M/s mvikarsha Mobile Solutions Pvt Ltd , Bangalore V. Deputy Commissioner of Income Tax Circle-4(1)(2), Bangalore

ITA 1265/BANG/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1511 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 18-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R PREMI
• Assessee Lawyers: J KRISHNAKUMAR
• Keywords: Principle of natural justice; Fair market value; Tax effect; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO.1265/BANG/2018 ASSESSMENT YEARS : 2014-15 M/S MVIKARSHA MOBILE SOLUTIONS PVT. LTD., C/O PKF SRIDHAR & SANTHANAM LLP, T8 & T9, GEM PLAZA, 66 INFINITY ROAD, BENGALURU-560 001. PAN AAHCM 8564 F VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-4(1)(2), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI J KRISHNAKUMAR, C.A RESPONDENT BY : SMT. R PREMI, JCIT (DR) DATE OF HEARING : 09.12.2019 DATE OF PRONOUNCEMENT : 11.12.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING TH E ORDER DATED 12-12-2017 PASSED BY LD CIT(A)-4, BANGALORE A ND IT RELATES TO THE ASSESSMENT YEAR 2014-15. THE ASSESSEE IS AG GRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE ADDITION MA DE BY THE AO U/S 56(2)(VIIB) OF THE ACT. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE SERVICES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ISSUED SHARES HAVING PAR VALUE OF RS.10/- AT A PRIC E OF RS.30/-. ITA NO.1265 /BANG/2018 PAGE 2 OF 7 THE FAIR MARKET VALUE WAS DETERMINED AS RS.22.09. ACCORDINGLY, BY INVOKING THE PROVISIONS OF SEC.56(2)(VIIB) OF THE A CT, THE AO PROPOSED TO ASSESS THE EXCESS AMOUNT COLLECTED BY THE ASSESS EE OVER AND ABOVE THE FAIR MARKET VALUE OF SHARES AS INCOME OF THE ASSESSEE. THE EXCESS AMOUNT SO COLLECTED WORKED OUT TO RS.61, 81,665/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE AGREED FOR THE SAID ADDITION BY FILING LETTER DATED 10.08. 2016. ACCORDINGLY, THE AO COMPLETED THE ASSESSMENT BY ADDING THE ABOVE SAID AMOUNT. 3. HOWEVER, THE ASSESSEE CHALLENGED THE ABOVE SA ID ADDITION BY FILING APPEAL BEFORE LD CIT(A), WHO DISMISSED THE A PPEAL OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE IS NOT JUSTIF IED IN RETRACTING FROM ITS STAND. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL. 4. THE LD A.R SUBMITTED THAT THE ASSESSEE COMPAN Y FALLS UNDER THE CATEGORY OF START-UP COMPANY. HE SUBMITTED T HAT THE GOVERNMENT HAS ISSUED NOTIFICATION NO.13/2019 F.NO.370142/5/2018-TPL (PT.) DATED 05 TH MARCH, 2019, EXEMPTING THE START UP COMPANIES FROM THE APPLICATION OF PROV ISIONS OF SEC.56(2)(VIIB) OF THE ACT. IT HAS ALSO BEEN CLARI FIED BY CBDT IN ITS CIRCULAR NO.173/354/2019-ITA-1 DATED 09-08-2019 THA T THE RELAXATION SO PROVIDED IS APPLICABLE TO THE ASSESSM ENTS COMPLETED BEFORE 19-02-2019 ALSO, IF A RECOGNISED START-UP HA D FILED DECLARATION IN FORM NO.2. ACCORDINGLY, THE LD A.R SUBMITTED THAT THE ASSESSEE IS ELIGIBLE TO AVAIL THE BENEFIT GIVEN UNDER THE ABOVE SAID NOTIFICATION/CIRCULARS. ACCORDINGLY, HE PRAYE D THAT THE IMPUGNED MATTER MAY BE RESTORED TO THE FILE OF THE AO FOR EXAMINING ITA NO.1265 /BANG/2018 PAGE 3 OF 7 THE SAME AFRESH IN THE LIGHT OF NOTIFICATIONS/CIRCU LARS, REFERRED ABOVE. 5. WITH REGARD TO THE ACCEPTANCE OF THE ADDITI ON BEFORE THE AO, THE LD A.R SUBMITTED THAT THE ASSESSEE WAS HAVING H UGE LOSSES AND HENCE THE REPRESENTATIVE HAD AGREED TO THE ADDITION , SINCE THE SAME SHALL NOT HAVE ANY IMMEDIATE TAX EFFECT. HE SUBMIT TED THAT THE ASSESSEE HAD AGREED FOR THE ADDITION ONLY DURING TH E COURSE OF ASSESSMENT PROCEEDINGS AND AT THAT POINT OF TIME, T HE POLICY DECISION TAKEN BY THE GOVERNMENT THROUGH THE ABOVE SAID NOTIFICATIONS/CIRCULARS WERE NOT AVAILABLE. 6. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HAD AGREED FOR THE ADDITION AND HENCE IT SHOULD NOT BE ALLOWED TO RETRACT FROM ITS STAND. 7. WE HEARD RIVAL CONTENTIONS AND PERUSED THE R ECORD. ADMITTEDLY, THE ASSESSEE HAD AGREED FOR THE ADDITIO N U/S 56(2)(VIIB) OF THE ACT DURING THE COURSE OF ASSESSMENT PROCEEDI NGS. IT IS NOT THE CASE THAT THE ASSESSEE ITSELF HAS DISALLOWED OR ADDED THE ABOVE SAID AMOUNT IN ITS RETURN OF INCOME. IN THE CASE O F CIT VS. EVEREST KENTO CYLINDERS LTD (2015)(58 TAXMANN.COM 254)(378 ITR 57), THE HONBLE BOMBAY HIGH COURT HAD AN OCCASION TO EXAMIN E AN IDENTICAL ISSUE. IN THE CASE BEFORE HONBLE BOMBAY HIGH COURT, THE ASSESSEE HAD AGREED FOR ADDITION OF RS.4,47,649/- U /S 14A OF THE ACT BEFORE THE AO DURING THE COURSE OF ASSESSMENT P ROCEEDINGS. IT HAD NOT ITSELF DISALLOWED THE ABOVE SAID AMOUNT IN ITS RETURN OF INCOME. HOWEVER, THE ASSESSEE CHALLENGED THE ADDIT ION OF ITA NO.1265 /BANG/2018 PAGE 4 OF 7 RS.4,47,649/- AGREED TO IT BEFORE AO BY FILING APPE ALS. IN THE SECOND APPEAL PREFERRED BEFORE THE ITAT, THE TRIBUN AL RESTRICTED THE ADDITION U/S 14A OF THE ACT TO RS.1.00 LAC. THE RE VENUE CHALLENGED THE ORDER PASSED BY THE TRIBUNAL BY CONTENDING THAT THE ASSESSEE HAD AGREED FOR THE ADDITION OF RS.4,47,649/-. IT W AS HELD AS UNDER BY HONBLE BOMBAY HIGH COURT:- 10. HAVING CONSIDERED SUBMISSIONS OF MR. MALHOT RA FOR THE REVENUE AND MR. PARDIWALA FOR THE ASSESSEE, WE ARE OF THE VIEW THAT THE ORDER OF THE TRIBUNAL AS REGARDS DISALLOWANCE UNDER SECTION 14A AND RESTRICTING THE SAME TO RS.1 LAC WAS JUSTIFIED IN VIEW OF THE MATERIAL BEFO RE THE TRIBUNAL. FURTHERMORE, HAVING CONSIDERED THE FACT THAT A SUM OF RS.4,47,649/- WAS NOT CONCEDED IN THE RETURN BUT WAS ADHOC ACCEPTANCE DURING THE COURSE OF ASSESSMEN T, THE ASSESSEE COULD NOT BE BOUND BY IT. 8. AS NOTICED EARLIER, IN THE INSTANT CASE ALSO, THE ASSESSEE HAS AGREED FOR THE DISALLOWANCE DURING THE COURSE OF AS SESSMENT PROCEEDING ONLY AND FURTHER, ACCORDING TO LD A.R, I T WAS SO AGREED FOR THE REASON THAT THERE WAS NO IMMEDIATE TAX EFFE CT IN VIEW OF HUGE BUSINESS LOSSES. IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE ITSELF HAD MADE THE IMPUGNED DISALLOWANCE IN ITS RE TURN OF INCOME. HENCE, WE ARE OF THE VIEW THAT THE ASSESSEE COULD C ONTEND THE ADDITION AS PER THE RATIO LAID DOWN BY HONBLE BOMB AY HIGH COURT IN THE ABOVE SAID CASE. ITA NO.1265 /BANG/2018 PAGE 5 OF 7 9. IT IS CONTENDED BY THE ASSESSEE THAT THE STAR T-UP COMPANIES HAVE BEEN EXEMPTED FROM THE PROVISIONS OF SEC.56(2) (VIIB) OF THE ACT BY THE GOVERNMENT, AS PER THE NOTIFICATIONS/CIRCULA RS REFERRED ABOVE. IT WAS SUBMITTED THAT THE SAME WOULD APPLY TO ASSESSMENTS COMPLETED PRIOR TO 19-02-2019 ALSO. IN OUR VIEW, I N THE INTEREST OF NATURAL JUSTICE, THIS CLAIM OF THE ASSESSEE THAT IT IS ELIGIBLE TO CLAIM BENEFIT OF THE NOTIFICATIONS/CIRCULARS ISSUED BY TH E CBDT NEEDS TO BE EXAMINED BY THE TAX AUTHORITIES. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) AND RESTORE ALL THE ISSUE S TO HIS FILE FOR EXAMINING THE ABOVE SAID CLAIM OF THE ASSESSEE ON M ERITS. AFTER AFFORDING ADEQUATE OPPORTUNITY OF THE ASSESSEE AND TO THE ASSESSING OFFICER, THE LD CIT(A) MAY TAKE APPROPRIATE DECISIO N IN ACCORDANCE WITH LAW. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DECEMBER, 2019. SD/ - (PAVAN KUMAR GADALE) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, THE 11 TH DECEMBER , 2019. /VMS/ ITA NO.1265 /BANG/2018 PAGE 6 OF 7 COPY TO: 1. APPELLANT (S) / CROSS OBJECTOR(S) 2. RESPONDENT(S) 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE ITA NO.1265 /BANG/2018 PAGE 7 OF 7 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DICTATION NOTE ENCLOSED DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. .. 14. DICTATION NOTE ENCLOSED