Deputy Commissioner Of Income Tax,Circle- 1(1)(1), Bangalore V. M/s. Antariksh Softech Private Limited, Bangalore

ITA 2534/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5235 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-10-2020
• Assessment Year: 2016-2017
• Appeal Filed On: 16-12-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASSESSEE CAN BE
• Keywords: Opportunity of being heard; Fair market value; Set aside
• Section: 10; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N V VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER IT A NO. 2534 /BANG/20 19 ASSESSMENT YEAR: 20 16 - 17 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1), BANGALORE. VS. M/S. ANTARIKSH SOFTECH P. LTD., NO.11/1, KHR HOUSE PALACE ROAD, BANGALORE 560 052. PAN: AAHCA 1836G APPELLANT RESPONDENT APPELLANT BY : SHRI PRADEEP KUMAR , CIT(DR)(ITAT), BENGALURU. REVENUE BY : S MT. SHEETAL BORKAR, ADVOCAT E DATE OF HEARING : 01 .10. 2020 DATE OF PRONOUNCEMENT : 09 . 1 0.2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER D ATED 29.8.2019 OF CIT(APPEALS)-1, BENGALURU RELATING TO AY 2016-17. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READS A S FOLLOWS:- 1. THE ORDER OF LEARNED CIT(APPEALS) IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.6,40,18,500/- U/S. 56(2)(VII), THE EXCESS AMOUNT OF SHARE PREMIUM RECEIVED ON ALLOTMENT OF EQUITY SHARES. 3. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) IS RIGHT IN ACCEPTING THE AD DITIONAL EVIDENCE SUBMITTED DURING THE COURSE OF APPELLATE PROCEEDING S WITHOUT ITA 2534/BANG/2019 PAGE 2 OF 6 GIVING AN OPPORTUNITY TO THE AO TO EXAMINE THE FRES H EVIDENCES AS REQUIRED UNDER RULE 46A. 4. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE LD. CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICE R BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, T O AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF APPEAL. 2. THERE IS A DELAY OF 7 DAYS IN FILING THIS APPEAL WHICH HAS BEEN EXPLAINED AS OWING TO DELAY IN RECEIVING APPROVAL F ROM THE PRINCIPAL CIT. THE DELAY IN FILING THE APPEAL IS CONDONED AS THE S AME HAS OCCURRED DUE TO REASONABLE AND SUFFICIENT CAUSE. 3. THE ASSESSEE IS A DOMESTIC COMPANY ENGAGED IN TH E BUSINESS OF INTERNET SERVICES AND INFRASTRUCTURE MANAGEMENT SER VICES. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE ISSUED 19500 S HARES AND RECEIVED SHARE PREMIUM OF RS. 6,98,05,000 FROM MANIPAL EDUCA TION & MEDICAL GROUP (I) P. LTD. SECTION 21 CLAUSE (B) OF FINANCE ACT, 2012 INTRODUCED SEC.56(2)(VIIB) OF THE ACT WITH EFFECT FROM THE 1ST DAY OF APRIL, 2013, AND THE SAID PROVISIONS READS THUS:- INCOME FROM OTHER SOURCES. 56. (1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXC LUDED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES', IF IT I S NOT CHARGEABLE TO INCOME-TAX UNDER ANY OF THE HEADS SPE CIFIED IN SECTION 14 , ITEMS A TO E. (2) IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GEN ERALITY OF THE PROVISIONS OF SUB-SECTION (1), THE FOLLOWING INCOME S, SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'INCOME FRO M OTHER SOURCES', NAMELY : (I) .. (VIIA) ITA 2534/BANG/2019 PAGE 3 OF 6 (VIIB) WHERE A COMPANY, NOT BEING A COMPANY IN WHIC H THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREV IOUS YEAR, FROM ANY PERSON BEING A RESIDENT, ANY CONSIDERATION FOR ISSUE OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGG REGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS T HE FAIR MARKET VALUE OF THE SHARES: PROVIDED THAT THIS CLAUSE SHALL NOT APPLY WHERE THE CONSIDERATION FOR ISSUE OF SHARES IS RECEIVED (I) BY A VENTURE CAPITAL UNDERTAKING FROM A VENTURE CAPITAL COMPANY OR A VENTURE CAPITAL FUND; OR (II) BY A COMPANY FROM A CLASS OR CLASSES OF PERSON S AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEHALF. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (A) THE FAIR MARKET VALUE OF THE SHARES SHALL BE TH E VALUE (I) AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH M ETHOD AS MAY BE PRESCRIBED OR (II) AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER, BASED ON THE VALUE, ON TH E DATE OF ISSUE OF SHARES, OF ITS ASSETS, INCLUDING INTANGIBLE ASSE TS BEING GOODWILL, KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES , FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR NATURE, WHICHEVER IS HIGHER; (B) 'VENTURE CAPITAL COMPANY', 'VENTURE CAPITAL FUN D' AND 'VENTURE CAPITAL UNDERTAKING' SHALL HAVE THE MEANIN GS RESPECTIVELY ASSIGNED TO THEM IN CLAUSE (A), CLAUSE (B) AND CLAUSE (C) OF EXPLANATION TO CLAUSE (23FB) OF SECTION 10 ; 4. SECTION 56(2)(VIIB) OF THE ACT WAS INTRODUCED BY THE FINANCE ACT 2012 WITH EFFECT FROM THE 1ST DAY OF APRIL, 2013, WHICH REQUIRES A COMPANY (ISSUER), NOT BEING A COMPANY IN WHICH THE PUBLIC A RE SUBSTANTIALLY INTERESTED, TO ISSUE SHARES AT FAIR MARKET VALUE (F MV). ANY CONSIDERATION ITA 2534/BANG/2019 PAGE 4 OF 6 RECEIVED BY SUCH ISSUING COMPANY IN EXCESS OF THE F MV, TO THE EXTENT IT EXCEEDS THE FACE VALUE OF SUCH SHALL BE LIABLE TO T AX. FOR THE PURPOSE OF THIS SECTION, FMV SHALL BE THE VALUE, HIGHER OF THE FOLLOWING:- (A) AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH ME THODS AS MAY BE PRESCRIBED( METHODS PRESCRIBED UNDER RULE 11 UA ARE BOOK VALUE METHOD (NAV) AND DISCOUNTED CASH FLOW METHOD); OR (B) AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER, BASED ON THE VALUE, ON THE DATE OF ISSUE OF SHARES, OF ITS ASSETS, INCLUDI NG INTANGIBLE ASSETS BEING GOODWILL, KNOW-HOW, PATENTS, COPYRIGHT S, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, 5. AS PER THE EXPLANATION TO SEC.56(2)(VIIB) OF THE ACT, FAIR MARKET VALUE (FMV) IS PRESCRIBED UNDER THE RULES. BESIDES THE ABOVE, THE AO ALSO NOTICED THAT THE CA IN VALUING THE SHARES HAD ADOPTED DISCOUNTED CASH FLOW (DCF) METHOD. ACCORDING TO THE ASSESSEE THE DCF METHOD WAS A PERMITTED METHOD OF VALUATION IN TERMS OF RU LE 11UA(2)(B) OF THE INCOME TAX RULES, 1962 (RULES) READ WITH SEC.56(2)( VIIB) OF THE ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATIONS O F THE ASSESSEE AND HE WAS OF THE VIEW THAT THE PROJECTION MADE IN THE WOR KING AS PER THE DCF METHOD WAS PROVIDED BY THE ASSESSEE COMPANY AND NOT BASED ON ANY INDEPENDENT ANALYSIS. THE PROJECTION WAS IRRATIONA L AND DID NOT HAVE ANY RELEVANCE TO THE FACTUAL FINANCIAL RESULTS OF THE A SSESSEE. THE AO HELD THAT THE BASIS OF WORKING OF THE VALUE OF SHARES UNDER T HE DCF METHOD WAS DETAILS AND WORKINGS PROVIDED BY THE ASSESSEE AS PE R THE WHIMS AND FANCY OF THE MANAGEMENT TO ARRIVE AT HIGHER VALUE TO ISSU E SHARES AT A HUGE PREMIUM. FOR THESE REASONS, THE AO REJECTED THE VA LUATION REPORT PREPARED AS PER DCT METHOD AND PROCEEDED TO VALUE SHARES AS PER THE BOOK VALUE METHOD AND ARRIVED AT A VALUE OF RS.297 PER SHARE AND TREATED THE ITA 2534/BANG/2019 PAGE 5 OF 6 DIFFERENCE BETWEEN THE FMV AND PREMIUM RECEIVED AS INCOME CHARGEABLE TO TAX U/S. 56(2)(VIIB) OF THE ACT. 6. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) DELE TED THE ADDITION MADE BY THE AO AGAINST WHICH THE REVENUE HAS PREFER RED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING, IT WAS AGREED BY BOTH TH E PARTIES THAT THERE WAS A VIOLATION OF RULE 46A OF THE INCOME TAX RULES , 1962 (RULES), IN AS MUCH AS THE CIT(A) DID NOT CONFRONT THE MATERIAL TH AT WAS PLACED BEFORE HIM TO SUBSTANTIATE THE VALUATION UNDER THE DCF MET HOD ADOPTED BY THE ASSESSEE IN ITS REPORT OF VALUATION. THE LD. COUNS EL FOR THE ASSESSEE, HOWEVER, SUBMITTED THAT WHAT WAS FILED BEFORE THE C IT(APPEALS) WAS ONLY FINANCIAL STATEMENTS TO SUBSTANTIATE THE VALUATION AS MADE BY THE ASSESSEE. IN OUR VIEW, WHEN THE BASIS OF CONCLUSIO N OF CIT(APPEALS) IS THE FINANCIAL STATEMENTS FILED BY THE ASSESSEE BEFORE H IM, IT WAS INCUMBENT UPON THE CIT(A) TO HAVE CONFRONTED THE MATERIAL FIL ED BEFORE HIM TO THE AO IN ACCORDANCE WITH THE MANDATE OF RULE 46A OF THE I .T. RULES, 1962. 8. THE LD. COUNSEL FOR THE ASSESSEE ALSO FILED BEFO RE US A COPY OF THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. VBHC VALUE HOMES PRIVATE LIMITED, BANGALORE V. ITO IN ITA NO.2541/BANG/2019, ORDER DATED 12.6.2020 WHEREIN THE TRIBUNAL FOLLOWED THE DECISIO N OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE M-PESA LTD. V. PR.CIT, 256 TAXMANN 240. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THE RATIO LAID DOWN IN THE AFORESAID DECISION, THE DCF METHOD ADOPTED BY THE ASSESSEE WAS CORRECT. IN OUR VIEW, SINCE THERE IS A VIOLATION OF RULE 46A OF THE RULES, THE ISSUE SHOULD BE REMANDED BACK TO THE CIT(APPEALS) FOR FRESH CONSIDERATION AFTER AFFORDING OPPORTUNITY TO THE AO. WE ARE OF THE VIEW THAT THE ARGUMENT RAISED BY THE LEARNED COUNSE L FOR ASSESSEE CAN BE RAISED BEFORE THE CIT(APPEALS) BY THE ASSESSEE. WE THEREFORE SET ASIDE ITA 2534/BANG/2019 PAGE 6 OF 6 THE ORDER OF CIT(APPEALS) AND REMAND THE ISSUE WITH REGARD TO DETERMINATION OF FMV OF THE SHARES AFRESH IN ACCORD ANCE WITH LAW, AFTER AFFORDING ASSESSEE AND THE AO OPPORTUNITY OF BEING HEARD. 9. IN THE RESULT, THE APPEAL BY THE REVENUE IS TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF OCTOBER, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 9 TH OCTOBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.