NEW ENTERPRISE ASSOCIATES 15 LIMITED PARTNERSHIP,UNITED STATES OF AMERICA vs. ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(2), BANGALORE

ITITA 930/BANG/2022Status: DisposedITAT Bangalore19 November 2024AY 2019-2034 pages
AI SummaryPartly Allowed

What were the facts?

The assessee, New Enterprise Associates 15 Limited Partnership, a US-based fund, filed its return for AY 2019-20 claiming a capital loss of Rs. 20,75,75,911/- from the sale of shares in three overseas entities. The Assessing Officer (AO) observed an indirect transfer and noted that the sale consideration received was lower than the cost of acquisition. The assessee had claimed a total sale consideration of Rs. 137,29,69,529/- and a fair market value (FMV) of Rs. 146,93,93,555/-, with a cost of acquisition of Rs. 189,76,43,135/-, resulting in a claimed loss of Rs. 42,82,49,580/-. The AO questioned the FMV and valuation report submitted by the assessee. The Dispute Resolution Panel (DRP) upheld the AO's view. The appeal is against the assessment order passed by the AO under section 143(3) r.w.s. 144C(13) pursuant to DRP directions.

What did the Tribunal hold?

The Tribunal held that the matter requires remand to the AO for recomputation of capital gains. The AO had erroneously taken the cost of acquisition as FMV. The Tribunal noted that the assessee relied on a Merchant Banker's report based on insufficient information, and the Merchant Banker did not conduct effective due diligence. The AO rejected the report but did not refer the matter to the valuation department. The Tribunal directed the AO to recompute capital gains considering Section 9(1)(i) read with Explanations 5 & 6, and Rules 11UB and 11UC. Crucially, the AO must examine compliances with Section 285A, Rule 114DB, Form No. 49D, and the audit report in Form 3CT. Regarding the date for FMV computation, the AO must verify if the book value of assets on the transfer date (04.12.2018) exceeded the book value on the preceding accounting period end date (31.03.2018) by 15%, as stipulated in Explanation 6 to Section 9(1)(i). For currency conversion, the AO is directed to apply the TT buying rate as per Rule 115. The Tribunal did not decide on the validity of the DRP's directions due to the absence of DIN, as the primary issues necessitated a remand.

What were the issues?

1. Whether the AO and DRP erred in denying the carry forward of capital loss by treating the cost of acquisition as sale consideration, disregarding the actual sale consideration and FMV as per the valuation report, in relation to the transfer of shares of NEA FDI III and NEA FVCI III for AY 2019-20. 2. Whether Rule 11UB/11UC of the Income Tax Rules, 1962, was incorrectly applied instead of Rule 11UA for computing the full value of consideration under Section 50CA of the Income-tax Act, 1961. 3. Whether the AO erred in holding that the assessee chose to apply FMV wherever beneficial, without appreciating that capital gains were computed considering the higher of actual sale consideration or FMV as per Section 50CA. 4. Whether the AO erred in questioning the commercial rationale of the transaction with an unrelated party. 5. Whether the AO erred in rejecting the assessee's valuation report for lack of basis. 6. Whether the AO and DRP erred in adopting a Telegraphic Transfer (TT) rate without basis for converting foreign currency income to INR, instead of the rate prescribed by Rule 115. 7. Whether the DRP's directions, lacking a Document Identification Number (DIN), are invalid, rendering the final assessment order a nullity. Assessee's Contentions: - Grounds 1-5: The AO and DRP erred in their treatment of sale consideration and FMV, and in rejecting the valuation report. The assessee computed capital gains considering the higher of actual sale consideration or FMV as per Section 50CA. The commercial rationale of the transaction with an unrelated party was questioned without jurisdiction. - Ground 6: The AO and DRP erred in adopting an arbitrary TT rate for currency conversion, contrary to Rule 115. - Additional Ground 7: The DRP's directions are invalid due to the absence of a DIN, making the assessment order a nullity, relying on CBDT Circular No. 19/2019. Revenue's Contentions: - The judgment records no specific contentions for the revenue on these grounds.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C,Section 50CA,Section 9(1)(i),Section 285A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE “A” BENCHES, BANGALORE

Before: MRS. BEENA PILLAI & SHRI RAMIT KOCHAR

Hearing: 03.09.2024Pronounced: 19.11.2024

PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER:

This appeal, in IT(IT)A No. 930/Bang/2022 for assessment year 2019-20, has arisen from assessment order passed by ld. Assessing Officer dated 25.07.2022 under section 143(3) r.w.s. 144C (13) of the Income-tax Act, 1961 (having DIN & Order No. ITBA/AST/S/143(3)/2022-23/1044105429(1)) in pursuance to directions of the ld. Dispute Resolution Panel-2, Bengaluru under section 144C(5) vide order dated 23.06.2022 under section 143(3) r.w.s. 144C of the 1961 Act.

2.

The ass

The order continues below.

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