The Indore Bench of the Income Tax Appellate Tribunal ( ITAT ) held that Section 56(2)(viib) of the Income Tax Act does not apply to consideration received from Non Residents on account of issuance of shares.
The appeal was filed by M/s Ruchi J Oil Pvt.Ltd. challenging the jurisdiction assumed by PCIT u/s 263 of the Income Tax Act mainly on the ground that the provisions of Section 56(2)(viib) of the Income Tax Act are not applicable to the Non residents. The facts of the case are that the Appellant had issued equity shares to the resident and non resident companies at Rs.2061.35 per share and Rs.2840.68 per share respectively. PCIT by way of the impugned order has referred to the above transactions and observed that as the value of each share computed by DCF method is Rs. 2061.35 and excess premium of Rs. 779.33 per has been charged to Non Resident companies, Assessing Officer ought to have added the same to the income of appellant under sec. 56(2)(viib) of the Income Tax Act. Further, since the Assessing Officer had failed to do so, the Order of the Assessing Officer was set aside holding it to be erroneous and prejudicial to the interest of revenue.
The appellant contended that shares were issued at a premium to non-resident companies hence additional premium received was not covered within the scope of Section 56(2)(viib) of the Income Tax Act. Upholding the said contention, the Tribunal held that the wordings of Section 56(2)(viib) of the Income Tax Act is very clear and it applies only to residents. Hence, order of PCIT “is factually incorrect and is not sustainable in law since the provisions of Section 56(2)(viib) of the Act are not applicable to the consideration received from Non Residents for issuing of shares.” Accordingly, the Order passed by PCIT under Sec.263 of Income Tax Act was quashed.
Further, citing decisions laid in CIT v. Nirav Modi [2017] 390 ITR 292 (Born), CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Born) and Micro Inks Ltd. v. Pr. CIT [2018] 407 ITR 681 (Guj), the Tribunal held that where assessment under section 143(3) of the Income Tax Act was framed after detailed enquiries, it cannot be considered as erroneous and prejudicial to the interests of the Revenue. The Tribunal also held that “if the Ld. A.O has made enquiry to his satisfaction and it is not a case of no enquiry then Ld. PCIT cannot assume the jurisdiction u/s 263 of the Act to again investigate or approach in a particular manner”
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