Century Copper Rod Private Limited, Surat V. Deputy Commissioner of Income tax, Cirlce1(1)(1), Surat, Surat

ITA 344/SRT/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 4149 (ITAT-SURAT)
• Duration Of Justice: 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 11-01-2024
• Assessment Year: 2013-2014
• Appeal Filed On: 11-05-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOE KUMAR
• Assessee Lawyers: KAMLESH N. BHATT
• Keywords: Depreciation; Residential status; Fair market value; Valuation report; Set aside
• Section: 143(3); 143(2); 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM &DR. A.L.SAINI, AM आयकर अपीलसं./ITA No.344/SRT/2023 (िनधाŊरणवषŊ / Assessment Year: (2013-14) (Virtual Court Hearing) Century Copper Rod Pvt. Ltd. Plot No.175, B/h Deepak Petrol Pump, Kadodara Char Rasta, Surat- 394327 Vs. Deputy Commissioner of Income Tax Circle-1(1)(1), Surat, Aaykar Bhawan, Near Majura Gate, Opp. New Civil Hospital, Surat-395001 ̾थायीलेखासं./जीआइआरसं./PAN/GIR No.: AAACZ 4133 C (अपीलाथŎ /Appellant) (ŮȑथŎ/Respondent) िनधाŊįरती की ओर से /Appellant by : Shri Kamlesh N. Bhatt, C.A राजèव कȧ ओर से /Respondent by : Shri Vinoe Kumar, Sr-DR सुनवाईकीतारीख/ Date of Hearing : 12/01/2024 घोषणाकीतारीख/Date of Pronouncement. : 30/01/2024 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned appeal filed by the assessee, pertaining to assessment year 2013-14, is directed against the order passed by the National Faceless Appeal Centre, New Delhi [for short ‘NFAC/Ld.CIT(A)’] dated 03.05.2023, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), vide order dated 30.12.2016. 2. Grounds of appeal raised by the assessee are as follows: “1. In view of the facts and circumstances of the case, the Ld. A.O erred in law and in facts, in adding the sum of Rs.14,18,234 for the alleged addition towards share premium and hence Your Appellant PRAYS that the same be deleted. 2. In view of the facts and circumstances of the case, the Ld. A.O erred in law and in facts, in disallowing claim of depreciation of Rs.44,39,156/- and hence Your appellant PRAYS that the same be deleted. 3. The Ld.A.O has not brought any such material warranting or justifying the extension of time limit and as such the impugned order is barred by the Limitation provided in Page | 2 ITA No.344/SRT/2023 A.Y. 2013-14 Century Copper Rod Pvt. Ltd section 153 and to that extent the impugned order is bad in law and deserves to be set aside.” 3. First, we take up Ground No.1 which relates to addition of Rs.14,18,234/- on account of share premium. 4. Brief facts qua the issue are that assessee before us is a limited company and filed its return of income through electronically for assessment year 2014-15, showing loss of Rs.1,83,48,394/- on 26.09.2013. The assessee`s case was selected for scrutiny and a notice u/s 143(2) was issued to the assessee on 02.09.2014. It was found from audited financial statements that during the year under consideration, assessee-company has issued 255108 equity shares at the face value of Rs.10/- per equity share and assessee-company has charged premium of Rs.440/- per equity shares. As per the details furnished by assessee, during the year, the assessee-company has issued equity share to following share applicants: Sr.No. Name of the share applicants No. of shares allotted Share capital Share premium Share application money 1 Shipchandler Energy Equipment LLC 177820 1778200 78240800 80019000 2 Kamilbhai Z Vasi 7763 77630 3415720 3493350 3 Faridaben Kamilbhai Vasi 18000 180000 7920000 8100000 4 Mohammadbhai Z Vasi 5763 57630 2535720 2593350 5 Nisirinben Mohammad Vasi 20000 200000 8800000 9000000 6 Yasminben Moazzambhai Vasi 15762 157620 6935280 7092900 7 Moazzambhai Z Vasi 10000 100000 4400000 4500000 255108 2551080 112247520 114798600 From the above chart, the assessing officer noted that it is clear that assessee-company has received share application money to the tune of Rs.11,47,98,600/- from the above mentioned share applicants. Out of the seven share applicants, one applicant is foreign company mentioned in Sl.No.1 of the above. The assessee submitted fair market value dated 30.11.2015 of equity share of the assessee-company worked out on Discounted Cash Flow Method. As per DCFM, the fair market value of the Page | 3 ITA No.344/SRT/2023 A.Y. 2013-14 Century Copper Rod Pvt. Ltd equity shares of the assessee-company is Rs.431.65 per equity share (including face value of Rs10 per equity share). However, assessee-company has charged premium @ Rs.440 per equity shares, which exceeds the fair market value of the equity share of the assessee- company by Rs.18.35 [440 – 421.65 (431.65 – 10)]. Therefore, a show cause notice was issued vide dated 23.12.2016. The contents of the show cause notice dated 23.12.2016 is reproduced as under: “2. It is observed that during the year under consideration, assessee-company has issued 255108 equity shares at the face value of Rs.10 per equity share and charged premium at the rate of Rs.440 per equity shares. These 255108 equity shares were allotted on two different dated viz. 177820 equity shares were allotted on 04.03.2013 & the remaining 77288 equity shares were allotted on 09.3.2013. However, as per the fair market value of the equity shares assessee- company’s share as worked out on DFCFM comes to Rs.431.65 per equity share including facts and circumstances value at the rate of Rs.10 per equity share. 3. On perusal of the submission filed by the assessee in connection with the issue of share application money, it is notice that assessee-company has charged premium at the rate of Rs.440/- per equity shares. It means that assessee has charged premium which is more than the fair market value of the equity shares of the assessee company. As per the provision of section 56(viib) of the Act, where a company, not being a company in which the public are substantially interested, received, in any previous year, from any persons being a resident, any consideration for issue of shares that exceeds the face value of such shares, ethe aggregate consideration received for such shares as exceeds the fair market value of the shares may be treated as income from other sources. In the impugned case, assessee company has charged premium as high as Rs.440/- per equity share, whereas the fair market value of the equity share excluding face value comes to Rs.421.65 per equity share. In view of the above, the difference amount Rs.18.35/- (440 – 421.65) on each equity shares issued during the year is to be treated as income from other sources. Accordingly, you are show cause as to why the sum of Rs.46,81,232/- should be added u/s 56(viib) of the Act.” 5. The assessee-company vide letter dated 26.12.2016, has stated that addition u/s 56(viib) of the Act does not warrant in the present case for two reasons, first one of the investor company is foreign investor company incorporated in Dubai and the second one is that the assessee-company is joint venture company of Shipchandler-Energy Equipment LLC and VASI family, therefore the provision of section 56(viib) of the Act does not apply Page | 4 ITA No.344/SRT/2023 A.Y. 2013-14 Century Copper Rod Pvt. Ltd in the case of assessee-company. The reply of assessee is reproduced as under: “(A) REGARDING ADDITION U/S 56(viib): 1. In the said show cause notice, Your goodself has raised the query about why the sum of Rs.46,81,232/- should not be added to the income of the assessee u/s56(viib) of the Income Tax Act, 1961 and that figure is worked out on the basis of the value of the as per DCF being Rs.431.65 (Rs.10 towards the capital and Rs.421.65 towards the premium) as compared to the actual consideration of Rs.450 (Rs.10 towards the capital and Rs.440 towards the premium) in respect of 2,55,108 shares allotted in the month of March, 2013. 2. At the outset, we earnestly request your goodself to refer to the MoU entered into between the two groups. As per that the investment was supposed to be in the proportion of 65:35 between Shipchandler and Vasi group. 3. Of the captioned shares 2,55,108 allotted in March, 2013, 1,77,820 shares were allotted to SHIPCHANDLER ENERGY EQUIPMENT LLC – a company incorporated in Dubai and is not a resident of India and 77,288 shares were allotted to Vasi family. 4. Basically to adhere to the said understanding of contribution in a fix proportion towards the project, the balancing allotment was rounded off by limiting the number of shares. 5. So far as the 1,77,820 shares allotted to is concerned, the said LLC is in the nature of VENTURE CAPITAL COMPANY and is NOT RESIDENT in INDIA. It is incorporated in Dubai and is situated at Shop No.9, Property of Mohd Ahmed Mohd Thani-Deira, naif, Dubai-UAE. For you ready reference, we once again attach herewith the scanned copies of their business incorporation certificates issued in Dubai. The section 56(viib) do not apply to.” 6. However, the Assessing Officer rejected the contention of the assessee and noted that out of 2,55,108 equity shares allotted by the assessee, the equity shares of 1,77,820 were allotted to Shipchandler Energy Equipment LLC, Dubai-based company, and balance shares were 77,288 ( 2,55,108- 1,77,820) were allotted to Indian entities/concerns therefore the provisions of section 56(viib) of the Act are applicable to Indian resident persons/entities. Therefore, assessing officer accepted the assessee’s argument in respect of non-applicability of section 56(2)(viib) to non- resident investor viz. Shipehandler Energy Equipment LLC. However, the Page | 5 ITA No.344/SRT/2023 A.Y. 2013-14 Century Copper Rod Pvt. Ltd provisions of section 56(2)(viib) of the Act is applicable to resident investors. Thus, Assessing Officer held that the share application money received from the resident investors were subjected to the provision of section 56(2)(viib) of the Act, if the premium received exceeds the fair market value of the equity shares. Therefore, assessing officer made addition of Rs.14,18,234/- (Rs.18.35 x77,288) under section 56(2)(viib) of the Act. 7. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before NFAC/Ld. CIT(A), who has confirmed the addition made by Assessing Officer. The ld CIT(A) noted that assessee received share capital from an entity based on Dubai which was treated as non-resident by Assessing Officer and rightly allowed the premium received on that capital. However, other 6 individuals who contributed to capital were Indian residents and liable to provision of section 56(2)(viib) of the Act. The Assessing Officer gave opportunity to justify share premium. The assessee- company is a not a venture capital- company, as per provisions of section 10(23F) and capital contribution received from any resident is subjected to provisions of section 56(2)(viib) of the Act. The Assessee has failed to justify the premium as per DCF method before Assessing Officer, even during appeal proceedings, no submissions has been made to justify the excess premium disallowed by Assessing Officer, therefore ld CIT(A) held that the excess premium on 77,288 shares allotted to Indian residents, at a premium of Rs. 440/- per share, which is Rs.18.35, per share, was rightly disallowed by the assessing officer under section 56(2)(viib) of the Act amounting to Rs.14,18,234/-. 8. Aggrieved by the order of NFAC/Ld. CIT(A), the assessee is in appeal before us. Page | 6 ITA No.344/SRT/2023 A.Y. 2013-14 Century Copper Rod Pvt. Ltd 9. Learned Counsel for the assessee, argued that the premium figure was worked out on the basis of DCF techniques and as per Income Tax Rules, being Rs.431.65 (Rs.10 towards the capital and Rs.421.65 towards the premium) as compared to the actual consideration of Rs.450 (Rs.10 towards the capital and Rs.440 towards the premium) in respect of 2,55,108 shares allotted in the Month of March, 2013.That is, the assessee submitted fair market value dated 30.11.2015 of equity shares of the assessee-company, which worked out, on Discounted Cash Flow Method, and as per DCFM, the fair market value of the equity shares of the assessee-company is Rs.431.65 per equity share and the shares were allotted to residents as well as non- residents. 10. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 11. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that assessee submitted fair market value dated 30.11.2015 of equity shares of the assessee-company, which worked out, on the basis of Discounted Cash Flow Method, and as per DCFM, the fair market value of the equity shares of the assessee-company is Rs.431.65 per equity share, which was accepted by the assessing officer in case of non-residents, in respect of the equity shares of 1,77,820, which were allotted to Shipchandler Energy Equipment LLC, Dubai-based company. However, the premium amount was not accepted in case of balance shares of 77,288 (2,55,108- 1,77,820), which were allotted to Indian entities/concerns, hence it is a discrimination done by the Assessing Officer between residents and non- Page | 7 ITA No.344/SRT/2023 A.Y. 2013-14 Century Copper Rod Pvt. Ltd residents. The ld Counsel stated that so far premium is concerned, the Indian Residents are entitled for similar treatment, however, assessing officer has failed to provide the similar treatment. 12. We note that assessee-company worked out the premium, on the basis of Discounted Cash Flow Method, and in accordance with applicable Income Tax Rules. We have gone through the Valuation report prepared as per DCF method, which is placed on paper book page No.30 to 51 of the assessee`s paper book and noted that premium amount was worked out as per the norms mentioned in the Income Tax Rules and Discounted Cash Flow Method, therefore, we do not find any inconsistencies, hence we delete the addition of Rs.14,18,234/-. 13. In the result, ground No.1 raised by the assessee is allowed. 14. Now, coming to ground No.2 raised by the assessee, which relates to disallowance of claim of depreciation of Rs.44,39,156/-. 15. Brief facts qua the issue are that on perusal of the computation of income, it was observed by the Assessing Officer that assessee-company has claimed depreciation allowance of Rs.1,13,99,113/- during the year under various categories of fixed assets. The assessee-company was incorporated on 31.03.2010. Further, as per Central Excise - return, the assessee-company has commenced its production from the month of February, 2013 onwards. That means, the assets of the assessee-company is put into use from the Month of February, 2013 onwards. Since the assets of the assessee are used for less than 180 days, thus, assessee is entitled for depreciation for the year under consideration, at half of the rate, on which it is claimed. This fact was brought to the notice of the assessee, by the Assessing Officer vide show- cause letter of Assessing Officer dated 23.12.2016, stating as to why the excess claim of depreciation of Rs. 44,39,156/-, should not be disallowed. Page | 8 ITA No.344/SRT/2023 A.Y. 2013-14 Century Copper Rod Pvt. Ltd 16. In response, the assessee submitted that company commenced the commercial production in the month of March, 2013 and accordingly the commercial production was only for a period of less than six months, however, the main plant of the company was ready with basic installation in the month of August, 2012 and during the period company used to run the idle plant for trial production, hence depreciation should be allowed. 17. However, the Assessing Officer rejected the contention of the assessee and held that the assessee-company filed its excise return showing production as zero except in the month of March, 2013, therefore not eligible for depreciation at full rate. Therefore, the excess depreciation allowance to the tune of Rs.44,39,156/- was disallowed and added to the total income of assessee. 18. On appeal, ld CIT(A) confirmed the action of the Assessing Officer, therefore assessee is in appeal before us. 19. Learned Counsel argued that main plant of the company was ready with basic installation in the month of August, 2012, hence depreciation should be allowed for full year. 20. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 21. We have heard both the parties. We note that the ground raised by the assessee relates to excess claim of depreciation on plant and machinery. The assessee claimed that trial production has started in August 2012 and claimed full depreciation. However, assessee failed to prove start of Page | 9 ITA No.344/SRT/2023 A.Y. 2013-14 Century Copper Rod Pvt. Ltd production by way of excise return for August 2012. This proves that production has not commenced from August but from March 2013 and assessee is entitled for depreciation for half year only. However, we are of the view that one more opportunity should be given to the assessee to plead his case before Assessing Officer, therefore we remit this issue back to the file of the assessing officer with the direction to produce excise records and to explain put to use of fixed assets, with documentary evidences. The Assessing Officer is also directed to examine the relevant documents and adjudicate the issue in accordance with law. 22. In the result, ground No.2 raised by the assessee is allowed for statistical purposes. 23. Ground No.3 raised by the assessee relates to time limit of assessment u/s 153 of the Act. The learned Counsel submitted that Assessing Officer has not brought any such material warranting or justifying the extension of time limit and as such the impugned order is barred by the Limitation provided in section 153 and to that extent the impugned order is bad in law and deserves to be set aside. On the other hand, ld DR stated that assessment order is not time barred. 24. We have heard both the parties. The Ld. Counsel for the assessee submitted that assessment order passed on 31.12.2016, which is barred, as per provision of section 153 of the Act. In the assessee’s case, assessment order should have been passed within two years from the end of the financial year. Therefore, in assessee’s case, the Assessing Officer should have been passed the order on 31.03.2015, however, assessment order was passed on 30.12.2016, which is clearly time barred. The Ld. Counsel also submitted that assessee was not intimated for extension of time limit of section 153 of the Act. Therefore, order passed by the Assessing Officer is time barred, hence, it should be quashed. We note that assessee’s case was referred to the Page | 10 ITA No.344/SRT/2023 A.Y. 2013-14 Century Copper Rod Pvt. Ltd Division FT&TR for action of information and time taken to exchange for information is to be excluded, which is one year. Therefore, the assessment order was passed within time limit and hence, argument advanced by Ld. Counsel does not have any merit. Hence, we dismiss ground No.3 raised by the assessee. 25. In the result, appeal of the assessee is partly allowed in above terms. Order is pronounced on 30/01/2024 in the open court. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER स ू रत /Surat/िदनांक/ Date: 30/01/2024 Dkp Outsourcing Sr.P.S. Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat