Vensat Tech Services Private Limited , Hyderabad V. Income Tax Officer, Ward-17(2), Hyderabad

ITA 791/Hyd/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0811 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 21-06-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 17-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K RAVIKIRAN
• Assessee Lawyers: J VARUN
• Keywords: Fair market value
• Section: 143(3); 142(1); 56(2); 143(1); 143(2); 2

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD (THROUGH VIRTUAL HEARING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 791/HYD/2019 A.Y. 2014 - 15 VENSAT TECH SERVICES PRIVATE LIMITED, HYDERABAD. PAN: AADCV 0729 R VS. INCOME TAX OFFICER, WARD - 17(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI J. VARUN REVENUE BY SHRI K. RAVI KIRAN, DR DATE OF HEARING: 21/06/2021 DATE OF PRONOUNCEMENT: 01 /07/2021 ORDER PER A. MOHAN ALANKAMONY , A.M: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) - 1, HYDERABAD IN APPEAL NO. 0362/2016 - 17/DCIT, CIRCLE - 17(2), HYD/CIT(A) - 1/HYD/2018 - 19, DATED 15/3/2019 PASSED U/S. 143(3) R.W.S 250(6) OF THE ACT FOR THE A.Y. 2014 - 15. 2. THE ASSESSEE HAS RAISED NINE GROUNDS IN ITS APPEAL AND THEY ARE EXTRACTED HEREIN BELOW FOR REFERENCE: - 1. THE CIT(A) ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 56(2)(VIIB) OF THE INCOME ACT'1961 ARE APPLICABLE IN THE INSTANT CASE OF THE COMPANY. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT 2 T HE SECTION USES THE WORDS 'DURING THE PREVIOUS YEAR' AND FOR 'ISSUE OF SHARES', THUS MAKING IT CLEAR THAT MONIES/ CONSIDERATION RECEIVED CAN ONLY BE TAXED IN THE YEAR OF ACTUAL RECEIPT AND NOT IN ANY LATER YEAR. 2. THE CIT (A) FAILED TO APPRECIATE THAT THE CONSIDERATION FOR SHARES WAS RECEIVED MUCH EARLIER TO THE PREVIOUS YEAR RELEVANT TO ASST. YEAR 2014 - 15 AND THAT THE ALLOTMENT BY THE APPELLANT IN THE BOOKS IS ONLY A BOOK ENTRY. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT SECTION 56(2) (VIIB) CA ME INTO FORCE FROM AY 2013 - 14 AND THAT IN THE PRESENT CASE, THE AGREEMENT FOR ISSUANCE OF SHARES AND THE ACTUAL RECEIPT OF CONSIDERATION FOR ISSUANCE OF SUCH SHARES HAPPENED MUCH BEFORE THE PREVIOUS YEAR RELEVANT TO AY 2013 - 14. 4. THE CIT(A) OUGHT TO HA VE APPRECIATED THAT THE CONSIDERATION FOR ISSUE OF SHARES, TO ASPL, WAS PAID AGAINST FIRM ALLOTMENT OF SHARES TO ASPL AND THE SHARE APPLICATION MONEY WHEN RECEIVED WAS A NON - REFUNDABLE AMOUNT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) FAILED TO APPRECIATE THAT PROVISIONS OF SECTION 56(2)(VIIB) WILL SPRING INTO ACTION IN THE YEAR OF RECEIPT OF CONSIDERATION FOR ISSUE OF SHARES AND NOT IN THE YEAR OF ALLOTMENT AS THE WORDS USED IN THE SECTION ARE 'RECEIVES IN ANY PREVIOUS YEAR'. 6. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE CIT (A) FAILED TO APPRECIATE THAT THE SHARES IN THE PRESENT CASE WERE ISSUED AND ALLOTTED TO ASPL IN CONFORMITY WITH THE CONTRACTUAL AGREEMENT WITH THE SAID PARTY, WHICH STIPULATED THAT SHARES WERE TO BE ISSUED AND ALLOTTED TO ASPL AT A PREMIUM OF RS 421.16 PER SHARE. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ISSUE AND ALLOTMENT OF SHARES WAS FOR BONA FIDE REASONS AND HENCE CANNOT BE BROUGHT TO TAX UNDER SECTION 56(2)(VIIB) OF THE ACT. 7. ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (A) FAILED TO APPRECIATE THAT THE SHARES TO ASPL WERE NOT ISSUED AT A PRICE IN EXCESS OF FAIR MARKET PRICE. THE VALUATION OF SHARES WAS THE SAME AT WHICH THE APPELLANT HAD AGREED WITH M/ S NEA INDO US VENTURE CAPITAL LLC, A VENTURE CAPITAL FUND. 8. W ITHOUT PREJUDICE TO THE ABOVE, THE CIT (A) OUGHT TO HAVE APPRECIATED THAT CBDT HAS ISSUED NOTIFICATION NO. F.NO. 173/14/2018 - ITAI DATED 06 - FEB - 2018 WHEREIN THE GOVT OF INDIA DECIDED THAT THE PROVISIONS OF THE SECTION 56(2)(VIIB) ARE NOT APPLICABLE TO START - UPS AS DEFINED IN G.S.R. 501(E) DATED 23 - 05 - 2017, AND ASKED THE AO NOT TO RESORT TO RECOVERY OF DEMANDS AND WANTED CIT - APPEALS TO DISPOSE OF THE APPEAL CONSIDERING THE SAID NOTIFICATION. 9 . THE CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT IS A START - UP COMPANY AS DEFINED IN G.S.R. 501 (E) DATED 23 - 05 - 2017, WHICH DEFINES START - UP AS (A) INCORPORATED AS PRIVATE COMPANY (B) FOR 7 3 YEARS FROM INCORPORATION AND (C) IF ITS TURNOVER IS LESS THAN HAS NOT EXCEEDED RS. 25 CRORES SINCE INCORPORATION. THE CIT (A) FURTHER FAILED TO APPRECIATE THAT THE APPELLANT SATISFIES ALL THE ABOVE CONDITIONS AND THEREFORE THE PROVISIONS OF SECTION 56(2)(VIIB) COULD NOT HAVE BEEN INVOKED. 3. THE BRIEF FACTS OF TH E CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MEDIA AND ENTERTAINMENT FILED ITS RETURN OF INCOME FOR THE A.Y. 2014 - 15 ON 15/09/2014 DECLARING NIL INCOME. THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. THEREAFTER, T HE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICES U/S. 143(2) AND 142(1) WERE ISSUED. SUBSEQUENTLY, THE LD. A.O. COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT VIDE HIS ORDER DATED 24/11/2016 WHEREIN THE LD. A.O MADE ADDITION OF RS. 7,18,40,760/ - B Y STATING THAT THE AGGREGATE CONSIDERATION RECEIVED BY THE ASSESSEE FOR THE SHARES ISSUED DURING THE RELEVANT ASSESSMENT YEAR EXCEEDS THE FAIR MARKET VALUE. AGGRIEVED WITH THE ADDITION MADE BY THE LD. A.O. , THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT( A). ON APPEAL, THE LD. CIT(A) DISMISSED THE ASSESSEES APPEAL BY AGREEING WITH THE VIEW OF THE LD. A.O. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US BY RAISING THE ABOVE - MENTIONED GROUNDS. 4. AT THE OUTSET, LD. AR SUBMITTED BEFORE US THAT THE LD. REVENUE AUTHORITIES DID NOT CORRECTLY RECORD AND APPRECIATE THE FACTS OF THE CASE IN THEIR ORDERS WHILE BRINGING TO TAX THE AMOUNT OF RS. 7,18,40,760/ - . THE LD. AR THEREFORE REQUESTED TO REMIT THE MAT TER BACK TO THE FILE OF 4 THE LD. A.O FOR FRESH CONSIDERATION . ON THE OTHER HAND, LD. DR DID NOT SERIOUSLY OBJECT TO THE SUBMISSIONS OF THE LD. AR. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. ON EXAMINING THE FACTS OF THE CASE AND CONSIDERING THE SUBMISSIONS OF THE LD. AR, IN THE INTEREST OF JUSTICE, WE ARE OF THE VIEW THAT THE MATTER IS REQUIRED TO BE REMITTED BACK TO THE FILE OF THE LD. A.O. FOR FRESH CONSIDERATION . THE LD. DR ALSO DID NOT RAISE MUCH SERIOUS OBJEC TION FOR THE SOME THOUGH OBJECTED TO THE SUBMISSION OF THE LD.AR. ACCORDINGLY , W E HEREBY REMIT THE ENTIRE MATTER BACK TO THE FILE OF LD.AO FOR D E - N OVO CONSIDERATION. AT THE SAME BREATH, WE ALSO HEREBY CAUTION THE ASSESSEE TO PROMPTLY CO - OPERATE BEFORE THE LD. REVENUE AUTHORITIES IN THEIR PROCEEDINGS FAILING WHICH THEY SHALL BE AT LIBERTY TO PASS APPROPRIATE ORDERS IN ACCORDANCE WITH LAW AND MERIT BASED ON THE MATERIAL AVAILABLE ON RECORD. IT IS ORDERED ACCORDINGLY. 6. IN THE RESULT, APPEAL OF T HE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREIN ABOVE. PRONOUNCED IN THE OPEN COURT ON 01 ST JULY, 2021. SD/ - SD/ - (P. MADHAVI DEVI) ( A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 01 ST JULY , 2021. OKK COPY TO: - 5 1) VENSAT TECH SERVICES PRIVATE LIMITED, 8 - 2 - 293/82A/583/3 ROAD NO.32, JUBILEE HILLS, HYDERABAD. 2) DCIT, CIRCLE - 17(2), SIGNATURE TOWERS, OPP. BOTANICAL GARDEN, KONDAPUR ROAD, HYDERABAD 50 084. 3) THE CIT (A) - 1, HYDERABAD. 4) THE PR. CIT - 1, HYDERABAD. 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE