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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH
Before: Ms. Annapurna Gupta & Shri Mahavir Prasad
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri Mahavir Prasad, Judicial Member ITA No. 448 & 542/Ahd/2018 Assessment Year 2013-14
Aquafil Polymers Co. Pvt. The DCIT, Ltd. 202/203, Shyamak Circle-1(1)(2), Complex, B/h. Kamdhenu Vs Ahmedabad Complex, Polytechnic, Ahmedabad-380015 PAN: AABCA7902R
The DCIT, Aquafil Polymers Co. Circle-1(1)(2), Vs. Pvt. Ltd. 202/203, Ahmedabad Shyamak Complex, B/h. Kamdhenu Complex, (Appellant) Polytechnic, Ahmedabad-380015 PAN: AABCA7902R (Respondent) ITA No. 950/Ahd/2018 Assessment Year 2014-15 Aquafil Polymers Co. Pvt. The DCIT, Ltd. 202/203, Shyamak Circle-1(1)(2), Complex, B/h. Kamdhenu Vs Ahmedabad Complex, Polytechnic, Ahmedabad-380015 (Respondent) PAN: AABCA7902R (Appellant)
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 2 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT
Appellant by : Smt. Urvashi Shodhan, A.R. Respondent by : Shri Alpesh Parmar, Sr. D.R. Date of hearing : 06-06-2022 Date of pronouncement : 10-06-2022 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:-
The present appeals relate to the same assessee and are cross appeals filed by the Revenue and Assessee for Assessment Year (A.Ys) 2013-14 and appeal of the assessee for A.Y 2014-15 ,against order passed by the Commissioner of Income Tax (Appeals)-1 & 5, Ahmedabad, (in short referred to as CIT(A)) dated 29-12-2017 & 05-02-2018 respectively, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) .
It was common ground that the issues involved in the assesses appeal for both the years were identical. Therefore all the appeals were taken up together for hearing and are being disposed off by a common consolidated order.
We shall be dealing with the cross appeals relating to A.Y. 2013-14 and our decision rendered therein in the assessee’s appeal will apply mutatis mundis to the assessee’s appeal in A.Y. 2014-15 in ITA No. 950/Ahd/2018.
4 We shall first be taking up Revenue’s appeal in ITA No. 542/Ahd/2018. A.Y 2013-14
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 3 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT
The solitary grievance of the Revenue against the order of the Ld.CIT(A) is against deletion of disallowance of deduction u/s. 80IA of the Act made by the AO, and reads as under: 1. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 2,74,60,449/- made by the Assessing officer u/s. 80IA of the Act.
Brief facts, as emanate from the orders of the authorities below, is that the assessee company carries on the business of contract work in respect of construction of Water Treatment Plants (WTP), Sewage Treatment Plant (STP) etc. During the impugned year, it had claimed deduction u/s. 80IA(4) of profits amounting to Rs. 2,74,60,449/-,earned from developing and /or operating and maintaining the following infrastructure projects. Sr. No. Name of the Projects Date of 1stAsst. Year of claim Nature of work Commencement 1 MPAKVN 02-03-2006 2007-08 Development 2 Ahmedabad Municipal 01-04-2007 2008-09 Operation and Corporation -Jaspur Maintenance
3 Ahmedabad Municipal 12-09-2008 2009-10 Operation and Corporation -Kotarpur Maintenance
4 Vadodra , Municipal 23-10-2009 2010-11 Development of WTP Corporation
5 Vadodra Municipal 01-02-2010 2010-11 Development of STP Corporation
6 Gujarat urban 13-04-2010 2011-12 Development of WTP Development Corporation (GUDC)- Tarsadi
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 4 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT
7 Khambhat Nagar 24-09-2009 2011-12 Development of WTP Seva Sadan, Khambhat 8 Rajsthan Urban 21-07-2011 2012-13 Development Sewerage Sector Development Treatment Plant (STP) Investment Project - Bundi (RUSDIP)
9 Ex. Engineer (R & B 19-09-2011 2012-13 Development Sewerage Devision) Tarapur, Treatment Plant (STP) Anand Tarapur
10 Ahmedabad Municipal 04-01-2013 2013-14 Development of Water Corporation, Sanand Treatment Plant (WTP)
11 Rajsthan Urban 23-10-2012 2013-14 Development of Water Infrastructure Treatment Plant (WTP) Development project - Karauli (RUDIP)
The same was denied by the A.O. holding that the assessee was not a developer of the projects but had carried out the project only as a work contractor. The ld. CIT(A) deleted the disallowance made by the A.O. finding that out of the 11 projects, those at Serial no. 1 to 9 had come up for consideration for claim of deduction u/s. 80IA in the preceding years, which had been allowed in first appeal. While with respect to the remaining projects, the ld. CIT(A) held that the nature of work carried out was similar to that in the other 9 projects on which u/s. 80IA had been allowed earlier and accordingly he held that the assessee was eligible to deduction u/s. 80IA(4) on account of the remaining two projects also. The relevant findings of the ld. CIT(A) in this regard at para 3.4 of his order is as under:
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 5 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT 3.4. In the year under consideration for AY 2013-14, the Appellant has claimed deduction on 11 projects, out of which, in respect of 9 projects viz. (i) MPAKVN (II) AMC Jaspur (Hi) AMC Kotarpur (iv) VMC WTP (v) VMC STP (vi) GUDC Tarsadi (vii) KNSS WTP Khambhat (viii) RUSDIP STP Bundi and (ix) Ex. Engineer Tarapur deduction u/s. 80/A was held to be allowable in the preceding assessment years. Facts remaining the same in the year under consideration, disallowance of deduction u/s. 801A on these nine (9) projects are deleted. As regards the two (2) new projects, on which the deduction was claimed for the first time in the year under consideration, viz (i) AMC Sanand WTP and (ii) RUSDIP WTP Karauli, it is seen that nature of development work is similar to the other nine (9) projects, on which deduction u/s.801A was held to allowable in the preceding para hence the disallowance of deduction u/s 801A on these two (2) new projects is also deleted. To sum up, AO is directed to allow deduction u/s. 801A on all these 11 projects. This ground of appeal is allowed.
Before us, at the outset Ld. Counsel for the assessee pointed out that the order of the Ld. CIT(A) in the preceding years pertaining to A.Y. 2010-11 to A.Y. 2012-13 had been upheld by the ITAT in its order passed in ITA No. 161/Ahd/2015, 1532/Ahd/2015 and 1183/Ahd/2016 respectively dated 01.11.2018. Our attention was drawn to Para 4 of the order where with respect to each assessment year involved the projects in relation to which Section 80IA(4) had been claimed by the assessee was enlisted and it was pointed there from that the projects included those on which the assessee had claimed deduction in the impugned year also from Serial no. 1 to Serial no. 9. Our attention was thereafter drawn to Para 6 of the order wherein the order of the Ld. CIT(A) allowing the assessee’s claim for deduction u/s. 80IA(4) was upheld with respect to all the 3 years involved. Ld. Counsel
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 6 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT for the assessee stated therefore that with respect to projects listed in serial no. 1 to 9, the issue was covered in favour of the assessee by the order of the ITAT itself wherein these very same projects were held to be eligible for deduction u/s. 80IA of the Act.
With respect to the remaining two projects (S.No. 10-11) Ld. Counsel for the assessee drew our attention to the submissions relating to the scope of work involved therein at para 7 of the order, wherein the project, listed at S.No.10,relating to Ahmedabad Municipal Corporation, Sanand (WTP) (AMC, Sanand WTP) was dealt with, stating that from the relevant documents it had been pointed out that the scope of work included: From the facts, it is evident that the Appellant Company has been awarded the DEVELOPMENT OF SANAND WTP by Ahmedabad Municipal Corporation and thedevelopment of said infrastructure facility includes: > Designing of the infrastructure facility > Construction of the Infrastructure facility > Testing and carrying out trial run of the Infrastructure facility > Commissioning of the Infrastructure facility > Operation and Maintenance of the Infrastructure facility
Thereafter our attention was drawn to page 29 of the order wherein the scope of work of the other project listed at S.No.11, i.e. Rajasthan Urban Sector Development Investment Programme and Karauli (RUSDIP) was elaborated by the assessee pointing out from relevant documents that the work involved related to as under:
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 7 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT From the facts, it is evident that the Appellant Company has been awarded the DEVELOPMENT OF RUSDIP KARAULI STP project by RAJASTHAN URBAN SECTOR DEVELOPMENT INVESTMENT PROGRAMME and the development of said infrastructure facility includes: > Designing of the infrastructure facility > Construction of the Infrastructure facility > Testing and carrying out trial run of the Infrastructure facility > Commissioning of the Infrastructure facility > Operation and Maintenance of the Infrastructure facility for 5 years.
Ld. Counsel for the assessee contended that Ld.CIT(A) had found the facts relating to these projects identical to the remaining 9 projects and accordingly allowed the assessee’s claim for deduction u/s. 80IA of the Act.
Ld. D.R. was unable to point out any distinguishing fact with respect to the projects undertaken by the assessee at serial no. 1 to 9 which had been undertaken in the earlier years and had been held by the ITAT as being eligible for deduction u/s.80IA of the Act nor to two new projects undertaken by the assessee during the year at serial no. 10 & 11.
In view of the above, we see no reason to interfere in the order of the ld. CIT(A) since admittedly the asessee’s claim of deduction with respect to projects listed at serial no. 1 to 9 already stand examined and adjudicated upon by the ITAT in the preceding years wherein they were found to be eligible to grant to deduction u/s. 80IA. As for the remaining two new projects undertaken by the assessee during the year since the Ld.
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 8 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT D.R. has been unable to distinguish the finding of the Ld. CIT(A) on facts that the scope of work relating to these two projects was identical to the other nine projects which were held to be eligible for the deduction u/s. 80IA by the ITAT, the order of the ld. CIT(A) allowing assessee’s claim of deduction vis a vis the remaining two project also is upheld.
The order of the ld. CIT(A) therefore allowing assessee’s claim of deduction u/s. 80IA amounting to Rs. 2,74,60,449/- is upheld. Ground of appeal of the Revenue is dismissed.
14.1 In effect appeal of the Revenue is dismissed.
ITA No. 448/Ahd/2018 (Assessee’s appeal ) for A.Y. 2013-14
Ground no. 1 reads as under: 1. The Id. Commissioner of Income Tax (Appeals): 1, Ahmedabad (CIT(A) for short) has grievously erred in law and on facts in treating interest income of Rs. 13,18,599/- as income from other sources and not as the profit derived from the projects eligible U/S.80IA.
As transpires from the orders of the authorities below, the assessee has been denied deduction u/s.80-IA of the Act on interest income of Rs 13,18,999/- holding that the same cannot be said to have been derived from the business of the assessee. The facts relating to the earning of the interest income being that the same had been earned on fixed deposits placed with banks against bank guarantees and performance guarantees
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 9 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT given by the banks in favour of the assessee as per the terms of tenders awarded to the assesee for carrying on development of infrastructure facilities. The contention of the assessee is that since it would not have been permitted to carry on the development work without the bank guarantee and performance guarantee, the fixed deposits placed with the banks in lieu the issuance of the said guarantees was wholly and exclusively for the purpose of the business of the assssee and therefore the interest income earned thereon was derived from the business of the assessee only.. Reliance in this regard was placed on the decision of the Jurisdictional High Court in the case of CIT-4, Shah Alloys Ltd. (2017) 84 taxmann.com 256 (Guj.).
Ld.DR however contended that the issue was squarely covered against the assessee by the decision of the Hon’ble Uttaranchal High Court in the case of Conventional Fasteners vs Commissioner of Income Tax, Dehradun in Income Tax Appeal No.24 of 2015 & 21 of 2017 dated 15-11-2017. Copy of the order was placed before us.
We have heard both the parties. We have also gone through the order of the Ld.CIT(A) and we find that before him also identical pleadings were made by the assessee that the interest income being earned on FDR’s placed with Banks wholly and exclusively for business purposes, the said income was derived from the business of the assessee and hence eligible to deduction u/s 80-IA of the Act. The decision of the jurisdictional High Court In the case of Shah Alloys was also referred to. We find that the CIT(A)
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 10 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT noted that he found force in the arguments of the assessee but thereafter went on to follow his decision in the preceding year wherein identical interest was denied deduction u/s 80-IA. This is evident from his findings at para 2.6 of the order as under: 2.6 I have gone through the facts and submission made by the AR. I find force in the arguments raised by the AR regarding inclusion of interest income of Rs, 13,18,599/- in the profits of the projects eligible u/s, 801 A for which I follow the appellate order for AY 2010-11 in appeal no. CIT(A) VI/Wd-1(3)/7/13-14 dt 13-11- 2014 in Appellant's own case wherein it was held as under: "2.6 I have gone through the facts and submission made by the AR. f find force in the arguments raised by the AR regarding i) Excessive addition of Rs.13,48,697/-, H) Duplicate addition of Rs. 14,99,076/-, Hi) Sundry credit balance : written off of Rs. 1,45t 955/-. As regards balance addition of Rs. 12,02,742/- [Rs, -41,96,740-(13,48,697+ 14,99,076+ 1,45,955)], i.e. interest income credited to the eligible projects on which deduction u/s. 801A has been claimed I follow the appellate order for A, Y. 2010-11 in appeal no. CIT(A) WWD-1(3)/7/13-14 dt. 13- 11-2014 in appellant's own case wherein it was held as under: "3.2 Identical issue came up for consideration in appellant's own case for A.Y. 2008-09. Vide my order dt, 26.12,2012 in appeal No, CIT(A)-VI/ITO/Wd- 1(3)/214/10-11, it was held as under:- "4.3, Vide para-2.17 and 2.18 (pages 20 and 21) of the assessment order, AO observed that interest income earned by the appellant is not eligible for deduction u/s, 80IA; if the overall expenditure was allocated proportionately (on the basis of profit before tax), the net profit from the projects (which was claimed as deduction u/s. 80IA) would be nil; and that no separate disallowance was being made (since the deduction u/s, 80IA was disallowed already). The contentions of the learned A.R. are that the overall expenditure, was allocated scientifically project-wise; general expenses were allocated on the basis of the contract receipts and that this practice is followed consistently. Having considered the issue, I hold that the allocation of over-all expenditure by the appellant does not call for interference, 4.4 As regards the interest and other income received, by appellant's own admission Rs. 2,05,558/~ was included in the deduction claimed u/s. 801 A (out of the total interest and other income of Rs. 54,32,913/-). As held in the cases of Liberty India v/s. CIT (317 ITR 218) and Nahar Exports Ltd. Vs. CIT (288 ITR 494), interest and other income cannot be said to have been 'derived from' the business and is not entitled to deduction u/s. 801 A. A. O. is directed to re- compute the deduction allowable u/s.80IA by excluding the said-amount of interest and other income included by the appellant in the deduction claimed u/s, SQIA. This ground of appeal is partly allowed."
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 11 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT 2.7 Following the above mentioned order, AO's action of excluding the interest income while computing the deduction u/s. 801A is upheld in principle. However, the AR contended that out of the total addition of Rs.41,96,740/-, Rs. 13,48,697/- is excess addition (the Profit and Loss A/c. shows the income at Rs. 28,47,773/-, hence the addition cannot be more than that); the appellant did not claim deduction u/s. 801 A to the tune of Rs.14,99,076/- ( as the said interest income was allocated to projects not eligible for deduction u/s. QOSA) and R$. 1,45,955/- being profits u/s. 41(1) the appellant has rightly claimed deduction u/s. 801 A on the said income , the question of disallowance of the said sums do not arise. AO is directed to verify this contention. If it is found to be so, disallowance of said sums shall be deleted. Disallowance of the balance interest of Rs. 12,02,742/- is upheld. Thus, subject to verification, this ground of appeal is partly allowed.
It is therefore not clear as to how the issue was adjudicated upon by the Ld.CIT(A). Be that so, we however find that there is merit in the contentions of the Ld.Counsel for the assessee. We have gone through the decision of the Hon’ble jurisdictional High Court in the case of Shah Alloys (supra), and we find that ,while dealing with the claim of deduction u/s 80-IA of the Act on interest earned on Margin Money kept with Banks, it was categorically held that the same being incidental to the business activities of the assessee and assessable as Income from Business and Profession ,it was eligible to deduction u/s 80-IA of the Act. The Hon’ble Court held the issue to be covered by its earlier decision in the case of Nirma Industries Ltd. DCIT (2006) 283 ITR 402 (Guj). The facts in the present case before us are on identical lines wherein the FD’s earning interest were required to be made by the banks for issuing Bank Guarantees and Performance Guarantees to the assessee which was a necessary prerequisite as per the terms of the tender issued awarding projects to it. The interest income earned on these FD’s were incidental to its business, and have been assessed as Business Income also. The decision of the Hon’ble Jurisdictional
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 12 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT High Court therefore squarely applies in the present case and the interest income is therefore eligible for deduction u/s 80-IA of the Act.
The Ld.DR has relied upon a decision of the Hon’ble Uttaranchal High Court in the case of Conventional Fasteners (supra) giving a contrary view on the issue. Needless to say that we are bound to follow the decision of the jurisdictional High Court. And following the same, we hold that the assessee is eligible to claim deduction u/s 80-IA on the interest income of Rs.13,18,599/-.
Ground of appeal No.1 is allowed.
Ground no. 2 is as under: 2. The Id. CIT(A) has grossly erred in law and on facts in confirming, the disallowance of Rs. 24,960/-, being the employees' contribution to PF, u/s. 2(24)(x) r.w.s. 36(i)(va) in total disregard of the facts brought on record and settled law.
This ground relates to disallowance of deduction being employees contribution to PF is also the same being delayed as per the provisions of Section 2(22)(x) r.w.s. 36(1)(va) of the Act.
Ld. Counsel for the assessee fairly admitted that the issue stood covered against the assessee by the decision of the Hon’ble Jurisdictional High Court in the case of GSRTC Ltd. reported in 366 ITR 170 (Guj.).
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 13 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT 26. In view of the above, ground no. 2 is dismissed.
Ground no 3 reads as under: 3. The Id. CIT(A) has grossly erred on facts in confirming the disallowance u/s. 40(a)(ia) of Rs. 49.028/- which is related to reversal of expenses of Rs. 1,74,4287- and thereby outside the scope of section 40(a)(ia). .
Ld. Counsel for the assessee at the outset itself stated that she did not wish to press this ground considering the smallness of the quantum involved.
In view of the above, ground no. 3 is dismissed.
Ground no. 4 reads as under: 4. The Id. CIT(A) has grossly erred in law and on facts in confirming the disallowance of professional tax of Rs. 44,320/-, deducted from salary of the employee by treating it as covered u/s. 43B, though the Appellant Company has not claimed the professional tax as deduction in the return of income.
Ld. Counsel for the assessee at outset itself stated that she did not wish to press this ground considering the smallness of the quantum involved.
In view of the above, ground no. 4 is dismissed.
Ground no. 5 reads as under: 5. The Id. CIT(A) has grossly erred in law and on facts in confirming addition of Rs.30,19,663/- u/s. 56(2)(viib) of the Act, by ignoring the working of the Fair
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 14 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT Market Value of the shares substantiated by the Appellant Company which includes the goodwill based on super profit method, on the lame ground that goodwill does not appear in the balance sheet of 31-03-2012.
The facts relating to the issue are that the assessee had received share premium amounting to Rs. 6,68,78,880/- during the year by issuing shares of Rs. 10 at a premium of Rs. 140 per share. The assessee justified the premium by submitting a valuation of its Fair Market Value at Rs. 173.19, however the AO determined the FMV as per Rule 11UA of the Rules at Rs. 123.96. Accordingly he held the shares to be issued by the assessee at more than its FMV and made addition of the difference amounting to Rs.30,19,663/- u/s 56(2)(vii)(b) of the Act.
The assessee justified the fair market value of shares by submitting the calculation of the same arriving at a figure of fair market value of the shares at Rs.173.19 as under: Share capital (1180100 equity shares of Rs. 10/- each Rs. 1,18,01,000 Add : Reserves & Surplus Rs. 8,28,79,417 Add : Goodwill Rs. 10,97,06,211 Total (A) Rs. 20,43,86,628 Total number of shares (B) 11,80,100 Nos. Fair Market value per share (A/B) Rs. 173.19
The FMV was however determined at Rs. 123.96 by the A.O. as per Rule 11UA of the Income Tax Rules 1962 as under:
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 15 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT
(b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner, namely: the fair market value of unquoted equity shares = (A-L) ........ XPV (PE) Where, (A) book_value of the assets in the balance-sheet as reduced by any 406883718 amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; 260599301 Block Assets 17027041 CWIP 0 Current Investment 26642011 Inventories 89442112 Non current investment 10000 Long Term Loans & Advance 32239689
Trade Receivable 183190817 Cash &Bank Balance 1807116 Short Term Loan & Advances 40264932
Other Loans & Advances 0
Total 406883718
(L) book value of liabilities shown in the balance sheet but not including the following amounts, namely:- 260599301 Other current liabilities 25103477 Trade payable 132161202 Short Term Borrowing 86801611 Long Term Borrowing 4695075 Short Term provision 10194273 Long term provision 0 Share application Money 0
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 16 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT Deferred liabilities 1643663 Total 260599301 PE Total amount of paid up equity share capita as 11801000 Shown in the balance-sheet:
PV the paid up value of such equity shares 1180100 The fair market value of unquoted equity shares = (A-L)/ (PE) X PV 146284417.00
Fair Market value of each shares 123.96
The solitary contention of the ld. Counsel for the assessee before us was that as per law, the assessee was at liberty to justify the fair market value of shares either as per the method prescribed in the Income Tax Rules,1962 (in short “Rules”) in this regard or the fair market value could be substantiated to the Assessing Officer based on the value of all assets of the assessee as on the date of issue of shares (including even the intangible assets) .And while the assessee had adopted the second method to justify the fair market value of the shares by including the value of goodwill to the assets held by it, the Revenue authorities had merely insisted on the valuation being done as per the first method i.e. Rule 11UA prescribed by the Rules in this regard. Ld. Counsel for the assessee contended that the matter therefore needed to be restored to the A.O. to consider the calculation of fair market value submitted by the assessee and thereafter deal with the issue. In this regard our attention was drawn to the relevant provisions of Section 56(2)(viib) prescribing two method for valuation of FMV of shares in the explanation to the section as under: 56(2)(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 17 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: . . . . . Explanation.—For the purposes of this clause,— (a) the fair market value of the shares shall be the value— (i) as may be determined in accordance with such method as may be prescribed68; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher;
Our attention was drawn to the following decisions of the Co- ordinate Bench of the ITAT holding that the assessee is entitled to justify the fair market value of shares by any of the two methods prescribed in the Act and any one method cannot be forced on the assessee. (i) India Today Online Pvt. Ltd. reported in 104 taxmann.com 385 (Delhi Tribunal) (ii) Minda S.M. Technocast Pvt. Ltd. 170 ITD 12 (Del. Trib.) (iii) Unnati Inorganics Pvt. Ltd. ITA No. 2474/Ahd/2017
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 18 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT 39. Referring to the decision of the ITAT in the case of Unnati Inorganics Pvt. Ltd. (supra), copy of which was placed before us at paper book page no. 52to 66, it was pointed out from Para 8.2 of the order that the ITAT recognized the determination of FMV of shares by two methods and also that as per the Second method, the FMV of all the assets whether recorded or not in the books were to be considered: 8.2 A perusal of Section 56(2)(viib) of the Act quoted above seeks to enable the determination of FMV by two methods: (i) prescribed method as purportedly embedded in Rule 11UA of Income Tax Rules and (ii) FMV based on the intrinsic value of the assets both tangible and intangible on the date of issue of shares. Thus, the FMV of all the assets (tangibles, intangibles, human resources, right of management or control or other rights whatsoever in or in relation to Indian company) whether recorded in the books or not, appearing in the books at their intrinsic value or not, is a sufficient warrant to value the premium on issue of unquoted equity shares by closely held company. Thus, the Explanation (a)(ii) itself implies that book entry for recognition of intrinsic value is not necessary at all. Also, the higher of the value determined as per the first and second limb of Explanation shall be adopted for the purposes of Section 56(2)(viib) of the Act.
Ld. Counsel for the assessee therefore contended that the issue be restored to the A. O. to be considered afresh in view of the interpretation of provisions of Section 56(2)(viib) as above.
Ld. D.R. however relied on the order of the authorities below.
We have heard the rival contentions. The issue relates to determination of the excess consideration received by the assessee on issue of shares
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 19 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT exceeding its fair market value. Undoubtedly the assessee had justified fair market value of shares issued by submitting a calculation, including in the value of assets the value of goodwill as on the date of issue of shares. The said calculation was rejected by both the authorities below for the reason that the FMV could have been calculated only as per Rule 11UA of the Rules. This basis of the Revenue we find is not in accordance with law. The section as reproduced above clearly gives two options to the assessee for calculating the FMV of shares, one of which is as per Rule 11UA of the Rules and the other based on the value of assets as on the date of the issue of shares. The ITAT Ahmedabad Bench in the case of Unnati Inorganics Pvt. Ltd.(supra) has held that as per the second method , all assets including those not shown in the balance sheet are also to be considered. Since the assessee has included goodwill for the purpose of calculating the FMV even if it is not included in the books of accounts of the assessee, the assessee is well within its right to consider the value of the same for determining the fair market value of shares. The Revenue authorities clearly have failed to examine the issue correctly in the light of the prevailing position of law. We consider it fit therefore to restore the issue back to the A.O. to examine afresh the issue of determination of FMV of shares issued during the year as prescribed in law u/s 56(2)(vii)b) of the Act. Needless to add the assessee be given due opportunity of hearing in this regard.
Ground no.5 is allowed for statistical purposes.
In effect appeal of the assessee is partly allowed for statistical purposes.
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 20 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT
ITA No. 950/Ahd/2018 (Assessee’s appeal ) for A.Y. 2014-15
Ground no. 1 reads as under: 1. The Id. Commissioner of Income Tax (Appeals): 1, Ahmedabad (CIT(A) for short) has grievously erred in law and on facts in treating interest income of Rs. 15,75,426/- as income from other sources and not as the profit derived from the projects eligible u/s.80IA/business income.
This ground has already been decided by us in ITA No. 448/Ahd/2018 for A.Y. 2013-14 in Ground no. 1 therein. In the absence of any changed circumstances the same shall apply mutatis mutandis.
Ground of Appeal no. 1 is allowed.
Ground no. 2 reads as under: 2. The Id. CIT(A) has grossly erred in law and on facts in confirming, the disallowance of Rs. 31.200/-, being the employees' contribution to PF, u/s. 2(24)(x) r.w.s. 36(i)(va) in total disregard of the facts brought on record and settled law.
This ground has already been decided by us in ITA No. 448/Ahd/2018 for A.Y. 2013-14 in Ground no. 2 therein. In the absence of any changed circumstances the same shall apply mutatis mutandis.
Ground of Appeal no. 2 is dismissed.
I.T.A No. 542 & 448/Ahd/2018 & Ors. A.Y. 2013-14 & 14-15 Page No 21 Aquafil Polymers Co. Pvt. Ltd. vs. DCIT
In effect appeal filed by the assessee is partly allowed.
In effect: (i) ITA No. 542/Ahd/2018 being Revenue’s appeal for A.Y 2013-14 is dismissed (ii) ITA No. 448/Ahd/2018 being Assessee’s appeal for A.Y 2013-14 is partly allowed for Statistical purposes (iii) ITA No. 950/Ahd/2018 being Assessee’s appeal for A.Y 2014-15 is partly allowed.
Order pronounced in the open court on 10-06-2022
Sd/- Sd/- (MAHAVIR PRASAD) (ANNAPURNA GUPTA) JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER Ahmedabad : Dated 10 /06/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद