DCIT 1(1), BHOPAL vs. M/S. DECORE THERMAL POWER (P) LTD., BHOPAL

ITA 15/IND/2020Status: DisposedITAT Indore31 July 2023AY 2016-17Bench: SHRI VIJAY PAL RAO (Judicial Member), SHRI B.M. BIYANI (Accountant Member)42 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the issue of shares at face value by an amalgamated company (in a cited precedent, which the Tribunal found applicable to the demerger situation) to the shareholders of the amalgamating company, pursuant to a court-sanctioned scheme of amalgamation/demerger, does not fall within the scope and ambit of Section 56(2)(viib). The object of Section 56(2)(viib) is to tax unjustified premiums charged on the issue of shares, which is not the case here. The Tribunal also considered the scheme of the Act, noting that Section 47(vii) provides for the non-recognition of transfer of shares in certain amalgamation scenarios, implying a different treatment for such transactions compared to a bare issue of shares contemplated by Section 56(2)(viib). The Tribunal found no error in the CIT(A)'s conclusion that Section 56(2)(viib) was inapplicable. The addition of Rs. 3,92,20,30,008/- made by the AO was deleted. The Tribunal dismissed the Revenue's appeal.

What were the facts?

The assessee, M/s. Decore Thermal Power Bhopal Pvt. Ltd., filed its return for AY 2016-17. During scrutiny assessment, the Assessing Officer (AO) observed that the assessee issued shares with a face value of Rs. 23,50,00,002/- and received consideration of Rs. 414,88,01,510/- in the form of unlisted equity shares, preference shares, and other consideration, including shares of DB Power (Madhya Pradesh) Limited. The AO determined that the consideration exceeded the fair market value of the shares issued by Rs. 392,20,30,008/-, which was taxable under Section 56(2)(viib) as 'Income from Other Sources'. The assessee contended that it was a resulting company in a demerger of Diligent Power Private Limited (DPPL), sanctioned by the High Court. The shares were issued at face value, and the difference between net assets transferred from DPPL and the face value of shares issued was recorded as 'Capital Reserve'. The AO disagreed, treating the Capital Reserve as excess consideration taxable under Section 56(2)(viib). The CIT(A) deleted the addition, leading to the present appeal by the Revenue.

What were the issues?

1. Whether, on the facts and circumstances, the CIT(A) was justified in holding that Section 56(2)(viib) does not apply as no consideration was received, when the assessee received consideration in the form of shares of DB Power (Madhya Pradesh) Limited? 2. Whether the CIT(A) was justified in holding that the AO's contention that consideration need not be share premium only is against legislative intent, given that Section 56(2)(viib) mentions 'consideration' but not 'share premium'? 3. Whether the CIT(A) was justified in holding that Section 56(2)(viib) is attracted when a company receives unaccounted money via share capital and premium, when Section 68 deals with unexplained credits, and Section 56(2)(viib) is intended to tax excess consideration? 4. Whether the CIT(A) was justified in holding that in case of demerger, a tripartite agreement exists, thus excluding transactions from Section 56(2)(viib)? 5. Whether the CIT(A) was justified in holding that neither the assessee nor DPPL received any benefit under the scheme of arrangement, when the assessee received excess consideration in shares of DB Power (Madhya Pradesh) Limited? 6. Whether the CIT(A) was justified in deleting the addition of Rs. 3,92,20,30,008/- made under Section 56(2)(viib)? Assessee's arguments (as inferred from the AO's and CIT(A)'s orders): The transaction was a result of an approved demerger, not a transaction falling under Section 56(2)(viib). The shares were issued at face value as per the scheme, and the difference was recognized as Capital Reserve. Section 56(2)(viib) is intended for situations where shares are issued at a premium to unrelated parties, not in a demerger scenario. The transaction is tripartite and not bilateral as contemplated by the section. Section 68 is the appropriate section for unaccounted money. The scheme of arrangement did not result in any benefit taxable under Section 56(2)(viib). Revenue's arguments: The assessee received consideration in the form of shares of DB Power (Madhya Pradesh) Limited. The AO's contention that consideration need not be only share premium is correct as the section mentions 'consideration'. The CIT(A) erred in not applying Section 56(2)(viib) when all conditions were met, and the addition was made as per law. The demerger argument is not valid as the conditions of Section 56(2)(viib) were applicable.

Which sections of the Income-tax Act were involved?

Section 56(2)(viib),Section 143(3),Section 68,Section 47(vii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI

For Respondent: Shri P.K.Mishra, CIT DR
Hearing: 02.05.2023

Per B.M. Biyani, A.M.:

Feeling aggrieved by appeal-order dated 31.10.2019 passed by learned Commissioner of Income-Tax (Appeals)-1, Bhopal [“CIT(A)”], which in turn arises out of assessment-order dated 28.12.2018 passed by learned

DCIT/ACIT-1(1), Bhopal [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”]

Decore Thermal Power P. Ltd. Bhopal LT.A.No. 15/1nd/2020 - A.Y.2016-17

for Assessment-Year [“AY”] 2016-17, the Revenue has filed this appeal on following grounds:

1.

"Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in holding that provisions of section 56(2)(viib) wou

The order continues below.

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