Income Tax Appellate Tribunal - Chandigarh
Apna Punjab Resorts Limited, Ludhiana vs Pr.Cit-1, Ludhiana on 24 February, 2023
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ, च डीगढ़ I N T H E I NC O M E T A X A P PE L LA TE T R I B U N AL D I VI SI O N BE NC H , ' A ' , C H A ND I G A R H BEFORE SHRI A.D. JAIN, VICE PRESIDENT & SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 1 1 1 / CH D/ 2 0 2 1 नधारण वष / Assessment Year : 2 0 1 6 - 1 7 Apna Punjab Resorts Limited, Vs. Pr. Commissioner of Canal Road, Shaheed Sukhdev बनाम Income Tax, Nagar, Ludhiana-1 Ludhiana 1410127 थायी लेखा सं./PAN NO: AAECA3001C अपीलाथ /Appellant यथ /Respondent Hearing through video Conferencing नधा रती क ओर से/Assessee by : Sh. Parikshit Aggarwal, CA राज व क ओर से/ Revenue by : Sh. Vivek Nangia, CIT DR सुनवाई क तार#ख/Date of Hearing : 10.01.2023 उदघोषणा क तार#ख/Date of Pronouncement : 24.02. 2023 आदे श/Order Per A.D. Jain, Vice President:
This is Assessee's appeal for assessment year 2016-17 against the PCIT's order dated 29.03.2021, passed u/s 263 of the Income Tax Act, 1961 (hereinafter called 'the Act').
2. The following Grounds have been raised:-
1. On the facts and circumstances of the case and in law, the learned Principal Commissioner of Income Tax, Ludhiana-1 (PCIT) has erred in assuming 2 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana jurisdiction by issuing a notice u/s 263 of the Income Tax Act, 1961 (Act), giving an incorrect finding, failing to show as to how the assessment order passed by the Assessing Officer (AO) under section 143(3) of the Act dated 21.12.2018 was erroneous in so far as it was prejudicial to the interest of Revenue.
2. On the facts and circumstances of the case and in law, the learned PCIT has erred in assuming jurisdiction by issuing a notice u/s 263 of the Income Tax Act, 1961 (Act), substituting his own valuation of share premium u/r 11U and 11UA of the Income Tax Rules, 1962, never confronted to the appellant, to allege that the aforesaid assessment order was erroneous in so far as it was prejudicial to the interest of Revenue.
3. The learned PCIT has erred in law and on facts in issuing notice and passing the order u/s 263 of the Act on the issue of valuation of share premium received when the AO had already raised specific queries in the questionnaires, considered and verified the detailed replies including the share valuation report prepared by an expert u/r 11U and 11UA of the Income Tax Rules, 1962 filed during the course of assessment proceedings before passing the assessment order u/s 143 (3) of the Act de hors the allegations in the order u/s 263 that the AO accepted the claim without making proper and in depth enquiries.
4. The learned PCIT has erred in law and on facts in assuming jurisdiction u/s 263 of the Act on the specious ground of 'no enquiry or verification' in terms of Explanation2to section 263, holding that 'the AO has failed to examine and verify the issue relating to share premium received and interest 3 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana earned', directing the AO to make further enquiries namely (i) valuation of share premium received and
(ii) interest earned during the course of construction period, in utter disregard to the fact that in the course of assessment proceedings u/s 143(3), the AO had already made necessary enquiries on the above issues and after due verification, he had taken a conscious decision in accordance with the provisions of the Act.
5. The learned PCIT has erred in failing to consider that a notice udder section 139(9) of the Act dated 19.09.2017 was issued to the assessee pointing out that credit of tax deducted at source under rule 37B read with section 199 of the Act could not be given as corresponding income/receipt has been omitted to be offered but then such receipt of interest income was allowed to be set off against cost of capitalization after due application of mind and the due refund had been issued.
6. Your appellant craves liberty to add, alter, amend, substitute or withdraw any of the ground of appeal hereinabove contained.
3. The facts, as per the Order under appeal are as follows.
4. As per the ld. PCIT, on examination of the assessment record, it was seen that the assessment completed u/s 143(3) of the I.T. Act, vide order dated 21.12.2018, for A.Y. 2016-17, had been made without making proper and in-depth enquires. The PCIT issued a Show Cause Notice [(Assessee' Paper Book (APB)-2] dated 17.03.2021 to the assessee, as under:-
4ITA No. 111/Chd/2021 -
Apna Punjab Resorts Limited, Ludhiana "4. Examination of assessment records revealed that the company had issued 1,25,380 shares for Rs. 1,087/-
per share i.e., at a premium of Rs. 987/- per share during the F.Y. 2015-16, relevant to 2016-17. As per rule 11U and 11UA, fair market value was computed at Rs. 450/- per share. Therefore, the AO has failed to assess the share premium received over and above of Rs. 450/- by applying provision of section 56(2)(viib) of I.T. Act, 1961.
5. From the assessment record, it is also noticed that you have earned interest income of Rs. 9,48,784/- and claimed TDS but no interest income has been offered for taxation while filing return of income. The AO has also not made any verification in this regard and amount of Rs. 9,48,784/- remained unassessed".
5. The Assessee filed reply (APB-3) dated 23.03.2021. It was stated therein, that as per valuer's Valuation Report, as already filed before the AO, market value per share had been arrived at at Rs. 1,087/-; and that interest had been earned on fixed deposits made for the purpose of obtaining bank guarantee against the EPCG licences availed by the assessee, since the Assessee's hotel was under construction during the Financial Year 2015-16, and the same had been set-off against the total cost of capitalization. 5 ITA No. 111/Chd/2021 -
Apna Punjab Resorts Limited, Ludhiana
6. However, rejecting the Assessee's reply as not tenable, the ld. PCIT held that the AO had failed to examine and verify the issues related to share premium received and interest earned, which issues had remained unaddressed. It was held that the Assessment Order was a cryptic and routine Order, erroneous and prejudicial to the interest of the Revenue, within the meaning of explanation 2 to section 263 of the I.T. Act. The Assessment Order was set aside, with a direction to the AO to pass a fresh Assessment Order keeping in mind the observations made by the ld. PCIT.
7. Aggrieved, the Assessee is in appeal before us.
8. Challenging the impugned Order, the ld. Counsel for the Assessee has contended that the ld. PCIT has erred in holding that the AO had failed to examine the issues of share premium received and interest earned; that while doing so, the ld. PCIT did not take into consideration the fact that in the assessment proceedings, the AO had raised specific queries through questionnaires issued and the Assessee had furnished detailed replies thereto; that the ld. PCIT has erroneously substituted his own version of valuation of share premium under rules 11U and 11UA of the I.T. Rules, without even confronting it to the Assessee, over the Share Valuation Report (APB 69-74) of an expert, prepared under rules 11U and 6 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana 11UA of the IT. Rules, as filed by the Assessee before the AO in the assessment order proceedings, and correctly accepted by the AO; that apropos the other issue of interest earned, the ld. PCIT failed to consider that though initially, a notice to treat the return as defective had been issued to the Assessee on 19.09.2017, under section 139(9) of the I.T. Act, stating that credit of Tax Deducted at Source under rule 37BA of the I.T. Rules read with section 199 of the I.T. Act could not be given, as though credit for TDS had been claimed, the corresponding income / receipt had been omitted to be offered to tax, later on, the return was treated as a valid return and was processed under section 143(1) of the Act, at the returned income, and the interest income was allowed to be set off against the cost of capitalization, and refund had been issued; that looked at from any angle, the Order under appeal is not sustainable in law; and that thus, the impugned Order be cancelled, on allowing the Appeal filed by the Assessee. We have been taken, as will be discussed presently, through the Paper Book, to support the assertion that full enquiry was conducted by the AO.
9. On the other hand, the ld. DR has placed strong reliance on the impugned order. It has been contended that as correctly held by the ld. PCIT, the AO had failed to examine and verify the issues 7 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana relating to share premium received and interest earned, and the AO's order was a cr yptic order which was erroneous as well as prejudicial to the interests of the Revenue, within the meaning of section 263 read with its explanation.
10. We have heard the parties and have perused the material on record. The two issues before us are:
1) Whether, as contended by the Assessee, the ld. PCIT has erred in holding that the AO has failed to assess the share premium received by the Assessee, over and above Rs. 450/-, by failing to make examination in this regard,
2) Whether, as per the Assessee, the ld. PCIT has also gone wrong in holding that the AO has failed to enquire into the matter that the Assessee had earned interest income of Rs. 9,48,784/- and had claimed TDS, but no interest income had been offered for taxation, thereby leaving the amount of Rs. 9,48,784/- unassessed.
11. Apropos the matter of share premium, it is seen that Notice dated 13.07.2018 (APB 29-30) was issued by the AO to the Assessee, under section 143(2) of the I.T. Act, informing, inter alia, that the Assessee's Return of Income for assessment year 2016-17 had been selected for scrutiny under CASS; that an opportunity was being given to the Assessee, to produce any evidence /information 8 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana felt necessary in support of the said Return of Income; and that specific Questionnaires / requisition of information or documents would be sent subsequently, if required.
12. Notice, also dated 13.07.2018, along with Questionnaire (APB 31-34) was issued to the Assessee, under section 142(1) of the Act, inter alia, requiring the Assessee (a) to furnish the accounts and documents specified in the Questionnaire, and (b) to furnish the information called for as per the Questionnaire and on the points and matters as specified therein. In the Questionnaire, vide Para No.2 (APB 32), the Assessee was required to furnish the following information in respect of additions in share capital, share application money and share premium:
"(a) amount and date of receiving share capital.
(b) Mode of transaction (cash / cheque / DD).
(c) Confirmation from the share-holders / subscribers.
(d) Copy of Income Tax Return with computation chart, balance sheet and its enclosures of the shareholders / subscribers including details regarding the A.O. having jurisdiction over him.
(e) Relevant bank statement of the share-holders / subscribers.
(f) Details / evidence regarding the identity and creditworthiness of the share-holders / subscribers and the genuineness of the transactions."9 ITA No. 111/Chd/2021 -
Apna Punjab Resorts Limited, Ludhiana
13. Vide Para No.9 (APB 34), the Assessee was asked to produce complete books of account.
14. Notice dated 11.09.2018 along with Questionnaire (APB 35-
38) was issued to the Assessee under section 142(1) of the Act, inter alia, again asking the Assessee to furnish the accounts and documents specified in the Questionnaire, and (b) to furnish the information called for as per the Questionnaire and on the points and matters as specified therein. In the Questionnaire, vide Para No.2 (APB 36), the Assessee was required to furnish information, as called for in the Questionnaire sent along with the Notice issued under section 142(1) of the Act, on 13.07.2018, as discussed in the preceding paragraph, and to produce complete books of account.
15. The assessee filed repl y dated 29.10.2018 (APB 39) and, along therewith, statement of account of the share-holder / subscriber, M/s Unique Mercantile India Pvt. Ltd., Share Application Money and Reserves and Surplus in the books of the Assessee for the year under consideration (APB 40-45), copy of Balance Sheet (and its annexures) of M/s Unique Mercantile India Pvt. Ltd. for the year (APB 46-64) and Valuation Report dated 11.09.2014 (APB 68-74), of the Chartered Accountant for the 10 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana purpose of valuation of equity shares under section 56 of the I.T. Act read with rules 11U and 11UA of the Income Tax Rules.
16. Again, Notice dated 22.11.2018 (APB 65) was issued to the Assessee under section 142(1) of the Act, along with Questionnaire (APB 66). As per the Questionnaire, the Assessee was asked to file the complete evidence and credit worthiness of the persons who had purchased the shares of the company during the year.
17. The Assessee filed Replies dated 11.12.2018 (APB 76-77) and 13.12.2018 (APB 78-79) before the AO. In the Repl y dated 11.12.2018, the Assessee furnished the details of the share application money and the shares allotted, alongwith bank statements. In the Reply dated 13.12.2018, it was stated that the details of complete address, ID proof and copy of Income Tax Returns along with Computation Chart had already been submitted vide Reply dated 11.12.2018.
18. Before us, the Assessee has filed certified copies of the aforesaid Notices and Replies, alongwith the attachments appended thereto, obtained from the A.O., on file inspection by filing ASK Application dated 12.9.2022. These copies have been filed before us by way of a Synopsis, at pages 1A to 84 thereof. At page 1A of 11 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana the Synopsis is the AO's letter dated 13.09.2022, providing these certified copies to the Assessee.
19. The AO, though he made no discussion on the issue in the assessment order, accepted the valuation of shares as done by the Assessee, and he did not make any addition.
20. In the opinion of the PCIT, though the Assessee had stated that the fair market value of each share had been arrived at at Rs. 1,087/-, as per the Valuation Report of the Valuer, this stand of the Assessee was not acceptable, as the fair market value, computed in accordance with rules I1U and 11UA of the I.T. Rules, was Rs. 450/- per share; that the AO failed to assess the share premium received by the Assessee over and above the fair market value of Rs. 450/- per share, by applying the provisions of section 56(2) (viib) of the I.T. Act; and that therefore, the issue remained unaddressed.
21. Let us see, if the conclusion arrived at by the ld. PCIT is in accordance with law. For this, it has to be ascertained as to whether the valuation got done by the Assessee as per the Valuation Report dated 11.09.2014 (APB 68-74) filed before the Assessing Officer, is 12 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana correct as per law, or the valuation arrived at by the PCIT is the correct valuation.
22. The stand taken by the Assessee is that the fair market value of Rs. 450/- per share was arrived at by the ld. PCIT by following the 'Book Value', or the Net Asset Value (NAV) Method for valuing shares as per the Balance Sheet of the immediately preceding year, whereas the valuer of the Assessee had followed the 'Discounted Free Cash Flow' or 'DCF' method for valuation of the shares; that this method is permitted by section 56(2)(viib) of the Act read with rule 11UA of the Rules; and that for this reason, the 'Book Value' or the Net Asset Value (NAV) Method of valuation cannot be preferred over and above the 'DCF' Method.
23. The relevant provisions first.
24. Section 56(2) of the I.T. Act prescribes incomes which are not to be excluded from the total income under the Act and shall be chargeable to income tax under the head 'Income from Other Sources'.
Clause (viib) of section 56(2) prescribes one such income, as follows;
'56(2). In particular, and without prejudice to the generality of the provisions of sub-section (1), the following 13 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana incomes shall be chargeable to income-tax under the head "Income from other Sources" namely:-
(i) to (viia).......
(viib) where a company, not being a company in which the public are substantially interested, receives, in the previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares...'
25. Thus, as per section 56(2)(viib), the aggregate consideration received in excess of the fair market value of the shares to be issued, where the consideration received exceeds the face value of such shares, is to be charged to tax as income from other sources.
26. 'Fair market value' of the shares, for the purposes of section 56(2)(viib), is defined by Explanation (a) to the section, as the higher of the value as may be determined in accordance with the method prescribed by rules 11U and 11UA of the I.T. Rules, or the value as ma y be substantiated by the company to the satisfaction of the Assessing Officer, based on the value of its tangible and intangible assets as on the date of issue of shares.
27. For ready reference, explanation (a) to section 56(2)(viib) is reproduced hereunder:
14ITA No. 111/Chd/2021 -
Apna Punjab Resorts Limited, Ludhiana 'Section 56(2)(viib)...
Explanation - For the purposes of this clause, -
(a) the fair market value of the shares shall be the value -
(i) as may be determined in accordance with such method as may be prescribed; or
(ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher;'
28. Rule 11U of the I.T. Rules, 1962 gives the meaning of expressions used in determination of fair market value of property other than immovable property for arriving at the income to the treated as income from other sources under section 56(2)(viib) of the I.T.Act. The portion thereof which is relevant for our present purposes is reproduced as under;
'11U For the purpose of this rule and rule 11UA, -
(a) ....
(b) "balance sheet", in relation to any company, means, -
(c) (i) for the purpose of sub-rule (2) of rule 11UA, the balance sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which was been audited by the auditor of the company appointed under section 224 of the Companies Act, 1956 (1 of 1956) and where the balance sheet on the valuation date is not drawn up, the balance sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been 15 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana approved and adopted in the annual general meeting of the shareholder of the company.....
(ii) ....
(c) to (i)
(j) "valuation date" means the date on which the property or consideration, as the case may be is received by the assessee.'
29. The fair market value, for the purposes of section 56 of the I.T. Act, of property, other than immovable property, in the nature of unquoted equity shares, is to be determined in the manner provided in rule 11UA(1)(c)(b), as follows:
'11UA (1) For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely -
(a)....
(b)....
(c) valuation of shares and securities, -
(a) ......
(b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner, namely:-- the fair market value of unquoted equity shares =(A+B+C+D - L)× (PV)/(PE), where, A= book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) in the balance- sheet as reduced by,--
(i) any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any; and
(ii) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset;
B = the price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer;
16ITA No. 111/Chd/2021 -
Apna Punjab Resorts Limited, Ludhiana C = fair market value of shares and securities as determined in the manner provided in this rule;
D = the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property;
L= book value of liabilities shown in the balance sheet, but not including the following amounts, namely:--
(i) the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;
(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(iv) any amount representing provision for taxation, other than amount of income-tax paid, if any, less the amount of income-tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;
(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;
PV= the paid up value of such equity shares;
PE = total amount of paid up equity share capital as shown in the balance-sheet;
30. However, overriding the provisions of rule 11UA(1)(c )(b) of the Rules, rule 11UA(2) provides for the fair market value of unquoted equity shares to be determined in the manner laid down in clause (a) or clause (b) of the rule, i.e., by following either the 17 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana Book Value (NAV) Method, or the Discounted Free Cash Flow Method, at the option of the assessee. Rule 11UA(2) reads thus:
(2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely:--
(a) the fair market value of unquoted equity shares = (A-L) / (PE) X (PV) where, A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset;
L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:--
(i) the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;
(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;
(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;18 ITA No. 111/Chd/2021 -
Apna Punjab Resorts Limited, Ludhiana PE = total amount of paid up equity share capital as shown in the balance-sheet;
PV = the paid up value of such equity shares; or
(b) the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method.
31. It is evident from the fact that the ld. PCIT did not raise any challenge in this regard, that sub-clause (ii) of clause (a) of the Explanation to section 56(2)(viib) is not applicable to the case of the Assessee, and the Assessee was not required to satisfy the Assessing Officer about the valuation done. The fair market value of the shares was, therefore, essentially to be as per sub-clause(i) of clause (a) of the Explanation to section 56(2)(viib), i.e., the value to be determined in accordance with the method prescribed by rule 11UA(2) of the Income Tax Rules,1962.
32. On a query as to how, in the absence of anything evincible on the record in this regard, the Assessee maintains that the ld. PCIT has computed the fair market value of the shares, in accordance with the NAV / Book Value Method of valuation at Rs. 450/- per share, our attention has been drawn to the Assessee's Balance Sheet as on 31.3.2016 (APB 11-18), from which, it is seen that as on 31.3.2015, the Assessee had share capital of Rs. 96,004,600/- and its total reserves and surpluses were at Rs. 3,35,605,909/-, 19 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana giving a total amount of Rs. 431,610,509/-. There was 900046 fully paid shares. It was from this that the fair market value was arrived at by the ld. PCIT at Rs. 450/-. That this is as per the NAV Method, in accordance with rule 11UA(2)(a), is clear, and not disputed. Thus, though it is not so stated, either in the Show Cause Notice dated 17.2.2021 (APB- 1-2), issued u/s 263 of the Act, or in the Order under appeal, it is evident and not disputed that the ld. PCIT employed the Book Value or NAV Method, as per rule 11UA(2)(a) of the Rules, for determining the fair market value of the unquoted equit y shares issued by the Assessee, in violation of the option provided by rule 11UA (2), as noted hereinabove.
33. The assessee, on the other hand, exercised the option made available by rule 11UA(2), and arrived at the market value of its unquoted shares on the basis of the Discounted Free Cash Flow Method, or the DCF Method, as provided in rule 11UA(2(b). In the Reply dated 23.3.2021 (APB-3) to the Show Cause Notice issued by the PCIT under section 263 of the Act, the Assessee stated that (para 1 of the Reply):
"As per rules 11 and 11UA, a valuation report was obtained from a Chartered Accountant for the purpose of valuation of equity shares. The valuation report was already provided to the Assessing Officer for the purpose 20 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana of assessment. As per the valuation report the fair market value of shares was arrived at at Rs. 1,087. The valuation report has been attached herewith for your reference."
34. In the order under appeal, the ld. PCIT has observed that the Assessee had stated in its Reply that the valuation report had already been supplied to the A.O. and the fair market value of each share was arrived at at Rs. 1,087/- as per the Valuation Report of the valuer; that this stand of the Assessee was not acceptable; that the fair market value of the shares, as per rules 11U and 11UA of the Rules, had been computed at Rs. 450/- per share; and that the share premium received by the Assessee in excess of the rate of Rs. 450/- per share had remained from being assessed at the hands of the Assessing Officer. The ld. PCIT, however, did not venture to elaborate as to how the determination of the fair market value of the shares, as arrived at at Rs. 1,087/- per share by the Assessee, on the basis of the DCF Method and certified by the Assessee's Chartered Accountants, was not acceptable, remaining oblivious to the statutory mandatory option made available to the Assessee by the provisions of rule 11UA(2) of the Rules, laying down that the fair market value of unquoted shares shall be, as provided in the said rule, the value as determined either under clause (a), or clause (b) of the rule, that is, by invoking the Book Value (NAV) Method, or 21 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana the Discounted Free Cash Flow (or DCF) Method, at the option of the Assessee.
35. That the above position is the correct position of law has been recognized in various decisions. Some such decisions are being discussed infra.
36. In 'Vodafone M-Pesa Ltd. Vs. PCIT', (2018) 101 CCH 230 (Bom.), demand was raised by the AO on account of fair market value of the shares which had been issued at a premium. The AO had, for the purposes of determining the fair market value of the shares, substituted the DCF Method by the Book Value / NAV Method. In its application for sta y filed before the Commissioner, the Assessee contended that this was contrary to rule 11UA of the I.T. Rules, as the rule provided an option to the Assessee to arrive at a fair market value of the shares, either as prescribed in rule 11UA(2)(a) of the Rules, i.e., the NAV Method, or in terms of rule 11(2)(b) of the Rules, i.e., the DCF Method. In exercise of this option, the Assessee had provided a valuation report based on adoption of the DCF Method. The AO, without any justification, as done by the ld. PCIT in the case at hand, gave a complete go-by to the DCF Method and adopted the NAV Method to determine the market value of the shares. The Hon'ble High Court observed that 22 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana in the impugned order the Commissioner, however, did not deal with this primary grievance of the Assessee, even though he conceded that the method of valuation, namely, either the NAV method, or the DCF Method, to determine the fair market value of shares, has to be adopted at the Assessee's option; that nevertheless, the Commissioner had not dealt with the change in the method of valuation by the Assessing Officer, which change had resulted in the demand; that it was not open to the Assessing Officer to change the method of valuation which had been opted for by the Assessee; that in fact, the Assessing Officer had completely disregarded the DCF Method for arriving at the fair market value; and that therefore, the demand needed to be stayed. 37.1 In 'Rameshwaram Strong Glass (P.) Ltd. Vs. ITO', [2018] 96 taxmann.com 542 (Jaipur-Trib.), the Assessee company issued 1,40,000/- shares having face value of Rs. 10 each, at a premium of Rs. 60 per share. The Assessee had determined the fair market value of the shares on the basis of the DCF Method, in accordance with rule 11UA(2)(b) of the Rules read with section 56(2)(viib) of the Act. The Assessing Officer rejected such market valuation and determined the fair market value of the shares on the basis of the NAV Method. The AO found that the calculation of the share 23 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana premium was not in accordance with rule 11UA of the Rules, and after referring to Rule 11UA (2)(b), the fair market value of the shares was computed on the basis of Book Value. The Assessing Officer held that the fair market value of the unquoted shares of the Assessee came to Rs. 32.76 only, and the Assessee was entitled to charge premium of Rs. 2.27 lakhs [ Rs. 32.76 (-) Rs. 10.00 = Rs. 22.76 x 10,000 shares], against which, the Assessee had charged premium of Rs. 84 lakhs; and that thus, the excess premium of Rs. 81.72 lakhs received by the Assessee was not justified and not in accordance with the amended provisions of section 56(2)(viib). The ld. CIT(A) partly confirmed the addition by rejecting the valuation done as per the DCF method.
37.2 The Tribunal observed that there was no dispute between the parties that rule 11UA(1) was not applicable to the facts and circumstances of the case; that rule 11UA(1) is a provision of general nature, whereas rule 11UA(2) is a specific rule providing for the valuation of unquoted shares; that the matter of valuation of unquoted equit y shares has been left, by rule 11UA(2), completel y to the discretion of the Assessee and it is his option whether to choose the NAV Method (Book Value) under clause (a), or the DCF Method under clause (b), and the Assessing Officer cannot adopt a 24 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana method of his own choice; that the Authorities cannot compel the Assessee to choose the NAV Method only, as against the DCF Method; and that when the legislation has conferred an option on the Assessee to choose a particular method, the valuation of shares has to be in accordance with such method only.
37.3 The Tribunal further observed that the Assessee-company had exercised the option to value the shares by the DCF Method; that however, the AO had worked out the value based on the NAV method; that though in the body of the assessment order, he had referred to rule 11UA(2)(b), in substance, he had valued the shares based on the book value figures only, by considering the value of the assets shown in the Balance Sheet.
37.4 The Tribunal further observed that though the Commissioner (Appeals) too had considered the case in the context of rule 11UA(2)(b), his action of asking for a valuation report only on actual figures was nothing other than asking for a valuation done on the basis of the Net Asset Value Method; that from the facts, it was clear that the taxing Authorities wanted to impose on the Assessee, the method of valuation of their own choice, completely disregarding the legislative intent which has given the Assessee an option to choose any one of the two methods of valuation; that when 25 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana the law has specifically provided different methods of valuation and the Assessee exercised an option by choosing a particular method, changing that method would go beyond the powers of the Revenue Authorities; that permitting the Revenue Authorities to do so would render clause (b) of rule 11UA(2) nugatory and purposeless; and that thus, to this extent, the action of the taxing Authorities was not justified. It was held that the Assessee had all the right to choose a method, which could not be changed by the Assessing Officer. 37.5 It was further observed by the Tribunal that coming to the aspect whether the Assessee had complied with the conditions laid down under rule 11UA(2)(b), it was clear that to comply with this rule, the Assessee was required to obtain a certificate of a Merchant Banker or a Chartered Accountant and to base the valuation on the DCF Method only; and that to exercise the option under this clause, the Assessee was not to be subjected to the fulfillment of any other condition, except these two, which the Assessee had done.
37.6 The Tribunal next observed that CBDT Instruction (File No. 173/14/2018-ITA.I) dated 6.2.2018, given in the case of startup companies, is useful in the context of determination of fair market value of unquoted equity shares under section 56(2)(viib) read with 26 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana rule 11UA(2), which Instruction states that though startup companies invariably submit valuation reports in accordance with rule 11UA(2)(b), in the assessments, such reports are not being accepted and are being rejected / modified by the Assessing Officers, considering the same as based on abnormal valuations, which results in additions; and that the CBDT has, accordingl y, directed not to take coercive measures in such cases for recovery of demand resulting in additions, and the Commissioners (Appeals) have been directed to dispose such appeals expeditiously. 37.7 It was also observed by the Tribunal that it appeared that the taxing Authorities had ignored Explanation (a) below section 56(2)(viib); that the said Explanation provides that the fair market value of the shares shall be the value - (i) as may be determined in accordance with such method as may be prescribed, i.e., under rule 11UA, or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, trademarks, liences, franchises or any other business or commercial rights of similar nature, whichever is higher; and that it is only the Explanation (a)(ii), which speaks of the satisfaction of the Assessing Officer, but there 27 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana appears no such condition in the Explanation (a)(i) and, therefore, the Assessing Officer is not permitted to interfere in the valuation done in accordance with the method prescribed in rule 11UA(2). 36.8 The Tribunal concluded that thus, there was no justification behind rejecting the declared value of the shares and in the addition made by the Assessing Officer but partly sustained by the Commissioner (Appeals). The addition was deleted. 38 In 'Cinestaan Entertainment (P) Ltd. Vs. Income Tax Officer, Ward-6(2), New Delhi', [2019] 177 ITD 809 (Delhi), it was held that the Assessee has an option to do valuation of shares and determine fair market value either on the DCF Method, or the NAV Method; that the Assessing Officer cannot examine or substitute his own value in place of the value determined; that the Income Tax Department cannot sit in the armchair of the businessman to decide what is profitable and how business should be carried out; that commercial expediency has to be seen from the point of view of the businessman; that strategic investments and risks are undertaken for appreciation of capital and larger returns, and not simply dividend and interest; that any businessman or entrepreneur visualises the business based on certain future projections and undertakes all kinds of risks; that it is the risk factor alone, which gives a higher 28 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana return to a businessman, and the Income Tax Department or Revenue official cannot guide a businessman as to in which manner risk has to be undertaken; that such an approach of the Revenue has been judicially frowned upon by the Apex Curt on several occasions; that the Income Tax Rules provide for two valuation methodologies; that one is the assets based NAV Method, which is based on actual numbers as per the latest audited financials of the Assessee Company, whereas in the other method, that is, the DCF Method, the value is based on estimated future projection; that if the investment has been made keeping in mind the Assessee's own business objective, then such commercial wisdom cannot be questioned; that even the prescribed rule 11UA(2) does not give an y power to the Assessing Officer to examine or substitute his own value in place of the value determined, nor does it require any satisfaction on the part of the Assessing Officer to tinker with such valuation; that section 56(viib) of the Income Tax Act is a deeming provision and one cannot expand the meaning or scope of any word while interpreting such a deeming provision; that if the statute provides that the valuation has to be done as per the prescribed method, and one of the prescribed methods has been adopted by the Assessee, then the Assessing Officer has to accept the same and even in case he is not satisfied, he cannot do otherwise, as there is 29 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana no express provision under the Act or the Rules, whereunder the Assessing Officer can adopt his own valuation, or get it done by some different valuer ; that there has to be some enabling provision under the Rules or the Act, giving power to the Assessing Officer to tinker with the valuation report obtained from an independent valuer, as per the qualification given in rule 11U; that such a provision is absent; and that in any case, if the law provides for the Assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected, because neither the Assessing Officer, nor the Assessee have been recognized as experts under the law.
39.1 In 'Principal Commissioner of Income Tax Vs. Cinestaan Entertainment Pvt. Ltd.', (2021) 433 ITR 82 (Del), it was contended on behalf of the Assessee-Respondent before the Hon'ble High Court, inter alia, that section 56(2)(viib) of the Act is not applicable to genuine business transactions; that the genuineness and creditworthiness of the strategic investors was not doubted by either the AO, or the CIT(A); that sub-clause (ii) of clause (a) of the Explanation to section 56(2)(viib) was not applicable to the case of the Respondent-Assessee and the Assessee was not required to satisfy the Assessing Officer about the valuation done; and that in 30 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana accordance with sub-clause (i) of clause (a) of the Explanation to section 56(2) (viib), the Respondent-Assessee had an option to carry out a valuation and determine the fair market value of the shares onl y on the Discounted Cash Flow Method (the DCF Method), which was appropriately followed by the Respondent-Assessee. 39.2 Dismissing the appeal filed by the Department, the Hon'ble High Court observed, inter alia, that the shares were issued based on the valuation report received from the prescribed expert, i.e., a Chartered Accountant, who used the DCF Method, which is one of the methods stipulated under section 56(2)(viib) read with rule 11UA(2)(b); that based on the valuation report of the Chartered Accountant, the Assessee issued shares to various equity partners at a premium; that the test laid down by the Courts for interfering with the findings of a valuer was not satisfied in that case, as the Respondent-Assessee had adopted a recognised method of valuation and the Appellant-Revenue had been unable to show that the Assessee had adopted a demonstrably wrong approach, or that the method of valuation was made on a wholly erroneous basis, or that it had committed a mistake going to the root of the valuation process; that the Tribunal had followed the dicta laid down by the Hon'ble Supreme Court in matters relating to the commercial 31 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana prudence of an assessee relating to valuation of an asset; that the law required determination of fair market value as per prescribed methodology; that the Appellant-Revenue had the option to conduct its own valuation and to determine the fair market value on the basis of either the DCF Method, or the NAV Method; that the Respondent-Assessee, being a start-up company, had adopted the DCF Method to value its shares; that this had been carried out on the basis of information and material available on the date of valuation and projection of future revenue; and that there was no dispute that the method adopted by the Assessee had been done applying a recognised and accepted method.
40. In 'DCIM Vs. Ozoneland Agro Pvt. Ltd.' vide order dated 2.5.2018, passed for assessment year 2013-14, in ITA No. 4854/Mum/2016, the Mumbai Tribunal held that section 56 allows the Assessees to adopt one of the methods of their choice; that however, the Assessing Officer held that the Assessee should have adopted only one method for determining the value of the shares; that it was beyond the jurisdiction of the Assessing Officer to insist upon a particular system, especially when the Act allows to choose one of the two methods; that unless and until the legislature amends the provisions of the Act and prescribes only one method 32 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana for valuation of the shares, the Assessees are free to adopt any one of the methods; and that the Assessing Officer had 'tampered with' the provisions of the Act.
41. In 'Karmic Labs Pvt. Ltd. Vs. ITO', order dated 28.7.2020, passed for assessment year 2014-15, in ITA No. 3955/Mum/2018, 'DCIT Vs. M/s Ozoneland Agro Pvt. Ltd.,'(supra) and 'Vodafone M-Pesa Ltd. Vs. PCIT' (supra) were followed.
42. In 'Dada Ganpati Guar Products Pvt. Ltd. Vs. Principal Commissioner of Income Tax', (2021) 92 ITR (Trib) 408 (Chandigarh), the Chandigarh Tribunal has followed 'Vodafone M- Pesa Ltd. Vs. Principal Commissioner of Income Tax'(supra), 'Principal Commissioner of Income Tax xVs. Cinestaan Entertainment Pvt. Ltd.' (supra), 'Rameshwaram Strong Glass (P.) Ltd. Vs. Income Tax Officer, Ward-2(1), Ajmer' (supra), and 'Cinestaan Entertainment (P.) Ltd Vs. Income Tax Officer, Ward- 6(2), New Delhi' (supra).
43. In 'Nirbhai Textiles Pvt. Ltd. Vs. The ACIT, Circle-2 Ludhiana', order dated 22.8.2022, for A.Y. 2014-15, in ITA No. 1401/Chd/2018, the Chandigarh Tribunal has followed 'Principal Commissioner of Income Tax Vs. Cinestaan Entertainment Pvt. 33 ITA No. 111/Chd/2021 -
Apna Punjab Resorts Limited, Ludhiana Ltd.'(supra), 'Vodafone M-Pesa Ltd. Vs. Principal Commissioner of Income Tax' (supra) and 'Dada Ganpati Guar Products Pvt. Ltd Vs. Principal Commissioner of Income Tax'(supra).
44. No decision contrary to the afore-discussed caselaws has been cited before use.
45. In view of the above discussion, we are of the considered opinion that:
(a) The Assessee followed the DCF Method for valuing the shares, whereas the ld. PCIT utilised the NAV Method to do so.
(b) This action of the ld. PCIT is in direct contravention of the provisions of Explanation (a)
(i) to section 56(2)(vii) of the I.T. Act read with rule 11UA(2) (b) of the I.T.Rules.
(c) The AO could not have changed the method of valuation opted by the Assessee, in view of the statutory mandate of rule 11UA(2) of the Rules.
(d) The above is in keeping with the caselaws
discussed hereinabove.
(d) Therefore, there was no error in the Assessing Officer's Order dated 21.12.2018, calling for revision under section 263 of the I.T. Act.
34ITA No. 111/Chd/2021 -
Apna Punjab Resorts Limited, Ludhiana
46. Accordingly, the grievance of the Assessee by way of Ground Nos. 1 to 4 is found to be justified and is accepted. The impugned order is reversed qua this issue and the assessment order is revived.
47. Now, we come to the other issue, i.e, whether or not the AO inquired into the interest income earned by the Assessee, amounting to Rs. 9,48,784/- on which, TDS was claimed, whereas as per the ld. PCIT, no interest income was offered to tax by the Assessee. In the Show Cause Notice issued u/s 263 of the Act (APB 1-2), the ld. PCIT in para 5, stated that;
"5. From the assessment record, it is also noted that you have earned interest income of Rs. 9,46,784/- and claimed TDS but no interest income has been offered for taxation while filing return of income. The AO has also not made any verification in this regard and amount of Rs. 9,48,784/- remained un-assessed."
48. In response, the Assessee, vide its reply dated 23.03.2021 (APB -3), stated as under:-
"2. Interest income is earned on fixed deposits made for the purpose of obtaining bank guarantee against the EPCG Licenses availed by the company. EPCG licenses were obtained while importing Machinery for the hotel. The hotel was under construction during the financial year 2015-16 and hence the interest income earned during the year was set off against the total cost 35 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana of capitalization as it is incidental to acquisition of assets."
49. The ld. PCIT, however, held that the AO had failed to examine and verify the issue relating to the interest earned and had, thereby, rendered the assessment order erroneous and prejudicial to the interests of the Revenue on this issue also.
50. It is seen that the Assessee had filed before the ld. PCIT, a copy of notice dated 19.7.2017 (APB 19 to 20), issued u/s 139(9) of the I.T. Act and order dated 24.10.2016 (APB 21 to 28) issued u/s 143(1) of the I.T. Act.
51. The stand of the Assessee is that it received interest income on fixed deposits, required to be made for the purposes of obtaining bank guarantee against the EPCG licenses availed while importing machinery for the hotel being constructed. Tax deduction on the interest income was claimed in the return, but no corresponding income was shown, as the interest income had been set off against the total cost of capitalization during the construction period. The aforesaid notice u/s 139(9) of the Act was issued to the Assessee to treat the return as a defective return, stating that as per Rule 37BA of the Income Tax Rules, 1962 read with section 199 of the Income Tax Act, 1961, credit of tax deducted at source shall be given in the 36 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana assessment year for which such income is assessable; that as available from the return of income filed, credit of TDS had been claimed, but the corresponding receipt / income had been omitted from being offered for taxation; and that the said omission was a defect as per clause (a) to the Explanation to section 139(9) of the Act. However, later on, vide the aforesaid order dated 24.10.2016, issued u/s 143(1) of the Act, the return filed was treated as valid and was processed at the returned income. The ld. PCIT, though, failed to take note of both, the notice issued under section 139(9) of the Act and the order later passed u/s 143(1), processing the return filed at the income returned.
52. The interest on the deposits for obtaining bank guarantee, which bank guarantee had been given for import of machinery for a hotel under construction, had been reduced by the Assessee from the cost of the asset under construction. This is entirely in keeping with the view in 'CIT vs. Bokaro Steel Ltd.', (1999) 236 ITR 315 (SC) and 'Commissioner of Income Tax vs. Karnal Co-operative Sugar Mills Ltd.', (2000) 243 ITR 2 (SC).
53. In 'Bokaro Steel' (supra), the Assessee company had received rent, plant and machinery hire charges and interest on sums advanced to contractors.
37ITA No. 111/Chd/2021 -
Apna Punjab Resorts Limited, Ludhiana
54. The rent received was charged by the Assessee to its contractors for housing workers and staff employed by the contractor for the assessee's construction work, including certain amenities granted by the Assessee to the staff.
55. The hire charges were for plant and machinery given by the Assessee to its contractors for use in its construction work.
56. The interest received was from advances made by the Assessee to its contractors for facilitating its work of construction.
57. The Hon'ble Supreme Court held that the Assessee's activities in connection with all these three receipts were directly connected with or were incidental to the Assessee's work of construction of its steel plant, when the company had not started any business and production had not commenced. It was held that the Assessee's arrangements with its contractors, concerning these three receipts, were intrinsically connected with the construction of the Assessee's steel plant. It was held that the utilisation of various assets of the Assessee company and the payment received for such utilisation were directly linked with the activity of setting up of the Assessee's steel plant. It was held that these receipts were 38 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana inextricably linked with the setting up of the capital structure of the assessee company; and that therefore, they must be viewed as capital receipts going to reduce the cost of construction. It was held that in keeping with 'Challapalli Sugars Ltd. vs. CIT', (1975) 98 ITR 167 (SC), the accepted accountancy rule for determining cost of fixed assets is to include all the expenditure necessary to bring such assets into existence and to put them in working condition. It was held that in case money is borrowed by a newl y started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed mone y can be capitalized and added to the cost of fixed assets created as a result of such expenditure. It was held that by the same reasoning, if the Assessee receives an y amounts which are inextricably linked with the process of setting up its plant and machinery, such receipts will go to reduce the cost of its assets. It was held that these are receipts of a capital nature and cannot be taxed as income.
58. 'Bokara Steel' (supra) was applied by the Supreme Court in 'Commissioner of Income Tax Vs. Karnal Co-operative Sugar Mills Ltd.', (2000) 243 ITR 2 (SC), to hold that where the Assessee had deposited money to open a letter of credit for the purchase of 39 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana machinery required for setting up its plant in terms of the Assessee's agreement with its supplier, and interest had been earned on the money so deposited, it was not a case where an y surplus share capital mone y, which was lying idle, had been deposited in the bank for the purpose of earning interest; and that the deposit of money was directly linked with the purchase of plant and machiner y. It was held that hence, any income earned on such deposit is incidental to the acquisition of assets for the setting up of the plant and machinery.
59. In the present case, the Assessee's hotel was under
construction. Machinery was imported by the Assessee for the purpose of such construction. While so importing machinery, Export Promotion Capital Goods (EPCG) licenses, whereunder, capital goods including spares for pre-production are allowed, at zero customs duty, were availed. Fixed deposits were required to be made for the purposes of obtaining bank guarantee against the EPCG licenses. It was on these fixed deposits, that the interest in question was received by the Assessee. Now, this trail of events clearly shows that this receipt, like the ones in 'Bokaro Steel' (supra), was connected directly with the work of construction of the Assessee's hotel. Had the fixed deposits not been made, the 40 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana Assessee would not have been able to obtain bank guarantee against the EPCG licenses availed while importing machinery for its hotel, which was under construction. The fixed deposits, as such, were made to facilitate the construction of the Assessee's hotel, i.e., its fixed asset. The Assessee's arrangement with regard to the interest received on the fixed deposits was an arrangement intrinsically connected with the construction of the Assessee's hotel. The Assessee adjusted the interest received, reducing it from the cost of construction of its hotel. The interest was set off against the total cost of capitalization during the construction period. The interest receipt, therefore, went to reduce the cost of construction.
60. The fixed deposits and the interest received by the Assessee thereon were directly linked with the activity of setting up the hotel of the Assessee. The interest is linked inextricably with the process of setting up of the capital structure of the Assessee-company. It must, hence, in respectful conformity with 'Bokaro Steel' (supra), be viewed as a capital receipt going to reduce the cost of construction.
61. Then, as in 'Karnal Co-operative' (supra), the money had to be deposited in order to obtain bank guarantee against the EPCG 41 ITA No. 111/Chd/2021 - Apna Punjab Resorts Limited, Ludhiana licenses availed by the Assessee while importing machinery for the purpose of construction to its hotel. It was, likewise, not a case of deposit of any surplus share capital mone y lying idle with the Assessee, for earning interest. Rather, again likewise, the deposit was connected directly with the setting up of the Assessee's plant and machinery, i.e., its hotel, and so, the interest received on such deposit was incidental to acquisition of assets for the setting up of plant and machinery.
62. Evidently, therefore, the view taken by the AO was a possible view and the order passed by the AO in this regard was not erroneous, much less prejudicial to the interests of the Revenue. This, though, the ld. PCIT failed to take into consideration while passing the impugned order.
63. Accordingly, on this issue also, the order of the ld. PCIT is reversed and the assessment order is revived.
64. To conclude, qua both the issues, the order of the ld. PCIT is set aside and reversed and the assessment order is revived. The grievance of the Assessee relating to both the issues is found justified and is accepted.
42ITA No. 111/Chd/2021 -
Apna Punjab Resorts Limited, Ludhiana
65. In the result, the appeal is allowed.
Order pronounced on 24.02.2023.
Sd/- Sd/-
(VIKRAM SINGH YADAV) ( A.D. JAIN )
Accountant Member Vice President
Dated : 24.02.2023
"आर.के."
आदे श क त*ल+प अ,े+षत / Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आय1
ु त/ CIT
4. आयकर आय1
ु त (अपील)/ The CIT(A)
5. +वभागीय त न6ध, आयकर अपील#य आ6धकरण, च8डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायक पंजीकार/ Assistant Registrar