AVINASH S SADAMATE ACIT CIRCLE 3 3 1, MUMBAI V. RUCHI RENEWABLE ENERGY PVT LTD, MUMBAI

ITA 620/MUM/2025

AI Insights

The case involves an appeal by the revenue against the order of the CIT(A) which had deleted an addition of Rs. 16,13,49,825 made to the income of Ruchi Renewable Energy Pvt. Ltd. The addition was initially made by the assessing officer under section 56(2)(viib) of the Income Tax Act, which pertains to the taxation of share premium received by a company. The assessing officer had rejected the valuation report based on the Discounted Cash Flow (DCF) method used by the assessee for determining the share premium, citing that the projections were unrealistic and not based on intrinsic value. However, the CIT(A) reversed this decision, noting that the assessee's parent company is a public limited company and thus the rigorous provisions of section 56(2)(viib) do not apply. The Tribunal upheld the CIT(A)'s decision, referencing a similar case, Apollo Sugar Clinics Ltd. vs DCIT, where it was established that such provisions do not apply to companies in which public are substantially interested.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717059 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Appeal Filed On: 28-01-2025
• Other Referred Cases: Apollo Sugar Clinics Ltd. vs DCIT (2019) 105 taxmann.com 254 (Hyderabad \\u2013 Trib.)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UMA SHANKAR PRASAD
• Assessee Lawyers: BHUPENDRA SHAH
• Keywords: Valuation report; Earning of tax free income; Wholly owned subsidiary
• Section: 56(2); 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER& MS. PADMAVATHY S., ACCOUNTANT MEMBER ITA No. 620/MUM/2025 (AY: 2016-17) (Physical hearing) ACIT Circle – 3(3)(1), Mumbai Room No. 522, AayakarBhavan, M K Road, Churchgate, Mumbai-400020. Vs Ruchi Renewable Energy Pvt. Ltd.706, Tulsiani Chambers, Free Press Journal Road, Nariman Point, Mumbai – 400021. [PAN: AAECR1591A] Appellant / Revenue Respondent / Assessee Assessee by Shri Bhupendra Shah, CA Revenue by Shri Umashankar Prasad, CIT - DR Date of hearing 07.07.2025 Date of pronouncement 18.08.2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by revenue is directed against the order of Ld. CIT(A)/NFAC dated 04.12.2024 for assessment year (AY) 2016-17. The revenue has raised following grounds of appeal: “i. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has rightly allowed the ground of appeal in relation to the addition of Rs. 16,13,49,825/- by not considering the fact that the valuation report following DCF method is based on far-fetched projection?\" ii. \"Whether on the facts and in the circumstances of the case and in law the Ld. IT(A) has erred in deleting the addition of Rs.16,13,49,825/-, entirely ignoring the fact that there is a huge variation in the profit after tax calculation as per Valuation report and Audited Financial Statements and how these unrealistic projections, can be relied upon.\" iii. \"Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs.16,13,49,825/- disregarding the facts how the inflated profit after tax was projected in the valuation report even though there is no any hidden assets in the form of patents, copy rights, intellectual property rights or even investment and even after having negative reserves as per balance sheet as at 31.03.2015. Printed from counselvise.com ITA No. 620/Mum/2025 Ruchi Renewable Energy Pvt. Ltd. 2 iv. \"The appellant craves leave to add, amend and/or vary grounds of appeal before or during the course of hearing.\" 2. Rival submissions of both the parties have been heard and record perused. The learned Commissioner of Income Tax - Departmental Representative (ld. CIT-DR) submits that during the relevant financial year, the assessee allotted 92,19,990 shares of face value of Rs. 10/-each at a premium of Rs. 17.50 per share to Ruchi Infrastructure Limited. The assessee valued the share as per Discounted Cash Flow (DCF) method. The assessing officer while passing the assessment order extensively examined the valuation report and in para 5.11 has given his detailed finding on the issue. The assessing officer held that the company has shown loss in the year under consideration. There is no capability and no intrinsic value to give price to the premium in the industrial norm and actual work of the assessee company. There is no goodwill any other intangible hidden asset with the assessee-company. The assessing officer added the entire premium to the income of assessee under section 56(2)(viib) of the Act. The ld. CIT(A) has not examined the Discounted Cash Flow Method and simply deleted the addition by holding that investor company is wholly owned subsidiary of Ruchi Infrastructure Ltd., a public limited company with Bombay Stock Exchange (BSC) and National Stock Exchange (NSC) and deleted the entire addition. 3. On the other hand, the learned Authorised Representative (ld. AR) of the assessee submits that assessee is a wholly owned subsidiary of Ruchi Infrastructure Limited. The assessee allotted share to its parent company. The assessing officer during the assessment invoked the provisions of section Printed from counselvise.com ITA No. 620/Mum/2025 Ruchi Renewable Energy Pvt. Ltd. 3 56(2)(viib) by holding that share premium received by assessee while allotting share to the investor company is unjustified and needs to be taxed as income under section 56(2)(viib). Though, the assessee valued the share as per DCF Method. The investor company being a public limited company, therefore, rigorous of section 56(2)(viib) is not applicable on the transaction of assessee with its parent company. The ld. AR of the assessee submits that facts of the present case is clearly covered by the decision of Hyderabad Tribunal in Apollo Sugar Clinics Ltd. vs DCIT (2019) 105 taxmann.com 254 (Hyderabad – Trib.). The investor company is a public limited company in which public are substantially interested within the meaning of section 2(18)(b)(B)(c) of the Act. 4. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on case law relied by ld. AR of the assessee. We find that during the assessment, the assessing officer noted that assessee-company was incorporated on 02.08.2008. The assessee-company issued 92,19,990 equity share to Ruchi Infrastructure Ltd. The share of assessee is having face value of Rs. 10/- per share on which a premium of Rs. 17.50 per share was received. Thus, the assessee received total premium of Rs. 16,13,49,825/-. The assessing officer recorded the date of allotment, number of shares, face value of shares and premium charged on different dates as recorded in para 5.2 of assessment order. The assessing officer also recorded that assessee relied on the valuation report for charging premium by following DCF method. The assessing officer called the financial statement of assessee for Printed from counselvise.com ITA No. 620/Mum/2025 Ruchi Renewable Energy Pvt. Ltd. 4 assessment year under consideration and the previous year. The assessing officer also issued notice on applicability of provisions of section 56(2)(viib). In response to such show cause notice, the assessee filed detailed explanation vide reply dated 01.11.2018. The contents of such reply are restricted at page no. 3 & 4 of assessment order. The assessing officer by referring the report share valuation disregarded valuation as recorded in para 5.11 of assessment order and held that the receipt of premium of share has no justification and is not sustainable in law. The assessing officer brought the share premium of Rs. 16,13,49,825/- to tax under section 56(2)(viib). The assessing officer has not doubted the receipt against the face value of share of Rs. 9219990 (9.21 crore). Aggrieved by the additions, the assessee filed appeal before the ld. CIT(A). Before ld. CIT(A), the assessee filed a valid detailed written submission. The submission of assessee are recorded at page no. 32 to 53. The assessee objected against the addition. The assessee in their submission specifically contended that assessing officer ignored the important factor that provisions of section 56(2)(viib) are not at all applicable to the assessee-company because it is wholly owned subsidiary of a listed company i.e. Ruchi Infrastructure Ltd., a company in which public are substantially interested. The investor company qualifies to be company in which public are substantially interested. The addition made by ld. Assessing Officer is without any basis and totally arbitrary. The assessee also referred the definition of public company under section 2(18)(b)(B)(c) r.w.s. 2(71) of Companies Act, 2013 are also covered subsidiary of listed company. The assessee stated that assessing officer overlooked the fact that assessment is Printed from counselvise.com ITA No. 620/Mum/2025 Ruchi Renewable Energy Pvt. Ltd. 5 entirely baseless as section 56(2)(viib) does not apply to a public company at all. The assessee also relied on certain case law. 5. We find that ld. CIT(A) in his short order held that investor company / Ruchi Infrastructure Ltd. is a public limited company. The investor company is listed in Bombay Stock Exchange and National Stock Exchange. The finding of assessing officer in not accepting valuation method under DCF is incorrect and deleted the addition. We find that there is no dispute that investor which is the parent company of assessee is a public limited company within the meaning of section 2(18)(b)(B)(c) and thus, the rigorous of section 56(2)(viib) is not applicable in case of assessee. The similar view was taken by co-ordinate bench of Hyderabad Tribunal in Apollo Sugar Clinics Ltd. vs DCIT relevant part of aforesaid decision is extracted below: “9. As regards ground nos. 3 to 8 regarding addition of receipt in the nature of share premium, the ld. AR submitted that the year under consideration is the first year of operation and assessee-company is the second level subsidiary of M/s. Apollo Hospitals Enterprises Ltd., (AHEL). At the time of issue of shares, assessee-company was a 99.99% subsidiary of M/s. Apollo Health and Life Style Ltd., (AHLL) which is subsidiary of AHEL. Since AHEL is a public limited company and by virtue of Section 2(18)(vii) of the Act, the assessee-company also a company in which public are substantially interested. Hence, the provisions of Section 56(2)(viib) will not attract. This fact was also acknowledged by the Assessing Officer in his order. However, the Assessing Officer invoked provisions of Section 56(1) to bring this transaction as income from other sources. He has not considered the fact that this transaction is capital investment and not an income within the meaning of Section 14 of the Act. For this proposition, he relied on the following case law: 1. Vodafone India Services (P) Ltd. v. Union of India [2015] 228 Taxman 25/[2014] 50 taxmann.com 300/368 ITR 1 (Bombay) 2. CIT v. D.P. Sandu Bros. Chembur (P) Ltd. [2005] 142 Taxman 713/273 ITR 1 (SC) 3. CIT v. Allahabad Bank Ltd. [1969] 73 ITR 745 (SC) 4. Nalinikant Ambalal Mody v. S.A.L. Narayan Row CIT, [1966] 61 ITR 428 (SC). Printed from counselvise.com ITA No. 620/Mum/2025 Ruchi Renewable Energy Pvt. Ltd. 6 9.1 With regard to Section 14A disallowance, he submitted that assessee has not claimed any exempt income. Therefore, the provisions of Section 14A will not apply. 10. Ld. DR relied on the orders of Revenue authorities. 11. Considered the rival submissions and material on record. We noticed that assessee-company is step-down subsidiary of Apollo Hospitals Enterprises Ltd., The AHEL is a listed company in Stock Exchange in India with the Securities Contracts (Regulations) Act, 1956. Therefore, this company falls under the category of the company in which public are substantially interested. The subsidiary companies viz. AHLL and assessee-company come under the definition of Section 2(18)(b)(B) of the Act, as per which public are substantially interested. This fact was also acknowledged by the Assessing Officer in his order at Pg. 6. para 3.2 as it was agreed that the assessee's case does not fall u/s. 56(2)(viib). In order to invoke the provisions of Section 56(2)(viib), the assessee-company should be a company in which public are not substantially interested. 11.1 The Assessing Officer instead of invoking Section 56(2)(viib), he went ahead by disallowing the excess of the premium received by assessee by invoking the provisions of Section 56(1) of the Act. In order to invoke Section 56(1), the income earned by the assessee should be classified as revenue income as per Section 14 but should not fall within any of the head of income A,C,D or E. Since section 56(1) is residuary head of income, it falls in the head of income 'F' i.e. \"income from other sources\". This head of income consists of two parts i.e. section 56(1) and section 56(2). The first part i.e. sub-section (1) deals with income of every kind, which does not fall in any of the head of income A - E and also which is not to be excluded from the total income under this Act. The important thing is, it should fall within the definition of income u/s 2(24) of the Act. At the same time, sub-section (2) of section 56, deals with specific income which is not income as per section 2(24) but specifically brought under the definition of income by the Legislature. Therefore, the income which cannot be brought to tax under section 56(2) specific head, AO cannot bring to tax even u/s 56(1). As held in the case of S. G. Mercantile Corporation v. CIT [1972] 83 ITR 700 (SC), \"where there is a specific head for the income in question and specific section providing for the head, this residuary section cannot be called in aid\". Similarly, when there is specific provision introduced by the Legislature to bring the specific transaction as income in section 56(2)(viib) because the transaction of issue of shares is capital in nature but under the circumstances as mentioned in above section, this transaction will be considered as income. 11.2 In the given case, the fact is clear that assessee has received share premium and Assessing Officer has mandate to invoke only Section 56(2)(viib) and no other section. This transaction will never fall in any of the heads of income as per Section 14 of the Act. Therefore, in our considered view, Printed from counselvise.com ITA No. 620/Mum/2025 Ruchi Renewable Energy Pvt. Ltd. 7 Assessing Officer is not correct in bringing this capital investment as income of the assessee after satisfying himself that assessee's case does not fall u/s. 56(2)(viib) of the Act. Therefore, the addition made by Assessing Officer is deleted.” 6. Thus, considering the aforesaid factual legal position, we do not find any infirmity of illegality in the order of ld. CIT(A) which we confirm. No contrary facts or law is brought to our notice to take our view. Hence, the grounds of appeal of revenue are dismissed. 7. In the result, the appeal of revenue is dismissed. Order was pronounced in the open Court on 18/08/2025. Sd/- PADMAVATHY S. ACCOUNTANT MEMBER Sd/- PAWAN SINGH JUDICIAL MEMBER MUMBAI, Dated 18/08/2025 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai Printed from counselvise.com "