OLYMPUS GLOBAL STOCKS PRIVATE LTD. ,DELHI V. PCIT DELHI-7, DELHI

ITA 662/DEL/2022

AI Insights

The case involves Olympus Global Stocks Private Ltd., which appealed against the order of the PCIT-7, New Delhi, concerning the assessment year 2015-16. The PCIT had issued a notice under Section 263, claiming the original assessment order was erroneous and prejudicial to the interests of the revenue, particularly concerning the valuation of shares and the treatment of MAT credit. The Tribunal examined whether the PCIT was justified in exercising its powers under Section 263, given that the AO had conducted a thorough examination of the issues during the assessment proceedings. The Tribunal referenced a similar case, PCIT vs. Pushp Steel and Mining Private Limited, to support its decision that the inclusion of MAT credit in share valuation is a debatable issue and does not warrant the invocation of Section 263.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361211 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2015-2016
• Other Referred Cases: PCIT vs. Pushp Steel and Mining Private Limited [2023] 146 taxmann.com 478 (Delhi)
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962, Companies Act, 2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMISHA S. GUPTA
• Assessee Lawyers: SALIL KAPOOR; ANIL
• Keywords: Set aside; Fair market value; Earning of tax free income; Revision of order
• Section: 143(3); 263; 56(2); 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER, AND SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA NO. 662/Del/2022 A.YR. : 2015-16 OLYMPuS GLOBAL STOCKS PRIVATE LTD., D-248, OFFICE 103, FIRST FLOOR, ABHISHEK BUSINESS, CENTRAL GALI NO. 10, LAXMI NAGAR, DELHI – 92 (PAN: AABCO0085F) VS. PCIT-7, NEW DELHI (APPELLANT) (RESPONDENT) Appellant by : Shri Salil Kapoor, Adv., Shri Anil Chachra, Adv., Sh. Tarun Chanana, Adv,. & Sh. Shivam Yadav, Adv. Respondent by : Ms. Amisha S. Gupta, CIT(DR) Date of hearing : 15.05.2025 Date of pronouncement : 21.05.2025 ORDER PER SHAMIM YAHYA, AM : The Assessee has filed the instant Appeal against the Order of the Ld. PCIT-7, Delhi dated 17.03.2020 passed u/s. 263 of the Act, relating to assessment year 2015-16 on the following grounds:- 1. That the notice dated 17.05.2018 issued under Section 263 of the Income Tax Act, 1961 ('Act'), and the order dated 17.03.2020 2 | P a g e passed under said Section are illegal, bad in law and without jurisdiction. 2. That the notice by the PCIT under Section 263 of the Act does not show that the Assessing Officer (herein referred as 'AO') committed any error in passing the assessment order under Section 143(3) of the Act. Therefore, the jurisdiction assumed by the Principal Commissioner of Income Tax (herein referred as 'PCIT') under Section 263 of the Act is illegal, without jurisdiction and is liable to be quashed. 3. That the order passed under Section 143 (3) of the Act by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue and as such the order passed by the PCIT order under Section 263 of the Act in cancelling the assessment is illegal and bad in law. 4. That the PCIT has failed to appreciate that the issue referred in his order under Section 263 of the Act has been duly considered and the view taken by the Assessing Officer is a plausible view. All necessary enquires/investigations /verification relating to the issue referred in the order of the PCIT under Section 263 of the Act were made by the AO while framing the assessment under 143(3) of the Act. Thus, the notice issued and the impugned order are beyond the preview of Section 263 of the Act and hence, the order passed under Section 263 is liable to be quashed. 5. That the PCIT has erred in law and on facts in not accepting the audited financial statements of the Appellant and certificate from the chartered accountant furnished in context of calculation of fair market value of shares of the M/s Templeton Stock Growth Pvt Ltd worked out under the Rule 11UA of the Income Tax Rules, 1962. 3 | P a g e 6. That without prejudice, PCIT has failed to appreciate that provisions of Section 56(2)(viia) of the Act are not applicable in the case of Appellant. 7. That the PCIT has erred in law and on facts in not reckoning the fair market value of equity shares of the M/s Templeton Stock Growth Pvt Ltd as per the rule 11UA(1)(c)(b) of the Income Tax Rules, 1962 ('Rules'). 8. That the PCIT has erred in not appreciating that Minimum Alternate Tax ('MAT') is in the nature of amount of income tax paid only and as per provisions of Rule 11UA of the Rules, it has to be reduced from the book value of the assets while computing the fair market value of the unquoted equity shares. 9. That the amount of MAT credit has to be presented on the asset side as per the proforma of balance sheet in Schedule III of the Companies Act,2013 but such amount of MAT credit shown as asset actually does not represent the value of any asset. 10. That the order passed by the PCIT under section 263 of the Act is clearly without application of mind. Hence, the notice and order passed under section 263 of the Act is liable to be quashed. 11. That all the facts and circumstances of the case and the material available on record have not been properly considered by the PCIT while passing the order under Section 263 of the Act. The impugned order is illegal, arbitrary and bad in law. 12. That the observations made are unjust, illegal, arbitrary, bad in law, highly excessive and based on surmise conjecture. 2. Brief facts of the case as noted by the ld. PCIT leading to the issue of notice u/s. 263 of the Act reads as under:- “In this case, return of income was filed by the assessee company on 28.09.2015 declaring loss of Rs.56,67,969/-. Assessment u/s 4 | P a g e 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act') was completed on 22.11.2017 at a loss of Rs.22,76,251/- by making addition of Rs.33,91,718/- u/s 14A of the Income Tax Act, 1961. The case was selected for 'Limited Scrutiny under CASS on the following reasons:- (i) Large interest expenses relatable to exempt income(u/s 14A) (ii) Low income in comparison to very high investments (iii) Low income in comparison to high loans/advances/investment in shares. (iv) Large increase in investment in unlisted equities during the year. 2. During the year under consideration, the assessee invested Rs.3,90,00,000/-in equity shares of the following company: Sr. No. Name of the company No. of shares Rate Amount (Rs.) 1. M/s Templeton Stock Growth Pvt. Ltd. 10,000 Rs. 3,900 per share 3,90,00,000/- The above transaction is covered by the provisions of Section 56(2) (viia) of the Act, which, as it stood in Financial Year, 2014-15 (relevant to AY 2015-16), provides, for taxability as income from other sources in the hands of the company receiving the shares, as follows: \"Where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,- 5 | P a g e (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration : Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation.—For the purposes of this clause, \"fair market value\" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii); In other words the value of shares received by the firm or a company for inadequate consideration or without consideration shall be chargeable to income tax under the head \"income from other sources\". It appears from records that during the course of assessment proceedings, the issue of section 56(2)(viia) of the Act was not examined for the basis of determination of fair market value of unquoted equity shares. 3. Accordingly, a show cause notice u/s 263 was issued to the assessee on 28.05.2018 to explain as to why the order passed by the A.O. on 22.11.2017 u/s 143(3) of the Act could not be treated to be erroneous in so far as it is prejudicial to the interest of revenue, 6 | P a g e and further as to why an order under Section 263 of the Act should not be passed to set right the above omission.” 3. The assessee’s response was noted by the Ld. PCIT as under:- “One of the reasons for selection of the case was inter alia, large increase in investment in unlisted equities during the year. Your Honour is thus of the view that the applicability of the provisions of section 56(2)(viia) of the Income Tax Act were not examined in detail by the Assessing officer. In this regard it may be submitted that the details of investments were duly furnished by the assessee during the course of assessment proceedings. The source of investments made by the assessee company were duly examined in detail by the Assessing officer. \"It may be explained that the assessee company M/s Olympus Global Stocks Pvt Ltd had purchased 10000 equity shares of M/s Templeton Stock Growth Pvt Ltd from the following individuals, details of which are as under:- Sr. No. Name of the company No. of shares Total consideration Amount (Rs.) 1. Ms. Rajni Sharma 5000 19500000/- 3900/- 2. Mr. Surrender Sharma 5000 19500000/- 3900/- Total 10000 39000000/- 3900/- In this regard it may be explained that the shares of M/s Templeton Stock Growth Pvt. Ltd. have been purchased by the assessee companies from the above parties at the rate of Rs. 3,900/- per share. The Fair Market value of M/s Templeton Stock Growth Pvt. Ltd. as worked out ur 11UA of the Income Tax Rules comes to Rs. 7 | P a g e 3,723/- per share. The certificate from the chartered accountant in this context is being furnished for your ready reference. The audited financial statements of the company M/s Templeton Stock Growth Pvt. Ltd. are also being furnished before your Honour for your ready reference. It is thus evident that the shares have not been purchased below the FMV and so such, the provisions of section 56(2)(viia) of the Income Tax Act, 1961 are not applicable in the instant case. In view of the above, your Honour will appreciate that the provisions of section 56(2)(viia) of the Income Tax Act, 1961 and hence it is prayed that the proceedings may kindly be dropped in the interest of justice.\" 4. However, Ld. PCIT was not convinced with the aforesaid reply and he was of the opinion that Chartered Accountant while calculating the fair market value of the shares, has not taken into account the MAT credit entitlement from assets. He was further of the opinion that MAT credit entitlement was to be included in the value of assets. The observation by the Ld. PCIT are as under:- “During the course of assessment proceedings the fair market value of the shares of M/s Templeton Stock Growth Pvt Ltd had been worked out @3,723 per share by M/s A Pasari& Associates, Chartered Accountants vide their certificate/letter dated 04/09/2014 as per Rule 11UA of the Income tax rules, 1962. However while calculating the fair market value of the shares of M/s Templeton stock growth Pvt Ltd the Chartered Accountant excluded MAT credit entitlement of Rs. 15,65,87,150/-from assets. MAT credit receivable is a kind of economic resource to be utilized in future as and when liability to pay tax arises under normal tax provisions. MAT credit reflected on the assets side of the balance sheet is an asset and includible for the purpose of calculating fair market value of the unquoted equity shares since this is an asset out of which future economic benefit is expected to flow. By exclusion of MAT credit the assessee company invested in equity shares of M/s Templeton Stock Growth Pvt Ltd ata consideration 8 | P a g e less than the Fair Market Value of shares (FMV), in accordance with provisions of Rule 11UA of Income Tax Rules, 1962.” Accordingly, Ld. PCIT directed the AO to make an assessment, afresh, after taking into account the facts mentioned by him in his aforesaid finding. 5. Against the aforesaid order, assessee is in appeal before us. 6. We have heard both the parties and perused the records. Ld. Counsel for the assessee submitted that this case was taken up for ‘limited scrutiny’ for considering the valuation of investment in shares done by the assessee. So large increase in investment in unlisted equities was duly subject matter of scrutiny. AO has made due enquiry and was satisfied with the assessee’s response. In this regard, he submitted that entitlement of MAT credit to be added into the value of shares is debatable and if PCIT has different view on this point than that of the AO, the same would not empower the PCIT to exercise jurisdiction u/s. 263 of the Act. Per contra, Ld. DR relied upon the order of the Ld. PCIT. 7. Upon careful consideration, we note that the case in hand was taken up for ‘limited scrutiny’ inter alia for examining the large increase in investment in unlisted equity shares during the year. During the year, the assessee had invested Rs. 3.90 crores in equity shares of M/s Templeton Stock Growth Pvt. Ltd. and AO has made the due enquiry and assessee has given its reply with which AO was satisfied. Now the Ld. PCIT is of the opinion that in the Chartered Accountant certificate in this regard MAT entitlement has not been taken into account for valuation of shares. We find that this is debatable issue whether MAT credit should be taken into account for valuation of shares or not? In this regard, we find that this issue is squarely covered by the decision of the Jurisdictional High Court in the case of PCIT vs. Pushp Steel and Mining Private Limited reported in [2023] 146 taxmann.com 478 (Delhi), wherein, the Court has expounded as under:- “The MAT credit entitlement is not a marketable asset, and the question whether such entitlement should be included while 9 | P a g e computing the fair market value of shares of a company is debatable. More importantly, the Tribunal found that the Commissioner was not justified in assuming jurisdiction on the ground that no enquiries had been conducted by the Assessing Officer. The Assessing Officer had issued queries regarding investment in unlisted equity shares. The assessee had responded to the questionnaire and submitted various details including the details of the shares purchased; the entities from whom the shares were purchased; copies of the bank accounts evidencing payments of consideration; and, the computation of the book value of the shares amongst other details. The Assessing Officer had applied its mind to the said information and had framed the assessment. The Tribunal rightly held that this is not a case that no enquiry has been conducted by the Assessing Officer.” 8. From the above, it is apparent that when the AO has taken an opinion on a debatable issue, with which the Ld. PCIT does not agree, the same would not lead to exercise of power u/s. 263 of the Act by the Ld. PCIT. More so when AO has duly enquired the issue, which is abundantly clear in this case. Hence, the proposition in the present case is duly covered by the aforesaid decision of the Hon’ble Jurisdictional High Court decision, hence, we set aside the order of the Ld. PCIT passed u/s. 263 of the Act and accordingly, decide the issue in dispute in favour of the assessee. 9. In the result, the appeal of the assessee is allowed. Order pronounced on 21.05.2025. Sd/- (VIMAL KUMAR) Sd/- (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER SRBHATNAGAR Copy forwarded to:- 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT Assistant Registrar, ITAT, Delhi "