TIKI TAR INDUSTRIES BARODA LTD,VADODARA vs. THE PR. CIT-2, VADODARA

(Applicant) (Responent) : Shri Milin Mehta, AR Assesseeby : Shri Akhilendra Pratap Yadav, CIT-DR Revenue by सुनवाई क� तार�ख/Date of Hearing : 17/01/2024 घोषणा क� तार�ख /Date of Pronouncement: 24/01/2024 आदेश/O R D E R

PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER

2. At the outset, it was pointed out by the Registry that appeal filed by the assessee before the Tribunal is late by 262 days, and therefore, it is barred by limitation. To explain the delay, the assessee has filed a request letter dated 29.9.2023 signed by the Director of the assessee company stating interalia that the impugned delay in filing the appeal before the Tribunal was caused due to preoccupation of the Finance Department of the assessee-company in relation to closing of accounts and preparation of annual reports for the year 31.3.2019 and to comply various other statutory formalities; that the top management was also busy in various meetings, negotiations, discussions with the stakeholders for finalizing various other projects expansion programmesof the assessee-company; that due to these heavy pressure on the management, the order of the ld.Pr.CIT could not be forwarded to the tax consultants of the assessee for contemplating further course of action, hence the impugned delay was caused. It is therefore prayed that the impugned delay being unintentional, the same be condoned, and the appeal may be taken for adjudication on merits. The relevant contents of the letter dated 29.9.2023 are extracted as under:

“3. The order of the PCIT u/s. 263 was sent to the Finance Department of the Company. The Finance Department of the Company was pre-occupied with the closing of accounts for financial reporting for the year ending 31-3- 2019. The Company was required to complete several formalities pertaining to closing of books of accounts as well as GST compliances. The Finance department was under pressure for collecting various data for closing the accounts. Since the order of the PCIT was received just few days before the year end and the Finance department being busy with closing of accounts the order was inadvertently not sent to the Top Management for review. It may also be mentioned that the Top Management was not aware about the receipt of the order of the PCIT u/s. 263.

5. Subsequently notice u/s. 143(2) rws 263 was issued by the AO in pursuance of order of PCIT u/s.

3. The ld.counsel for the assessee contended that these being sufficient cause for the impugned delay, in the interest of justice the same be condoned. He relied on various case laws in this regard.

4. The ld.DR vehemently opposed the application for condonation of delay filed by the assessee stating that there was inordinate delay of 262 days and no sufficient cause was adduced by the assessee for the delay.

Section 5 of the Limitation Act and section 253(5) of the Act provides power to condone delay on demonstrating sufficient cause to the satisfaction of the courts. This satisfaction accordingly has been held by Courts to be interpreted liberally, for advancement of substantial justice.

4 The Hon’ble Apex Court in the case of Collector, Land Acquisition Vs. Mst.Katiji& Others, 167 ITR 471 (SC) exhaustively dealt with power conferred by the Legislature to condone the delay by enacting section 5 in the Limitation Act, holding that purpose for the same was to enable Courts to advance substantial justice to the party by disposing of the matters on merit.The Hon’ble Court in the said case held that expression “sufficient cause” for section 5 of Limitation Act was to be applied in a manner to sub-serve the ends of justice and therefore a justifiable liberal approach had to be adopted on principle. The Hon’ble Court has given reasons for adopting a liberal approach stating that - • ordinarily a litigant does not stand to benefit by lodging an appeal late, • and by refusing to condone delay, a meritorious matter will be thrown out at the very threshold and cause of justice defeated, • as opposed to that if delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties; • that when substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, because either side cannot claim to have vested right in injustice being done because of non- deliberate delay • that there was no presumption that delay was occasioned deliberately, and in fact a litigant does not stand to benefit by resorting to delay; • that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.

6. The Hon’ble Court elucidated these aspects for adopting a liberal and justice oriented approach on the issue of condonation of delay as under:

“1. Ordinarily a litigant does not stand to benefit by lodging an appeal late.

4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.

5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk.

6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.

Making a justice-oriented approach from this perspective, there was sufficient cause for condoning the delay in the institution of the appeal. The fact that it was the 'State' which was seeking condonation and not a private party was altogether irrelevant. The doctrine of equality before law demands that all litigants, including the State as a litigant, are accorded the same treatment and the law is administered in an even handed manner. There is no warrant for according a step-motherly treatment when the 'State' is the applicant praying for condonation of delay. In fact experience shows that on account of an impersonal machinery (no one in charge of the matter is directly hit or hurt by the judgment sought to be subjected to appeal) and the inherited bureaucratic methodology imbued with the note-making, file pushing, and passing-on-the-buck ethos, delay on its part is less difficult to understand though more difficult to approve. In any event, the State which represents the collective cause of the community, does not deserve a litigant-non-

6 grata status. The Courts therefore have to be informed with the spirit and philosophy of the provision in the course of the interpretation of the expression "sufficient cause". So also the same approach has to be evidenced in its application to matters at hand with the end in view to do even handed justice on mertis in preference to the approach which scuttles a decision on merits. Turning to the facts of the matter giving rise to the present appeal, we are satisfied that sufficient cause exists for the delay. The order of the High Court dismissing the appeal before it as time barred, is therefore. set aside. Delay is condoned. And the matter is remitted to the High Court.”

Looking from this angle, we find that in the present case the assessee has reasonably justified the reasons as extracted hereinabove for the impugned delay. It is pertinent here to note that no benefit accrues to the assessee by not filing appeal in the first instance itself, but on the contrary, the assessee would be risked with serious consequences of huge demand raised on him on account of the consequential assessment framed against the order passed u/s. 263 of the Act.

Therefore, noting that there is no negligence or laxity attributable to the assessee for the delay in filing appeal, and to sub- serve the ends of justice we find that it is a fit case for condoning the delay of 262 days in the present appeal. The impugned delay in filing the present appeal is accordingly condoned.

7 9. The grounds of appeal filed by the assessee are not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963, as they are a blend of descriptive and argumentative contents.In fact,these grounds of appeal, solely focus on challenging the validity of the revisionary order of the ld.Pr.CIT passed under section 263 of the Act and invocation of provisions of section 52(2)(viib) of the Act by debunking the calculation of fair market value of shares done by the assessee and accepted by the AO, under Rule 11UA of IT Rules. By the impugned order, the ld.Pr.CIT set aside the assessment order passed by the ld.AO under section 143(3) of the Act holding it as erroneous and prejudicial to the interest of the Revenue. Our discussions for adjudication of this issue as follows.

10. The error noted by the ld.Pr.CIT in the assessment order framed in the case of the assessee under section 143(3) of the Act was to the effect that the AO had failed to make proper inquiries regarding valuation of fair market value of shares issued by the assessee during the year at a premium, which valuation as per the ld.Pr.CIT was not in accordance with law as done by the assessee. As per the ld.Pr.CIT, the fair market value of the shares was below premium at which the shares were issued, accordinglythe provisions of section 56(2)(viib) of the Act were invocable in the present case, and addition of Rs.64,65,000/- was warranted on account of the shares being issued at a value less than its fair market value. The assessee had issued 5,00,000 equity shares, having face value of Rs.10/- at premium of Rs.50/- per equity share. As a consequence it had received Rs.2,50,00,000/- as premium. The assessee had justified the premium received by calculating the fair market value of the shares under Rule 11UA of the Income Tax Rules as per the formula prescribed therein. The ld.Pr.CIT noted that the assessee had wrongly taken the value of assets and liability while calculating the fair market value under Rule 11UA. He noted that the assessee had not considered the unsecured loans in its working FMV of shares. As per the ld.Pr.CIT, after considering the unsecured loans, the valuation of shares came to Rs.47.07 per equity shares, while the assessee had issued shares at a premium of Rs.50/- resulting in extra amount or premium of Rs.12.93 per share received by the assessee, which tantamounted in all to Rs.64.65 lakhs in relation to issue of 5,00,000 equity shares in excess of its FMV, and thus the amount received by the assessee was, as per the ld.Pr.CIT, liable to be added to the income of the assessee under section 56(2)(viib) of the Act. His calculationof the FMV of shares at Rs.47.07 per share is noted at page no.10 to 13 of its order as under: Statement of computation of FMV of unquoted equity shares as on 31.03.2013.

Particulars Amount Book Value of Assets (A) (Refer to 65,77,08,480/- Note No.1) Book Value of Liabilities (L) (Refer to 49,94,01,776 Note No.2) Amount of paid up equity shares 4,00,00,000/- (PE) (Refer to Note No.3)

Paid up value of equity shares (PV) 10 (A-L) 18,83,06,714 Fair market value of unquoted 47.07 equity shares [(A-L)/PE*PV)

Note No.1 Calculation of Book value of assets:

Particulars Amount Total value of assets 66,22,66,701 Less:

Preliminary Expenses to the extent 10,18,361 not written off Advance Tax/Tax deducted at 35,39,859 Source/TCS Book value of Assets 65,77,08,480 Note No.2 Calculation of Book value of liabilities Particulars Amount Total value of liabilities 66,22,66,701 Less: Paid up share capital 4,00,00,000 Reserves & Surplus 14,33,64,935 Provision for taxation 95,00,000 Amount set apart for equity and 0 preference dividend Any amount representing provisions 0 made for unascertained liabilities Any amount representing contingent 0 liabilities Book value of liabilities 49,94,01,766 Note No.3 – Calculation of amount of 46,94,01,766 paid up of equity shares Particulars Amount Paid up share capital 4,00,00,000 Amount of paid up share capital 4,00,00,000

10 without dealing with the contention raised by the assessee, and without dealing with and/or distinguishing the case laws referred by the assessee in support of its contention before him.

The submission of the assessee has been considered and not found tenable. The assessee company has converted the amount of unsecured loans of Rs.3,00,00,000/-- in the name of existing share holders, in Equity shares at a premium of 50 Rs. Per share. The main contention of the assessee is that no fresh money has been brought in through this issuance of equity shares and the shares have been issued to the existing share holders in the same proportion in their pre issuance share holding pattern. The assessee has referred various judicial pronouncements and mainly relied upon the decision of Madras ITAT in the case of Vaani Estates. In the instant case, the fact are totally different from the facts present in the case of the assessee company. The ITAT has held in that case as the shares have been transferred from the mother to her daughter and no fresh money has been introduced in the balance sheet, the provisions of section 52(2)(vii) are not attracted in this case.

He therefore stated that the argument of the ld.counsel for the assessee that his contention wasnot considered by the ld.Pr.CIT, was not correct.

12 17. We have heard boththe parties and have carefully gone through the orders of the authorities below.

As noted above, the error noted by the ld.Pr.CIT in the assessment order was the acceptance by the AO of the calculation of the fair market value of the shares submitted by the assessee in terms of Rule 11UA of the Act to justify the premium at which the shares were issued by it during theyear, which calculation, as per the ld.Pr.CIT was incorrect resulting in fair market value of shares being less i.e Rs.47.07 per share as opposed to the value at which they were issued by the assessee at Rs.60/- per equity shares (Rs.10 face value plus Rs.50/- premium); which resulted in excess amount of Rs.12.93 per share being calculated by the Ld.PCIT which ought to have been added to the income of the assessee in terms of provision of section 56(2)(viib) of the Act.

13 order to be erroneous. He has specifically referred to the contentions made regarding non-applicability of section 56(2)(viib) to the Right Issue issued, that there is no mala fide intention involved in the Right shares which is said to be brought in the ambit and scope of the deeming provision of section 56(2)(viib) of the Act, and he has referred to the decision of the ITAT, Chennai Bench in the case of Vaani Estates (P.) Ltd. Vs. ITO (supra) before the ld.Pr.CIT, which as per the ld.counsel for the assessee, the ld.Pr.CIT has not dealt with. We find that para-6.1 to 6.3 of the ld.Pr.CIT order deals with the above contentions of the assessee. The same is extracted hereunder for brevity:

In view of the above discussion, the impugned order of the ld.Pr.CIT passed under section 263 of the Act is set aside, and the appeal of the assessee is allowed.

Order pronounced in the Court on 24th January, 2024 at Ahmedabad.