DCIT CORPORATE CIRCLE 1, COIMBATORE V. KOVAI MEDIA P. LTD., COIMBATORE

ITA 1562/CHNY/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2306 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 22-06-2021
• Assessment Year: 2016-2017
• Appeal Filed On: 20-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIVEK RAJAN
• Keywords: Reasonable cause; Fair market value; Valuation report; Onus to prove; Condonation of delay; Set aside
• Section: 68; 56; 13; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , . , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.1562/CHNY/2019 & C.O.NO.83/CHNY/2019 ( '' / ASSESSMENT YEAR: 2016-17) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1 COIMBATORE. VS M/S. KOVAI MEDIA P.LTD. 43, NEHRU NAGAR, M.D.GARDENS KALAPATTI ROAD, CIVIL AIRPORT POST, COIMBATORE-641 014. PAN: AAECK 6611Q ( /APPELLANT) ( /RESPONDENT /CROSS OBJECTOR) / APPELLANT BY : MR. G.JOHNSON, ADDL.CIT /RESPONDENT BY : MR. VIVEK RAJAN, C.A /DATE OF HEARING : 22.06.2021 /DATE OF PRONOUNCEMENT : 24.06.2021 / O R D E R PER G.MANJUNATHA, AM: THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTIO N FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORD ER OF THE LEARNED CIT(A)-1, COIMBATORE DATED 28.03.2019 AND PERTAINS TO ASSESSMENT YEAR 2016-17. SINCE, FACTS ARE IDENTI CAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY T HE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, COIMBATORE IS AGAINST FACTS AND CIRCUM STANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) -L, COIMBATORE HAS ERRED IN HOLDING THAT THE SEC.56(2)( VIIB) OF THE ACT IS NOT APPLICABLE TO THE ASSESSEES CASE IN VI EW OF PARA NO.4 OF THE NOTIFICATION GSR 127 (E) DATED 19.02.20 19, WITHOUT CONSIDERING THE SCOPE GIVEN VIDE PARA NO.6 OF THE ABOVEMENTIONED NOTIFICATION, WHEREIN IT HAS BEEN CL ARIFIED THAT, PARA. NO.4 IS NOT APPLICABLE TO THE SHARES IN RESPECT OF WHICH AN ADDITION MADE U/S 56(2)(VIIB) OF THE ACT H AS BEEN MADE IN A ASSESSMENT ORDER MADE UNDER THE ACT BEFOR E THE DATE OF ISSUE OF NOTIFICATION. 3. THE LD. CIT(A) HAS ERRED IN THE LIGHT OF PARA NO .6 OF THE NOTIFICATION GSR 127 (E) DATED 19.02.2019 AS THE AS SESSMENT ORDER MAKING AN ADDITION OF RS.2,72,80,664/- UNDER SECTION 56(2)(VIIB) WAS PASSED ON 15.12.2018, WHEREAS THE D ATE OF ISSUE OF NOTIFICATION IS 19.02.2019. HENCE, PARA NO .4 OF THE NOTIFICATION BASED ON WHICH THE LD. CIT(A) HAS GIVE N RELIEF TO THE ASSESSEE IS NOT APPLICABLE TO THIS ASSESSEES C ASE AS THE ASSESSMENT ORDER WAS PASSED BEFORE THE DATE OF NOTI FICATION. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -1 COIMBATORE HAS ERRED IN HOLDING THAT THE AO HAS NOT GIVEN ANY FINDING ON THE SATISFACTION ABOUT THE GENUINENESS O F THE CREDIT WHICH COULD BE ASSESSED U/S 68, WHEN IN FACT, DESPI TE BEING GIVEN OPPORTUNITY ASSESSEE FAILED TO PROVIDE ANY DO CUMENTS TO SUPPORT THE CREDITWORTHINESS OF THE SUBSCRIBERS. EV EN BEFORE THE LD. CIT(A) BRIEF PROFILE OF EIGHT SUBSCRIBERS, OUT OF THE THIRTEEN SUBSCRIBERS, WERE ONLY PROVIDED, REFLECTIN G THE FAILURE ON THE PART OF THE ASSESSEE TO PROPERLY DISCHARGE I TS RESPONSIBILITY/ONUS TO PROVE THE GENUINENESS OF THE TRANSACTION. 3 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 5 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, SINCE THE ASSESSEE HAS NOT PROVED THE GENUINENESS OF THE TRAN SACTION WITH THE SUBSCRIBERS AND THEIR CREDITWORTHINESS, TH E HONBLE ITAT IS REQUESTED TO UPHOLD THE ADDITION OF RS.2,72 ,80,664/- UNDER SECTION 68 OF THE IT ACT,1961. 6. THE HONBLE ITAT IS REQUESTED TO CANCEL THE ORD ER OF THE LEARNED CIT(A)-1, COIMBATORE AND UPHOLD THE ORDER O F THE ASSESSING OFFICER ON THE ISSUE OF ADDITION TO THE MADE U/S 68 OF THE IT ACT. 3. AT THE OUTSET, LEARNED AR FOR THE ASSESSEE SUB MITTED THAT THE CROSS OBJECTION FILED BY THE ASSESSEE IS TIME BARRED BY 20 DAYS FOR WHICH NECESSARY PETITION FOR CONDONA TION OF DELAY ALONG WITH AFFIDAVIT EXPLAINING THE REASONS FOR THE DELAY HAS BEEN FILED. THE AR FURTHER SUBMITTED THAT THE AS SESSEE COULD NOT FILE CROSS OBJECTION WITHIN THE TIME ALLOWED U NDER THE ACT, DUE TO THE FACT THE AUTHORIZED REPRESENTATIVE WAS FELL ILL WITH CHICKEN POX. THE DELAY IN FILING CROSS OBJECTION I S NEITHER INTENTIONAL NOR WILLFUL BUT FOR THE UNAVOIDABLE R EASONS, THEREFORE, DELAY MAY BE CONDONED IN THE INTEREST OF ADVANCEMENT OF SUBSTANTIAL JUSTICE. 4. THE LEARNED DR, ON THE OTHER HAND, STRONGLY OPPO SING CONDONATION OF DELAY PETITION FILED BY THE ASSESSE E SUBMITTED THAT THE REASONS GIVEN BY THE ASSESSEE DO NOT COME WITHIN THE 4 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 AMBIT OF REASONABLE AND BONAFIDE REASONS, WHICH CA N BE CONSIDERED FOR CONDONATION OF DELAY AND HENCE, C ROSS OBJECTION FILED BY THE ASSESSEE MAY BE DISMISSED AS NOT MAINTAINABLE. 5. HAVING HEARD BOTH SIDES AND CONSIDERED THE PETIT ION FILED BY THE ASSESSEE FOR CONDONATION OF DELAY, WE ARE O F THE CONSIDERED VIEW THAT REASONS GIVEN BY THE ASSESSEE FOR NOT FILING THE CROSS OBJECTION WITHIN THE TIME ALLOW ED UNDER THE ACT COMES UNDER REASONABLE CAUSE AS PROVIDED UNDER THE ACT FOR CONDONATION OF DELAY AND HENCE, DELAY IN FILI NG OF CROSS OBJECTION IS CONDONED AND THE CROSS OBJECTION F ILED BY THE ASSESSEE IS ADMITTED FOR ADJUDICATION. 6. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS START UP COMPANY ENGAGED IN THE BUSINESS OF PRINT AND DIGITAL MEDIA FILED ITS RETURN OF INCOME FOR THE ASSESSMEN T YEAR 2016- 17 ON 28.09.2016 DECLARING LOSS OF RS.2,54,15,86 0/-. THE ASSESSEE HAS OBTAINED CERTIFICATE OF RECOGNITION A S A STARTUP FROM DEPARTMENT OF INDUSTRIAL PROMOTION AND PARTNE RSHIP. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS ISSUED 5 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 EQUITY SHARES AT SHARE PREMIUM OF RS.124.67 PER SHA RE TO 13 INDIVIDUALS. THE CASE HAS BEEN TAKEN FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO JUSTIFY ISSUE OF SHARES AT PREMIUM OF RS.124.67 PER SHARE. IN RESPONSE, THE ASSESSEE S UBMITTED THAT IT IS A STARTUP COMPANY AND HAS VALUED ITS SHA RES ON THE BASIS OF DISCOUNTED CASH FLOW METHOD AND SUCH VALU ATION HAS BEEN DETERMINED BY THE REGISTERED VALUER AT RS.12 5.7 PER EQUITY SHARE. THE ASSESSING OFFICER VIDE HIS NOTIC E DATED 08.11.2018 CALLED UPON THE ASSESSEE TO EXPLAIN AS T O WHY EXCESS PREMIUM CHARGED ON ISSUE OF EQUITY SHARES SHALL NOT BE BROUGHT TO TAX, AS PER PROVISIONS OF SECTION 56( 2)(VIIB) OF THE INCOME TAX ACT, 1961, AS EVIDENCES FILED BY THE ASS ESSEE IN SUPPORT OF VALUE OF SHARES IS NOT IN ACCORDANCE WIT H RULE 11UA(2)(B) OF THE INCOME TAX RULES, 1962. IN RESPON SE, THE ASSESSEE HAS SUBMITTED THAT IT HAS OBTAINED A CERTI FICATE FROM STATUTORY AUDITOR, AS PER WHICH VALUER HAS DETERMI NED SHARE PRICE ON THE BASIS OF DISCOUNTED CASH FLOW METHOD B Y CONSIDERING FUTURE PROSPECTIVE OF THE COMPANY . THE ASSESSEE FURTHER SUBMITTED THAT IT HAS ALSO OBTAINED A CERTI FICATE FROM 6 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 INDEPENDENT AUDITOR TO SUPPORT VALUATION FIXED FOR ISSUE OF SHARES. THE ASSESSING OFFICER, HOWEVER, NOT CONVI NCED WITH EXPLANATION FURNISHED BY THE ASSESSEE AND ACCORDING TO HIM, ALTHOUGH, THE ASSESSEE HAS FILED VALUATION REPORT I N SUPPORT OF ISSUE OF SHARE CAPITAL AT PREMIUM, BUT SUCH VALUA TION REPORT IS NOT OBTAINED AS REQUIRED UNDER RULE 11UA(2)(B) OF T HE I.T. RULES, 1962 AND FURTHER PROJECTED FIGURES ADOPTED I N THE DISCOUNTED CASH FLOW METHOD IS ALSO WITHOUT ANY BAS IS. THEREFORE, HE OPINED THAT MARKET VALUE OF EQUITY SH ARES AS WORKED OUT BY THE COMPANY IS ARBITRARY AND WITHOUT ANY JUSTIFICATION AND HENCE, HE INVOKED PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT AND EXCESS PREMIUM CHARGED F ROM RESIDENT INVESTORS/SUBSCRIBERS TOTALING TO RS.2,7 2,80,664/- IS BROUGHT TO TAX AS INCOME OF THE ASSESSEE. 7. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A). BEFO RE THE LEARNED CIT(A), THE ASSESSEE REITERATED ITS ARGUMEN TS TAKEN BEFORE THE ASSESSING OFFICER AND CLAIMED THAT IT IS A START UP COMPANY AND HENCE, PROVISIONS OF SECTION 56(2(VIIB) OF THE ACT 7 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 DOES NOT APPLY, WHERE CONSIDERATION FOR ISSUE OF SH ARES IS RECEIVED FROM CLASS OF PERSONS NOTIFIED BY CENTRAL GOVERNMENT, SUBJECT TO SUCH OTHER CONDITIONS AS MAY BE SPECIFIE D. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS OBTAINED A CERTIFICATE OF RECOGNITION AS A STARTUP COMPANY FROM DIPP AND AS P ER GAZETTE NOTIFICATION DATED 19.02.2019, STARTUP C OMPANIES ARE OUTSIDE THE SCOPE OF SECTION 56(2)(VIIB) OF THE ACT . 8. THE LEARNED CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND HAS ALSO TAKEN NOT E OF CIRCULAR ISSUED BY CBDT VIDE NOTIFICATION NO.F.45/2016/F.NO.173/103/2016 DATED 14.06.2016 AND ALSO GAZETTE NOTIFICATION GSR NO. 127(E) DATED 19.02.20 19 HELD THAT PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT W OULD NOT BE APPLICABLE WHERE THE ASSESSEE IS A RECOGNIZED START UP COMPANY FROM DIPP. HE FURTHER HELD THAT THE ASSESSE E BEING A RECOGNIZED STARTUP COMPANY IS COVERED BY GAZETTE NOTIFICATION GSR NO. 127(E) DATED 19.02.2019 AND HENCE, IT IS CL EARLY OUTSIDE THE SCOPE OF SECTION 56(2)(VIIB) OF THE ACT IN RESPECT OF 8 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 SHARE PREMIUM COLLECTED ON ISSUE OF SHARES .THE REL EVANT FINDINGS OF THE LEARNED CIT(A) ARE AS UNDER:- 5.0. ON GOING THROUGH THE SUBMISSIONS OF THE APP ELLANT AND THE ASSESSMENT ORDER, I FIND THAT THE ASSESSING OF FICER HAS NOT ADDRESSED THE ISSUE WHETHER THE PROVISIONS OF S ECTION 56(2)(VIIB) IS APPLICABLE TO THE APPELLANT. THE AC HAS PROCEEDED TO ASSESS THE PREMIUM AS INCOME ON A TECH NICAL GROUND THAT THE VALUATION HAS NOT BEEN DONE AS PER THE PROVISIONS CONTAINED IN RULE 11UA(2)(B) OF THE IT R ULES 1962. BEFORE WE PROCEED TO ANALYSE WHETHER THE PROVISIONS CONTAINED IN THE RULES ARE SATISFIED OR NOT, IT IS NECESSARY TO SEE WHETHER THE SECTION 56(2)(VIIB) IS APPLICABLE T O THE APPELLANT. TO ANALYSE THE SAME THE FOLLOWING FACTS ARE RELEVANT. 1. THE APPELLANT HAS OBTAINED A CERTIFICATE OF RECO GNITION AS A START UP FROM THE DIPP. 2. THE AGGREGATE AMOUNT OF PAID UP SHARE CAPITAL AN D SHARE PREMIUM OF START UP AFTER ISSUE IS LESS THAN 25 CRO RES AS REQUIRED UNDER NOTIFICATIONS. 3. THE PROVISIONS OF SECTION 56(2)(VIIB) DOES NOT A PPLY WHERE CONSIDERATION FOR ISSUE OF SHARES IS RECEIVED BY A COMPANY FROM CLASS OF PERSONS NOTIFIED BY THE CENTRAL GOVER NMENT SUBJECT TO SUCH OTHER CONDITIONS AS MAY BE SPECIFIE D. ACCORDINGLY, THE CBDT VIDE NOTIFICATION NO.45/2016/F.NO.173/103/2016, NOTIFIED THE PERSONS TO BE THE PERSONS DEFINED U/S.2(31), BEING A RESIDENT, WHO IS MAKING AN INVESTMENT AT PREMIUM IN CASE OF A START-UP COMPA NY. 4. THIS COMPANY IS ONE IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED AND FULFILLS THE CONDITION S SPECIFIED IN 9 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 THE GAZETTE NOTIFICATION NUMBER GSR 180(E) DATED 17.02.2016. 5. GAZETTE NOTIFICATION GSR 127(E) DATED 19.02.2019 CLEARLY EXEMPTS START UP FROM THE AMBIT OF SECTION 56(2)(VI IB) OF THE INCOME TAX IN SECTION 4 OF THE SAID NOTIFICATION. S ECTION 4 IS REPRODUCED BELOW: 4. A STARTUP SHALL BE ELIGIBLE FOR NOTIFICATION UN DER CLAUSE (II) OF THE PROVISO TO CLAUSE (VIIB) OF SUB-SECTION (2) OF SECTION 56 OF THE ACT AND CONSEQUENT EXEMPTION FROM THE PROVISION S OF THAT CLAUSE IF IT FULFILS THE FOLLOWING CONDITIONS: (I) IT HAS BEEN RECOGNIZED BY DPHT UNDER PARA 2(III )(A) OR AS PER ANY EARLIER NOTIFICATION ON THE SUBJECT (II) AGGREGATE AMOUNT OF PAID UP SHARE CAPITAL AND SHARE PREMIUM OF THE STARTUP AFTER ISSUE OR PROPOSED ISSU E OF SHARE, IF ANY, DOES NOT EXCEED, TWENTY FIVE CRORE RUPEES. 5.1. THE AO HAS AT NO POINT OF TIME QUESTIONED AND DOUBTED THAT THE APPELLANT IS A STARTUP COMPANY. PROCEEDING ON THE ASSUMPTION THAT THE COMPANY IS A STARTUP COMPANY AN D ONE WHICH SATISFIED ALL CONDITIONS GIVEN IN THE RELEVAN T NOTIFICATIONS REFERRED ABOVE, I HOLD THAT THE PROVISIONS OF SECTI ON 56(2)(VIIB) WOULD NOT BE APPLICABLE IN THE LIGHT OF CBDT NOTIFI CATION NO.45/2016 (SUPRA) AND SECTION 4 OF THE GAZETTE NOT IFICATION GSR 127(E) DATED 19.2.2019. THE ISSUE OF NON APPLIC ABILITY OF RULE 114A(2)(B) OF THE IT RULES IS THEREFORE BECOME S INFRUCTUOUS. SINCE THE AO HAS NOT GIVEN ANY FINDING ON THE SATISFACTION ABOUT THE GENUINENESS OF THE CREDIT WH ICH COULD BE ASSESSED U/S.68, THE ISSUE IS NOT ADJUDICATED. 10 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 9. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A) HAS ERRED IN DELETING ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS EXCESS SHARE PREMIUM CHARGED ON ISSUE OF S HARES BY INVOKING THE PROVISIONS OF SECTION 56(2)(VIIB) OF T HE ACT, BY HOLDING THAT THE ASSESSEE IS OUTSIDE SCOPE OF PROVI SIONS OF SECTION 56(2)(VIIB) OF THE ACT, WITHOUT CONSIDERING THE FACT THAT AS PER GAZETTE NOTIFICATION GSR NO. 127(E) DATED 1 9.02.2019 VIDE PARA NO.6, IF THE ASSESSEE ISSUES SHARES AT PR EMIUM BEFORE THE DATE OF NOTIFICATION I.E 19.2.2019, THE N PARA 4 OF SAID NOTIFICATION IS NOT APPLICABLE, HENCE THE ASSESSEE IS NOT OUTSIDE THE SCOPE OF SECTION 56(2)(VIIB) OF THE ACT. THE LE ARNED DR FURTHER SUBMITTED THAT ASSUMING FOR A MOMENT, THE ASSESSEE IS COVERED BY GAZETTE NOTIFICATION GSR NO. 127(E) DAT ED 19.02.2019, BUT FACT REMAINS THAT WHETHER IT HAS SA TISFIED CONDITIONS PRESCRIBED IN PARA 4 OF SAID NOTIFICATI ON OR NOT HAS TO BE SEEN. SINCE THE ASSESSEE HAS NOT BOUGHT OUT EVIDENCE BEFORE THE ASSESSING OFFICER AT THE TIME OF ASSESS MENT PROCEEDINGS, MATTER MAY BE SET ASIDE TO THE FILE O F THE ASSESSING OFFICER TO VERIFY FACTS WITH REFERENCE T O CBDT 11 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 CIRCULAR NO. 45/2016/F.NO.173/103/2016 AND GAZETTE NOTIFICATION GSR NO. 127(E) DATED 19.02.2019. 10. THE LEARNED A.R FOR THE ASSESSEE, ON THE OTHER HAND, STRONGLY SUPPORTING THE ORDER OF LEARNED CIT(A) SUB MITTED THAT THE LEARNED CIT(A) HAS RIGHTLY APPRECIATED THE FA CTS BY CONSIDERING CERTIFICATE ISSUED BY DIPP TO RECOGNIZE THE ASSESSEE AS A STARTUP COMPANY AND HELD THAT THE PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT DOES NOT APPLY WH ERE CONSIDERATION FOR ISSUE OF SHARES RECEIVED BY THE COMPANY FROM CLASS OF PERSONS NOTIFIED BY THE CENTRAL GOVER NMENT, SUBJECT TO OTHER SUCH CONDITIONS AS MAY BE SPECIFIE D. THE ASSESSEE HAS SATISFIED ALL CONDITIONS PRESCRIBED TO RECOGNIZE AS A STARTUP COMPANY AND AFTER CONSIDERING RELEVANT FA CTS, THE DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION, MINI STRY OF COMMERCE AND INDUSTRY, GOVT. OF INDIA HAS ISSUED A CERTIFICATE RECOGNIZING THE ASSESSEE AS A STARTUP COMPANY. THER EFORE, THE LEARNED CIT(A) HAS RIGHTLY HELD THAT THE ASSESSEE IS OUTSIDE THE SCOPE OF PROVISIONS OF SECTION 56(2)(VIIB) OF T HE ACT. THE LEARNED AR FURTHER REFERRING TO PAPER BOOK FILED BY THE ASSESSEE 12 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 SUBMITTED THAT THE CBDT VIDE ITS NOTIFICATION NO.17 3/354/2019 DATED 9 TH AUGUST, 2019 HAS CLARIFIED APPLICABILITY OF PARA 6 OF GAZETTE NOTIFICATION NO.127E DATED 19.02.2019, AFT ER CONSIDERING HARDSHIPS CONSIDERED BY STARTUP COMPANI ES INVOLVING APPLICATION OF SECTION 56(2)(VIIB) OF THE ACT AND CLARIFIED THAT SAID NOTIFICATION WILL BE APPLICABLE TO THOSE STARTUP COMPANIES ALSO, WHERE ADDITION U/S. 56(2)(VIIB) O F THE ACT HAS BEEN MADE IN ASSESSMENT ORDER UNDER THE INCOME TAX ACT BEFORE 19 TH FEBRUARY,2019, PROVIDED THE ASSESSEE HAS SPECIFICALLY SUBMITTED DECLARATION IN FORM NO.2 TH AT IT FULFILLED CONDITIONS MENTIONED IN PARA 4 OF THE ABOVE REFERRE D NOTIFICATION. THE ASSESSEE THEREAFTER, HAS FILED FO RM NO.2 IN PURSUANCE OF PARA 5 OF NOTIFICATION DATED 19.02.201 9 ON 23 RD AUGUST, 2019 AND IN RESPONSE, THE CBDT VIDE ITS NO TIFICATION F.NO.173/147/2019-ITA-1 DATED 28 TH AUGUST, 2019 HAS CLARIFIED THAT ASSESSEE IS A RECOGNIZED STARTUP AS PER DPIIT AND HENCE, IS OUTSIDE SCOPE OF PROVISIONS OF SECTION 56(2)(VII B) OF THE ACT. THEREFORE, HE SUBMITTED THAT THERE IS NO MERIT IN T HE ARGUMENTS OF THE LEARNED DR THAT THE ASSESSEES CASE IS NOT C OVERED 13 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 UNDER GAZETTE NOTIFICATION DATED 19.02.2019 AND IS VERY MUCH COVERED UNDER THE PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT. 11. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIA LS AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER HAS CHARGED EXCESS PRE MIUM COLLECTED ON ISSUE OF EQUITY SHARES FROM RESIDENT INDIVIDUALS U/S.56(2)(VIIB) OF THE ACT, AS INCOME OF THE ASSESS EE. THE PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT, DEALS WITH CASES WHERE A COMPANY, NOT BEING A COMPANY IN WHICH THE P UBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON BEING A RESIDENT, ANY CONSIDERATION FOR ISSU E OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGAT E CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS T HE FAIR MARKET VALUE OF THE SHARES SHALL BE CHARGEABLE TO TAX AS I NCOME OF THE ASSESSEE. THE PROVISO PROVIDED TO SECTION 56(2(VIIB ) HAS EXCLUDED CERTAIN CATEGORY OR CLASS OF COMPANIES FR OM APPLICATION ON FULFILLMENT OF CERTAIN CONDITIONS. FURTHER, FOR THIS PURPOSE NOTIFIED CLASS OF PERSONS HAS BEEN NOTIFIED BY CBD T VIDE ITS CIRCULAR NO.173/147/2018-ITA I DATED 06.02.2018, AS PER WHICH ANY STARTUP COMPANY AS RECOGNIZED BY DPIIT, MINISTR Y OF 14 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 COMMERCE & INDUSTRY, GOVT. OF INDIA IS OUTSIDE THE SCOPE OF PROVISIONS OF SECTION 56(2(VIIB) OF THE ACT. IN TH IS CASE, THE ASSESSEE HAS FILED NECESSARY EVIDENCES TO PROVE THA T IT IS A RECOGNIZED STARTUP FROM DPIIT. FURTHER, THE GAZETT E NOTIFICATION NO.GSR 127(E) DATED 19.02.2019 HAS EXEMPTED START UP COMPANIES FROM APPLICATION OF PROVISIONS OF SECTIO N 56(2(VIIB) OF THE ACT, PROVIDED SAID STARTUP COMPANIES ARE SATIS FIED CONDITIONS PRESCRIBED IN PARA 4 OF SAID NOTIFICATION. THE ASS ESSEE HAS FURNISHED A NOTIFICATION ISSUED BY CBDT VIDE REFER ENCE NO.230819001348 DATED 28 TH AUGUST, 2019 U/S. 56(2(VIIB) OF THE ACT, AS PER WHICH THE ASSESSEE HAS SATISFIED CONDI TIONS PRESCRIBED IN PARA 4 OF SAID NOTIFICATION AND FUR THER, THE ASSESSEE IS EXEMPTED FROM APPLICATION OF THE PROVISIONS OF SECTION 56(2(VIIB) OF THE ACT, ON THE AMOUNT RECEIVED ON C ONSIDERATION FOR ISSUE OF SHARES. THE LEARNED CIT(A), AFTER CONSIDER ING RELEVANT FACTS AND ALSO BY TAKING NOTE OF CIRCULAR ISSUED B Y CBDT VIDE NOTIFICATION NO.45/2016/F.NO.173/103/2016 AND ALSO GAZETTE NOTIFICATION NO.GSR 127(E) DATED 19.02.2019, HAS CA TEGORICALLY STATED THAT THE ASSESSEE IS EXEMPT FROM AMBIT OF SE CTION 56(2(VIIB) OF THE ACT AND HENCE, CONSIDERATION REC EIVED FOR ISSUE 15 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 OF SHARE CAPITAL AND SHARE PREMIUM IS OUTSIDE SCOP E OF SECTION 56(2(VIIB) OF THE ACT. HE FURTHER OBSERVED THAT SI NCE THE ASSESSEE IS OUTSIDE AMBIT OF SECTION 56(2(VIIB) OF THE ACT, ISSUE OF NON- APPLICABILITY OF RULE 11UA(2)(B) OF THE INCOME TAX RULES, 1962, THEREFORE, BECOME INFRUCTUOUS AND HENCE, THE QUEST ION OF SUBSTANTIATING VALUE OF SHARES DOES NOT ARISE. THER EFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LEARNED CIT(A) HAS RIG HTLY HELD THAT SHARE PREMIUM COLLECTED BY THE ASSESSEE FOR ISSUE OF SHARE CAPITAL IS OUTSIDE SCOPE OF THE PROVISIONS OF SECT ION 56(2(VIIB) OF THE ACT. 12. AS REGARDS ARGUMENTS OF THE LEARNED DR IN LIG HT OF PARA 6 OF GAZETTE NOTIFICATION GSR 127(E) DATED 19.02.201 9, WE FIND THAT THE CBDT, AFTER CONSIDERING HARDSHIPS FACED B Y STARTUP COMPANIES WITH REGARD TO APPLICATION OF SECTION 56 (2(VIIB) OF THE ACT, AS PER GAZETTE NOTIFICATION DATED 19.02.2019 , HAS ISSUED CLARIFICATORY NOTIFICATION DATED 9 TH AUGUST, 2019 AND CLARIFIED THAT SAID NOTIFICATION WILL BE APPLICABLE TO STARTUP COM PANIES ALSO WHERE ADDITION U/S. 56(2(VIIB) OF THE ACT HAS BEEN MADE IN AN ASSESSMENT ORDER BEFORE 19.02.2019, PROVIDED THE AS SESSEE HAS 16 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 SUBSEQUENTLY SUBMITTED DECLARATION IN FORM NO.2 THA T IT HAS SATISFIED CONDITIONS MENTIONED IN PARA 4 OF THE AB OVE REFERRED NOTIFICATION. IN THIS CASE, THE ASSESSEE HAS FILED FORM NO.2 IN PURSUANCE OF PARA 5 OF NOTIFICATION DATED 19.02.20 19 ON 23 RD AUGUST, 2019 AND IN RESPONSE, THE CBDT VIDE ITS N OTIFICATION DATED 28 TH AUGUST, 2019 HAS CLARIFIED THAT ASSESSEE IS A RECOGNIZED STARTUP FROM DPIIT AND FURTHER, THE PROV ISIONS OF SECTION 56(2(VIIB) OF THE ACT SHALL NOT APPLY TO THE ASSESSEE ON THE AMOUNTS RECEIVED AS CONSIDERATION FOR ISSUE OF SHARES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MERIT IN ARGUMENTS OF THE LEARNED DR THAT THE ASSESSEE IS O UTSIDE SCOPE OF GAZETTE NOTIFICATION DATED 19.02.2019 AND HENC E, SHARE PREMIUM ISSUED ON ISSUE OF SHARES IS COVERED U/S. 56(2(VIIB) OF THE ACT. IN THIS VIEW OF THE MATTER AND CONSIDERING FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERE D VIEW THAT ASSESSEE IS A RECOGNIZED STARTUP FROM DPIIT, MINIST RY OF COMMERCE & INDUSTRY, GOVT. OF INDIA AND HENCE, IT I S OUTSIDE SCOPE OF THE PROVISIONS OF SECTION 56(2(VIIB) OF T HE ACT, IN RESPECT OF CONSIDERATION RECEIVED FOR ISSUE OF SHARES AT PR EMIUM. THE LEARNED CIT(A), AFTER CONSIDERING RELEVANT FACTS H AS RIGHTLY 17 ITA NO.1562/CHNY/2019 & C.O. NO.83/CHNY/2019 DELETED ADDITIONS MADE BY THE ASSESSING OFFICER. H ENCE, WE ARE INCLINED TO UPHOLD FINDINGS OF THE LEARNED CIT(A) A ND DISMISS APPEAL FILED BY THE REVENUE. 13. THE ASSESSEE HAS FILED CROSS OBJECTION IN SUPPO RT OF ORDER OF THE LEARNED CIT(A). SINCE WE HAVE DISMISSED APPE AL FILED BY THE REVENUE, CROSS OBJECTION FILED BY THE ASSESSEE BECOMES INFRUCTUOUS AND HENCE, THE SAME IS DISMISSED AS NO T MAINTAINABLE. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE, 2021 SD/- SD/- ( . ) ( . ) (DUVVURU RL REDDY) (G.MANJUNATHA) $ & / JUDICIAL MEMBER & / ACCOUNTANT MEMBER /CHENNAI, ( /DATED 24 TH JUNE, 2021 DS $+,-, /COPY TO: APPELLANT 2. RESPONDENT 3. . () /CIT(A) 4. . /CIT 5. ,$$ /DR 6. 3 /GF .