Principal Commissioner Of Income Tax 1 v. L. K. Synthetics Pvt. Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 528 of 2022 ==========================================================PRINCIPAL COMMISSIONER OF INCOME TAX 1 VersusL. K. SYNTHETICS PVT. LTD. ========================================================== Appearance: MRS KALPANAK RAVAL(1046) for the Appellant(s) No. 1 for the Opponent(s) No. 1========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAandHONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 12/09/2022 ORAL ORDER (PER : HONOURABLE MR. JUSTICE N.V.ANJARIA) Heard learned advocate Mr. Nikunt K. Raval withlearned advocate Mrs. Kalpana K. Raval for theappellant. 2.The present tax appeal preferred by the Revenueunder section 260A of the Income Tax Act, 1961, ariseout of order dated 29.11.2021 of the Income TaxAppellate Tribunal, Surat, in Income Tax Appeal No.159 of 2020 in respect of Assessment Year 2015-16. 3.The facts are that the assessment under section143(3) of the Income Tax Act, 1961 (hereinafterreferred to as 'the Act') was completed against theassessee company on 31.12.2017. Total income wasdetermined to be Rs. 13,23,850/-. The Revenue thereafter raised audit objection that the assesseehad purchased share of M/s. Suruchi Processors Pvt.Ltd. at less than fair market value and thedifferential amount was required to be added in totalincome of the assessee under section 56(viia) of theAct. 3.1 Another objection was also raised regardingpurchase of shares from Kreatifs Merchant Pvt. Ltd.which was a company struck off from the Registrar ofCompanies and the Assessing Officer was to verify thefair market value of the shares of the said companyin relation to the order under consideration. 3.2 The aforesaid audit objections were accepted.As a remedial action, order under section 263 of theAct came to be passed on 23.03.2020 by the competentincome tax authority. In the said proceedings, orderpassed under section 143(3) dated 31.12.2017 for theAssessment Year 2015-16 came to be set aside andfresh exercise to frame assessment was directed. 3.3 The aggrieved assessee preferred appeal beforethe Income Tax Appellate Tribunal. By order dated29.11.2021, the Tribunal allowed the appeal andquashed the order passed by the Income Tax Authorityunder section 263 of the Act. It is against thisorder that the present appeal came to be filed. 4.Following questions are proposed by appellantclaiming to be arisen as substantial questions of law, (i) Whether on the facts and circumstances ofthe case and in law, the Ld. Tribunal wasjustified in holding that the assessment orderof the AO was neither erroneous nor prejudicialto the interest of the revenue even though theAO erred in not making addition of Rs.10,15,663/- in respect of purchase of shares ofM/s.Suruchi Processors Pvt. Ltd. at a price lessthan its fair market value? (ii) Whether on the facts and circumstances ofthe case and in law, the Ld. Tribunal wasjustified in holding that the assessment orderof the AO was neither erroneous nor prejudicialto the interest of revenue even though the AOerred in not evaluating the fair market value ofthe share of Kreatifs Merchants Pvt. Ltd. (KMPL)at the time of investment in F.Y.2014-15 andascertain the applicability of provisions ofsection 56(viia) of the Act despite the factthat KMPL was struck off from ROC records. (iii) Whether on the facts and circumstances ofthe case and in law, the Ld. Tribunal wasjustified in quashing the order passed u/s 263even though the AO had passed the assessmentorder without making inquiries or verificationwhich were warranted in the facts of this caseand, therefore, the Ld. Pr. Commissioner wasright in holding that such assessment waserroneous and prejudicial to the interest of theRevenue. (iii) Whether on the facts and circumstances ofthe case and in law, the Ld. Tribunal wasjustified in quashing the order passed u/s 263even though the AO had passed the assessmentorder without making inquiries or verificationwhich were warranted in the facts of this caseand, therefore, the Ld. Pr. Commissioner wasright in holding that such assessment waserroneous and prejudicial to the interest of theRevenue. iv) Whether on the facts and circumstances ofthe case and in law, the Ld. Tribunal wasjustified in holding that Explanation-2 (a) &(b) to section 263 was wrongly invoked by theld. PCIT even though he had independently dealtwith the objections and recorded his ownsatisfaction to prove that the order of AO is in fact erroneous and prejudicial to the interestof the Revenue? 4.1 It was submitted on behalf of the appellant thatthe Assessing Officer was required to ensure properapplication of provisions of Section 56 of the Actand the valuation of the share was required to bedone and that the Principal Commissioner of IncomeTax was justified in invoking the powers undersection 263 of the Act. It was submitted that theAssessing Officer had failed to conduct the inquiryin respect of making investment in shares in the saidCompany by the assessee. It was submitted that theTribunal ought to have held that clause (a) and (b)of Explanation 2 of section 263 was applicable. 5.This Court has considered the facts, orderpassed by Principal Commissioner of Income Tax undersection 263 of the Act as well as the order of theIncome Tax Appellate Tribunal and the reasoningsupplied by the Tribunal. It was observed againstthe assessee that it made investment in the shares ofM/s. Suruchi Processors Pvt. Ltd. by purchasing 75000shares in the year under consideration at the rate ofRs.13/- per share for total consideration ofRs.97,50,000/-. 5.1 As per the case of the authorities, for the yearended on 31.03.2014, the fair market value of theshares could be said to be Rs.14.35/- per share.Therefore, as per the view of the Principal Commissioner of Income Tax, the purchase price of theshares was required to be added in the total incomeof the assessee. In the same way, it was furtherobserved that the assessee had purchased 46000 sharesof Kreatifs Merchants Pvt. Ltd. at Rs.13/- per sharefor total consideration of Rs. 59,80,000/-. The nameof the said company was struck off from the Registrarof Companies, stated the Principal Commissioner ofIncome Tax. It was reasoned that the said KreatifsMerchants Pvt. Ltd. would have increased itsauthorised/issued share capital and therefore, theAssessing officer was expected to verify the fairmarket value to ascertain applicability of provisionsof section 56(viia) of the Act. 5.2 It could be noticed that during the assessmentstage, the Assessing Officer had issued notice undersection 142(1) of the Act and in response to the saidnotice, the assessee had submitted necessary detailsand evidence in the nature of books of accountsbefore the Assessing Officer. On the basis of suchrelevant documents, Assessing Officer had madeadequate inquiries and the assessment was framed.When the details were submitted along with documents,the Tribunal relied on the said aspect and findingsrecorded by the Principal Commissioner of Income Taxin his order under Section 263 of the Act. 5.3 The reply submitted by the asessee in the courseof the assessment proceedings was before the Tribunal in form of paper book as recorded in paragraph 12 ofthe order. The details contained bank statement,books details of sale, details of investment alongwith the source of such investment. The assessee hadalso filed return of income along with computation oftotal income by submitting balance sheet, profit andloss account and complete audited financialstatement. On examination of all those details anddocuments, a view was taken by the Tribunal thatthere was nothing which could be said to beprejudicial to the interest of the Revenue to justifythe invocation of powers under section 263 of theAct. 5.3 The reply submitted by the asessee in the courseof the assessment proceedings was before the Tribunal in form of paper book as recorded in paragraph 12 ofthe order. The details contained bank statement,books details of sale, details of investment alongwith the source of such investment. The assessee hadalso filed return of income along with computation oftotal income by submitting balance sheet, profit andloss account and complete audited financialstatement. On examination of all those details anddocuments, a view was taken by the Tribunal thatthere was nothing which could be said to beprejudicial to the interest of the Revenue to justifythe invocation of powers under section 263 of theAct. 5.4 The Tribunal was of the view that the AssessingOfficer acted on the basis of the information andinquiry and verified the fair market value of theshares, observing in paragraph 15 as under, "The ld. PCIT observed that assessee had alsopurchased 46000 shares of Kreatifs MerchantsPvt.Ltd.@ Rs.13/- per share for consideration ofRs. 59,80,000/-. On persual of MCA database, itis seen that the said company has been struckoff from Registrar of Companies (ROC) records.Learned cousnel submits before us that at thetime of purchasing shares, the company wasactive on MCA website. The assessing officerhas verified the fair market value of the sharesof Kreatifs Merchants Pvt. Ltd )KMPL) andallowed the claim of the assessee." 5.5 It was a bare observation that though thematerial was before the Assessing Officer, theAssessing Officer did not make proper inquiries, "Besides the above, as rightly pointed out bythe Learned Counsel for the assessee, that PCIThas not set out as to why Fair market value ofshares need to be investigated, how to computefair market value and as to what type of inquiryought to have conducted by the AssessingOfficer. We note that assessee has submittedduring the assessment stage each and everydocumentincluding books of accounts andevidences, as required by the assessing officer.A mere observation that no proper details havebeen obtained, cannot be sufficient to come to aconclusion that the AO did not make proper andadequate inquiries which he ought to have madein the given facts and circumstances of thiscase. In the conclusion we are of the view thatnone of the reasons set out by the PCIT forinvoking the jurisdiction u/s 263 of the Act aresustainable. The impugned order of the PCIT hasto be quashed for the reason that order of theAO sought to be revised in the impugned orderwas neither erroneous nor prejudicial to theinterest of the revenue for the reason of anylack of inquiry that the AO ought to have madein the given facts and circumstances of thecase. We accordingly quash the order u/s 263 ofthe Act and allow the appeal of the assessee." 6.This Court is in complete agreement with the aforesaid order of the Appellate Tribunal and the reasoning supplied by the Tribunal. They areeminently just and proper and has reference to thefacts and material before the Tribunal. 6.1 No question of law much less any of the substantial questions of law proposed, could be saidto be arisen. No other substantial question of lawarise. 7.Appeal is meritless and dismissed. (N.V.ANJARIA, J) BIJOY B. PILLAI (BHARGAV D. KARIA, J)