Clearview Healthcare P.Ltd, Delhi V. ITO, Ward-6(2), New Delhi

ITA 2222/DEL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9951 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 13-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Share purchase agreement; Fair market value
• Section: 56(2); 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : SMC : NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 2222/DEL/2019 ASSESSMENT YEAR : 2014-15 M/S CLEARVIEW HEALTHCARE PVT. LTD., C/O KAPIL GOEL, ADV. F-26/124, SECTOR-7, ROHINI, DELHI 110 085 (PAN: AAECC0475A) VS. ITO, WARD 6(2), NEW DELHI (APPELLANT) ( RESPONDENT) ASSESSEE BY : SH. KAPIL GOEL, ADV. DEPARTMENT BY : SH. PRADEEP SINGH GAUTAM, SR.DR.. ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A)-33, NEW DELHI ON 15.10.2018 IN RE LATION TO THE ASSESSMENT YEAR 2014-15. 2. THE FACTS IN BRIEF ARE THAT ASSESSEE FILED ITS E-RETURN ON 17.11.2014 DECLARING LOSS OF RS. 16,285/-. THE RETURN OF THE ASSESE E WAS PROCESSED U/S. 143(1) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) ON 25.5.2015 AND THEREAFTER THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY THROUGH CASS. STATUTORY NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 28 .8.2015 AND DULY SERVED UPON THE ASSESSEE. IN RESPONSE TO THE SAME, THE AR OF THE ASSESSEE ATTENDED THE PROCEEDINGS AND FILED THE DETAILED AS CALL ED FOR. THE ASSESSEE COMPANY WAS INCORPORATED ON 29.1.2010. THE ASSESSEE COMPAN Y IS STATED TO BE ENGAGED IN THE BUSINESS OF SETTING UP ADVANCE MACHINES FOR DIAGNOSIS 2 AND TREATMENT OF CANCER IN ASSOCIATION WITH HOSPITALS ALL OVER INDIA. THE DETAILS FILED BY THE AR OF THE ASSESSEE WERE EXAMINED O N TEST CHECK BASIS WITH REFERENCE TO THE BOOKS OF ACCOUNTS PRODUCED. THEREA FTER, THE AO OBSERVED THAT THE DIFFERENCE BETWEEN THE SHARE PREMIU M RECEIVED IN EXCESS OF VALUATION AS DETERMINED UNDER RULE 11UA OF THE ACT AMOUNTING TO RS. 16 X 57,477 (SHARES ISSUED TO RESIDENT SHAREHOLDERS NAMELY S H. KAMAL BATRA, SH. PANKAJ SUDAN AND SH. PRAVIN JAIN) = RS. 9,19,632 /- WAS TREATED AS INCOME OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 56(2 )(VIIB) OF THE ACT AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE AS INCOME FROM OTHER SOURCES U/S. 56(2)(VIIB) OF THE ACT BY COMPLETING THE ASSESSM ENT AT RS. 9,03,350/- VIDE ORDER DATED 23.12.2016 PASSED U/S. 143 (3) OF THE ACT. AGAINST THE ASSESSMENT ORDER DATED 23.12.2016, ASSESSEE APP EALED BEFORE THE LD. CIT(A) WHO VIDE HIS IMPUGNED ORDER DATED 15. 10.2018 HAS DISMISSED THE APPEAL OF THE ASSESSEE BY HOLDING THAT AO WA S JUSTIFIED IN LIMITING THE PRICE OF SHARES OF THE COMPANY RS. 144/- ON LY AND HELD THAT THAT THE ADDITION OF RS. 9,19,632/- WAS JUSTIFIED. AGAINST T HE IMPUGNED ORDER, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. DURING THE HEARING, LD. COUNSEL FOR THE ASSESSEE STATE D THAT LOWER AUTHORITIES HAVE NOT APPRECIATED THAT ASSESSEE DOES NOT COM E WITHIN MISCHIEF OF STATED PROVISION AS MANIFEST FROM CURSORY LOOK TO EXPLANATORY MEMORANDUM TO FINANCE ACT, 2012 BY WHICH STATED PROVISIO N WAS BROUGHT INTO THE LAW AND STATED SHARE PREMIUM IS A CLEAN MONEY AND SO IS NOT COVERED WITHIN PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT (LEGISLATIVE INTENT IS TO APPLY SAID PROVISION WHERE MONEY RECEIVED IS NOT CLEAN AND IS UNACCOUNTED MONEY RECEIVED IN GARB OF SHARE PREMIUM WHE RE AS NO WHERE IT IS CASE OF REVENUE THAT STATED MONEY IS NOT CLEAN MONEY ). IT WAS FURTHER SUBMITTED THAT LD. CIT(A) ERRED IN CONFIRMING/SUSTAINI NG THE ADDITION MADE OF RS 9,19,632/- U/S 56(2)(VIIB) OF THE ACT IN PARA 8. 1 TO 8.4 OF HIS ORDER BY NOT APPRECIATING THAT GENUINENESS OF SHARE PREMIUM GETS ESTABLISHED FROM 3 IMPECCABLE FACT THAT AS FAR JUSTIFICATION OF SHARE PREMIU M OF HERE IS CONCERNED, THAT ON 01/12/2014 (DURING AY 2015-2016) S HARE OF CLEARVIEW HEALTHCARE PVT LTD WERE SOLD TO MEDIPASS SRL ITALY @ 3 80.53 PER SHARE (WHICH IN TURN VALUED SHARES OF CLEARMEDI HEALTHCARE PR IVATE LIMITED @ 615 PER SHARE ASSESSEE HEREIN) AND FOR WHICH NECESSARY COPY OF RESOLUTION DATED 20/12/2013 DULY ATTESTED BY NOTARY PUBLIC OF ITALY WE RE PURVEYED TO AO DURNG ASSESSMENT ITSELF AND IT WAS CATEGORICALLY STATED IN O UR REPLY THAT SAID TRANSACTION HAS ACTUALLY TAKEN PLACE AT AGREED RATE OF R S 380.53 PER SHARE OF CLEARVIEW HEALTHCARE PVT. LTD (RS 615 PER SHARE OF CLEA RMEDI HEALTHCARE PRIVATE LIMITED) FOR WHICH IN CONTINUATION TO SAME WE ARE RELYING ON , SHARE PURCHASE AGREEMENT DATED 20/03/2014 AND COPY OF INCOME TAX RETURN OF SELLER OF SHARES OF CLEARVIEW HEALTH CARE PVT LTD (SHAHSI BALIYAN)) ETC WHICH IS ON RECORDS FOR ADJUDICATION AS NECESSARY PLEA WAS DULY RA ISED TO AO. IT WAS FURTHER SUBMITTED THAT LD CIT(A) ERRED IN CONFIRMI NG/SUSTAINING THE ADDITION MADE OF RS 9,19,632 U/S 56(2)(VIIB) OF THE A CT IN PARA 8.1 TO 8.4 OF HIS ORDER BY NOT APPRECIATING THAT ONCE SHARE SALE/PURCH ASE DONE SUBSEQUENTLY IS CONSIDERED AT WHICH SHARES OF COMPANY ARE A CTUALLY TRANSACTED THEN IT WOULD NOT BE DIFFICULT TO ACCEPT THAT SHARE PREMIUM RECEIVED IN SUBJECT PERIOD IS FULLY AND COMPLETELY JUSTI FIED AND CANNOT BE INTERDICTED AS DONE BY AO. IT WAS FURTHER SUBMITTED TH AT LD CIT(A) ERRED IN NOT APPRECIATING THAT WHEN ADDITION OF RS 919,632 /- U/S 56(2)(VIIB) OF THE ACT WAS PALPABLY INCORRECT BECAUSE AFTER REJECTING ASSESSEES V ALUATION NO VALID SUBSTITUTE FOR CORRECT VALUATION HAS BEEN BROUGHT ON RECORDS AS REJECTING ASSESSEES VALUATION DOES NOT MEAN THAT TOTAL SH ARE PREMIUM IS AUTOMATICALLY TAXABLE U/S 56(2)(VIIB) AND AO IS OBLIGE D TO BRING ON RECORDS SUITABLE VALUATION AS PER EXTANT DCF METHOD BEFORE PR OCEEDING TO TAX SHARE PREMIUM. IT WAS FURTHER SUBMITTED THAT LD CIT(A) ERRE D IN NOT DECIDING THE APPEAL OF ASSESSEE ON ITS MERITS WHEN ADDITION OF RS 919, 632 /- U/S 56(2)(VIIB) OF THE ACT WAS PALPABLY INCORRECT BECAUSE OF FOLLOWING APPARENT 4 ERRORS AND DISCREPANCIES I.E. NON RESIDENTS WERE ISSUED THE SHARES AT SAME TIME AT SAME PREMIUM; AO HAS LIGHTLY DOUBTED AND REJE CTED THE EXPERT OPINION; SUBSEQUENTLY SAME SHARE HAVE BEEN SOLD TO ITAL IAN CO. AT MORE THAN DOUBLE RATE ON WHICH CAPITAL GAIN WAS OFFERED. HE FURTHER STATED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION O F THE ITAT, CHENAI A BENCH DECIDED IN ITA NOS.663, 664 & 665/CHNY/2019 IN CASE OF M/S LALITHAA JEWELLERY MART PVT. LTD DECIDED ON 14.06.20 19 AND PLACED THE COPY THEREOF AND REQUESTED TO DELETE THE ADDITION BY FOLL OWING THE SAME RATIO. 4. ON THE CONTRARY, LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELE VANT RECORDS ESPECIALLY THE ORDERS OF THE REVENUE AUTHORITIES AND TH E CASE LAW CITED BY LD. COUNSEL FOR THE ASSESSEE. I FIND THAT ASSESSEE HAS CONTINUOU SLY IMPRESSED ON ONE SIGNIFICANT BASIC FACTUAL ASPECT TO ESTABLISH THE CORRECTN ESS OF SHARE PREMIUM OBTAINED U/S 56(2)(VIIB) OF THE ACT BY STATING THAT ON 01/12/2014 (DURING AY 2015-2016) SHARE OF CLEARVIEW HEALTHCARE P VT LTD (ASSESSEE HEREIN) WERE SOLD TO MEDIPASS SRL ITALY @ 380.53 PER SH ARE (WHICH IN TURN VALUED SHARES OF CLEARMEDI HEALTHCARE PRIVATE LIMITED @ 615 PER SHARE) AND FOR WHICH NECESSARY COPY OF RESOLUTION DATED 20/12/2013 D ULY ATTESTED BY NOTARY PUBLIC OF ITALY WERE SUBMITTED TO AO DURING A SSESSMENT ITSELF AND IT WAS CATEGORICALLY STATED IN REPLY THAT THE SAID TRANSACTIO N HAS ACTUALLY TAKEN PLACED AT AGREED RATE OF RS 380.53 PER SHARE OF CLEARV IEW HEALTHCARE PVT LTD (RS 615 PER SHARE OF CLEARMEDI HEALTHCARE PRIVATE LIMI TED) (REFER ASSESSEES PAPER BOOK PAGES 143- 144 LETTER DATED 23.12.2016 AD DRESSED TO AO IN ASSESSMENT PROCEEDINGS, SAME REPLY IN LETTER TO AO DATED 1 9.12.2016 PAPER BOOK PAGES 153) CLEARLY JUSTIFIES INSTANT SHARE PREMIUM OF RS 150 PER SHARE AND AO WRONGLY ADDED RS 16 PER SHARE AS ALLEGED EXCESSIVE PREMIUM (WHICH AMOUNTED TO RS 919,632 IN AGGREGATE) WITHIN THE MEAN ING OF PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT (EXPLANATION TO SECTION 5 6(2)(VIIB) CLAUSE (II) 5 THEREOF WHERE JUDICIOUS SATISFACTION OF AO IS TALKED ABOU T). THIS PLEA OF ASSESSEE HAS CONSIDERABLE COGENCY. THE SECOND PLEA IS THAT W HEN ULTIMATELY SHARES ARE BOUGHT BY FOREIGN BUYER ON BASI S OF DETAILED DUE DILIGENCE WHICH IS REFLECTED FROM SHARE PURCHASE RESOLUTI ON AND SHARE PURCHASE AGREEMENT ALREADY PLACED ON RECORDS AND MONEY P AID FOR SHARE PURCHASE BY FOREIGN BUYER IS BEYOND SHADOW OF DOUBT IT CANNOT BE SAID THAT SUBSEQUENT MONEY WHICH IS PAID BY FOREIGN BUYER TO SHARE HOLDERS SELLERS IN INDIA WHO HAVE SUBSCRIBED SHARE AT PREMIUM IN SUBJECT PER IOD IS NOT A CLEAN MONEY WHICH DEFENSE OF ASSESSEE ALSO HAS CONSIDERABLE COGENC Y. FURTHER, PLEA OF ASSESSEE THAT ONCE ASSESSEE HAS GIVEN APPROVED VALUER (CA) REPORT JUSTIFYING SHARE PREMIUM RAISED WHICH IS BASED ON VALID AND PRESCRIBED METHOD BEING DCF AND SAID REPORT IS IN ACCORDANCE WITH I CAI NORMS AND NO WHERE AO HAS COUNTERED SAID REPORT BY SUBSTITUTE VALUATI ON FROM ALTERNATE EXPERT ON BASIS OF CHOSEN DCF METHOD AND ASSESSEES VALUATIO N IS JUSTIFIED BY SUBSEQUENT SALE/PURCHASE AND THERE IS NO UNACCOUNTED MON EY INVOLVED EVEN REMOTELY, I FIND THAT THE SAME IS NOT TENABLE AN D THE ADDITION MADE BY AO U/S 56(2)(VIIB) READ WITH RULE 11UA IS HELD TO BE UNLAWFUL. FURTHER PLEA OF ASSESSEE THAT ASSESSEE DOES NOT COME WITHIN MISCHIEF OF STATED PROVISION AS MANIFEST FROM CURSORY LOOK TO EXPLANATORY MEMORANDUM T O FINANCE ACT, 2012 BY WHICH STATED PROVISION WAS BROUGHT INTO THE LA W AND STATED SHARE PREMIUM IS A CLEAN MONEY AND SO IS NOT COVERED WITHIN P ROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT (LEGISLATIVE INTENT IS TO APPLY SAID PROVISION WHERE MONEY RECEIVED IS NOT CLEAN AND IS UNACCOUNTED MONEY RE CEIVED IN GARB OF SHARE PREMIUM WHERE AS NO WHERE IT IS CASE OF REVENUE TH AT STATED MONEY IS NOT CLEAN MONEY. FOR THE SAKE OF CONVENIENCE, I AM REPR ODUCING THE LEGISLATIVE INTENT BEHIND SECTION 56(2)(VIIB) INSERTED BY FINANCE ACT 2012 AS UNDER:- AS PER MEMORANDUM EXPLAINING PROVISIONS TO FINANCE BIL L 2012: 6 .SHARE PREMIUM IN EXCESS OF THE FAIR MARKET VALUE TO BE TREATED AS INCOME SECTION 56(2) PROVIDES FOR THE SPECIFI C CATEGORY OF INCOMES THAT SHALL BE CHARGEABLE TO INCOME-TA X UNDER THE HEAD INCOME FROM OTHER SOURCES. IT IS PROPO SED TO INSERT A NEW CLAUSE IN SECTION 56(2). THE NEW CLAUSE WILL APPLY WHERE A COMPANY, NOT BEING A COMPANY IN WHICH TH E PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PR EVIOUS YEAR, FROM ANY PERSON BEING A RESIDENT, ANY CONSIDERAT ION FOR ISSUE OF SHARES. IN SUCH A CASE IF THE CONSIDERATION RECEIVED FOR ISSUE OF SHARES EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES SHALL BE CHARGEABL E TO INCOMETAX UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, THIS PROVISION SHALL NOT APPLY WHERE THE CONSIDERATION FOR ISSUE OF SHARES IS RECEIVED BY A VENTURE CAPITAL UNDERTAKING FROM A VENTURE CAPITAL COMPANY OR A VENTURE CAPITAL FUND. FURTHER, IT IS ALSO PROPOSED TO PROVIDE THE COMPANY AN OPPORTUNITY TO SUBSTANTIATE ITS CLAIM REGARDING THE FAIR MARKET VALUE. ACCORDINGLY, IT IS PR OPOSED THAT THE FAIR MARKET VALUE OF THE SHARES SHALL BE THE HIGHER OF THE VALUE (I) AS MAY BE DETERMINED IN ACCORDANCE WITH THE METHOD AS MAY BE PRESCRIBED; OR (II) AS MAY BE SUBSTANTIA TED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER , BASED ON THE VALUE OF ITS ASSETS, INCLUDING INTANGIBLE ASSETS, BEING GOODWILL, KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THIS AMENDMENT WILL TAKE EFF ECT FROM 1ST APRIL, 2013 AND WILL, ACCORDINGLY, APPLY IN RELATI ON TO THE 7 ASSESSMENT YEAR 2013- 14 AND SUBSEQUENT ASSESSMENT YEARS 5.1 I FURTHER FIND THAT THE ISSUE IN DISPUTE IS SQUAREL Y COVERED BY THE DECISION OF THE ITAT A CHENNAI BENCH DECIDED IN ITA N OS.663, 664 & 665/CHNY/2019 IN CASE OF M/S LALITHAA JEWELLERY MART PVT. LTD DECIDED ON 14.06.2019 WHEREIN, IT WAS HELD THAT: 15. NOW COMING TO VALUATION OF SHARES, AS RIGHTLY SUB MITTED BY THE LD. COUNSEL FOR THE ASSESSEE, THERE ARE TWO LIMBS IN SECTION56(2)(VIIB) OF THE ACT. AS PER EXPLANATION TO SECTION 56(2)(VIIB) OF THE ACT, THE FIRST LIMB IS VALUATION T O BE MADE AS PER THE PRESCRIBED METHOD. IN FACT, THE METHOD FOR V ALUATION OF SHARES IS PRESCRIBED UNDER RULE 11UA OF THE INCOME-TAX RU LES, 1962. THE SECOND LIMB IS THE VALUATION OF THE COMPANY B ASED ON VALUE ON THE DATE OF ISSUE INCLUDING ITS ASSETS. ASSETS IN CLUDE INTANGIBLE ASSETS SUCH AS GOODWILL, KNOWHOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES, ETC. THE A SSESSING OFFICER HAS NOT TAKEN INTO CONSIDERATION THE SECOND LIMB IN EXPLANATION TO SECTION 56(2)(VIIB) OF THE ACT. THE SECO ND LIMB PROVIDES THAT WHEN VALUATION WAS MADE BY THE COMPANY, IF THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE VALUATION, HE HAS TO CALL FOR MATERIAL FROM THE ASSESSEE HOW THE VALUATION WA S MADE BY THE ASSESSEE-COMPANY. SATISFACTION OF THE ASSESSING OFFICER AS REFERRED IN EXPLANATION TO SECTION 56(2)(VIIB) OF THE ACT WOULD BE JUDICIAL SATISFACTION OF THE ASSESSING OFFICER. JUDICIAL SATISFACTION MEANS THE ASSESSING OFFICER HAS TO TAKE INTO CONSIDERATION THE WELL ESTABLISHED METHOD OF VALUATION OF SHARES INCLUDING THE ASSETS AS EXPLAINED IN EXPLANATION 2 TO SE CTION 56(2)(VIIB) OF THE ACT. IT CANNOT BE ARBITRARY. THE A SSESSING OFFICER HAS TO TAKE NOTE OF THE JUDICIAL AND ESTABLISH ED PRINCIPLES IN ARRIVING AT HIS SATISFACTION. IN THIS CASE, THE ASSESSING OFFICER HAS NOT FOUND ANY SPECIFIC FAULT IN REJECTING OR NOT SA TISFYING WITH THE VALUATION MADE BY THE ASSESSEE. WHEN THE ASSESSING OFFI CER HAS NOT FOUNDANY DEFECT OR ERROR IN THE VALUATION OF SHARES BY THE ASSESSEE COMPANY, IT MAY NOT BE NECESSARY TO APPLY THE METHOD OF VALUATION PRESCRIBED UNDER RULE 11UA OF THE I.T. RULES. THEREFORE, THIS TRIBUNAL IS UNABLE TO UPHOLD TH E VALUATION MADE BY THE ASSESSING OFFICER UNDER RULE 11UA OF THE IN COME- TAX RULES, 1962. 8 5.2 KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND BY APPLYING THE PRINCIPLES FROM THE AFORESAID DECISION AND LEGISLATIVE INTENT BEHIND INSERTION OF SECTION 56(2)(VIIB), I HOLD THAT ADDITION MADE BY AO ON ACCOUNT OF ALLEGED EXCESS SHARE PREMIUM IS UNJUSTIFIED WHEN THOSE VERY SHARES ARE SOLD IN NEXT FINANCIAL YEAR AT MUCH HIGHER AM OUNT AFTER PROPER DUE DILIGENCE, THAT TO A NON RESIDENT BUYER AND FURTH ER THERE IS NO CASE OF UNACCOUNTED MONEY BEING BROUGHT IN GARB OF STATED SHARE PREMIUM, HENCE, ADDITION MADE U/S 56(2)(VII) OF THE ACT IS HEREBY DEL ETED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED ON 03-01-2020. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATED: 03-01-2020 SRB COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.