORT. 13. EVEN THOUGH, THE AO HAS ASKED FOR THE RELEVANT INFORMATION RELATING TO ISSUE OF SHARES IN PREMIUM AND ISSUE OF SHARES AGAINST UNSECURED LOANS AND ACCEPTED ALL RELEVANT DOCUMENTS AND SATISFIED THAT THE ABOVE TRANSACTIONS WERE AS PER THE NORMS AND THE SAME WAS NOT DISCUSSED IN THE ASSESSMENT ORDER. SINCE THE AO HAS NOT DISCUSSED ANYTHING ON THE ASSESSMENT ORDER, LD. PCIT ISSUED NOTICE U/S 263 ASKING FOR THE INFORMATION RELATING TO THESE TRANSCATIONS. THE SAME WAS EXPLAINED BEFORE PCIT AND PCIT HAS REMITTED BACK THIS ALSO TO THE AO TO VERIFY AGAIN. HE SUBMITTED THAT AO HAS APPLIED HIS MIND AND TAKEN CORRECT VIEW IN THIS REGARD. FURTHER, HE SUBMITTED THAT THERE MAY BE TWO VIEWS ARE PO SSIBLE AND THE VIEWS TAKEN BY THE AO MAY NOT BE ACCORDING TO THE VIEW OF THE PCIT . HE SUBMITTED THAT PCIT HAS NO POWER TO REVISE THE ORDER. 15 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. 14 WITH REGARD TO NO DISCUSSION ON THE ISSUE OF SECTION 56(2)(VIIB) OF THE ACT MADE BY THE AO EVEN THOUGH THE AO HAS MADE PROPER ENQUIRIES, THE PROVISION OF SECTION 263 CANNOT BE INVOKED IN THE PROCESS. IN THIS RESPECT, HE RELIED UPON THE FOLLOWING JUDGMENTS: - I) CIT VRS. GABRIEL INDIA LTD (1993) 71 TAXMANN 585 (BOMBAY HC) II) CIT VRS. NIRAV MODI (2016) 71 TAXMANN.COM 272 (BOMBAY HC) III) CIT VRS. NIRAV MODI (2017) TAXMANN.COM 15 (SC) IV) MOIL LTD VRS. CIT (2017) 81 TAXMANN.COM 420 (BOMBAY HC) 15 LD AR FURTHER SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 56(2)(VIIB), EXPLANATION (A) (II), THE ASSESSEE HAS SATISFIED THE AO ONLY AND THIS IS SIMILAR TO SECTION 40A(2) IN WHICH THE AO HAS TO SATISFY BASED ON THE INFORMATION SUBMITTED BY THE ASSESSEE AND THERE IS NO ROLE FOR ANY AUTHORITY EXCEPT AO IN THIS REGARD. IN THIS RESPECT, HE RELIED UPON THE JUDGMENT IN THE 16 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. CASE OF ARNAV GRUH LTD. VRS. DCIT (2018) 89 TAXMAN.COM 289 (MUM - TRIB) . 16 ON THE OTHER HAND, LD. DR SUBMITTED THAT PR. CIT IN PARA 5.5 OF ITS ORDER BROUGHT TO OUR NOTICE THAT AO HAS NOT MADE INQUIRIES WHICH WERE WARRANTED IN THE FACTS AND ERRONEOUSLY ACCEPTED TH E FAIR MARKET VALUE SUBMITTED BY THE ASSESSEE WITOUT ANY PROPER DOCUMENTARY EVIDENCE. HE FURTHER SUBMITTED THAT THE AO DID NOT EXAMINE ANY DOCUMENT ON THE DATE OF VALUATION TO SUPPORT THE PRICE IN THE ABSENCE OF EVIDENCE TO CLAIM THE MARKET PRICE, THE AO S HOULD HAVE TAKEN THE VALUATION AS PER RULE 11UA OF INVESTMENT IN UNLISTED PRIVATE LIMITED COMPANIES. FURTHER HE BROUGHT TO OUR NOTICE AT PAGE NO. 87 OF THE PAPER BOOK, WHICH INDICATE THAT ASSESSEE HAS ISSUED AND ALLOTTED THE SHARES ON 28.09.13, WHEREAS ASS ESSEE HAS ENTERED INTO NEGOTIATION FOR TRANSFER OF SHARES IN JULY 2013 AND THE TRANSFER TOOK PLACE SUBSEQUENTLY IN THE NEXT AY. THE FAIR MARKET VALUE SHOULD HAVE BEEN ADOPTED ON THE DATE OF TRANSFER. 17 ON THE DATE OF ISSUE OF SHARES, LD. DR SUBMITTED THA T EITHER ASSESSEE SHOULD HAVE DRAWN UP NEW BALANCE SHEET OR IN THE 17 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. ABSENCE OF SUCH, ASSESSEE SHOULD ADOPT PREVIOUS FOR BALANCE SHEET IN ORDER TO CALCULATE THE FAIR MARKET VALUE. SINCE THE TRANSFER OF SHARES TAKEN PLACE IN THE NEXT YEAR WHICH CAN BE CONSIDERED AS SUBSEQUENT DEVELOPMENT AND IT CANNOT BE TAKEN FOR VALUATION OF FAIR MARKET VALUE. IN THIS REGARD, HE HEAVILY RELIED UPON ORDER PASSED U/S 263 BY PR. CIT. 18 IN THE REJOINDER, LD. AR SUBMITTED THAT THE VALUATION OF FAIR MARKET V ALUE AS PER RULE 11UA(1), THE LAST DRAWN BALANCE SHEET SHOULD BE CONSIDERED, WHEREAS THE ASSESSEES CASE FALLS UNDER RULE 11UA(2). THEREFORE, THE SUBMISSION OF LD. DR IS NOT APPLICABLE. H E FURTHER SUBMITTED THAT SUBSEQUENT EVENT OF TRANSFER OF SHARES IS V ERY MUCH RELEVANT AND SUCH TRANSFER TAKEN PLACE IN THE SUBSEQUENT ASSESSMENT YEAR CLEARLY INDICATES THAT THE PROMOTERS OF THE CO MPANY WILL DEFINITELY CONSIDER THE RENEWED FAIR MARKET VALUE RATHER THAN PRESENT FAIR MARKET VALUE FOR THE DECISION MAKING. 19 CONSIDERING THE RIVAL SUBMISSIONS AND MATERIAL PLACED ON RECORD, WE NOTICE THAT ASSESSEE HAS TAKEN A LARGE UNSECURED LOAN FROM THE SHAREHOLDERS AND DURING THIS ASSESSMENT YEAR, SUCH UNSECURED LOANS WERE CONVERTED INTO SHARES. THE ABOVE SHARES 18 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. WERE VALUE D @ 12000 SHARES WITH SHARE VALUE OF RS. 10 / - AND THE BALANCE AS SHARE PREMIUM AFTER ARRIVING AT THE FAIR MARKET VALUE. THEREFORE, ASSESSEE HAS CONSIDERED THE PROPOSED TRANSFER OF SHARE OF M/S DACHSER INDIA PVT LTD TO THE OTHER JOINT VENTURE PARTNER AT AN EX PECTED VALUE OF RS. 120 CRORES TO 130 CRORES. THE ASSESSEE HAS DETERMINED THE PROPOSED TRANSFER VALUE OF RS. 125 CRORES AND THE SAME WAS ADOPTED TO CALCULATE FAIR MARKET VALUE OF THE SHARES. THE TRANSFER OF SHARES HAS TAKEN PLACE IN THE SUBSEQUENT ASSESSME NT YEARS AND NOT AS PER THE EXPECTED VALUE OF TRANSFER I.E. 125 CRORES INSTEAD OF SHARES WERE TRANSFERRED TO THE OTHER JOINT VENTURE MEMBER AT RS. 121 CRORES. IN THE REGULAR ASSESSMENT U/S 143(3), AO HAS CALLED FOR THE RELEVANT INFORMATION AND ASSESSEE HAS SUBMITTED ALL THE INFORMATION AS CALLED FOR BY THE AO NOT JUST ONE, BUT IN THREE OCCASIONS AND AO HAS CALLED FOR DIFFERENT INFORMATION RELEVANT FOR ALLOTMENT OF SHARES AND ALSO RELATING TO PROVISION OF SECTION 56(2)(VIIB) OF THE ACT. HOWEVER, THE AO HAS S ATISFIED WITH THE INFORMATION SU PPLIED BY THE ASSESSEE AND NOT MADE ANY ADDITIONS AND CHOOSE NOT TO DISCUSS ANYTHING IN THE ASSESSMENT ORDER . BUT, PR. CIT INVOKED THE PROVISIONS OF SECTION 263 AND ASKED FOR THE EXPLANATION FROM THE ASSESSEE AND ASSESSEE 19 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. HA S ALSO SUPPLIED ALL THE RELEVANT INFORMATION BEFORE PR.CIT AND STILL PR. CIT HAS TREATED THE ASSESSMENT AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 20 ON CAREFUL CONSIDERATION OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT ASSESSEE FOLLOWED THE PROVISIONS OF SECTION 56(2)(VIIB) AND AS PER THE SAID PROVISION, ASSESSEE HAS OPTION TO ARRIVE AT THE FAIR MARKET VALUE OF THE SHARES I) MAY BE DETERMINED IN ACCORDANC E WITH RULE 11UA OR II) MAY BE SUBSTANTIATE TO THE SATISFACTION OF AO. 21 IN THE GIVEN CASE, ASSESSEE HAS FOLLOWED THE EXPLANATION AND ACCORDINGLY SUBSTANTIATE D BEFORE THE AO AND AO HAS ACCEPTED THE VIEWS SUBSTANTIATE BY THE ASSESSEE. ACCORDINGLY, HE HAS NOT M ADE ANY FURTHER ADDITIONS. ONCE THE AO CALLED FOR ALL THE INFORMATION AND APPLIES HIS MIND AND DOES NOT DISCUSS ANYTHING IN THE ASSESSMENT YEAR EVEN THOUGH IT AMOUNTS TO MAKING INQUIRIES, THEREFORE PR. CIT CANNOT INVOKE PROVISION U/S 263 MERELY BECAUSE AO HAS NOT VERIFIED THE SHARE TRANSFER TO THE SATISFACTION OF PR. CIT. EVEN THOUGH , VIEW OF THE PR. CIT MAY DIFFER. IN THIS CONTEXT, IN OUR VIEW, THE AO AS WELL AS PR. CIT HAS DIVERGENT VIEW. IN SUCH A SITUATION, PR. CIT CANNOT INVOKE THE 20 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. PROVISIONS OF SECTIO N 263 OF THE ACT. WE RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VRS. MAX INDIA LTD. (2008) 166 TAXMAN 188 (SC) , WHEREIN IT WAS HELD AS UNDER: - SECTION 263, READ WITH SECTION 80HHC, OF THE INCOME - TAX ACT, 1961 - REVISION - OF ORDERS PREJUDICIAL TO INTERESTS OF REVENUE - ASSESSMENT YEAR 1992 - 93 - ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80HHC, WHICH WAS ALLOWED BY ASSESSING OFFICER - HOWEVER, COMMISSIONER WAS OF VIEW THAT ORDER PASSED BY ASSESSING OFFICER WAS PREJUDICIAL TO IN TEREST OF REVENUE AS WHILE WORKING OUT DEDUCTION UNDER SECTION 80HHC ASSESSING OFFICER HAD IGNORED NEGATIVE PROFIT AND, ACCORDINGLY, SET ASIDE ORDER OF ASSESSING OFFICER BY PASSING ORDER DATED 5 - 3 - 1997 - REVENUE'S CASE WAS THAT 2005 AMENDMENT IN SECTION 80 HHC WHICH IS CLARIFICATORY AND RETROSPECTIVE IN NATURE ITSELF INDICATES THAT VIEW TAKEN BY ASSESSING OFFICER AT RELEVANT TIME WAS UNSUSTAINABLE IN LAW - WHETHER SINCE TWO VIEWS EXISTED ON WORD 'PROFITS' IN PROVISO TO SECTION 80HHC(3), ON DAY WHEN COMMISSION ER PASSED HIS ORDER AND MOREOVER MECHANICS OF SECTION HAVE BECOME SO COMPLICATED OVER YEARS THAT TWO VIEWS WERE INHERENTLY POSSIBLE, SUBSEQUENT AMENDMENT IN 2005 EVEN THOUGH RETROSPECTIVE WOULD NOT ATTRACT PROVISION OF SECTION 263, PARTICULARLY WHEN ONE HA D TO TAKE INTO ACCOUNT POSITION OF LAW AS IT STOOD ON DATE WHEN COMMISSIONER PASSED ORDER IN PURPORTED EXERCISE OF HIS POWERS UNDER SECTION 263 - HELD, YES 21 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. 22 EVEN THOUGH THE AO HAS NOT DISCUSSED THE ISSUE ELABORATELY IN THE ASSESSMENT ORDER, HE MAKES INQUIRIES SIMILAR TO THE INQUIRIES MADE IN THE GIVEN CASE, THUS THE PROVISIONS OF SECTION 263 OF THE ACT CANNOT BE INVOKED AND WE ARE RESPECTFULLY FOLLOWING THE DE CISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VRS. GABRIEL INDIA LTD. (1993) 71 TAXMAN 585 (BOM), WHEREIN IT WAS HELD AS UNDER: - 14. WE MAY NOW EXAMINE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE POWERS OF THE COMMISSIONER SET OUT ABOVE. THE ITO IN THIS CASE HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN DETAILED EXPLANA TION IN THAT REGARD BY A LETTER IN WRITING ALL THESE ARE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOWED BY THE ITO ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE.. SUCH DECISION OF THE ITO CANNOT BE HELD TO BE 'ERRONEOUS' SIMPLY BECAUSE IN HIS ORDER, HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. MOREOVER., IN THE INSTANT CASE, THE COMMISSIONER HIMSELF, EVEN AFTER INITIATING PROCEEDINGS FOR REVISION AND HEARING THE ASSESSEE, COULD NOT SAY THAT THE ALLOWANCE, OF THE CLAIM OF THE ASSESSEE WAS ERRONEOUS AND THAT THE EXPENDITURE WAS NOT REVENUE EXPENDITURE BUT AN EXPENDITURE OF CAPITAL NATURE. HE SIMPLY ASKED THE ITO TO RE - EXAMINE THE MATTER THAT, IN OUR OPINION, IS NOT PERMISSIBLE. FURTHER INQUIRY AND/OR 'FRESH .DETERMINATION CAN BE DIRECTED BY THE COMMISSIONER ONLY AFTER COMING TO THE CONCLUSION THAT THE EARLIER FINDING OF THE ITO WAS ERRONEOUS AND PREJUDICIAL TO THE 22 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. INTERESTS OF THE REVENUE. WITHOUT DOING SO, HE DOES NOT GET THE POWER TO SET ASIDE THE ASSESSMENT. IN THE INST ANT CASE, THE COMMISSIONER DID SO AND IT IS FOR THAT REASON THAT THE TRIBUNAL DID NOT APPROVE HIS ACTION AND SET ASIDE HIS ORDER. WE DO NOT FIND ANY INFIRMITY IN THE ABOVE CONCLUSION OF THE TRIBUNAL. 23 AS DISCUSSED ABOVE, THE ASSESSMENT ORDER MAY BE PREJ UDICIAL TO THE INTEREST OF REVENUE, BUT IT IS NOT ERRONEOUS, SINCE THE AO HAS VERIFIED THE RELEVANT INFORMATION SUBMITTED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. THEREFORE, WE SET ASIDE THE ORDER PASSED BY PR. CIT U/S 263 OF THE ACT. ACCORDINGLY GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 2 4 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE STA NDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPT 20 19 . SD/ - SD/ - ( RAM LAL NEGI ) (S. RIFAUR RAHMAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 27 . 09 .201 9 SR.PS . DHANANJAY 23 I.T.A. NO. 5940 /MUM/201 8 M/S INDGLOBAL NETWORK SUPPORT PVT. LTD. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI