M/S SAHASRALINGESHWARA POWER PVT LTD vs. THE INCOME TAX OFFICER

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WP/6002/2021HC KarnatakaKAHC01020729202030 March 2021Bench: S SUNIL DUTT YADAV6 pages
AI SummaryRemanded

What did the High Court hold?

The High Court, in its order, noted that the ITAT's directions to the Assessing Officer were clear and unambiguous regarding the reconsideration of the matter in light of Rule 11UA of the Income Tax Rules and the DCF method. The Court observed that the AO's subsequent order (Annexure-D) seemed to distinguish the case based on 'innovative idea' but failed to adequately address the valuation aspect as directed by the ITAT. Prima facie, the aspect of valuation as per the Discounted Free Cash Flow Method under Rule 11UA had not been properly considered by the AO. Therefore, the Court held that the matter needed to be remanded for fresh consideration. All contentions, including the petitioner's argument regarding the retrospective applicability of Section 56(2)(viib), were kept open for determination.

What were the facts?

The petitioner, M/s. Sahasralingeshwara Power Pvt. Ltd., is challenging an order of the Assessing Officer (AO) dated December 20, 2019. The petitioner had previously filed an appeal against the assessment order for the previous year 2012-13 before the Commissioner of Income Tax (Appeals), which was rejected. Subsequently, an appeal was filed before the Income Tax Appellate Tribunal (ITAT). The ITAT, in its order dated October 26, 2018, found that the AO had not adequately considered the assessee's valuation method (DCF) in light of Rule 11UA of the Income Tax Rules, especially concerning the amendment effective November 29, 2012, while the share allotment was on September 11, 2012. The ITAT remanded the matter back to the AO for a fresh decision, directing a speaking and reasoned order after affording an opportunity of being heard.

What were the issues?

1. Whether the Assessing Officer, in his order dated December 20, 2019, has adequately considered the valuation of shares issued by the petitioner using the Discounted Cash Flow (DCF) method, as per Rule 11UA of the Income Tax Rules, in light of the ITAT's directions? Assessee's Contentions: The assessee argues that the ITAT's remand order clearly indicated that the DCF method was applicable as per Rule 11UA, as amended, for Assessment Year 2013-14, and that the AO had not properly addressed this. The assessee also contends that Section 56(2)(viib) of the Income Tax Act should not be applied retrospectively to shares issued on September 11, 2012. Revenue's Contentions: The judgment does not explicitly record the revenue's contentions in response to the specific issues raised by the assessee in this writ petition. However, the ITAT's order, which is discussed, indicates the revenue's request to restore the matter to the CIT(A) rather than the AO.

Which sections of the Income-tax Act were involved?

Section 56(2)(viib)

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 30TH DAY OF MARCH, 2021

BEFORE

THE HON'BLE MR.JUSTICE S. SUNIL DUTT YADAV

WRIT PETITION No.6002/2021 (T-IT)

BETWEEN:

M/s. SAHASRALINGESHWARA POWER PVT. LTD., No.137, 7th Floor, HMG Ambassador Building, Residency Road, Bangalore - 560 025 Rep. by its Director Sri Suchendra S. Shetty.

… Petitioner

(By Sri M.V. Seshachala, Senior Advocate for Sri G.S. Nagharish, Advocate)

AND:

1.

The Income Tax Officer,

Ward - 6(1)(1),

BMTC Building,

80 Feet Road,

Koramangala,

Bangalore - 560 095.

2.

The Commissioner of Income Tax-6,

BMTC Building,

80 Feet Road,

Koramangala,

Bangalore - 560 095.

3.

Chairman,

Central Board of Direct Taxes,

North Block,

New Delhi - 110 001.

4.

Union of India,

Ministry of Finance,

North Block,

New Delhi - 110 001,

Rep. by its Under Secretary. … Respondents

(By Sri E.I. Sanmathi, Advocate)

This Writ Petition is filed under Articles 226 & 227 of the Constitution of India, praying to declare that Section 56(2)(viib) of the Income Tax Act has come into force with effect from 01.04.2013 and is not applicable retrospectively to shares issued by petitioner to its holding company Ambuthirtha Power Pvt. Ltd. on 11.09.2012 and etc.

This Writ Petition coming on for preliminary hearing this day, the Court, made the following:

ORDER

Petitioner has called in question the order of the Assessing Officer dated 20.12.2019, copy of which is produced at Annexure-D and has sought for other reliefs as well. However, submission is made by learned Senior counsel that prayer (b) would be of only relevance.

2.

Petitioner submits that as against the assessment order passed at the first instance with respect to the previous year 2012-13, petitioner had filed an appeal before the Commissioner of Income Tax (Appeals) whereby

3 the appeal came to be rejected as per the order dated 17.01.2018 and the same was taken up before the Income Tax Appellate Tribunal (for short 'ITAT') which disposed off the appeal on 26.10.2018.

3.

Primary contention that is advanced is that the ITAT in its order at para 5 has remanded the matter back after making the following observations: "We have considered the rival submissions. We find that as per Para 7 of the assessment order, the AO says that on the date of allotment of shares, DCF method was not an accepted method for calculating FMV of shares as per Rule 11UA of IT Rules. In para 5 of the assessment order, it is noted by the AO that he asked the assessee to substantiate the share premium collected by the assessee and as per the reply dated 15.03.2016 submitted by the assessee before the AO, the assessee has furnished the copy of certificate issued by a Chartered accountant dated 03.09.2012. In the same para of the assessment order, this is also noted by the AO that the valuation adopted by the assessee is as per the DCF method. There is no

4 mention in the assessment order that any query was made by the AO to the assessee asking the assessee to explain as to how the DCF method as per amended Rule 11UA is not applicable in the present case being Assessment Year 2013- 14 in view of the amendment in Rule 11UA w.e.f. 29.11.2012. Before CIT(A) also, ground to this effect was raised by assessee which was not decided by CIT(A). Hence, we are of the considered opinion that the entire matter has to go back to the file of AO for fresh decision. Regarding this request of the ld. DR of revenue that the matter should not be restored back to AO but it should be restored back to CIT(A), we would like to observe that the AO has not granted an opportunity to the assessee by asking the assessee specifically as to how the DCF is not applicable in the present case although Rule 11UA of IT Rules was amended w.e.f. 29.11.2012 and the allotment of shares was on 11.09.2012. Therefore, in our considered opinion, it should go back to the AO in the interest of justice. Accordingly, we restore back the matter to the file of AO for fresh decision with the direction that he should pass a speaking and reasoned order after providing adequate

5 opportunity of being heard to the assessee and whatever be the objection or query of the AO, the same should be confronted to the assessee before taking final decision. In view of this, no adjudication is called for regarding the merit of the case at the preset stage and regarding additional evidences, we hold that the same may be submitted to the AO and he should consider the same."

4.

It is submitted that the observations made by the ITAT while remanding the matter to the Assessing Officer are clear and unambiguous insofar as it is observed that the assessee has followed the DCF method as applicable as per Rule 11UA of the Income Tax Rules as amended with effect from 29.11.2012 with respect to the assessment year 2013-14 and that despite such position, no reason has been assigned by the Assessing Officer nor the CIT(A) has been adverted to the question as to how the DCF method would not be applicable.

5.

Perusal of the order at Annexure-D would indicate that the Assessing Officer has sought to make out a

6 distinction by reference to 'innovative idea'. However, it must be noted that in light of unambiguous directions made by the ITAT, the Assessing Officer is to reconsider the matter in light of the observations made in Para 5, moreso in light of the Rule 11UA of the Income Tax Rules.

6.

Accordingly, as submitted by the learned Senior counsel, prima facie the aspect of valuation as per Discounted Free Cash Flow Method as provided under Rule 11UA of the Income Tax Rules has not been adverted to by the Assessing Officer, needs to be looked into once again.

7.

In light of the above observations, the matter is remanded for fresh consideration. All contentions are kept open including the contention of the petitioner regarding the period from which 56(2)(viib) of the Income Tax Act is applicable.

Sd/- JUDGE

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