GRAMEEN IMPACT INVESTMENT INDIA PVT LTD, MUMBAI V. NATIONAL -E ASSESSMENT CENTRE , DELHI

ITA 2375/MUM/2022

AI Insights

The case involves multiple appeals by Grameen Impact Investments India Pvt. Ltd. against the orders of the National Faceless Appeal Centre (NFAC) for the assessment years 2015-16, 2016-17, and 2018-19. The primary issues in these appeals included the violation of principles of natural justice and additions made under section 56(2)(viib) and disallowances under section 40A(2)(b) of the Income Tax Act, 1961. The Tribunal noted that the CIT(A) had not considered the assessee's submissions and had passed the orders ex-parte, leading to the decision to remand the matter back for a fresh decision.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 123550 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: G
• Next Hearing Date: 18-12-2022
• Assessment Year: 2018-2019
• Appeal Filed On: 18-09-2022
• Other Referred Cases: CIT v. Chandrie & Co. P. Ltd [1995] 212 ITR 63 (Mad.), J K Woollen Manufacturers v. CIT [1972] 72 ITR 612 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATYAPAL KUMAR
• Assessee Lawyers: SHASHI
• Keywords: Business expenditure; Principle of natural justice; Fair market value; Capital expenditure
• Section: 37; 56; 142(1); 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI BEFORE SHRI ABY T VARKEY (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 2375/MUM/2022 Assessment Year: 2018-19 Grameen Impact Investments India Pvt. Ltd., 306, 3 rd floor, A Wing, Devroop Building, 36, Turner Road, Bandra West, Mumbai-400050. Vs. National-e-Assessment Centre, New Delhi-110 001. PAN No. AAACR 9005 R Appellant Respondent Assessee by : Mr. K. Shivaram & Mr. Shashi Bekal, ARs Revenue by : Mr. Satyapal Kumar, DR Date of Hearing : 19/12/2022 ITA No. 2641/MUM/2022 Assessment Year: 2015-16 & ITA No. 2640/MUM/2022 Assessment Year: 2016-17 Grameen Impact Investments India Pvt. Ltd., 306, 3 rd floor, A Wing, Devroop Building, 36, Turner Road, Bandra West, Mumbai-400050. Vs. Dy. CIT-13(3)(1), Room No. 229, Aayakar Bhavan, M.K. Road, Mumbai-400050. PAN No. AAACR 9005 R Appellant Respondent Assessee by Revenue by Date of Hearing Date of pronouncement PER OM PRAKASH KANT, AM These appeals by the assessee have been preferred against separate orders dated 21.07.2022 Ld. Commissioner Income Centre (NFAC), Delhi (in short ‘the Ld. CIT(A)’] 2018-19; 2015-16 & 2016 2. The issue raised in these appeals are set of facts and circumstances and therefore, same were heard together and disposed off by way of this common order for convenience and avoid repetition of facts. 2.1 We take up 2375/M/2022 for assessment ye grounds raised by the assessee for assessment year 2018 reproduced as under: 1. Violation of Principles of Natural Justice That on the facts and circumstances of the case and in law, the National Faceless Appeal Centre (NFAC) has Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 Assessee by : Mr. K. Shivaram & Mr. Shashi Bekal, ARs : Mr. Abi Rama Karthikeyan Date of Hearing : 28/12/2022 Date of pronouncement : 29/12/2022 ORDER PER OM PRAKASH KANT, AM These appeals by the assessee have been preferred against dated 21.07.2022 and 24.08.2022 passed by the Ld. Commissioner Income-tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi (in short ‘the Ld. CIT(A)’] for assessment years 16 & 2016-17 respectively. The issue raised in these appeals are permeating facts and circumstances and therefore, same were heard together and disposed off by way of this common order for convenience and avoid repetition of facts. up the appeal of the assessee in ITA No. 2375/M/2022 for assessment year 2018-19 as the lead case. The grounds raised by the assessee for assessment year 2018 reproduced as under: 1. Violation of Principles of Natural Justice That on the facts and circumstances of the case and in law, the National Faceless Appeal Centre (NFAC) has Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 2 Mr. K. Shivaram & Mr. Shashi Abi Rama Karthikeyan, DR These appeals by the assessee have been preferred against and 24.08.2022 passed by the National Faceless Appeal for assessment years permeating from same facts and circumstances and therefore, same were heard together and disposed off by way of this common order for the appeal of the assessee in ITA No. 19 as the lead case. The grounds raised by the assessee for assessment year 2018-19 are That on the facts and circumstances of the case and in law, the National Faceless Appeal Centre (NFAC) has erred in passing an ex Appellant an opportunity of being heard which is in violation of Principles of Natural Justice Partem. 2. Addition under section 56 (2)(viib) of the Income 1961(Act) That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 56 (2)(viib) of the Act to the tune and deserves to be deleted. 2.2 Without prejudice, that on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327/ (2)(viib) of the Act shall not apply when a portion the shares are issued to a non capital company/ fund. 2.3 That on the facts and circumstances of the case and in law, the NFAC has erred in confirming section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327 / - without appreciating the commercial rationale of the transaction. 2.4 That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addit section 56 (2)(viib) of the without appreciating the fact that the shares of the Appellant were valued at Rs. 24.86/ Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 erred in passing an ex-parte order without giving the Appellant an opportunity of being heard which is in violation of Principles of Natural Justice i.e., Audi Alteram Addition under section 56 (2)(viib) of the Income That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327/ and deserves to be deleted. 2.2 Without prejudice, that on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327/- without appreciating the fact that 56 (2)(viib) of the Act shall not apply when a portion the shares are issued to a non-resident and to a venture capital company/ fund. 2.3 That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327 / without appreciating the commercial rationale of the 2.4 That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327/ without appreciating the fact that the shares of the Appellant were valued at Rs. 24.86/- per share when Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 3 parte order without giving the Appellant an opportunity of being heard which is in i.e., Audi Alteram Addition under section 56 (2)(viib) of the Income-tax Act, That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under of Rs. 39,99,327/- 2.2 Without prejudice, that on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 56 (2)(viib) of the Act to the tune reciating the fact that 56 (2)(viib) of the Act shall not apply when a portion the resident and to a venture 2.3 That on the facts and circumstances of the case and in the addition under section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327 / without appreciating the commercial rationale of the 2.4 That on the facts and circumstances of the case and in ion under Act to the tune of Rs. 39,99,327/- without appreciating the fact that the shares of the per share when being bought by Grameen Capital India Limited from IFMR Capital. 3. Disallowan the Act That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,988/ 3.1. That on the fact in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,988/ director/CEO without appreciating that the same is required for business exigencies and no part of the payment is excessive. 3.2. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,9 director/CEO without appreciating the role played by the said director in the Appellant 3.3. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,988/ director/CEO without appreciating the judicial precedent Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 being bought by Grameen Capital India Limited from IFMR 3. Disallowance under section 40A(2)(b) of the Act of That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,988/-. 3.1. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,988/- on account of salary paid to the director/CEO without appreciating that the same is uired for business exigencies and no part of the payment is excessive. 3.2. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,988/- on account of salary paid to the director/CEO without appreciating the role played by the said director in the Appellant-company. 3.3. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition ion 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,988/- on account of salary paid to the director/CEO without appreciating the judicial precedent Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 4 being bought by Grameen Capital India Limited from IFMR ce under section 40A(2)(b) of the Act of That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of Rs. s and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of on account of salary paid to the director/CEO without appreciating that the same is uired for business exigencies and no part of the 3.2. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of on account of salary paid to the director/CEO without appreciating the role played by the 3.3. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition ion 40A(2)(b) of the Act of the Act to the tune of on account of salary paid to the director/CEO without appreciating the judicial precedent laid down by the jurisdictional Income tax Appellate Tribunal in the Appellant's group company's 3.4. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act Rs. 2,98,20,988/ profit requirement und remuneration to its directors/KMPs. 3.5. That on the facts and circumstances of the case and in law, the addition of Rs 2,98,20,988/ CIT(A)(NFAC) may be directed to be deleted. 3. At the outset, the Ld. the Ld. CIT(A) has not considered the submission of the assessee and order has been passed remitted back to the Ld. CIT(A) for deciding the order afresh after taking into considerat 4. The Ld. Departmental Representative (DR) did not object seriously to the prayer of the Ld. Counsel of the assessee. 5. We have heard rival submissions and perused the relevant material on record. We find that the Ld. CI the grounds raised by the assessee on the issue of addition u/s 56(2)(viia) amounting to 40A(2)(b) of the Act amounting to rs.2,98,20,988/ Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 laid down by the jurisdictional Income tax Appellate Tribunal in the Appellant's group company's case. 3.4. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,988/- without appreciating that there is no profit requirement under section 37 of the Act for paying remuneration to its directors/KMPs. 3.5. That on the facts and circumstances of the case and in law, the addition of Rs 2,98,20,988/- confirmed by the CIT(A)(NFAC) may be directed to be deleted. At the outset, the Ld. Counsel of the assessee submitted that the Ld. CIT(A) has not considered the submission of the assessee order has been passed ex-parte, therefore, remitted back to the Ld. CIT(A) for deciding the order afresh after taking into consideration submission of the assessee. The Ld. Departmental Representative (DR) did not object seriously to the prayer of the Ld. Counsel of the assessee. We have heard rival submissions and perused the relevant We find that the Ld. CIT(A) while adjudicating the grounds raised by the assessee on the issue of addition u/s 56(2)(viia) amounting to ₹39,99,327/- and disallowance u/s 40A(2)(b) of the Act amounting to rs.2,98,20,988/ Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 5 laid down by the jurisdictional Income tax Appellate 3.4. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition of the Act to the tune of without appreciating that there is no er section 37 of the Act for paying 3.5. That on the facts and circumstances of the case and confirmed by the Counsel of the assessee submitted that the Ld. CIT(A) has not considered the submission of the assessee matter may be remitted back to the Ld. CIT(A) for deciding the order afresh after ion submission of the assessee. The Ld. Departmental Representative (DR) did not object seriously to the prayer of the Ld. Counsel of the assessee. We have heard rival submissions and perused the relevant T(A) while adjudicating the grounds raised by the assessee on the issue of addition u/s and disallowance u/s 40A(2)(b) of the Act amounting to rs.2,98,20,988/-, has only referred to the finding of the Assessing Officer only. The relevant finding of the Ld. CIT(A) is reproduced as under: 8. This ground of appeal challenges the addition of Rs. 39,99,3271-made by the AO us 56 (2) (viib) of the Act on account of share money application. 8.1 The AO in h has stated that: 7. The reply of the assessee has been carefully gone through. On perusal of the submissionand the case laws mentioned by the assessee, the following observation is stated as under: 7A. regarding case 212 ITR 63 (Mad.) The above-mentioned case law is not applicable in this case as it is not related to the issue as per Para 1 and Para 2 of the judgement. The relevant portion of judgement is reproduced bel 1. At the instance of the Revenue, the following question of law has been referred to Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 24,000, paid to the ex was an admissible deduction under the provisions of the Income-tax Act, 1961 ?" Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 the finding of the Assessing Officer and relevant sections only. The relevant finding of the Ld. CIT(A) is reproduced as under: 8. This ground of appeal challenges the addition of Rs. made by the AO us 56 (2) (viib) of the Act on account of share money application. The AO in his assessment order dated 08/03/2021 that:- 7. The reply of the assessee has been carefully gone through. On perusal of the submissionand the case laws mentioned by the assessee, the following observation is stated as under:- 7A. regarding case law CIT v. Chandrie & Co. P. Ltd [1995] 212 ITR 63 (Mad.) (HC): mentioned case law is not applicable in this case as it is not related to the issue as per Para 1 and Para 2 of the judgement. The relevant portion of judgement is reproduced below: 1. At the instance of the Revenue, the following question of law has been referred to us: Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 24,000, paid to the ex-working director, S. Venkataraman, was an admissible deduction under the provisions of the tax Act, 1961 ?" Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 6 and relevant sections only. The relevant finding of the Ld. CIT(A) is reproduced as under: 8. This ground of appeal challenges the addition of Rs. made by the AO us 56 (2) (viib) of the Act on is assessment order dated 08/03/2021 7. The reply of the assessee has been carefully gone through. On perusal of the submissionand the case laws mentioned by the assessee, the following observation is law CIT v. Chandrie & Co. P. Ltd [1995] mentioned case law is not applicable in this case as it is not related to the issue as per Para 1 and Para 2 of the judgement. The relevant portion of the 1. At the instance of the Revenue, the following question of Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. ataraman, was an admissible deduction under the provisions of the 2. The facts leading to this reference stated briefly are: The assessee, a private limited company, while computing the total income of the company for the assessment 1971-72 claimed deduction of the sum of Rs. 24,000 said to be the gratuity paid to its ex Venkataraman. This claim, though initially allowed by the Income-tax Officer, was subsequently withdrawn by him after reassessment made claim was disallowed on the ground that the payment of gratuity to the director was an exgratia payment; that at the time the director joined service, he had no expectation of receiving gratuity, and that the payment made to was not based upon commercial expediency. The Appellate Assistant Commissioner having concurred with the view of the Income matter on appeal to the Tribunal." From the above, it is crystal clear that the issue is gr the company to its ex 7B. Regarding case law J K Woollen Manufacturers v. CIT [1972] 72 /TR 612 (SC): The relevant portion of the judgement is reproduced below: "Whether in the circumstances of the 37,733 paid to the General Manager Shri J.P. Vaish, which has been disallowed by the income was an amount laid out or expended wholly or exclusively for the purpose of the business of the assessee?" Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 2. The facts leading to this reference stated briefly are: The assessee, a private limited company, while computing the total income of the company for the assessment 72 claimed deduction of the sum of Rs. 24,000 said to be the gratuity paid to its ex-working director, Sri S. Venkataraman. This claim, though initially allowed by the tax Officer, was subsequently withdrawn by him after reassessment made pursuant to an audit note. The claim was disallowed on the ground that the payment of gratuity to the director was an exgratia payment; that at the time the director joined service, he had no expectation of receiving gratuity, and that the payment made to was not based upon commercial expediency. The Appellate Assistant Commissioner having concurred with the view of the Income-tax Officerthe assessee took up the matter on appeal to the Tribunal." From the above, it is crystal clear that the issue is gratuity payment made by the company to its ex-director which is allowable or not. 7B. Regarding case law J K Woollen Manufacturers v. CIT [1972] 72 /TR 612 (SC): The relevant portion of the judgement is reproduced below: "Whether in the circumstances of the case, the sum of Rs. 37,733 paid to the General Manager Shri J.P. Vaish, which has been disallowed by the income-tax Appellate Tribunal was an amount laid out or expended wholly or exclusively for the purpose of the business of the assessee?" Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 7 2. The facts leading to this reference stated briefly are: The assessee, a private limited company, while computing the total income of the company for the assessment year 72 claimed deduction of the sum of Rs. 24,000 said working director, Sri S. Venkataraman. This claim, though initially allowed by the tax Officer, was subsequently withdrawn by him pursuant to an audit note. The claim was disallowed on the ground that the payment of gratuity to the director was an exgratia payment; that at the time the director joined service, he had no expectation of receiving gratuity, and that the payment made to him was not based upon commercial expediency. The Appellate Assistant Commissioner having concurred with tax Officerthe assessee took up the matter on appeal to the Tribunal." From the above, it is atuity payment made by director which is allowable or not. 7B. Regarding case law J K Woollen Manufacturers v. CIT The relevant portion of the judgement is reproduced below: case, the sum of Rs. 37,733 paid to the General Manager Shri J.P. Vaish, which tax Appellate Tribunal was an amount laid out or expended wholly or exclusively J.K. Woollen Tax, U.P on 2 August, 1968 By its judgment, dated May 22, 1962, the High Court answered the question against the assessee. Against the judgment of the High Court the present appeal is brought by special Section 10(2)(x) and 10(2)(×v) of the Income Tax Act. 1922 at the relevant time read as follows: 10(2) (x): any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission: Provided that the amount of the bonus or commission is of a reasonable amount with reference to (a) the pay of the/employee and the conditions of his service; (b) the profits of the business. profession or vocation the year in question; and (e) the general practice in similar business profession or vocations;10(2)(×v): Any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly or exclusively f purpose of such business, profession or vocation." It was contended on behalf of the assessee that in the circumstances of this case the amount of Rs.37,733 paid to Shri J. P. Vaish was an amount laid out or expended Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 J.K. Woollen Manufacturers vs Commissioner of Income Tax, U.P on 2 August, 1968 By its judgment, dated May 22, 1962, the High Court answered the question against the assessee. Against the judgment of the High Court the present appeal is brought by special leave n 10(2)(x) and 10(2)(×v) of the Income Tax Act. 1922 at the relevant time read as follows: 10(2) (x): any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it ad not been paid as bonus or commission: Provided that the amount of the bonus or commission is of a reasonable amount with reference to- (a) the pay of the/employee and the conditions of his (b) the profits of the business. profession or vocation the year in question; and ) the general practice in similar business profession or vocations;10(2)(×v): Any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly or exclusively f purpose of such business, profession or vocation." It was contended on behalf of the assessee that in the circumstances of this case the amount of Rs.37,733 paid to Shri J. P. Vaish was an amount laid out or expended Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 8 Manufacturers vs Commissioner of Income- By its judgment, dated May 22, 1962, the High Court Against the judgment of the High Court the present appeal n 10(2)(x) and 10(2)(×v) of the Income Tax Act. 1922 10(2) (x): any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it ad not been paid as bonus or commission: Provided that the amount of the bonus or commission is of a reasonable (a) the pay of the/employee and the conditions of his (b) the profits of the business. profession or vocation for ) the general practice in similar business profession or vocations;10(2)(×v): Any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly or exclusively for the purpose of such business, profession or vocation." It was contended on behalf of the assessee that in the circumstances of this case the amount of Rs.37,733 paid to Shri J. P. Vaish was an amount laid out or expended wholly or exclusively for the pu assessee and was wrongly disallowed by the Income Tax Appellate Tribunal. It was pointed out that Shri was in no way related to the proprietors of the firm and the commission on profits clause was inserted to create the interest of Shri J.P. Vaish in the running of the mill which was "old and unbalanced" and had never worked continuously or satisfactorily before it was taken over by the assessee. Therefore, it is clear from the judgement that Shri J.P. Vaish is in no The above-mentioned case law is not applicable in this case as it is not similar to the issue regarding applicability of section 40A(2)(b) of the I.T.Act, 1961 i.e. payments to the person where employer and employee are re In this case, the issue is applicability of section 40(A)(2)(b) of the Income Tax Act, 1961 as employer and Director of the company are the same person as well as related person. 7C. Regarding case law CIT[1951] 20 ITR 1 (SC) The above-mentioned case law is not applicable in this case as the Hon'ble Supreme Court Judgement was on the issue regarding the applicability of section 12(2) of the Indian Income Tax Act (XI of 1922), "Business expenditure -Interest on de taking over shares and giving debentures to shareholder Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 wholly or exclusively for the purpose of the business of the assessee and was wrongly disallowed by the Income Tax Appellate Tribunal. It was pointed out that Shri J.P. Vaish was in no way related to the proprietors of the firm and the commission on profits clause was inserted to create the interest of Shri J.P. Vaish in the running of the mill which was "old and unbalanced" and had never worked continuously or satisfactorily before it was taken over by the assessee. Therefore, it is clear from the judgement that Shri J.P. Vaish is in no way a related person of the firm. mentioned case law is not applicable in this case as it is not similar to the issue regarding applicability of section 40A(2)(b) of the I.T.Act, 1961 i.e. payments to the person where employer and employee are related person. In this case, the issue is applicability of section 40(A)(2)(b) of the Income Tax Act, 1961 as employer and Director of the company are the same person as well as related 7C. Regarding case law Eastern Investment Co. Ltd. v. 20 ITR 1 (SC) mentioned case law is not applicable in this case as the Hon'ble Supreme Court Judgement was on the issue regarding the applicability of section 12(2) of the Indian Income Tax Act (XI of 1922), "Business expenditure Interest on debentures-Reducing capital of company by taking over shares and giving debentures to shareholder Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 9 rpose of the business of the assessee and was wrongly disallowed by the Income Tax J.P. Vaish was in no way related to the proprietors of the firm and the commission on profits clause was inserted to create the interest of Shri J.P. Vaish in the running of the mill which was "old and unbalanced" and had never worked continuously or satisfactorily before it was taken over by Therefore, it is clear from the judgement that Shri way a related person of the firm. mentioned case law is not applicable in this case as it is not similar to the issue regarding applicability of section 40A(2)(b) of the I.T.Act, 1961 i.e. payments to the lated person. In this case, the issue is applicability of section 40(A)(2)(b) of the Income Tax Act, 1961 as employer and Director of the company are the same person as well as related Eastern Investment Co. Ltd. v. mentioned case law is not applicable in this case as the Hon'ble Supreme Court Judgement was on the issue regarding the applicability of section 12(2) of the Indian Income Tax Act (XI of 1922), "Business expenditure- Reducing capital of company by taking over shares and giving debentures to shareholder-- Income of company reduced whether allowable. 8. Therefore, considering the facts and circumstances of the case, the explanation of the no.1 of the Show ITBA/AST/F/143(3) (SCN)/2020 Regarding applicability of section 56(2)(viib) of the Income Tax Act, 1961 is not acceptable, therefore addition is made us. 56(2)(viib) of amounting to Rs.39,99,327/ discussion: As per the submission, in compliance to notice us. 142(1) of the I.T. Act, 1961 that, it appears that the assessee company has allotted 9089380 nos. of equity sh assessee company with a face value of Rs.10/ premium thereon of Rs. 14.86/ received of Rs.22,59,61,988/ premium thereon 9089380. As per the submission regarding valuation certificate dated 12.10.2017 prepared by Shreya Thareja & Co., valuing the Fair Market Value of the shares is Rs.24.42 per equity share under the DCF valuation method. Therefore, allotment of 9089380 nos. of equityshares of the assessee company over and above its Fair M Value by Rs.0.44=(Rs.24.86 consideration of Rs.39,99,327 =(9089380 X 0.44) received by the assessee company as share application is added Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 Income of company reduced--Interest on debentures, whether allowable. 8. Therefore, considering the facts and circumstances of the case, the explanation of the assessee regarding Point no.1 of the Show-cause Notice vide DIN: ITBA/AST/F/143(3) (SCN)/2020-21/1030792378(1) i.e. Regarding applicability of section 56(2)(viib) of the Income Tax Act, 1961 is not acceptable, therefore addition is made us. 56(2)(viib) of the Income Tax Act, 1961 is made amounting to Rs.39,99,327/- as per the following As per the submission, in compliance to notice us. 142(1) of the I.T. Act, 1961 that, it appears that the assessee company has allotted 9089380 nos. of equity shares of the assessee company with a face value of Rs.10/ premium thereon of Rs. 14.86/- per share and reported received of Rs.22,59,61,988/- being the share capital with premium thereon 9089380. As per the submission regarding valuation certificate ted 12.10.2017 prepared by Shreya Thareja & Co., valuing the Fair Market Value of the shares is Rs.24.42 per equity share under the DCF valuation method. Therefore, allotment of 9089380 nos. of equityshares of the assessee company over and above its Fair M Value by Rs.0.44=(Rs.24.86-Rs.24.42) and the excess consideration of Rs.39,99,327 =(9089380 X 0.44) received by the assessee company as share application is added Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 10 debentures, 8. Therefore, considering the facts and circumstances of assessee regarding Point cause Notice vide DIN: 21/1030792378(1) i.e. Regarding applicability of section 56(2)(viib) of the Income Tax Act, 1961 is not acceptable, therefore addition is made the Income Tax Act, 1961 is made as per the following As per the submission, in compliance to notice us. 142(1) of the I.T. Act, 1961 that, it appears that the assessee ares of the assessee company with a face value of Rs.10/- and per share and reported being the share capital with As per the submission regarding valuation certificate ted 12.10.2017 prepared by Shreya Thareja & Co., valuing the Fair Market Value of the shares is Rs.24.42 per equity share under the DCF valuation method. Therefore, allotment of 9089380 nos. of equityshares of the assessee company over and above its Fair Market Rs.24.42) and the excess consideration of Rs.39,99,327 =(9089380 X 0.44) received by the assessee company as share application is added back to the total income us.56(2)(viib) of the Income Tax Act, 1961." 8.2 Section 56 (2 "(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the f value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received () by a venture capital company or a venture capital fund or a specified fund; or (ii) by a company from a class or classes of persons as may be notified by Provided further that where the provisions of thi have not been applied to a company on account of fulfilment of conditions specified in the notification under clause (¡) of the first proviso and such company fails to comply with any of those conditions, then, any consideration received fo fair market value of such share shall be deemed to be the income of that company chargeable to income previous year in which such failure has taken place and, it shall also be deemed that the company has under Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 back to the total income us.56(2)(viib) of the Income Tax Section 56 (2) (viib)of the Act statesas follows : "(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the f value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the Provided that this clause 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 or a specified fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf: Provided further that where the provisions of thi have not been applied to a company on account of fulfilment of conditions specified in the notification under clause (¡) of the first proviso and such company fails to comply with any of those conditions, then, any consideration received for issue of share that exceeds the fair market value of such share shall be deemed to be the income of that company chargeable to income-tax for the previous year in which such failure has taken place and, it shall also be deemed that the company has under Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 11 back to the total income us.56(2)(viib) of the Income Tax ) (viib)of the Act statesas follows :- "(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the Provided that this clause shall not apply where the undertaking from a venture capital company or a venture capital fund or a specified fund; or (ii) by a company from a class or classes of persons as the Central Government in this behalf: Provided further that where the provisions of this clause have not been applied to a company on account of fulfilment of conditions specified in the notification issued under clause (¡) of the first proviso and such company fails to comply with any of those conditions, then, any r issue of share that exceeds the fair market value of such share shall be deemed to be the tax for the previous year in which such failure has taken place and, it shall also be deemed that the company has under reported the said income in consequence of the misreporting referred to in sub (9) of section 270A for the said previous year." 8.3 This ground of appeal in this respect is thus dismissed based on the discussion in paras above. Ground No. 3 9. This ground of appeal challenges the addition of Rs. 2,98,20,988/ account of expenses towards employees. The AO in his assessment order dated 08/03/2021 has stated that "The assessee's explanation as cause Notice videDIN: ITBA/AST/F/143(3) (SCN)/2020 21/1030792378(1) i.e. Regarding applicability of section 40A(2) of the Income Tax Act, 1961 is not acceptable as per the discussion as above vide Para 7A,7B and 7C and therefore, claim of deduction of expenses incurred towards payments made to one of the Director of the company namely Mr. Royston Braganza amounting to Rs.2,98,20,988/ Tax Act, 1961 and added back to the total income of the company for the F.Y. 2017 Section 40 A (2) of the Actstates that: (2) (a) Where the assessee incurs any expenditure in respect of which payment has been or to be made to any person refer Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 reported the said income in consequence of the misreporting referred to in sub-section (8) and sub (9) of section 270A for the said previous year." This ground of appeal in this respect is thus dismissed based on the discussion in paras above. Ground No. 3 9. This ground of appeal challenges the addition of Rs. 2,98,20,988/-made by the AO us 40A (2) of the Act on account of expenses towards employees. The AO in his assessment order dated 08/03/2021 has "The assessee's explanation as per Point no.2 of the Show cause Notice videDIN: ITBA/AST/F/143(3) (SCN)/2020 21/1030792378(1) i.e. Regarding applicability of section 40A(2) of the Income Tax Act, 1961 is not acceptable as per the discussion as above vide Para 7A,7B and 7C and claim of deduction of expenses incurred towards payments made to one of the Director of the company namely Mr. Royston Braganza amounting to Rs.2,98,20,988/-is disallowed us.40A(2)(b) of the Income Tax Act, 1961 and added back to the total income of the ompany for the F.Y. 2017-18." Section 40 A (2) of the Actstates that:- (2) (a) Where the assessee incurs any expenditure in respect of which payment has been or to be made to any person refer- red to in clause (b) of this subsections and Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 12 reported the said income in consequence of the section (8) and sub-section This ground of appeal in this respect is thus dismissed 9. This ground of appeal challenges the addition of Rs. made by the AO us 40A (2) of the Act on The AO in his assessment order dated 08/03/2021 has per Point no.2 of the Show- cause Notice videDIN: ITBA/AST/F/143(3) (SCN)/2020- 21/1030792378(1) i.e. Regarding applicability of section 40A(2) of the Income Tax Act, 1961 is not acceptable as per the discussion as above vide Para 7A,7B and 7C and claim of deduction of expenses incurred towards payments made to one of the Director of the company namely Mr. Royston Braganza amounting to is disallowed us.40A(2)(b) of the Income Tax Act, 1961 and added back to the total income of the (2) (a) Where the assessee incurs any expenditure in respect of which payment has been or to be made to any red to in clause (b) of this subsections and the Income-tax Off is excessive market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the ben derived by or accruing to him there from, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction: Provided that the provisions of this section shall not apply in the case of an assesse any expenditure to which sub section 40 applies. (b) The persons referred to in clause (a) are the following, namely:- (i) where assessee is individual of the assessee (ii) where the association Of persons or hindu undivided family (ai) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 tax Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the ben derived by or accruing to him there from, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction: Provided that the provisions of this section shall not apply in the case of an assessee being a company in respect of any expenditure to which sub-clause (i) of clause (c) of section 40 applies. (b) The persons referred to in clause (a) are the following, (i) where assessee is individual of the any relative assessee is a company; firm, any director of the company Of persons or hindu undivided family partner of the firm or member of the association or family; or any relative of such director, partner or member (ai) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 13 icer is of opinion that such expenditure or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him there from, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction: Provided that the provisions of this section shall not apply e being a company in respect of clause (i) of clause (c) of (b) The persons referred to in clause (a) are the following, any relative any director of the company partner of the firm or member of the association or family; or any relative of such director, partner or member (ai) any individual who has a substantial interest in the business or profession of the assessee, or any relative of (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or p partner or member of such company, firm, association or family, or any relative of such director, partner or member,; (v) a company, firm, association of persons or Hindu undivided family of which a director, part as the case may be, has a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) any person (A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or (B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a business or profession of that person It is mandatory for the appellant to report the expenses towards employees in the audit report. 9.3 The appellant failed to demonstrate that the employer & Director are not related/same person. This ground of appeal in this respect is thus dismissed base discussion in paras above. Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) any person who carries on a business or profession, (A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or (B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person. It is mandatory for the appellant to report the expenses towards employees in the audit report. The appellant failed to demonstrate that the employer & Director are not related/same person. This ground of appeal in this respect is thus dismissed based on the discussion in paras above.” Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 14 rofession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or (v) a company, firm, association of persons or Hindu ner or member, as the case may be, has a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; who carries on a business or profession,- (A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the (B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, substantial interest in the It is mandatory for the appellant to report the expenses The appellant failed to demonstrate that the employer & Director are not related/same person. This ground of d on the 5.1 It is evident that order passed by the Ld. CIT(A) is in of the principles of natural justice and therefore, we feel it appropriate to restore this matter back to the file of the Ld. CIT(A) for passing a reasoned order after taking into consideration submission of the assessee. The grounds of appeal of the assessee are accordingly allowed for statistical purposes. 5.2 In the other two appeals for assessment year 2015 17, the Ld .CIT(A) has followe 19. In these two appeals also the Ld. CIT(A) has not taken into consideration the submission of the assessee. Accordingly, following our finding in assessment year 2018 appeals are also restored back to the file of the Ld. CIT(A) for deciding afresh and pass a reasoned order after providing adequate opportunity of being 6. In the result, all the three appeals of the assessee are allowed for statistical purposes. Order pronounced in the open Court/under Rule 34(4) of the ITAT Rules, 1963 on Sd/- (ABY T VARKEY JUDICIAL MEMBER Mumbai; Dated: 29/12/2022 Rahul Sharma, Sr. P.S. Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 It is evident that order passed by the Ld. CIT(A) is in of the principles of natural justice and therefore, we feel it appropriate to restore this matter back to the file of the Ld. CIT(A) asoned order after taking into consideration submission of the assessee. The grounds of appeal of the assessee are accordingly allowed for statistical purposes. In the other two appeals for assessment year 2015 17, the Ld .CIT(A) has followed his finding in assessment year 2018 19. In these two appeals also the Ld. CIT(A) has not taken into consideration the submission of the assessee. Accordingly, following our finding in assessment year 2018-19, the ground raised in these estored back to the file of the Ld. CIT(A) for deciding afresh and pass a reasoned order after providing adequate heard to the assessee. In the result, all the three appeals of the assessee are allowed for statistical purposes. Order pronounced in the open Court/under Rule 34(4) of the ITAT Rules, 1963 on 29/12/2022. Sd/- ABY T VARKEY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 15 It is evident that order passed by the Ld. CIT(A) is in violation of the principles of natural justice and therefore, we feel it appropriate to restore this matter back to the file of the Ld. CIT(A) asoned order after taking into consideration submission of the assessee. The grounds of appeal of the assessee In the other two appeals for assessment year 2015-16 & 2016- d his finding in assessment year 2018- 19. In these two appeals also the Ld. CIT(A) has not taken into consideration the submission of the assessee. Accordingly, following 19, the ground raised in these estored back to the file of the Ld. CIT(A) for deciding afresh and pass a reasoned order after providing adequate In the result, all the three appeals of the assessee are allowed Order pronounced in the open Court/under Rule 34(4) of - OM PRAKASH KANT) ACCOUNTANT MEMBER Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 Copy of the Order forwarded to : BY ORDER, (Sr. Private Secretary) ITAT, Mumbai Grameen Impact Investments India Pvt. Ltd. ITA Nos. 2375, 2641 & 2640/M/2022 16 BY ORDER, (Sr. Private Secretary) ITAT, Mumbai