2024 (2) TMI 107 - AT - Income Tax

AO discriminated against Indian entities while accepting same DCF valuation method for non-resident company under section 56

The ITAT Surat ruled on three key issues. First, regarding share premium addition under section 56, the tribunal found discrimination by the AO who ... Addition on account of share premium u/s 56 - FMV determination of share price - difference in FNMV of shares allotted to foreign based company and Indian entities - assessee argued addition u/s 56(viib) does not warrant in the present case as investor company is foreign investor company incorporated in Dubai and assessee-company is joint venture company therefore the provision of section 56(viib) does not apply in the case of assessee-company - HELD THAT:- We note that assessee submitted fair market value of equity shares of the assessee-company, which worked out, on the basis of Discounted Cash Flow Method, and as per DCFM, the fair market value of the equity shares of the assessee-company is Rs. 431.65 per equity share, which was accepted by AO in case of non-residents, in respect of the equity shares of 1,77,820, which were allotted to Dubai-based company. However, the premium amount was not accepted in case of balance shares which were allotted to Indian entities/concerns, hence it is a discrimination done by the Assessing Officer between residents and non- residents. Counsel stated that so far premium is concerned, the Indian Residents are entitled for similar treatment, however, assessing officer has failed to provide the similar treatment. We note that assessee-company worked out the premium, on the basis of Discounted Cash Flow Method, and in accordance with applicable Income Tax Rules. We have gone through the Valuation report prepared as per DCF method and noted that premium amount was worked out as per the norms mentioned in the Income Tax Rules and Discounted Cash Flow Method, therefore, we do not find any inconsistencies, hence we delete the addition. Excess claim of depreciation on plant and machinery - assert put to use for less than 180 days - HELD THAT:- The assessee claimed that trial production has started in August 2012 and claimed full depreciation. However, assessee failed to prove start of production by way of excise return for August 2012. This proves that production has not commenced from August but from March 2013 and assessee is entitled for depreciation for half year only. However, we are of the view that one more opportunity should be given to the assessee to plead his case before Assessing Officer, therefore we remit this issue back to the file of the assessing officer with the direction to produce excise records and to explain put to use of fixed assets, with documentary evidences. AO is also directed to examine the relevant documents and adjudicate the issue in accordance with law. Time limit of assessment u/s 153 - whether assessment order is time barred? - HELD THAT:- We note that assessee’s case was referred to the Division FT&TR for action of information and time taken to exchange for information is to be excluded, which is one year. Therefore, the assessment order was passed within time limit and hence, argument advanced by Ld. Counsel does not have any merit. Hence, we dismiss ground No.3 raised by the assessee. Issues Involved:1. Addition towards share premium.2. Disallowance of claim of depreciation.3. Time limit for assessment under section 153 of the Income Tax Act.Summary:Issue 1: Addition towards Share PremiumThe first issue pertains to the addition of Rs. 14,18,234 on account of share premium. The assessee, a limited company, issued 255,108 equity shares at a face value of Rs. 10 per share with a premium of Rs. 440 per share. The fair market value, as per the Discounted Cash Flow Method (DCFM), was Rs. 431.65 per share. The Assessing Officer (AO) noted that the premium exceeded the fair market value by Rs. 18.35 per share and issued a show cause notice. The assessee argued that the provision of section 56(viib) of the Income Tax Act does not apply as one of the investors is a foreign company. The AO accepted this for the foreign investor but applied the provision to Indian residents, resulting in the addition. The National Faceless Appeal Centre (NFAC) confirmed the AO's decision. However, the Tribunal noted that the premium was calculated as per DCFM and deleted the addition of Rs. 14,18,234, allowing the assessee's appeal on this ground.Issue 2: Disallowance of Claim of DepreciationThe second issue involves the disallowance of Rs. 44,39,156 claimed as depreciation. The AO observed that the assessee's assets were put to use from February 2013, entitling them to half the depreciation rate. The assessee argued that the plant was ready by August 2012 and used for trial production. The AO, however, found no evidence of production before March 2013 and disallowed the excess depreciation. The NFAC upheld this decision. The Tribunal, considering the lack of evidence for production before March 2013, remitted the issue back to the AO for re-examination, giving the assessee another opportunity to present evidence.Issue 3: Time Limit for Assessment under Section 153The third issue concerns the time limit for assessment under section 153 of the Act. The assessee claimed that the assessment order dated 30.12.2016 was time-barred as it should have been passed by 31.03.2015. The Tribunal noted that the case was referred for information exchange, extending the time limit by one year, making the assessment order timely. Thus, the Tribunal dismissed the assessee's appeal on this ground.Conclusion:The Tribunal allowed the appeal partly, deleting the addition towards share premium and remitting the depreciation issue back to the AO, while dismissing the time limit issue. The order was pronounced on 30/01/2024.