PCIT has no Jurisdiction When AO Enquired Issuance of High Premium Shares: Delhi HC Uphold order of ITAT [Read Order]

The Delhi High Court upheld the order of the Income Tax Appellate Tribunal (ITAT) and held that the Principal Commissioner of Income Tax (PCIT) has no jurisdiction when the Assessing Officer (AO) enquired issuance of high premium shares.

The respondent/assessee, Trojan Developers Pvt Ltd had filed its Return of Income [“ROI”] for the AY in issue i.e., AY 2014-15 on 20.09.2014. Via the said ROI the respondent assessee declared its income as Rs. 11,43,240/-. The respondent/assessee’s case was picked up for limited scrutiny and a notice under Section 143(2) of the Act was issued.

After scrutiny was carried out, limited to the issues raised by the AO, the assessment order dated 29.12.2016 was passed, whereby the income declared by the respondent/assessee in its return, as indicated above, was accepted.  After nearly two years and three months, the respondent/assessee‟s return was questioned by the Principal Commissioner of Income Tax [“PCIT”]. Accordingly, a show-cause notice under Section 263(1) of the Income Tax Act, 1961 was served on the respondent/assessee. 

The PCIT was of the view that the AO had failed to enquire about the issuance of shares at a very high premium to a closely held company and valuation, as required under Section 56(2) (viib) of the Act, had not been carried out. 

The respondent/assessee had issued 28,729 shares to two closely held companies i.e., namely Experience Financial Consultants Pvt. Ltd. [“Experience”] and Sankalp Advisory Services Pvt. Ltd. [ “Sankalp”].

PCIT viewed that the shareholding of Experience and Sankalp had changed. According to the PCIT, the equity stake in Experience and Sankalp was held by two shareholders, each holding 50% of the equity shares. 

It was found that in light of the explanation given by the respondent/assessee that the high premium was paid by Experience and Sankalp, having regard to the underlying asset that the respondent/assessee had, which was the immovable property located at Prithviraj Road, the property was pegged at Rs. 17.5 Crores. A division bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia observed that an enquiry was, indeed, made by the AO with regard to the subject shares being issued at a high premium. This was not a case of no enquiry. The Court held that PCIT had committed an error in exercising the powers under Section 263 of the Act. 

To Read the full text of the Order CLICK HERE

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