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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: Ms. Annapurna Gupta & Shri. T.R. Senthil Kumar
THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri. T.R. Senthil Kumar, Judicial Member Assessment Year 2015-16 M/s. Kolet Resort Club The ITO, Pvt. Ltd., Ward-2(1)(2), Near Telav Village, Vs Ahmedabad Sarkhej, Sanand Road, Sanand-382110 PAN: AAACK8607J Appellant Respondent Assessee by: Shri P. Murali Mohana Rao, A.R. Revenue by: Shri Prateek Sharma, Sr. D.R. Date of hearing : 03-07-2024 Date of pronouncement : 01-10-2024 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the assessee as against the ex- parte revision order dated 08-03-2021 passed by Principal Commissioner of Income Tax, Ahmedabad-1 [hereinafter referred as PCIT] arising out of the assessment order passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) relating to assessment year 2015-16. I.T.A No. 278/Ahd/2022 A.Y. 2015-16 Page No. 2 M/s. Kolet Resort Club Pvt. Ltd. vs. ITO
The registry has noted that there is a delay of 432 days in filing the above appeal by the assessee. The assessee explained that the impugned revision order was passed on 08-03-2021 during pick Covid-19 Pandemic period. So, the relevant paper could not be followed up and the appeal filed on 13-07-2022 with delay of 432 days. However Hon’ble Supreme Court in its judgment in Miscellaneous Application No.665 of 2021, held that period of limitation expired during the period from 15-03- 2020 till 28-02-2022 were extended with a limitation of 90 days from 01-03-2022. Applying the above ratio of the judgement, the delay is to be only 44 days and therefore requested to condone the delay. The ld. CIT-DR has no serious objection in condoning the delay, thus, the delay in filing the above appeal is hereby condoned considering Covid-19 Pandamic period and the appeal is taken up for hearing.
Brief facts of the case are that the assessee company filed its Return of Income for assessment year 2015-16 claiming total loss of Rs.23,02,232/-. The return was taken for limited scrutiny assessment and after calling for various details by the AO by issuing Notices u/s.143[2] of the Act. After considering replies filed by the assessee, the returned loss was accepted by the AO. On examination of the assessment records, the ld. PCIT noticed that the assessee company had issued 4,15,00200 shares at a face value of Rs.10/- each of M/s. Country Club Hospitality and Holidays Ltd. (formerly known
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as Country Club India Ltd.) which in turn paid consideration in the form of immoveable land being its work in progress wroth Rs.42,65,55,955/-. Apparently, the consideration received by the assessee company against the aggregate value of shares so issued, exceeded the total face value of such shares namely Rs.41.5 Crores. Thus, the provisions of 56(2)(viib) of the Act comes into play. As per the provisions of the section, if a company not being a company in which the public are substantially interested, received any consideration against issuance of shares and the consideration so received exceeds the face value of such shares, the difference between the aggregate consideration received and the fair market value of the shares becomes taxable in the hands of such company. It is undisputed fact that the assessee company has received consideration worth Rs.42,65,55,955/- which exceeded the face value of shares issued of Rs. 41,50,00,200/-. Thus, the Assessing Officer failed to examine the fair market value of the shares in accordance with Rule 11U and Rule 11 UA of the IT Rules. Further, the assessee company claimed to have converted the loan of Country Club Pvt. Ltd. into equity by issuing 4,15,00,200 shares to Ms Country Club Hospitability and Holidays Ltd. However on examination of the balance sheet, it appears that no such loan was appearing in the books as on 31-03-2014. This fact was not examined by the Assessing Officer while passing the assessment order, which is I.T.A No. 278/Ahd/2022 A.Y. 2015-16 Page No. 4 M/s. Kolet Resort Club Pvt. Ltd. vs. ITO
erroneous and prejudicial to the interest of the Revenue. Therefore, a show cause notice was issued to the assessee why not to revise the assessment order passed by the Assessing Officer. The assessee failed to response to the show cause notice therefore opportunities of hearing given on 13-03-2020, 20-03-2020 and final show cause notice on 21-04-2020. However, the assessee sought for an adjournment and not filed any details. Therefore, with available materials on record, ld. PCIT set aside the assessment order with a direction to the Assessing Officer to examine the issue and pass fresh assessment order after providing adequate opportunity of hearing to the assessee and in accordance with law.
Aggrieved against the Revision order, the assessee is in appeal before us raising the following Grounds of Appeal:
“1. The Ld. Pr. CIT. Ahmedabad-1, erred in setting aside the order passed u/s 143(3) of the Act dated 27.12.2017. 2. The Ld. Pr. CIT. Ahmedabad-1, ought to have appreciated that the order passed u/s 263 of the Act dated 08.03 2021 is invalid ab initio. 3. The Ld. Pr. CIT. Ahmedabad-1, ought to have appreciated that the order passed u/s 263 of the Act dated 08.03.2021 is in violation of the provisions of sub-section (2) of section 263 of the Income Tax Act, 1961. 4. The Ld. Pr. CIT. Ahmedabad-1, ought to have appreciated that the time limit for passing the order u/s 263 of the Act in the appellant's case for the assessment year under consideration has expired on 31.03.2020 itself.
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Without prejudice to ground nos. 1 to 4, the Ld. Pr. CIT erred in holding in para 2 of his order that the Assessing Officer had failed to examine the aspect of applicability of section 56(2)(viib) of the Act. 6. Without prejudice to other grounds, the Ld. Pr. CIT erred in appreciating the fact of furnishing of all details relating to the issue in question by the appellant before the Assessing Officer, as observed by the Assessing Officer vide para no.2 of the assessment order. 7. Without prejudice to other grounds, the Ld. Pr. CIT ought to have appreciated that the Assessing Officer collected the relevant material and discussed the impugned issues with the assessee's CA. before making the assessment and that therefore, there is no valid basis for the Pr. CIT to exercise jurisdiction u/s 263 of the Act and to direct the Assessing Officer to pass a fresh assessment order. 8. Without prejudice to other grounds, the Ld. Pr. CII ought to have appreciated that the Assessing Officer had made reasonable and requisite enquiries on the issues raised by the Pr. CIT during the proceedings u/s 263 of the Act and that no order under 263 of the Act could be passed in the appellant's case. 9. Without prejudice to grounds, the Ld. Pr. CIT ought to have appreciated that the Assessing Officer after making proper and detailed enquiries, has taken a view that no addition/adjustment is required to the total income returned by the appellant and that therefore the impugned revision order passed by him u/s 263 of the Act directing the Assessing Officer to re-examine the issues and to pass a fresh assessment order is not sustainable. 10. The appellant may add or alter or amend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
The ld. counsel for the assessee submitted a detailed written submission raising various issues and compilation of case laws on the subject. Ld. counsel brought to our notice that section 56(2)(vii) is not applicable in the present case of the assessee, since the transfer of shares was done between
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the holding and the subsidiary company, thus PCIT has erred in invoking revision proceedings without considering the facts of the present case. The assessee company is wholly owned subsidiary of M/s Country Club Hospitality and Holidays Ltd. [herein after referred as M/s.CCHHL] during the relevant financial year 2014-15 and relevant extract of the annual report for the financial year 2014-15 of M/s.CCHHL were filed before the Assessing Officer during the assessment proceedings. Thus, PCIT failed to consider that the subsidiary company of public listed companies are not considered to be privately held or closely held company (even though they themselves are not publicly trader). Thus, whole fact which goes to the root of the matter is being ignored by the Ld. PCIT and the invocation of Revision proceedings has no base. Further, the assessee company has issued 4,15,00,200 of shares at face value of Rs. 10 each to M/s.CCHHL without any premium. Thus, provisions of section 56(2)(vii) are also not applicable for the transaction between the holding and subsidiary company. Therefore, the entire Revision proceedings is liable to be quashed.
Per contra, ld. CIT appearing for the Revenue supported the order passed by ld. PCIT and requested to uphold the same.
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We have given our thoughtful consideration and perused the materials available on record including the paper books and Case laws compilation filed by the assessee. It seen from page numbers 47, 49 and 53 of the paper book, notices issued u/s.143[2] by the Assessing Officer calling for various details and information namely
[i] reason for mismatch in turnover reported in audit report and ITR. [ii] During the year your company has increased share capital of Rs.41,50,02,000/=, in this regard you are requested to furnish the details of introduction of share capital along with source of introduction along with supporting evidences and bank statements during the year under consideration.
7.1. In reply [copy placed at page numbers 54 and 55 of the paper book] the assessee explained that it is a subsidiary company of M/s. Country Club India Limited during the relevant Financial year 2014-15 and Assessee company has issued shares to its holding company namely M/s. Country Club India Ltd at face value of Rs.10 each thus there is increase in share capital in the assessment year under consideration. Further copy of the extract of Annual Report for FY 2014-15 of M/s. Country Club Hospitality and Holidays Limited [formerly known as M/s. Country Club India Ltd] enclosed for ready reference.
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7.2. After considering the above reply filed by the assessee company, Ld AO passed the assessment order accepting the returned loss claimed by the Assessee. The Ld AO considered the allotment of shares between the holding and subsidiary companies at a face value of Rs.10 and without there being any premium accepted the returned income. Thus the Ld AO made necessary enquiry before passing the assessment order. Thus there is no question of inadequate enquiry made by the AO during the assessment proceedings.
In our considered view the Ld PCIT misconstrued the provisions of section 56(2)(viib) of the Act, namely if a company not being a company in which public are substantially interested, received any consideration against issuance of shares and the consideration so received exceeds the face value of such shares, the difference between the aggregate consideration received and the fair market value of the shares becomes taxable in the hands of such company. Thus Ld PCIT failed to note that the assessee company is not a Public Ltd company and the shares were allotted only on the face value of Rs.10/= without any premium, therefore the provisions of section 56(2)(viib) of the Act does not arise in the above transaction, resultantly the very basis of invocation of Revision proceedings itself is liable to quashed. Further the Ld AO made necessary inquiry during the assessment proceedings by calling for various information and after satisfied with the I.T.A No. 278/Ahd/2022 A.Y. 2015-16 Page No. 9 M/s. Kolet Resort Club Pvt. Ltd. vs. ITO
information received from the assessee company, passed the assessment order. In the above circumstances we do not find any merits in the Revision proceedings and the same is liable to be quashed. Thus the Grounds raised by the assessee are hereby allowed.
In the result the appeal filed by the assessee is allowed.
Order pronounced in the open court on 01-10-2024 (ANNAPURNA GUPTA) JUDICIAL MEMBER Ahmedabad : Dated 01/10/2024
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