GO FASHION (INDIA) LIMITED,NUNGAMBAKKAM, CHENNAI vs. PCIT, CHENNAI-1, NUNGAMBAKKAM CHENNAI
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
per share against the Fair Market Value of share of Rs. 414. The
Assessing Officer in assess passed under section 143(3) after
verification has not made any addition u/s 56(2)(viib) for difference in
issue price and FMV of shares. The Ld PCIT has held the order
erroneous and prejudicial to the interest of revenue and set aside the
assessment order. The Ld PCIT has held that the A.O has not made
complete verification and inquiry in respect of consideration received
by the assessee in excess of fair market value to be charged as
income from other sources u/s. 56(2) (viib) of the Act and passed order
without application of mind .
The Ld. Authorized Representative (A.R) of the assessee has
submitted that the A.O during assessment proceedings has called for
particulars including the valuation of shares under Rule 11UA in the
notice u/s. 142(1) of the Act. The Ld. AR has submitted that the A.O
has specifically raised question on the issue of share and therefore, in
view of the decision of Hon’ble ITAT, Delhi Benches in the case of
ITA No.939/Chny/2024 :- 4 -:
Vaan Infra (P) Ltd. vs. PCIT [2024] 159 taxmann.com 29 (Delhi-Trib.),
the Ld. PCIT was not justified in setting aside the order of A.O u/s. 263
of the Act on the ground that the A.O had merely accepted the claim of
share premium. The Ld. AR has further submitted that investment in
the assessee’s case has been made by ICICI venture through India
Advantage Fund S4-I and therefore, in view of Notification GSR
685(E)[No.81/2023/F.No.370142/9/2023-TPLpart(1)]dated 25.09.2023,
no addition is to be made in case the fund received from investment
made by venture capital company. The Ld. AR has further submitted
that as per sub clause (4) of Rule 11UA there is a tolerance limit of
10% permitted on the issue price and FMV as per valuation u/s 11UA
and in assessee’s case difference between the issue price and fair
market value is only 0.65%, which is less than 10% allowed by Rule
11UA. The Ld. AR has submitted that though Rule 11UA has been
inserted w.e.f 25.09.2023 , it has been held by Hon’ble ITAT, Delhi
Bench in ITA No.8289/Delhi/2019 dated 16.04.2024 that the Rule is to
be treated as retrospective. The Ld. AR has further submitted that
earlier there was no provision to value the compulsory convertible
preference shares and the valuation of compulsory convertible
preference shares has been brought in only w.e.f 25.09.2023 and
therefore, section 56(2)(viib) has no application in such share.
ITA No.939/Chny/2024 :- 5 -:
The Ld. CIT-Departmental Representative (DR), on the other
hand, relied on the order passed by Ld. PCIT.
We have heard the rival submissions, and perused the materials
available on record. The assessee has issued compulsory convertible
preference shares at a price of Rs. 416.69 per share as against the fair
market value of Rs. 414 determined as per Rule 11UA. There is
difference of 0.65% only in the issue price and FMV . The A.O during
the course of assessment proceedings has issued notice u/s. 142(1)
and in question No.9 has asked for a detailed note on determination of
the fair market value of the issued share as per section 56(2)(viib) and
the assessee has submitted the details after which the A.O has not
made any addition. It is also seen that Rule 11UA has been amended
w.e.f 25.09.2023 as under:
“(i) sub-clause (a) or sub-clause (b) of clause (A), for sub-clause consideration received from a resident, by an amount not exceeding ten per cent of the valuation price, the issue price shall be deemed to be the fair market value of such shares: (ii) sub-clause (a) or sub-clause (b) or sub-clause (d) of clause (A), for consideration received from anon- resident, by an amount not exceeding ten per cent of the valuation price, the issue price shall be deemed to be the fair market value of such shares.”
The ITAT, Delhi Bench in ITAT No.8389/Delhi/2019 in the case
of Sakshi Fincap Pvt. Ltd. dated 16.04.2024 has held that the
ITA No.939/Chny/2024 :- 6 -:
amendment brought in Rule 11UA was introduced to mitigate hardship faced by taxpayers by the unintended invocation of section 56(2)(viib) r/w Rule 11UA and therefore, the same is a curative amendment. The
difference in the fair market value and the issue price of compulsory convertible preference shares is only 0.65%, therefore as per Rule 11UA issue price is deemed to be fair market value and hence no scope for addition required to be made u/s. 56(2)(viib) of the Act. In
order to invoke Section 263 of the Act the twin condition of erroneous and prejudicial to the interest of Revenue are to be satisfied. In the present case, the second condition that order is prejudicial to interest
of revenue is not being satisfied. We, therefore do not agree with the Ld PCIT that order the order passed by AO is prejudicial to the interest of revenue. We, therefore set aside the order passed by Ld. PCIT .
In the result, the appeal filed by the assessee is allowed statistical purposes.
Order pronounced on 30th September, 2024.
Sd/- Sd/- (एबी टी. वक�) (जगदीश) (Jagadish) (ABY. T. Varkey) लेखा सद! /Accountant Member �ाियक सद! / Judicial Member चे�ई/Chennai, �दनांक/Dated: 30th September, 2024. EDN/-
ITA No.939/Chny/2024 :- 7 -:
आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF
