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Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI
Before: SHRI ABY T VARKEY & SHRI OM PRAKASH KANT
PER OM PRAKASH KANT, AM PER OM PRAKASH KANT, AM These appeals by the assessee have been preferred against These appeals by the assessee have been preferred against These appeals by the assessee have been preferred against separate orders dated 21.07.2022 dated 21.07.2022 and 24.08.2022 passed by the and 24.08.2022 passed by the Ld. Commissioner Income Ld. Commissioner Income-tax (Appeals)-National Faceless Appeal National Faceless Appeal Centre (NFAC), Delhi (in short ‘the Ld. CIT(A)’] Centre (NFAC), Delhi (in short ‘the Ld. CIT(A)’] for assessment years for assessment years 2018-19; 2015-16 & 2016 16 & 2016-17 respectively. 2. The issue raised in these appeals are The issue raised in these appeals are permeating permeating from same set of facts and circumstances and therefore, same were heard facts and circumstances and therefore, same were heard facts and circumstances and therefore, same were heard together and disposed off by way of this common order for together and disposed off by way of this common order for together and disposed off by way of this common order for convenience and avoid repetition of facts. convenience and avoid repetition of facts. 2.1 We take up up the appeal of the assessee in ITA No. the appeal of the assessee in ITA No. 2375/M/2022 for assessment ye 2375/M/2022 for assessment year 2018-19 as the lead case. The 19 as the lead case. The grounds raised by the assessee for assessment year 2018-19 are grounds raised by the assessee for assessment year 2018 grounds raised by the assessee for assessment year 2018 reproduced as under: reproduced as under: 1. Violation of Principles of Natural Justice 1. Violation of Principles of Natural Justice That on the facts and circumstances of the case and in That on the facts and circumstances of the case and in That on the facts and circumstances of the case and in law, the National Faceless Appeal Centre (NFAC) has law, the National Faceless Appeal Centre (NFAC) has law, the National Faceless Appeal Centre (NFAC) has
Grameen Impact Investments India Pvt. Ltd. Grameen Impact Investments India Pvt. Ltd. 3 ITA Nos. 2375, 2641 & 2640/M/2022 ITA Nos. 2375, 2641 & 2640/M/2022
erred in passing an ex erred in passing an ex-parte order without giving the parte order without giving the Appellant an opportunity of being heard which is in Appellant an opportunity of being heard which is in Appellant an opportunity of being heard which is in violation of Principles of Natural Justice violation of Principles of Natural Justice i.e., Audi Alteram i.e., Audi Alteram Partem.
Addition under section 56 (2)(viib) of the Income Addition under section 56 (2)(viib) of the Income-tax Act, Addition under section 56 (2)(viib) of the Income 1961(Act)
That on the facts and circumstances of the case and in That on the facts and circumstances of the case and in That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under law, the NFAC has erred in confirming the addition under law, the NFAC has erred in confirming the addition under section 56 (2)(viib) of the Act to the tune section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327/ of Rs. 39,99,327/- and deserves to be deleted. and deserves to be deleted.
2.2 Without prejudice, that on the facts and circumstances 2.2 Without prejudice, that on the facts and circumstances 2.2 Without prejudice, that on the facts and circumstances of the case and in law, the NFAC has erred in confirming of the case and in law, the NFAC has erred in confirming of the case and in law, the NFAC has erred in confirming the addition under section 56 (2)(viib) of the Act to the tune the addition under section 56 (2)(viib) of the Act to the tune the addition under section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327/ of Rs. 39,99,327/- without appreciating the fact that 56 reciating the fact that 56 (2)(viib) of the Act shall not apply when a portion the (2)(viib) of the Act shall not apply when a portion the (2)(viib) of the Act shall not apply when a portion the shares are issued to a non shares are issued to a non-resident and to a venture resident and to a venture capital company/ fund. capital company/ fund.
2.3 That on the facts and circumstances of the case and in 2.3 That on the facts and circumstances of the case and in 2.3 That on the facts and circumstances of the case and in law, the NFAC has erred in confirming law, the NFAC has erred in confirming the addition under the addition under section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327 / section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327 / section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327 / - without appreciating the commercial rationale of the without appreciating the commercial rationale of the without appreciating the commercial rationale of the transaction.
2.4 That on the facts and circumstances of the case and in 2.4 That on the facts and circumstances of the case and in 2.4 That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addit law, the NFAC has erred in confirming the addition under ion under section 56 (2)(viib) of the section 56 (2)(viib) of the Act to the tune of Rs. 39,99,327/ Act to the tune of Rs. 39,99,327/- without appreciating the fact that the shares of the without appreciating the fact that the shares of the without appreciating the fact that the shares of the Appellant were valued at Rs. 24.86/ Appellant were valued at Rs. 24.86/- per share when per share when
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being bought by Grameen Capital India Limited from IFMR being bought by Grameen Capital India Limited from IFMR being bought by Grameen Capital India Limited from IFMR Capital.
Disallowan 3. Disallowance under section 40A(2)(b) of the Act of ce under section 40A(2)(b) of the Act of the Act
That on the facts and circumstances of the case and in That on the facts and circumstances of the case and in That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition under law, the NFAC has erred in confirming the addition under law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of Rs. section 40A(2)(b) of the Act of the Act to the tune of Rs. section 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,988/ 2,98,20,988/-.
3.1. That on the fact 3.1. That on the facts and circumstances of the case and s and circumstances of the case and in law, the NFAC has erred in confirming the addition in law, the NFAC has erred in confirming the addition in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of under section 40A(2)(b) of the Act of the Act to the tune of under section 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,988/ Rs. 2,98,20,988/- on account of salary paid to the on account of salary paid to the director/CEO without appreciating that the same is director/CEO without appreciating that the same is director/CEO without appreciating that the same is required for business exigencies and no part of the uired for business exigencies and no part of the uired for business exigencies and no part of the payment is excessive. payment is excessive.
3.2. That on the facts and circumstances of the case and 3.2. That on the facts and circumstances of the case and 3.2. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition in law, the NFAC has erred in confirming the addition in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of under section 40A(2)(b) of the Act of the Act to the tune of under section 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,9 Rs. 2,98,20,988/- on account of salary paid to the on account of salary paid to the director/CEO without appreciating the role played by the director/CEO without appreciating the role played by the director/CEO without appreciating the role played by the said director in the Appellant said director in the Appellant-company.
3.3. That on the facts and circumstances of the case and 3.3. That on the facts and circumstances of the case and 3.3. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition in law, the NFAC has erred in confirming the addition in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act of the Act to the tune of ion 40A(2)(b) of the Act of the Act to the tune of ion 40A(2)(b) of the Act of the Act to the tune of Rs. 2,98,20,988/ Rs. 2,98,20,988/- on account of salary paid to the on account of salary paid to the director/CEO without appreciating the judicial precedent director/CEO without appreciating the judicial precedent director/CEO without appreciating the judicial precedent
Grameen Impact Investments India Pvt. Ltd. Grameen Impact Investments India Pvt. Ltd. 5 ITA Nos. 2375, 2641 & 2640/M/2022 ITA Nos. 2375, 2641 & 2640/M/2022
laid down by the jurisdictional Income tax Appellate laid down by the jurisdictional Income tax Appellate laid down by the jurisdictional Income tax Appellate Tribunal in the Appellant's group company's Tribunal in the Appellant's group company's case. 3.4. That on the facts and circumstances of the case and 3.4. That on the facts and circumstances of the case and 3.4. That on the facts and circumstances of the case and in law, the NFAC has erred in confirming the addition in law, the NFAC has erred in confirming the addition in law, the NFAC has erred in confirming the addition under section 40A(2)(b) of the Act under section 40A(2)(b) of the Act of the Act to the tune of of the Act to the tune of Rs. 2,98,20,988/ Rs. 2,98,20,988/- without appreciating that there is no without appreciating that there is no profit requirement und profit requirement under section 37 of the Act for paying er section 37 of the Act for paying remuneration to its directors/KMPs. remuneration to its directors/KMPs. 3.5. That on the facts and circumstances of the case and 3.5. That on the facts and circumstances of the case and 3.5. That on the facts and circumstances of the case and in law, the addition of Rs 2,98,20,988/ in law, the addition of Rs 2,98,20,988/- confirmed by the confirmed by the CIT(A)(NFAC) may be directed to be deleted. CIT(A)(NFAC) may be directed to be deleted. 3. At the outset, the Ld. At the outset, the Ld. Counsel of the assessee submitted that Counsel of the assessee submitted that the Ld. CIT(A) has not considered the submission of the assessee the Ld. CIT(A) has not considered the submission of the assessee the Ld. CIT(A) has not considered the submission of the assessee and order has been passed order has been passed ex-parte, therefore, matter may be remitted back to the Ld. CIT(A) for deciding the order afresh after remitted back to the Ld. CIT(A) for deciding the order afresh after remitted back to the Ld. CIT(A) for deciding the order afresh after taking into considerat taking into consideration submission of the assessee. ion submission of the assessee.
The Ld. Departmental Representative (DR) did not object The Ld. Departmental Representative (DR) did not object The Ld. Departmental Representative (DR) did not object seriously to the prayer of the Ld. Counsel of the assessee. seriously to the prayer of the Ld. Counsel of the assessee. seriously to the prayer of the Ld. Counsel of the assessee.
We have heard rival submissions and perused the relevant We have heard rival submissions and perused the relevant We have heard rival submissions and perused the relevant material on record. We find that the Ld. CI We find that the Ld. CIT(A) while adjudicating T(A) while adjudicating the grounds raised by the assessee on the issue of addition u/s the grounds raised by the assessee on the issue of addition u/s the grounds raised by the assessee on the issue of addition u/s 56(2)(viia) amounting to ₹39,99,327/- and disallowance u/s 56(2)(viia) amounting to and disallowance u/s 40A(2)(b) of the Act amounting to rs.2,98,20,988/-, has only 40A(2)(b) of the Act amounting to rs.2,98,20,988/ 40A(2)(b) of the Act amounting to rs.2,98,20,988/
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referred to the finding of the Assessing Officer the finding of the Assessing Officer and relevant sections and relevant sections only. The relevant finding of the Ld. CIT(A) is reproduced as under: only. The relevant finding of the Ld. CIT(A) is reproduced as under: only. The relevant finding of the Ld. CIT(A) is reproduced as under:
This ground of appeal challenges the addition of Rs. 8. This ground of appeal challenges the addition of Rs. 8. This ground of appeal challenges the addition of Rs. 39,99,3271-made by the AO us 56 (2) (viib) of the Act on made by the AO us 56 (2) (viib) of the Act on made by the AO us 56 (2) (viib) of the Act on account of share money application. account of share money application.
8.1 The AO in h The AO in his assessment order dated 08/03/2021 is assessment order dated 08/03/2021 has stated that: that:-
The reply of the assessee has been carefully gone 7. The reply of the assessee has been carefully gone 7. The reply of the assessee has been carefully gone through. On perusal of the submissionand the case laws through. On perusal of the submissionand the case laws through. On perusal of the submissionand the case laws mentioned by the assessee, the following observation is mentioned by the assessee, the following observation is mentioned by the assessee, the following observation is stated as under: stated as under:-
7A. regarding case 7A. regarding case law CIT v. Chandrie & Co. P. Ltd [1995] law CIT v. Chandrie & Co. P. Ltd [1995] 212 ITR 63 (Mad.) 212 ITR 63 (Mad.) (HC):
The above-mentioned case law is not applicable in this mentioned case law is not applicable in this mentioned case law is not applicable in this case as it is not related to the issue as per Para 1 and case as it is not related to the issue as per Para 1 and case as it is not related to the issue as per Para 1 and Para 2 of the judgement. The relevant portion of Para 2 of the judgement. The relevant portion of Para 2 of the judgement. The relevant portion of the judgement is reproduced bel judgement is reproduced below:
At the instance of the Revenue, the following question of 1. At the instance of the Revenue, the following question of 1. At the instance of the Revenue, the following question of law has been referred to law has been referred to us:
Whether, on the facts and in the circumstances of the case, Whether, on the facts and in the circumstances of the case, Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. the Tribunal was right in holding that the sum of Rs. the Tribunal was right in holding that the sum of Rs. 24,000, paid to the ex 24,000, paid to the ex-working director, S. Venkataraman, ataraman, was an admissible deduction under the provisions of the was an admissible deduction under the provisions of the was an admissible deduction under the provisions of the Income-tax Act, 1961 ?" tax Act, 1961 ?"
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The facts leading to this reference stated briefly are: 2. The facts leading to this reference stated briefly are: 2. The facts leading to this reference stated briefly are: The assessee, a private limited company, while computing The assessee, a private limited company, while computing The assessee, a private limited company, while computing the total income of the company for the assessment the total income of the company for the assessment the total income of the company for the assessment year 1971-72 claimed deduction of the sum of Rs. 24,000 said 72 claimed deduction of the sum of Rs. 24,000 said 72 claimed deduction of the sum of Rs. 24,000 said to be the gratuity paid to its ex to be the gratuity paid to its ex-working director, Sri S. working director, Sri S. Venkataraman. This claim, though initially allowed by the Venkataraman. This claim, though initially allowed by the Venkataraman. This claim, though initially allowed by the Income-tax Officer, was subsequently withdrawn by him tax Officer, was subsequently withdrawn by him tax Officer, was subsequently withdrawn by him after reassessment made after reassessment made pursuant to an audit note. The pursuant to an audit note. The claim was disallowed on the ground that the payment of claim was disallowed on the ground that the payment of claim was disallowed on the ground that the payment of gratuity to the director was an exgratia payment; that at gratuity to the director was an exgratia payment; that at gratuity to the director was an exgratia payment; that at the time the director joined service, he had no expectation the time the director joined service, he had no expectation the time the director joined service, he had no expectation of receiving gratuity, and that the payment made to of receiving gratuity, and that the payment made to of receiving gratuity, and that the payment made to him was was was not not not based based based upon upon upon commercial commercial commercial expediency. expediency. expediency. The The The Appellate Assistant Commissioner having concurred with Appellate Assistant Commissioner having concurred with Appellate Assistant Commissioner having concurred with the view of the Income the view of the Income-tax Officerthe assessee took up the tax Officerthe assessee took up the matter on appeal to the Tribunal." From the above, it is matter on appeal to the Tribunal." From the above, it is matter on appeal to the Tribunal." From the above, it is crystal clear that the issue is gr crystal clear that the issue is gratuity payment made by atuity payment made by the company to its ex the company to its ex-director which is allowable or not. director which is allowable or not.
7B. Regarding case law J K Woollen Manufacturers v. CIT 7B. Regarding case law J K Woollen Manufacturers v. CIT 7B. Regarding case law J K Woollen Manufacturers v. CIT [1972] 72 /TR 612 (SC): [1972] 72 /TR 612 (SC):
The relevant portion of the judgement is reproduced below: The relevant portion of the judgement is reproduced below: The relevant portion of the judgement is reproduced below: "Whether in the circumstances of the "Whether in the circumstances of the case, the sum of Rs. case, the sum of Rs. 37,733 paid to the General Manager Shri J.P. Vaish, which 37,733 paid to the General Manager Shri J.P. Vaish, which 37,733 paid to the General Manager Shri J.P. Vaish, which has been disallowed by the income has been disallowed by the income-tax Appellate Tribunal tax Appellate Tribunal was an amount laid out or expended wholly or exclusively was an amount laid out or expended wholly or exclusively was an amount laid out or expended wholly or exclusively for the purpose of the business of the assessee?" for the purpose of the business of the assessee?"
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J.K. Woollen J.K. Woollen Manufacturers vs Commissioner of Income Manufacturers vs Commissioner of Income- Tax, U.P on 2 August, 1968 Tax, U.P on 2 August, 1968
By its judgment, dated May 22, 1962, the High Court By its judgment, dated May 22, 1962, the High Court By its judgment, dated May 22, 1962, the High Court answered the question against the assessee. answered the question against the assessee.
Against the judgment of the High Court the present appeal Against the judgment of the High Court the present appeal Against the judgment of the High Court the present appeal is brought by special is brought by special leave
Section 10(2)(x) and 10(2)(×v) of the Income Tax Act. 1922 n 10(2)(x) and 10(2)(×v) of the Income Tax Act. 1922 n 10(2)(x) and 10(2)(×v) of the Income Tax Act. 1922 at the relevant time read as follows: at the relevant time read as follows:
10(2) (x): any sum paid to an employee as bonus or 10(2) (x): any sum paid to an employee as bonus or 10(2) (x): any sum paid to an employee as bonus or commission for services rendered, where such sum would commission for services rendered, where such sum would commission for services rendered, where such sum would not have been payable to him as profits or dividend if it not have been payable to him as profits or dividend if it not have been payable to him as profits or dividend if it had not been paid as bonus or commission: Provided that ad not been paid as bonus or commission: Provided that ad not been paid as bonus or commission: Provided that the amount of the bonus or commission is of a reasonable the amount of the bonus or commission is of a reasonable the amount of the bonus or commission is of a reasonable amount with reference to amount with reference to-
(a) the pay of the/employee and the conditions of his (a) the pay of the/employee and the conditions of his (a) the pay of the/employee and the conditions of his service;
(b) the profits of the business. profession or vocation (b) the profits of the business. profession or vocation (b) the profits of the business. profession or vocation for the year in question; and the year in question; and
(e) the general practice in similar business profession or ) the general practice in similar business profession or ) the general practice in similar business profession or vocations;10(2)(×v): Any expenditure (not being in the vocations;10(2)(×v): Any expenditure (not being in the vocations;10(2)(×v): Any expenditure (not being in the nature of capital expenditure or personal expenses of the nature of capital expenditure or personal expenses of the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly or exclusively f assessee laid out or expended wholly or exclusively f assessee laid out or expended wholly or exclusively for the purpose of such business, profession or vocation." It was purpose of such business, profession or vocation." It was purpose of such business, profession or vocation." It was contended on behalf of the assessee that in the contended on behalf of the assessee that in the contended on behalf of the assessee that in the circumstances of this case the amount of Rs.37,733 paid circumstances of this case the amount of Rs.37,733 paid circumstances of this case the amount of Rs.37,733 paid to Shri J. P. Vaish was an amount laid out or expended to Shri J. P. Vaish was an amount laid out or expended to Shri J. P. Vaish was an amount laid out or expended
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wholly or exclusively for the pu wholly or exclusively for the purpose of the business of the rpose of the business of the assessee and was wrongly disallowed by the Income Tax assessee and was wrongly disallowed by the Income Tax assessee and was wrongly disallowed by the Income Tax Appellate Tribunal. It was pointed out that Shri Appellate Tribunal. It was pointed out that Shri J.P. Vaish J.P. Vaish was in no way related to the proprietors of the firm and was in no way related to the proprietors of the firm and was in no way related to the proprietors of the firm and the commission on profits clause was inserted to create the commission on profits clause was inserted to create the commission on profits clause was inserted to create the interest of Shri J.P. Vaish in the running of the mill the interest of Shri J.P. Vaish in the running of the mill the interest of Shri J.P. Vaish in the running of the mill which was "old and unbalanced" and had never worked which was "old and unbalanced" and had never worked which was "old and unbalanced" and had never worked continuously or satisfactorily before it was taken over by continuously or satisfactorily before it was taken over by continuously or satisfactorily before it was taken over by the assessee. the assessee. Therefore, it is clear from the judgement that Shri Therefore, it is clear from the judgement that Shri Therefore, it is clear from the judgement that Shri J.P. Vaish is in no J.P. Vaish is in no way a related person of the firm. way a related person of the firm.
The above-mentioned case law is not applicable in this mentioned case law is not applicable in this mentioned case law is not applicable in this case as it is not similar to the issue regarding applicability case as it is not similar to the issue regarding applicability case as it is not similar to the issue regarding applicability of section 40A(2)(b) of the I.T.Act, 1961 i.e. payments to the of section 40A(2)(b) of the I.T.Act, 1961 i.e. payments to the of section 40A(2)(b) of the I.T.Act, 1961 i.e. payments to the person where employer and employee are re person where employer and employee are related person. lated person. In this case, the issue is applicability of section 40(A)(2)(b) In this case, the issue is applicability of section 40(A)(2)(b) In this case, the issue is applicability of section 40(A)(2)(b) of the Income Tax Act, 1961 as employer and Director of of the Income Tax Act, 1961 as employer and Director of of the Income Tax Act, 1961 as employer and Director of the company are the same person as well as related the company are the same person as well as related the company are the same person as well as related person. 7C. Regarding case law Eastern Investment Co. Ltd. v. Eastern Investment Co. Ltd. v. 7C. Regarding case law CIT[1951] 20 ITR 1 (SC) 20 ITR 1 (SC)
The above-mentioned case law is not applicable in this mentioned case law is not applicable in this mentioned case law is not applicable in this case as the Hon'ble Supreme Court Judgement was on the case as the Hon'ble Supreme Court Judgement was on the case as the Hon'ble Supreme Court Judgement was on the issue regarding the applicability of section 12(2) of the issue regarding the applicability of section 12(2) of the issue regarding the applicability of section 12(2) of the Indian Income Tax Act (XI of 1922), "Business expenditure Indian Income Tax Act (XI of 1922), "Business expenditure Indian Income Tax Act (XI of 1922), "Business expenditure- -Interest on de Interest on debentures-Reducing capital of company by Reducing capital of company by taking over shares and giving debentures to shareholder taking over shares and giving debentures to shareholder taking over shares and giving debentures to shareholder--
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Income of company reduced Income of company reduced--Interest on debentures, debentures, whether allowable. whether allowable.
Therefore, considering the facts and circumstances of 8. Therefore, considering the facts and circumstances of 8. Therefore, considering the facts and circumstances of the case, the explanation of the the case, the explanation of the assessee regarding Point assessee regarding Point no.1 no.1 of of the the Show-cause Show cause Notice Notice vide vide DIN: DIN: ITBA/AST/F/143(3) (SCN)/2020 ITBA/AST/F/143(3) (SCN)/2020-21/1030792378(1) i.e. 21/1030792378(1) i.e. Regarding applicability of section 56(2)(viib) of the Income Regarding applicability of section 56(2)(viib) of the Income Regarding applicability of section 56(2)(viib) of the Income Tax Act, 1961 is not acceptable, therefore addition is made Tax Act, 1961 is not acceptable, therefore addition is made Tax Act, 1961 is not acceptable, therefore addition is made us. 56(2)(viib) of us. 56(2)(viib) of the Income Tax Act, 1961 is made the Income Tax Act, 1961 is made amounting to Rs.39,99,327/ amounting to Rs.39,99,327/- as per the following as per the following discussion:
As per the submission, in compliance to notice us. 142(1) As per the submission, in compliance to notice us. 142(1) As per the submission, in compliance to notice us. 142(1) of the I.T. Act, 1961 that, it appears that the assessee of the I.T. Act, 1961 that, it appears that the assessee of the I.T. Act, 1961 that, it appears that the assessee company has allotted 9089380 nos. of equity sh company has allotted 9089380 nos. of equity shares of the ares of the assessee company with a face value of Rs.10/ assessee company with a face value of Rs.10/ assessee company with a face value of Rs.10/- and premium thereon of Rs. 14.86/ premium thereon of Rs. 14.86/- per share and reported per share and reported received of Rs.22,59,61,988/ received of Rs.22,59,61,988/- being the share capital with being the share capital with premium thereon 9089380. premium thereon 9089380.
As per the submission regarding valuation certificate As per the submission regarding valuation certificate As per the submission regarding valuation certificate dated 12.10.2017 prepared by Shreya Thareja & Co., ted 12.10.2017 prepared by Shreya Thareja & Co., ted 12.10.2017 prepared by Shreya Thareja & Co., valuing the Fair Market Value of the shares is Rs.24.42 valuing the Fair Market Value of the shares is Rs.24.42 valuing the Fair Market Value of the shares is Rs.24.42 per equity share under the DCF valuation method. per equity share under the DCF valuation method. per equity share under the DCF valuation method. Therefore, allotment of 9089380 nos. of equityshares of Therefore, allotment of 9089380 nos. of equityshares of Therefore, allotment of 9089380 nos. of equityshares of the assessee company over and above its Fair M the assessee company over and above its Fair M the assessee company over and above its Fair Market Value by Rs.0.44=(Rs.24.86 Value by Rs.0.44=(Rs.24.86-Rs.24.42) and the excess Rs.24.42) and the excess consideration of Rs.39,99,327 =(9089380 X 0.44) received consideration of Rs.39,99,327 =(9089380 X 0.44) received consideration of Rs.39,99,327 =(9089380 X 0.44) received by the assessee company as share application is added by the assessee company as share application is added by the assessee company as share application is added
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back to the total income us.56(2)(viib) of the Income Tax back to the total income us.56(2)(viib) of the Income Tax back to the total income us.56(2)(viib) of the Income Tax Act, 1961."
8.2 Section 56 (2 Section 56 (2) (viib)of the Act statesas follows : ) (viib)of the Act statesas follows :-
"(viib) where a company, not being a company in which the "(viib) where a company, not being a company in which the "(viib) where a company, not being a company in which the public are substantially interested, receives, in any public are substantially interested, receives, in any public are substantially interested, receives, in any previous year, from any person being a resident, any previous year, from any person being a resident, any previous year, from any person being a resident, any consideration for issue of shares that exceeds the f consideration for issue of shares that exceeds the f consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received value of such shares, the aggregate consideration received value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the for such shares as exceeds the fair market value of the for such shares as exceeds the fair market value of the shares:
Provided that this clause shall not apply where the Provided that this clause shall not apply where the Provided that this clause shall not apply where the consideration for issue of shares is received consideration for issue of shares is received-
() by a venture capital () by a venture capital undertaking from a venture capital undertaking from a venture capital company or a venture capital fund or a specified fund; or company or a venture capital fund or a specified fund; or company or a venture capital fund or a specified fund; or
(ii) by a company from a class or classes of persons as (ii) by a company from a class or classes of persons as (ii) by a company from a class or classes of persons as may be notified by may be notified by the Central Government in this behalf: the Central Government in this behalf:
Provided further that where the provisions of thi Provided further that where the provisions of thi Provided further that where the provisions of this clause have not been applied to a company on account of have not been applied to a company on account of have not been applied to a company on account of fulfilment of conditions specified in the notification fulfilment of conditions specified in the notification fulfilment of conditions specified in the notification issued under clause (¡) of the first proviso and such company fails under clause (¡) of the first proviso and such company fails under clause (¡) of the first proviso and such company fails to comply with any of those conditions, then, any to comply with any of those conditions, then, any to comply with any of those conditions, then, any consideration received fo consideration received for issue of share that exceeds the r issue of share that exceeds the fair market value of such share shall be deemed to be the fair market value of such share shall be deemed to be the fair market value of such share shall be deemed to be the income of that company chargeable to income income of that company chargeable to income-tax for the tax for the previous year in which such failure has taken place and, it previous year in which such failure has taken place and, it previous year in which such failure has taken place and, it shall also be deemed that the company has under shall also be deemed that the company has under shall also be deemed that the company has under
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reported reported reported the the the said said said income income income in in in consequence consequence consequence of of of the the the misreporting referred to in sub misreporting referred to in sub-section (8) and sub section (8) and sub-section (9) of section 270A for the said previous year." (9) of section 270A for the said previous year."
8.3 This ground of appeal in this respect is thus dismissed This ground of appeal in this respect is thus dismissed This ground of appeal in this respect is thus dismissed based on the discussion in paras above. based on the discussion in paras above.
Ground No. 3 Ground No. 3
This ground of appeal challenges the addition of Rs. 9. This ground of appeal challenges the addition of Rs. 9. This ground of appeal challenges the addition of Rs. 2,98,20,988/ 2,98,20,988/-made by the AO us 40A (2) of the Act on made by the AO us 40A (2) of the Act on account of expenses towards employees. account of expenses towards employees.
The AO in his assessment order dated 08/03/2021 has The AO in his assessment order dated 08/03/2021 has The AO in his assessment order dated 08/03/2021 has stated that
"The assessee's explanation as "The assessee's explanation as per Point no.2 of the Show per Point no.2 of the Show- cause Notice videDIN: ITBA/AST/F/143(3) (SCN)/2020 cause Notice videDIN: ITBA/AST/F/143(3) (SCN)/2020 cause Notice videDIN: ITBA/AST/F/143(3) (SCN)/2020- 21/1030792378(1) i.e. Regarding applicability of section 21/1030792378(1) i.e. Regarding applicability of section 21/1030792378(1) i.e. Regarding applicability of section 40A(2) of the Income Tax Act, 1961 is not acceptable as 40A(2) of the Income Tax Act, 1961 is not acceptable as 40A(2) of the Income Tax Act, 1961 is not acceptable as per the discussion as above vide Para 7A,7B and 7C and per the discussion as above vide Para 7A,7B and 7C and per the discussion as above vide Para 7A,7B and 7C and therefore, claim of deduction of expenses incurred towards claim of deduction of expenses incurred towards claim of deduction of expenses incurred towards payments made to one of the Director of the company payments made to one of the Director of the company payments made to one of the Director of the company namely namely namely Mr. Mr. Mr. Royston Royston Royston Braganza Braganza Braganza amounting amounting amounting to to to Rs.2,98,20,988/ Rs.2,98,20,988/-is disallowed us.40A(2)(b) of the Income is disallowed us.40A(2)(b) of the Income Tax Act, 1961 and added back to the total income of the Tax Act, 1961 and added back to the total income of the Tax Act, 1961 and added back to the total income of the company for the F.Y. 2017 ompany for the F.Y. 2017-18."
Section 40 A (2) of the Actstates that: Section 40 A (2) of the Actstates that:-
(2) (a) Where the assessee incurs any expenditure in (2) (a) Where the assessee incurs any expenditure in (2) (a) Where the assessee incurs any expenditure in respect of which payment has been or to be made to any respect of which payment has been or to be made to any respect of which payment has been or to be made to any person refer person refer- red to in clause (b) of this subsections and red to in clause (b) of this subsections and
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the Income-tax Off tax Officer is of opinion that such expenditure icer is of opinion that such expenditure is excessive is excessive or unreasonable having regard to the fair or unreasonable having regard to the fair market value of the goods, services or facilities for which market value of the goods, services or facilities for which market value of the goods, services or facilities for which the payment is made or the legitimate needs of the the payment is made or the legitimate needs of the the payment is made or the legitimate needs of the business or profession of the assessee or the ben business or profession of the assessee or the ben business or profession of the assessee or the benefit derived by or accruing to him there from, so much of the derived by or accruing to him there from, so much of the derived by or accruing to him there from, so much of the expenditure as is so considered by him to be excessive or expenditure as is so considered by him to be excessive or expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction: unreasonable shall not be allowed as a deduction: unreasonable shall not be allowed as a deduction:
Provided that the provisions of this section shall not apply Provided that the provisions of this section shall not apply Provided that the provisions of this section shall not apply in the case of an assesse in the case of an assessee being a company in respect of e being a company in respect of any expenditure to which sub any expenditure to which sub-clause (i) of clause (c) of clause (i) of clause (c) of section 40 applies. section 40 applies.
(b) The persons referred to in clause (a) are the following, (b) The persons referred to in clause (a) are the following, (b) The persons referred to in clause (a) are the following, namely:-
(i) where assessee is individual of the (i) where assessee is individual of the any relative any relative assessee (ii) where the assessee is a company; firm, any director of the any director of the association company company Of persons or hindu undivided family Of persons or hindu undivided family partner of the partner of the firm or member of the firm or member of the association or family; association or family; or any relative of such or any relative of such director, director, partner partner or or member member
(ai) any individual who has a substantial interest in the (ai) any individual who has a substantial interest in the (ai) any individual who has a substantial interest in the business or profession of the assessee, or any relative of business or profession of the assessee, or any relative of business or profession of the assessee, or any relative of such individual; such individual;
(iv) a company, firm, association of persons or Hindu (iv) a company, firm, association of persons or Hindu (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the undivided family having a substantial interest in the undivided family having a substantial interest in the
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business or p business or profession of the assessee or any director, rofession of the assessee or any director, partner or member of such company, firm, association or partner or member of such company, firm, association or partner or member of such company, firm, association or family, or any relative of such director, partner or family, or any relative of such director, partner or family, or any relative of such director, partner or member,;
(v) a company, firm, association of persons or Hindu (v) a company, firm, association of persons or Hindu (v) a company, firm, association of persons or Hindu undivided family of which a director, part undivided family of which a director, partner or member, ner or member, as the case may be, has a substantial interest in the as the case may be, has a substantial interest in the as the case may be, has a substantial interest in the business or profession of the assessee or any director, business or profession of the assessee or any director, business or profession of the assessee or any director, partner or member of such company, firm, association or partner or member of such company, firm, association or partner or member of such company, firm, association or family or any relative of such director, partner or member; family or any relative of such director, partner or member; family or any relative of such director, partner or member;
(vi) any person (vi) any person who carries on a business or profession, who carries on a business or profession,-
(A) where the assessee being an individual, or any relative (A) where the assessee being an individual, or any relative (A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the of such assessee, has a substantial interest in the of such assessee, has a substantial interest in the business or profession of that person; or business or profession of that person; or
(B) where the assessee being a company, firm, association (B) where the assessee being a company, firm, association (B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of of persons or Hindu undivided family, or any director of of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the such company, partner of such firm or member of the such company, partner of such firm or member of the association or family, or any relative of such director, association or family, or any relative of such director, association or family, or any relative of such director, partner or member, has a partner or member, has a substantial interest in the substantial interest in the business or profession of that person business or profession of that person.
It is mandatory for the appellant to report the expenses It is mandatory for the appellant to report the expenses It is mandatory for the appellant to report the expenses towards employees in the audit report. towards employees in the audit report.
9.3 The appellant failed to demonstrate that the employer The appellant failed to demonstrate that the employer The appellant failed to demonstrate that the employer & Director are not related/same person. This ground of & Director are not related/same person. This ground of & Director are not related/same person. This ground of appeal in this respect is thus dismissed base appeal in this respect is thus dismissed based on the d on the discussion in paras above. discussion in paras above.”
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5.1 It is evident that order passed by the Ld. CIT(A) is in It is evident that order passed by the Ld. CIT(A) is in It is evident that order passed by the Ld. CIT(A) is in violation of the principles of natural justice and therefore, we feel it of the principles of natural justice and therefore, we feel it of the principles of natural justice and therefore, we feel it appropriate to restore this matter back to the file of the Ld. CIT(A) appropriate to restore this matter back to the file of the Ld. CIT(A) appropriate to restore this matter back to the file of the Ld. CIT(A) for passing a reasoned order after taking into consideration asoned order after taking into consideration asoned order after taking into consideration submission of the assessee. The grounds of appeal of the assessee submission of the assessee. The grounds of appeal of the assessee submission of the assessee. The grounds of appeal of the assessee are accordingly allowed for statistical purposes. are accordingly allowed for statistical purposes. 5.2 In the other two appeals for assessment year 2015 In the other two appeals for assessment year 2015 In the other two appeals for assessment year 2015-16 & 2016- 17, the Ld .CIT(A) has followe 17, the Ld .CIT(A) has followed his finding in assessment year 2018 d his finding in assessment year 2018- 19. In these two appeals also the Ld. CIT(A) has not taken into 19. In these two appeals also the Ld. CIT(A) has not taken into 19. In these two appeals also the Ld. CIT(A) has not taken into consideration the submission of the assessee. Accordingly, following consideration the submission of the assessee. Accordingly, following consideration the submission of the assessee. Accordingly, following our finding in assessment year 2018 our finding in assessment year 2018-19, the ground raised in these 19, the ground raised in these appeals are also restored back to the file of the Ld. CIT(A) for estored back to the file of the Ld. CIT(A) for estored back to the file of the Ld. CIT(A) for deciding afresh and pass a reasoned order after providing adequate deciding afresh and pass a reasoned order after providing adequate deciding afresh and pass a reasoned order after providing adequate opportunity of being heard to the assessee. 6. In the result, all the three appeals of the assessee are allowed In the result, all the three appeals of the assessee are allowed In the result, all the three appeals of the assessee are allowed for statistical purposes. for statistical purposes.
Order pronounced in the open Court/under Rule 34(4) of Order pronounced in the open Court/under Rule 34(4) of Order pronounced in the open Court/under Rule 34(4) of the ITAT Rules, 1963 on the ITAT Rules, 1963 on 29/12/2022. Sd/- Sd/- - (ABY T VARKEY ABY T VARKEY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 29/12/2022 Rahul Sharma, Sr. P.S.
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Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, BY ORDER, //True Copy// (Sr. Private Secretary) (Sr. Private Secretary) ITAT, Mumbai ITAT, Mumbai