FLY WITH VIP ONLINE PRIVATE LIMITED,SEWRI MUMBAI V. DY. COMMISSIONER OF INCOME TAX - 5(1)(2), MUMBAI

ITA 4656/MUM/2024

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The case involves Fly With VIP Online Private Limited, which appealed against the order of the Learned National Faceless Appeal Centre (NFAC), Delhi, confirming the addition of Rs.2,58,13,413 under section 56(2)(viib) of the Income-tax Act, 1961. The addition was based on the ground that the consideration received from the issue of shares exceeded the fair market value of the shares. The assessee argued that the shares were valued using the discounted cash flow (DCF) method, an accepted method under rule 11UA of the Income-tax Rules, 1962. However, the CIT(A) upheld the addition, noting the absence of substantial business operations and the high premium on shares, and denied the applicability of the startup exemption for the assessment year 2013-14. The tribunal found that the assessee was denied a reasonable opportunity of hearing and thus restored the matter to the CIT(A) for a fresh decision.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 474435 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 28-10-2024
• Assessment Year: 2013-2014
• Appeal Filed On: 11-09-2024
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH KUMAR
• Assessee Lawyers: RAVIKANT PATHAK
• Keywords: Set aside; Fair market value; Valuation report
• Section: 143(3); 250; 56(2)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI BEFORE SHRI. B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No.4656/Mum/2024 (Assessment Year:2013-14) Fly With VIP Online Private Limited, Sewri, Mumbai, 304, Sea Flama, Dosti Flamingos, Parel Sewree, Mumbai, Sewri S.O. – 400 015 PAN : AABCF6758J vs Dy.Commissioner of Income Tax- 5(1)(2), Mumbai Aayakar Bhavan, Maharshi Karve Road, New Marine Lines, Mumbai- 400 020 APPELLANT RESPONDENT Assessee by : Shri Ravikant Pathak Respondent by : Shri Ashish Kumar (SR.AR.) Date of hearing : 28/10/2024 Date of pronouncement : 29/10/2024 O R D E R PER ANIKESH BANERJEE, J.M: Instant appeal of the assesseewasfiled against the order of theLearned National Faceless Appeal Centre (NFAC), Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2013-14,date of order25.07.2024. The impugned orderis emanated from the 2 ITA No.4656 /Mum/2024 Fly With VIP Online Pvt Ltd order of the Learned Deputy Commissioner of Income-tax-5(1)(2), Mumbai, order passed under section 143(3) of the Act, date of order 23/03/2016. 2. The assessee has taken the following grounds:- “1. The CIT(A) erred in confirming the action of the AO in making additionof Rs.2,58,13,413/- u/s 56(2) (viib) of the Act on the ground that the consideration received by the Appellant on issue of shares exceeds fair market value of shares.” 3. The brief facts of the case are that the assessee is a private limited company based in Mumbai that owns a web portal “Fly With VIP.com” and provided the opportunity to the public to fly with celebrities. During the impugned assessment year, the assessee issued 62,450 equity shares of Rs.10/- at a premium for a total consideration of Rs.2,58,31,550/- including Rs.3,01,800/- towards share capital, Rs.1,64,47,510/- towards premium on share and Rs.90,82,236/- as call in advance from authorized shareholders towards issue of equity shares and the same are duly accounted in the books of account. The valuation of shares was based on the valuation report for both the share prices Rs.414/- per share and Rs.715/- per share. Such valuation was arrived at by the discounted cash flow (DCF) method. The assessment was completed and the Ld.AO did not accept the explanation and justification provided by the assessee and made addition of consideration received Rs.2,58,31,550/- being the aggregate consideration received for shares as the same exceeds the fair market value of the shares by invoking section 56(2)(viib) of the Act. Aggrieved, the assessee filed an appeal before the CIT(A). The Ld.CIT(A) issued notices of hearing on many occasions, but none of the notice was complied with. Therefore, on the 3 ITA No.4656 /Mum/2024 Fly With VIP Online Pvt Ltd basis of the available records, the Ld.CIT(A) upheld the assessment order ex parte. Being aggrieved on the appeal order, the assessee filed an appeal before us. 4. We heard the rival submissions and considered the documents available in the record. The Ld.AR argued and filed a written submission which are kept in record. We found that the shares issued by the assessee is duly valued on the basis of the DCF method which is an accepted method under rule 11UA of the Income-tax Rules, 1962. The Ld.CIT(A) observed that the assessee had not shown any business activity in impugned assessment year. The assessee claimed that the assessee is a start-up company, so the notification No.45/2016 dated 14/06/2016 is coveredwhich exempts the start-up companies from provisions of section 56(2)(viib) of the Act. Butthe Ld.CIT(A) had denied the claim of assessee as this exemption is not applicable for A.Y. 2013-14. The relevant para 6 of the impugned appeal order is reproduced as below:- “6. Findings and Conclusion: The Appellant has provided valuation reports based on the DCF method which is an accepted method under Rule 11UA for determining the fair market value of shares the reports were prepared by a reputable firm of Chartered Accountants However, the AD's observation that there was no actual business activity during the year under consideration cannot be ignored. The lack of substantial business operations raises questions about the basis for the high premium. The notification No. 45/2016 dated 14.06.2016, which exempts startup companies from the provisions of section 56(2)(viib), came into effect after the relevant assessment year. Therefore, this exemption does not apply to the assessment year 2013-14. 4 ITA No.4656 /Mum/2024 Fly With VIP Online Pvt Ltd Given the absence of business activity and the disproportionate share premium, the addition made by the AO under section 56(2)(vib) is justified. The premium received is not supported by the Appellant's business operations during the year under consideration. In view of the above discussion, the addition of Rs. 25,813,413 made by the AO under section 56(2)(viib) is upheld. The appeal filed by the appellant is dismissed.” 5. The Ld.AR in argument placed that the said clarification is duly implemented for the assessee and the section 56(2)(viib) is not justified for application of the same. On perusal of the impugned appeal order, we find that the assessee had not responded a single notice of hearing issued by the Ld.CIT(A). We find that the reasonable opportunity for the assessee was denied in appeal proceeding. We find that the matter should be restored to the file of the Ld.CIT(A) for adjudication denovo. We are not expressing our view on the merit of the case which will impair the set aside appeal proceeding. Needless to say, the assessee should get a reasonable opportunity of hearing in set aside appeal proceedings. On the other hand, the assessee should be diligent and co-operative before the ld. CIT(A) for quick disposal of the appeal. 6. In the result, the appeal of the assessee bearing ITA No.4656/Mum/2024 is allowed for statistical purpose. Order pronounced in the open court on 29th day of October, 2024. Sd/- sd/- (B.R. BASKARAN) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 29/10/2024 Pavanan 5 ITA No.4656 /Mum/2024 Fly With VIP Online Pvt Ltd Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकरआयुक्त CIT 4. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्डफ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai "