Facts of the Case

The present appeal pertains to Assessment Year 2014–15, wherein the assessee, Trojan Developers Pvt. Ltd., filed its return declaring income of ₹11,43,240. The case was selected for limited scrutiny, and assessment under Section 143(3) was completed accepting the returned income.

Subsequently, the Principal Commissioner of Income Tax (PCIT) invoked revisionary jurisdiction under Section 263 of the Income Tax Act, 1961, alleging that the Assessing Officer (AO) failed to examine the issue of shares issued at a high premium.

The assessee had issued 28,729 shares at a premium of ₹1,236 per share to two companies—Experience Financial Consultants Pvt. Ltd. and Sankalp Advisory Services Pvt. Ltd.

The PCIT held that valuation under Section 56(2)(viib) read with Rule 11UA was not properly examined and treated ₹3.42 crore as income from other sources.

Issues Involved

  1. Whether the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue under Section 263?
  2. Whether the AO failed to conduct proper inquiry regarding share premium under Section 56(2)(viib)?
  3. Whether revision under Section 263 is valid where inquiry was conducted but considered inadequate by PCIT?

Petitioner’s Arguments (Revenue)

  • The AO failed to conduct a proper and detailed inquiry regarding the justification of high share premium.
  • The valuation of shares was not examined in accordance with Rule 11UA.
  • The order passed by AO was therefore erroneous and prejudicial to revenue, justifying revision under Section 263.

Respondent’s Arguments (Assessee)

  • The AO had conducted detailed inquiries during assessment proceedings.
  • Multiple notices were issued seeking:
    • Share allotment details
    • Valuation working
    • Bank statements
    • Identity and confirmation of investors
  • The premium was justified based on valuation of immovable property located at Prithviraj Road, New Delhi, valued at ₹17.5 crore by a registered valuer.
  • Therefore, this was not a case of lack of inquiry, and Section 263 could not be invoked 

Court’s Findings / Order

  • The AO had conducted adequate and proper inquiry into share premium.
  • Detailed notices and responses clearly established that the issue was examined.
  • This was not a case of “no inquiry”, but at best a case of alleged inadequate inquiry.
  • Section 263 can be invoked only when the order is both erroneous and prejudicial, which was not satisfied.

The Court held that the PCIT wrongly exercised revisionary jurisdiction under Section 263.

 No substantial question of law arose; hence, the appeal of the Revenue was dismissed.

Important Clarification

  • Distinction reaffirmed:
    • Lack of inquiry → Section 263 applicable
    • Adequate inquiry but different opinion → Section 263 NOT applicable
  • Once AO applies mind and conducts inquiry, PCIT cannot revise merely due to disagreement.

Sections Involved

  • Section 143(3) – Assessment
  • Section 263 – Revision of Orders Prejudicial to Revenue
  • Section 56(2)(viib) – Taxation of Share Premium
  • Rule 11UA – Valuation Rules

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/60811122023ITA7392023_173656.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.