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Income Tax Appellate Tribunal, “C’’ BENCH : BANGALORE
Before: SHRI B.R BASKARAN & SHRI PAVAN KUMAR GADALE
Per B.R Baskaran, Accountant Member :
The assessee has filed this appeal challenging the order dated 12-12-2017 passed by Ld CIT(A)-4, Bangalore and it relates to the assessment year 2014-15. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the addition made by the AO u/s 56(2)(viib) of the Act.
The assessee is engaged in the business of providing software services. During the year under consideration, the assessee had issued shares having par value of Rs.10/- at a price of Rs.30/-.
The Fair Market value was determined as Rs.22.09. Accordingly, by invoking the provisions of sec.56(2)(viib) of the Act, the AO proposed to assess the excess amount collected by the assessee over and above the fair market value of shares as income of the assessee. The excess amount so collected worked out to Rs.61,81,665/-. During the course of assessment proceedings, the assessee agreed for the said addition by filing letter dated 10.08.2016. Accordingly, the AO completed the assessment by adding the above said amount.
However, the assessee challenged the above said addition by filing appeal before Ld CIT(A), who dismissed the appeal of the assessee by holding that the assessee is not justified in retracting from its stand. Aggrieved, the assessee has filed this appeal.
The Ld A.R submitted that the assessee company falls under the category of “Start-up company”. He submitted that the Government has issued notification no.13/2019 F.No.370142/5/2018-TPL (Pt.) dated 05th March, 2019, exempting the start up companies from the application of provisions of sec.56(2)(viib) of the Act. It has also been clarified by CBDT in its Circular No.173/354/2019-ITA-1 dated 09-08-2019 that the relaxation so provided is applicable to the assessments completed before 19-02-2019 also, if a recognised start-up had filed declaration in Form No.2. Accordingly, the Ld A.R submitted that the assessee is eligible to avail the benefit given under the above said notification/circulars. Accordingly, he prayed that the impugned matter may be restored to the file of the AO for examining the same afresh in the light of notifications/circulars, referred above.
With regard to the acceptance of the addition before the AO, the Ld A.R submitted that the assessee was having huge losses and hence the representative had agreed to the addition, since the same shall not have any immediate tax effect. He submitted that the assessee had agreed for the addition only during the course of assessment proceedings and at that point of time, the policy decision taken by the Government through the above said notifications/circulars were not available.
On the contrary, the Ld D.R submitted that the assessee had agreed for the addition and hence it should not be allowed to retract from its stand.
We heard rival contentions and perused the record. Admittedly, the assessee had agreed for the addition u/s 56(2)(viib) of the Act during the course of assessment proceedings. It is not the case that the assessee itself has disallowed or added the above said amount in its return of income. In the case of CIT vs. Everest Kento Cylinders Ltd (2015)(58 taxmann.com 254)(378 ITR 57), the Hon’ble Bombay High Court had an occasion to examine an identical issue. In the case before Hon’ble Bombay High Court, the assessee had agreed for addition of Rs.4,47,649/- u/s 14A of the Act before the AO during the course of assessment proceedings. It had not itself disallowed the above said amount in its return of income. However, the assessee challenged the addition of Rs.4,47,649/- agreed to it before AO by filing appeals. In the second appeal preferred before the ITAT, the Tribunal restricted the addition u/s 14A of the Act to Rs.1.00 lac. The revenue challenged the order passed by the Tribunal by contending that the assessee had agreed for the addition of Rs.4,47,649/-. It was held as under by Hon’ble Bombay High Court:-
“10. Having considered submissions of Mr. Malhotra for the revenue and Mr. Pardiwala for the assessee, we are of the view that the order of the Tribunal as regards disallowance under section 14A and restricting the same to Rs.1 lac was justified in view of the material before the Tribunal. Furthermore, having considered the fact that a sum of RS.4,47,649/- was not conceded in the return but was adhoc acceptance during the course of assessment, the assessee could not be bound by it.”
As noticed earlier, in the instant case also, the assessee has agreed for the disallowance during the course of assessment proceeding only and further, according to Ld A.R, it was so agreed for the reason that there was no immediate tax effect in view of huge business losses. It is not the case of the AO that the assessee itself had made the impugned disallowance in its return of income. Hence, we are of the view that the assessee could contend the addition as per the ratio laid down by Hon’ble Bombay High Court in the above said case.
It is contended by the assessee that the start-up companies have been exempted from the provisions of sec.56(2)(viib) of the Act by the Government, as per the notifications/circulars referred above. It was submitted that the same would apply to assessments completed prior to 19-02-2019 also. In our view, in the interest of natural justice, this claim of the assessee that it is eligible to claim benefit of the notifications/circulars issued by the CBDT needs to be examined by the tax authorities. Accordingly, we set aside the order passed by Ld CIT(A) and restore all the issues to his file for examining the above said claim of the assessee on merits. After affording adequate opportunity of the assessee and to the assessing officer, the Ld CIT(A) may take appropriate decision in accordance with law.
In the result, the appeal of the assessee is treated as allowed for statistical purposes.