SAFE DECORE PVT. LTD., ALWAR V. ASSISTNAT COMMISSIONER OF INCOME TAX, ALWAR

CO 36/JPR/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3477 (ITAT-JAIPUR)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 13-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEENA JAIF JCIT DHK
• Assessee Lawyers: DEVENDRA KUMAR
• Keywords: Double taxation relief; Fair market value
• Section: 194C

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH HKKXPAN] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA-@ ITA NO. 716/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2014-15 THE ACIT, CIRCLE -2, ALWAR. CUKE VS. M/S SAFE DECORE PVT. LTD. SP-812, E-6, PHASE- III, INDUSTRIAL AREA, BHIWADI, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAFCS 0374 R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ C.O. NO. 36/JP/2017 ARISING OUT OF ITA NO. 716/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2014-15. M/S SAFE DECORE PVT. LTD. SP-812, E-6, PHASE- III, INDUSTRIAL AREA, BHIWADI, ALWAR. CUKE VS. THE ACIT, CIRCLE -2, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCR 2774 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI DEVENDRA KUMAR & DINESH KUMAR (ADV.) JKTLO DH VKSJ LS@ REVENUE BY : SMT. NEENA JAIF (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 03/01/2018 MN?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 12/01/2018 VKNS'K@ ORDER PER: VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE AND CROSS-OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-22, ALWAR DATED 14.07.2017 PERTAINING TO THE ASSESSMENT YEAR 2014-15. 2. FIRST, WE TAKE UP REVENUES APPEAL WHEREIN THE R EVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 2 ITA & CO NO. 716 & 36/JP/2017. M/S SAFE DECORE PVT. LTD., ALWAR. GROUND OF APPEAL APPEAL IS FILED ON THE FOLLOWING GROUNDS AGAINST TH E ORDER OF LD. CIT(A), ALWAR IN APPEAL NO. 258/2016-17 DATED 05-06 -2017 IN THE CASE OF M/S SAFE DECORE (P) LTD., SP-812, E-6, PHASE-III , INDUSTRIAL AREA, BHIWADI, DISTT. ALWAR (PAN: AAFCS0374R) FOR THE A.Y . 2014-15:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 66 ,55,000/- U/S 56(2)(VII)(B) R.W. RULE 11UA OF THE IT RULE MADE BY THE AO WITHOUT APPRECIATING THE MATERIAL FACTS OF THE CASE . 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF THE PA YMENT OF HANDLING CHARGES/COMMISSION OF RS. 3,94,044/- MADE KBY THE AO ON ACCOUNT OF VIOLATION OF THE PROVISIONS OF SEC TION 194C R.W.S. 40(A)(IA) OF THE IT ACT 1961. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR AL TER THE GROUNDS OF APPEAL ON OR BEFORE THE DATE THE APPEAL IS FINALLY HEARD FOR DISPOSAL. 3. GROUND NO. 1 IS REGARDING THE DELETION OF ADDITION MADE BY THE AO U/S 56(2)(VII)(B) OF THE INCOME TAX ACT READ WITH RULE 11UA OF THE IT RULE, IN RESPECT OF THE EQUITY SHARES ISSUED BY THE ASSESSEE COMPANY. 3.1 THE AO NOTED THAT DURING THE YEAR UNDER CONSIDE RATION THE ASSESSEE COMPANY HAS ALLOTTED SHARES AND THERE IS INCREASE I N THE PAID UP CAPITAL AMOUNTING TO RS. 50,00,000/-. FURTHER, RS. 1,50,00 ,000/- WAS SHARE PREMIUM ON THESE SHARES. THE AO ASKED TO ASSESSEE TO FURNI SH THE NAME AND 3 ITA & CO NO. 716 & 36/JP/2017. M/S SAFE DECORE PVT. LTD., ALWAR. COMPLETE DETAILS OF THE INVESTORS AND CONFIRMATION WITH COPY OF ITR, COPY OF BANK STATEMENT ETC. FOR VERIFICATION OF IDENTITY, C REDITWORTHINESS AND GENUINENESS OF TRANSACTION. IN REPLY, THE ASSESSEE SUBMITTED THAT THE SHARE APPLICATION MONEY IN QUESTION WAS RECEIVED IN THE A SSESSMENT YEAR 2011-12 AND THEREFORE THE PROVISION OF SECTION 56(2)(VII)(B ) ARE NOT APPLICABLE IN RESPECT OF THIS AMOUNT RECEIVED. THIS PROVISION HAS COME INTO FORCE WITH EFFECT FROM 29/01/2012. THE ASSESSEE HAS ALSO SUBMITTED VA LUATION PER EQUITY SHARE COMPUTED ON THE DISCOUNTED CASH FLOW METHOD AS PER THE CERTIFICATE OF CHARTERED ACCOUNTANTS WHEREIN THE VALUE PER SHARES WAS ARRIVED AT RS. 54.98 PER SHARE. THE AO DID NOT ACCEPT THE SAID VALUATIO N AND HAD APPLIED NET ASSET VALUE OF THE COMPANY WHICH CAME TO RS. 26.69 PER SHARE. APPLYING THE SAID VALUE THE AO MADE ADDITION OF RS. 66,55,000/- U/S 56(2)(VII)(B) OF THE ACT. THE ASSESSEE CHALLENGED THE ACTION OF THE AO B EFORE THE LD. CIT(A) AND CONTENDED THAT AS PER RULE 11UA OF IT RULES, THE FA IR MARKET VALUE OF UNQUOTED EQUITY SHARES SHALL BE THE VALUE, ON THE A LLOTMENT DATE, OF SUCH UNQUOTED EQUITY SHARES AS DETERMINED AS PER METHOD PROVIDED OR NET ASSET VALUE WHICHEVER IS HIGHER. THE LD. CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE AND HELD THAT THE SHARES ALLOTTED TO M/S J ASMINE BARTER PRIVATE LIMITED ARE WITHIN THE FAIR MARKET VALUE AS DETERMI NED UNDER THE PRESCRIBED METHOD UNDER RULE 11UA OF THE IT RULES, 1962, AND A CCORDINGLY THE ADDITION WAS DELETED. 4 ITA & CO NO. 716 & 36/JP/2017. M/S SAFE DECORE PVT. LTD., ALWAR. 3.2 BEFORE US THE LD. D/R HAS SUBMITTED THAT ASSESS EE HAS SUBMITTED THE VALUATION BY ADOPTING THE DISCOUNTED CASH FLOW METH OD WHEREAS AS PER NET ASSET VALUE OF THE COMPANY, THE VALUE PER SHARE UND ISPUTEDLY IS RS. 26.69. THEREFORE, THE AO HAS HELD THAT THE VALUE ADOPTED B Y THE ASSESSEE DOES NOT HOLD ANY MERIT WHEN THE VALUE AS PER THE NET ASSET METHOD IS SUBSTANTIALLY LOW IN COMPARISON TO THE VALUE ADOPTED BY THE ASSES SEE. FURTHER, THE COMPUTATION OF THE FAIR MARKET VALUE OF THE SHARE I S NOT BASED ON ANY REAL DATA WHEN THE AO HAS SPECIFICALLY STATED THE NET PR OFIT HAS INCREASED ONLY AN AVERAGE OF 4 AND 5%. SHE HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 3.3 ON THE OTHER HAND, LD. A/R OF THE ASSESSEE HAS REFERRED TO THE CERTIFICATE OF THE CHARTERED ACCOUNTANT AT PAGE 9 T O 11 OF PAPER BOOK AND SUBMITTED THAT THE VALUATION HAS BEEN DONE BY USING THE DISCOUNTED CASH FLOW METHOD WHICH IS ONE OF THE PRESCRIBED METHODS UNDER RULE 11UA OF THE INCOME TAX RULES. FURTHER, AS PER THE PROVISION OF SECTION 56(2)(VII)(B) THE FAIR MARKET VALUE SHARE SHALL BE THE VALUE AS MAY B E DETERMINED IN ACCORDANCE WITH METHOD PRESCRIBED AND FOR THIS PURP OSE RULE 11UA HAS PRESCRIBED THE METHOD FOR DETERMINATION OF FAIR MAR KET VALUE OF THE SHARES OR THE VALUE AS MAY BE SUBSTANTIATED BASED ON THE VALU E OF ITS ASSETS TO THE SATISFACTION OF THE AO, WHICHEVER IS HIGHER. HE HA S SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(A). ALTERNATIVELY, THE AR OF THE ASSESSEE SUBMITTED THAT PROVISION OF SECTION 56(2)(VII)(B) ARE NOT APPLICAB LE IN THE CASE OF THE ASSESSEE AS SHARES APPLICATION MONEY WAS RECEIVED IN THE ASS ESSMENT YEAR 2011-12 5 ITA & CO NO. 716 & 36/JP/2017. M/S SAFE DECORE PVT. LTD., ALWAR. AND THIS PROVISION OF SECTION 56(2)(VII)(B) HAS BEE N NEWLY INSERTED W.E.F. 1/4/2013. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE A SSESSEE HAS ISSUED THE SHARES TO M/S JASMINE PVT. LTD., DURING THE YEAR UN DER CONSIDERATION. FURTHER, THE FAIR MARKET VALUE AS PER THE PROVISION OF SECTI ON 56(2)(VII)(B) HAS TO BE DETERMINED IN ACCORDANCE WITH THE METHOD PRESCRIBED UNDER RULE 11UA OF THE IT RULES AND AS PER SUB-RULE (2) OF RULE 11UA, DISC OUNTED CASH FLOW METHOD IS ONE OF THE PRESCRIBED METHOD. THEREFORE, IT IS THE OPTION OF THE ASSESSEE TO ADOPT ANY OF THE PRESCRIBED METHOD UNDER RULE 11UA( 2) OF THE IT RULES SECTION 56(2)(VII)(B) READ WITH EXPLANATION HAS SPE CIFICALLY PROVIDED THAT THE FAIR MARKET VALUE OF THE UNQUOTED SHARES SHALL BE D ETERMINED AS PER THE PRESCRIBED METHODS AND SHALL BE TAKEN WHICHEVER IS HIGHER FAIR MARKET VALUE BY COMPARING THE VALUE BASED ON THE ASSET OF THE CO MPANY. THEREFORE, THE NET ASSET VALUE METHOD AS WELL AS ANY OF THE OTHER METHODS PRESCRIBED UNDER RULE 11UA OF THE IT RULES, WHICHEVER IS HIGHER SHAL L BE ADOPTED AS PER THE OPTION OF THE ASSESSEE. 4.1 IN VIEW OF THE STATUTORY PROVISIONS GIVING OPTI ONS TO ASSESSEE TO ADOPT ANY OF THE METHODS WHICH CAN BE COMPARED WITH THE N ET ASSET VALUE METHOD AND THE AO SHALL ADOPT THE VALUE WHICHEVER IS HIGHE R. IN THE CASE OF THE ASSESSEE THE FAIR MARKET VALUE DETERMINED AS PER TH E DISCOUNTED CASH FLOW METHOD AT RS. 54.98 PER SHARE WHICH IS HIGHER THAN THE VALUATION ADOPTED BY 6 ITA & CO NO. 716 & 36/JP/2017. M/S SAFE DECORE PVT. LTD., ALWAR. THE AO AS PER THE NET ASSET VALUE AT RS. 26.69 PER SHARE. THEREFORE, THE SHARE ALLOTTED AT RS. 40 PER SHARE IS WITHIN THE FA IR MARKET VALUE AS DETERMINED BY ADOPTING THE DISCOUNTED CASH FLOW MET HOD. THE ASSESSING OFFICER HAS NOT FOUND ANY SERIOUS DEFECT IN THE FAC TS AND DETAILS USED IN DETERMINING THE FAIR MARKET VALUE UNDER DISCOUNTED CASH FLOW METHOD. HENCE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN TH E IMPUGNED ORDER OF THE LD. CIT(A) QUA THIS ISSUE. 5. GROUND NO. 2 IS REGARDING DISALLOWANCE MADE BY THE AO U/S 40(A) (IA) AND DELETED BY THE LD. CIT(A). 5.1 THE AO FOUND THAT THE ASSESSEE HAS CLAIMED EXPE NSES OF HANDLING CHARGES TO M/S EVERGREEN SHIPPING AGENCY INDIA PVT. LTD. AND EMIRATES SHIPPING AGENCIES PVT. LTD. WITHOUT DEDUCTION OF TA X AT SOURCE AS PER THE PROVISIONS OF SECTION 194C OF THE ACT. ACCORDINGLY , THE AO INVOKED THE PROVISION OF SECTION 40(A)(IA) OF THE ACT AND DISAL LOWED THE PAYMENT OF HANDLING CHARGES OF RS. 3,94,000/-. THE ASSESSEE CH ALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT(A) AND SUBMITTED THAT THESE P AYMENTS WERE MADE TO THE SHIPPING AGENTS OF NON-RESIDENT SHIPPING COMPAN IES OF UK AND UAE. AS PER DTAA BETWEEN INDO UK AND INDO UAE THE SAID REMI TTANCE IS NOT TAXABLE IN THE HANDS OF THE NON-RESIDENT SHIPPING COMPANIES . THE ASSESSEE ALSO RELIED UPON CBDT CIRCULAR NO. 723 DATED 19.09.1995 AND SUBMITTED THAT THE PAYMENTS HAVE BEEN MADE THROUGH SHIPPING AGENTS OF NON-RESIDENT SHIP OWNERS SHIPPED AT THE PORT IN INDIA. FURTHER, THE ASSESSEE ALSO PRODUCED THE 7 ITA & CO NO. 716 & 36/JP/2017. M/S SAFE DECORE PVT. LTD., ALWAR. CERTIFICATE ISSUED BY THE DEPARTMENT WHEREBY EXEMPT ION WAS GRANTED TO THESE SHIPPING COMPANIES/SHIP OWNERS FOR NON DEDUCTION ON TAX AT SOURCE. THE LD. CIT(A) ACCEPTED THESE EXPLANATIONS AND CONTENTIONS OF THE ASSESSEE AND DELETED THE DISALLOWANCE MADE BY THE AO ON THIS ACC OUNT . 5.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND CONSIDE RED THE RELEVANT MATERIAL ON RECORD. THE REVENUE HAS NOT DISPUTED T HAT THE ASSESSEE HAS MADE THE PAYMENT IN QUESTION TO THE SHIPPING AGENTS OF NON-RESIDENTS SHIP OWNERS. THEREFORE, AS PER THE CBDT CIRCULAR NO. 72 3 DATED 19/09/1995 PAYMENT MADE TO THE SHIPPING AGENTS OF NON-RESIDENT SHIP OWNERS DOES NOT REQUIRE DEDUCTION OF TAX AT SOURCE. WE FURTHER NOT E THAT THE DIRECTOR INTERNATIONAL TAXATION VIDE CERTIFICATE DATED 23/06 /2011 AND 28/03/2013 RESPECTIVELY GRANTED THE EXEMPTION TO THE NON-RESID ENT SHIP OWNERS IN QUESTION FROM DEDUCTION OF TAX AT SOURCE. THE ASSE SSEE FILED THESE CERTIFICATES WHICH ARE PLACED AT PAGE NO. 13 AND 14 OF THE PAPER BOOK. THEREFORE, WHEN THE DEPARTMENT HAS ALREADY GRANTED THE EXEMPTION CE RTIFICATE TO THE NON- RESIDENT SHIP OWNERS THEN THERE IS NO OBLIGATION ON THE ASSESSEE TO DEDUCT TAX AT SOURCE IN RESPECT OF THE PAYMENT MADE TO THE SHIPPING AGENTS OF THESE NON-RESIDENT SHIP OWNERS. ACCORDINGLY, WE DO NOT F IND ANY ERROR OR ILLEGALITY INTO THE ORDER OF THE LD. CIT(A) QUA THIS ISSUE. 6. NOW, WE TAKE ASSESSEES CROSS OBJECTION I.E. C.O. NO. 36/JP/2017 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS OF CROSS OBJECTION. 8 ITA & CO NO. 716 & 36/JP/2017. M/S SAFE DECORE PVT. LTD., ALWAR. 1. THAT THE LD. AO GROSSLY ERRED IN MAKING ADDITION OF RS. 1,35,313/- BY DISALLOWING THE PROVISION OF ENTRY TA X AND THE APPELLATE AUTHORITY ERRED IN SUSTAINING THE SAME. 2. THAT RESPONDENT-CROSS OBJECTOR CRAVES LIBERTY TO RAISE ADDITIONAL GROUND AND TO MODIFY/AMEND THE GROUND OF APPEAL AT THE TIME OF HEARING. 6.1 ONLY ISSUE RAISED BY THE ASSESSEE IS REGARDING DISALLOWANCE OF ENTRY TAX. 6.2 WE HAVE HEARD THE LD. AR AS WELL AS LD. D/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF ENTRY TAX OF RS. 1,35,313/- ON THE GROUND THAT THE ASSESSEE HAS NOT FURNISHED ANY PROOF OF PAYMENT. THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO IN PARA 6.3 OF THE IMPUGNED ORDER AS UNDE R:- 6.3 I HAVE CONSIDERED THE ORDER PASSED BY THE AO AN D SUBMISSIONS FILED BY THE APPELLANT. I HAVE CONSIDERED THE COPY OF CHALLAN SUBMITTED DURING THE APPELLATE PROCEEDINGS. HOWEVE R, THE CHALLAN DOES NOT MENTION THE NAME OF THE ASSESSEE C OMPANY. THEREFORE, IT IS NOT POSSIBLE TO VERIFY WHETHER THE ENTRY TAX BELONGS TO THE APPELLATE COMPANY. ACCORDINGLY, THE ADDITION OF RS. 1,35,313/- IS SUSTAINED FOR WANT OF CREDIBLE PR OOF. APPELLANTS GROUND OF APPEAL ON THE ISSUE IS DISMISSED. 6.3 THUS, IT IS CLEAR THAT LD. CIT(A) OBSERVED THAT IT IS NOT POSSIBLE TO VERIFY WHETHER ENTRY TAX BELONGS TO ASSESSEE COMPANY, AS T HE E-CHALLAN PRODUCED BY THE ASSESSEE DOES NOT MENTION THE NAME OF THE AS SESSEES COMPANY. LD. 9 ITA & CO NO. 716 & 36/JP/2017. M/S SAFE DECORE PVT. LTD., ALWAR. A/R OF THE ASSESSEE HAS DRAWN OUR ATTENTION TO PAGE NO . 17 OF THE PAPER BOOK AND SUBMITTED THAT AS PER E-CHALLAN DATED 26/04/20 14 THE NAME OF THE ASSESSEE HAS BEEN MENTIONED. WE FIND THAT THE E-CH ALLAN DATED 26/4/14 FOR SUM OF RS. 1,37,635/-CONTAINS THE DETAILS OF ASSESS EE I.E. ITS NAME AS WELL AS ADDRESS. THE ASSESSEE HAS CLARIFIED THAT THIS AMOU NT OF RS. 1,37,635/- INCLUDES RS. 1,35,313/- AS ENTRY TAX AND BALANCE AS INTEREST. THE AO HAS DISALLOWED THIS AMOUNT FOR WANT OF PROOF OF PAYMENT WHEREAS THE ASSESSEE HAD PRODUCED THIS E-CHALLAN DATED 26/04/2014 HAVING ALL THE DETAILS. ACCORDINGLY, IN VIEW OF THE FACT THAT, THE E-CHALLA N DATED 26/4/2014 CONTAINS ALL RELEVANT DETAILS INCLUDING NAME OF THE ASSESSEE THE AO IS DIRECTED TO VERIFY DETAILS OF THE E-CHALLAN AND THEN ALLOW THE CLAIMS MADE ON THIS ACCOUNT. 7. IN THE COMBINED RESULT, THE APPEAL OF THE REVENU E I.E. ITA NO. 716/JP/2017 IS DISMISSED WHEREAS THE CROSS OBJECTIO N OF THE ASSESSEE I.E. CO NO. 36/JP/2017 IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 12/01/2018. SD/- SD/- HKKXPAN FOT; IKY JKO (BHAGCHAND) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 12/01/2018. POOJA/- VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE ACIT, CIRCLE-2, ALWAR. 2. IZR;FKHZ@ THE RESPONDENT- M/S SAFE DECORE PVT. LTD., ALWAR. 3. VK;DJ VK;QDR@ CIT 10 ITA & CO NO. 716 & 36/JP/2017. M/S SAFE DECORE PVT. LTD., ALWAR. 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE [ITA NO. 716/JP/2017 & CO NO. 36/JP/2017 ] VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR