TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 1191
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....sing the ground challenging disallowance of provision for collection charges amounting to Rs. 9.75,00,000 as not adjudicated', thereby abdicating the statutory mandate of section 251(1) of the Income tax Act, 1961 ("the Act"). 2. That the NFAC erred on facts and in law in not deleting the disallowance of provision for 'collection charges' amounting to sum Rs. 9,75,00,000 (on net basis). 3. That the NFAC erred on facts and in law in not appreciating that the provision for 'collection charges' represented ascertained liability in respect of which provision is made at the end of the relevant previous year and hence allowable as deduction. 4. That the NFAC grossly erred on facts and in law in not appreciating that the appellant deducted tax at source (TDS) on the said provision for collection charges and thus, the same cannot be termed as contingent or notional in nature. 5. That the NFAC erred on facts and in law in not appreciating that the appellant had made similar provision in earlier year(s), which have always been accepted and allowed in the assessments completed in the past, and thus disregarding the principle of consisten....
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....r wherein erroneous addition was made under section 56(2)(viib) of the Act despite the said section being not applicable to issuance of shares to non- resident investors. 16. That the NFAC grossly erred on facts and in law in not appreciating that, since the shares were issued to non-residents, the provisions of section 56(2)(viib) of the Act were not applicable thereto. 17. That the NFAC grossly erred on facts and in law in not appreciating that the complete details of subscribers i.e. non-resident allottees along with their addresses, number of shares issued, amount subscribed by each subscriber, Foreign Inward Remittance Certificates (FIRC), Tax Residency Certificates (TRC) were placed on already on record. 18. That the NFAC grossly erred on facts and in law in not appreciating that the certificates issued by (a) Inland Revenue Authority of Singapore; and (b) Mauritius Revenue Authority unequivocally certifies Credit Suisse (Singapore) Ltd and Otter limited were non-residents during the relevant assessment years and therefore, the provisions of section 56(2)(viib) had no application. 19. That the NFAC grossly erred on facts and in law in vague....
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....gent and remitted to HeroFincorp before March 31, 2017, was Rs. 15 crores. Similar provision created during last year was of Rs. 5.25 crores is reversed and therefore net Expenses claimed based such provision comes to Rs. 9.75 crores. Further, the assessee has duly deducted tax on such provision. Party wise details of provision booked, TDS deducted on such provision along with TDS certificates issued for FY 16-17 on sample basis, are enclosed as Enclosure-IV. Thus, our submission is that, the entire collection expenditure, including provision made for the purpose of business and services rendered by collection vendors during the year 2016-17. is allowable as business expenditure to the assessee. Therefore, the question disallowance or making any addition to income does not arise." 3.1 The same was not accepted by the AO on the ground that the assessee itself had shown the said expenditure a provision for expenses which was not allowable under Section 37(1) of the Act and also the fact that the above expenditure has not crystallized during the year under consideration. 3.2 The assessee preferred an appeal before the Ld. CIT(A) who did not adjudicate this issu....
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....pellant-assessee but not that the agents have rendered services to the appellant in the year under consideration. The certainty of incurring expenses on account of agents depends upon the certainty of receiving collections from the appellant's customers. So certainty of expense depends upon the certainty of collections from the appellant's customers and in the same tone incurring of expenses on account of agents depends upon the accruing of collection charges from the customers. In the instant case, the appellant has not demonstrated before the FAA if it offered the interest component embedded in the collection charges as income in the year under question. There cannot be a different yard stick to measure the certainty of interest income accrued out of collection charges, when the appellant-assessee concluded about the certainty incurring of expenses towards agents. On the contrary if the appellant-assessee has not offered the interest component of the collection charges as income, the provisions of expenses cannot be allowed as expense. The appellant has not demonstrated before the undersigned with full facts, figures and principles so as to enable the undersigned to give ....
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.... claimed being Mercedes Benz was actually leased out by the dealer M/s. T&T Motors Pvt. Ltd. as lessor to the assessee as the lessee. According to the Ld. CIT(A) in a lessor - lessee relationship, it is the lessor who owns the assets/car and it is the lessee which uses the car. According to the Ld. CIT(A), as per IT Act, it is the lessor being the owner of the assets was entitled to claim depreciation as it earns lease rental income from the lessee and at the same time, the lessee cannot claim depreciation since same depreciation cannot be claimed by both the entities. The Ld. CIT(A) further noted that in the particular case, the assessee was not the lessee but a group concern/company M/s. Hero Motor Corp Ltd. was the lessee and if at the depreciation can be claimed, it can be claimed by M/s Heto Motorcorp Ltd. and not by the assessee. 9. Against the above order, the assessee filed an appeal and reiterated the submissions made before the Ld. CIT(A). 10. The Ld. CIT DR supported the orders of the authorities below. 11. We have considered the rival submission and perused the materials on record. In view of the findings of the AO that insurance was issued after 17.00 hrs. whi....
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.... 12.4 Before the Ld. CIT(A), the assessee submitted vide its letter dated 01.03.2021 that the 1,34,92,216 equity shares of face value of Rs.10/- per share at a premium of Rs.510.30 per share, on preferential basis, for raising funds were issued to non-resident companies and the details of the same was submitted as under: Name Address of party No. of Shares issued Date of issuance of shares Paid up share capital (Rs.) Unpaid share capital (Rs.) Total share Capital/Premium (Rs.) Otter Ltd. IFS Court, Bank Street, 28 Cyber city Ebane Mauritius 72201 10,955,218 15.09.2016 4,199,999,999 1,499,999,926 5,699,999,925 Credit Suisse (Singapore Ltd.) 1, Raffles Link, 03- 01 South Lobby, Singapore 039393 2,536,998 15.09.2016 990,000,044 330,000,015 1,320,000,059 Total 13,492,216 5,190,000,044 1,829,999,941 7,019,999,985 12.5 The assessee submitted that the above two parties foreign companies with foreign address were non-resident companies and the amounts was remitted by the aforesaid Non-resident share holders to the Indian Companies in foreign currency under the foreign direct investm....
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....ion 28(iv) of the Act. 12.8 It was further submitted by the assessee that vide order dated 03.03.2020, the AO initially rejected the rectification application but the assessee further vide letter dated 11.03.2020 clarified the factual position and after considering the same, the AO vide order dated 09.05.2023 allowed the prayer for rectification of mistake apparent from record under section 154 and deleted the addition of Rs. 418,66,34,625 the amount that was added under section 56(2)viib) of the Act vide order under section 143(3) dated 29.12.2023 in assessee's case for AY 2017-18. 12.9 Thereafter, the Ld. CIT(A) expanded the scope of his enquiry by asking the assessee to show cause why in the case of the non-resident, the place of effective management as envisaged under section 6(3) of the Act cannot be invoked in respect of M/s Otter Ltd. and M/s Credit Suisse (Singapore) Ltd. Regarding the third investor M/s Link Investment Trust it was stated that it was a Delhi based company and therefore, why the provisions of section 56(2)(viib) will not be applicable in its case. 12.10 Further, the Ld. CIT(A) informed the assessee that the power of the Commissioner of Income T....
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....not applicable in respect of M/s. Link Investment Trust. 2. In this regard it may be noted by you that the powers of the first appellant authority (FAA) are co-terminus with the powers of the AO as per the decision of Hon'ble Supreme Court in Jute Corporation of India Ltd vs CIT [1991] 187 ITR 688. Further it was held in the case of Yogendra Prasad Santosh Kumar vs CIT [2014] 44 taxmann.com 299 (All HC) that "there is no provision in Income Tax Act which will permit withdrawal of an appeal, once it is filed and registered". Also it was held in "M. Loganathan vs ITO [2012] 25 taxmann.com 174 (Mad HC)" and in "Jagmondas Gokaldas vs CWT [1963] 50 ITR 578 (Bom HC)" that the appellant has no right to withdraw appeal without the permission of the appellate authority. It is therefore brought to your notice that it is your duty to clarify all the queries raised by FAA by duly furnishing the documentary evidences. 3. It may be noted by you that as per Sec. 251(1)(a) CIT (Appeals) may enhance the assessment if it is found by him that such order (154 Order in this case) is not proper. 12.11 The assessee submitted its details which is discussed on page no. 92 to 96 of ....
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....t ignored by the FAO cannot become a mistake apparent from record. 12.16 According to the Ld. CIT(A) that in either of these two cases i.e. (a) where the assessee did not make a claim before FAO as discussed in para 11.9.4, of his order or (b) where the assessee made a claim before FAO but ignored by FAO, as discussed in para 11.9.5 of his order) excess premium paid by M/s. Otter Ltd and M/s. Credit Suisse (Singapore) Ltd and assessed u/s. 56(2)(viib) cannot be the subject matter of rectification proceedings before the JAO. 12.17 Thereafter, the Ld. CIT(A) discussed about entities having cross holdings. Further, he observed that it was required to be examined if the foreign residency principle of a company can be so arranged by issuing the shares first to a foreign registered company which thereafter issues to an Indian resident entity. According to the Ld. CIT(A) that here what is to be seen is substance over form and spirit/intent of the legislation over the static letter/wording. The Ld. CIT(A) further observed that the substance and spirit of the legislation has been clearly violated by the appellant- assessee by arranging share transactions in such a way that the shares ....
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....ered". Also it was held in "M. Loganathan vs ITO [2012] 25 taxmann.com 174 (Mad HC)" and in "Jagmondas Gokaldas vs CWT [1963] 50 ITR 578 (Bom HC)" that the appellant has no right to withdraw without the permission of the appellate authority. Moreover, the appellant has not specifically given any letter of withdrawal of this ground of appeal. However, the appellant-assessee in its letter dated 08-03-2024 stated as follows ... "It is respectfully reiterated that in view of rectification order dated 09.05.2023 passed by the assessing officer, grounds of appeal Nos. 8 to 8.6 raised by the appellant challenging the addition made under section 56(2) (viib) of the Act has been rendered infructuous. It is, therefore, respectfully submitted that there is no warrant whatsoever to make enquiries into the said issue.". There is no mention of the withdrawal of the ground of appeal. Even if it is presumed that the appellant wanted to convey about the withdrawal of appeal in an indirect manner, it is now held by the undersigned that the appellant has no right of withdrawal of appeal in view of many facts coming to light. The undersigned holds that the addition u/s. 56(2) (viib) made in t....
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....ot available and thereby dismissing the ground as not adjudicated. The assessee has also in its ground nos. 14 submitted that order of the Ld. CIT(A) dismissing the appeal of the assessee was in violation of section 251(1) and 250(6) of the Act. The same has been carefully considered by us and found to be acceptable. In view of this fact, we are of the considered view that the above order of the Ld. CIT(A) cannot be sustained and the same is set aside to his file for passing a fresh order on merits in terms of the powers conferred on him u/s 251(1)(a) of the Act and in the manner as laid down in section 250(6) of the Act. In the result, ground no. 14 of the appeal is allowed and the ground nos. 12, 13 & 15 to 20 of the appeal are allowed for statistical purposes. 16. In the result, the appeal is partly allowed. ORDER PER: SATBEER SINGH GODARA, JUDICIAL MEMBER I have given my thoughtful consideration to the very well- reasoned order passed by my learned brother/Accountant Member partly allowing the assessee's instant main appeal and restoring the issue of section 56(2)(vii)(b) addition amounting to Rs.418,66,34,625/; made in the course of assessment framed on 29.12.2....
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.... on 05.10.2018 at income of Rs. 280,18,34,380/- and claimed refund of Rs. 1,38,14,450/-. Subsequently, the case was selected for scrutiny and assessment was completed at an income of Rs. 715,27,29,060/- raising demand of Rs. 202,87,18,209/-. 02. The assessee has filed rectification application stating that the section 56(2)(viib) is applicable only in case of shares issued to a resident, whereas in the present case, the shares were issued to non-residents and hence addition u/s 56(2) (viib) of Rs. 418,66,34,625/- is not warranted and liable to be rectified being a mistake apparent from records. Further, it is also requested to allow the credit of DDT payment of Rs. 1,61,20,712/-made by the assessee which was not allowed during the assessment order. 03. From the assessment records it is seen that the assessee, during the course of assessment, has furnished the list of share capital issued during the year as under: Name Address No. of shares issued Face value Security premium Total amount PAN/Asst. Particulars Otter Limited IFS Court, Bank Street, 28 Cybercity Ebane, Mauritius 72201 1,08,97,75,590 10,89,75,590 556,10,24,358 566....
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....that the impugned section 56(2)(viib) addition already stood deleted/rectified in above terms. The Revenue could hardly dispute that the learned CIT(A)/NFAC's impugned lower appellate discussion has still upheld the impugned addition as under: "11.9 Decision: 11.9.1 Ld. FAO, in the course of assessment proceedings, issued a show-cause on 21.12.2019 asking the assessee as to why the value of equity share Rs.210 per share should not be adopted by duly following the Rule 11UA and also why the difference of Rs. 310.30 per share (Rs.520.30-Rs.210) should not be treated as excess premium chargeable to tax u/s. 56(2) (viib). The Id. FAO also compared the actuals achieved at the end of FYs 2017-18 & 2018-19 with the projections made in respect of turnover & PBT and found that there was a huge deviation between the projections and the actuals. The FAO also commented that such projections were self-serving projections. 11.9.2. In the course of appellate proceedings, it is noticed that such favourable projections were made by the appellant-assessee only to justify the excess valuation of the shares and to issue such overvalued shares to companies whose addresses....
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.... verification and inquiries, cannot be a simple mistake and mistake apparent from record. 11.9.5. For a moment let us presume that the assessee claimed before the FAO during assessment proceedings that the excess premium was not taxable u/s. 56(2) (viib) giving the reason that the subscribing companies are not Indian resident companies. Despite such submission if addition was made u/s. 56(2) (vinb) by the FAO then it suggests that the FAO has duly applied his mind and taken a conscious decision of making addition u/s. 56(2) (viib). Thus in this case also, as opposed to the case in para 11.9.4 the claim of the assessee made before the FAO and/ but ignored by the FAO cannot become a mistake apparent from the record. Thus, in either of these two cases (i.e. (a) where the assessee did not make a claim before FAO as discussed in para 11.9.4, or (b) where the assessee made a claim before FAO but ignored by FAO, as discussed in para 11.9.5) excess premium paid by M/s. Otter Ltd and M/s. Credit Suisse (Singapore) Ltd and assessed u/s * 0.56(2) (viib) cannot be the subject matter of rectification proceedings before the JAO. 11.9.6. To know about the place of effec....
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....gets offloaded in the appellant-company's books of account under "Securities Premium Account" and some of the intermediary investing companies exited with losses to themselves (which of course would be artificially utilised for set off against the true incomes) while with compensatory gain to the appellant-assessee in the form of huge premium without undergoing taxation u/s.56(2)(viib). However, clear finding could not be made by the FAA from the appellant- assessee as it did not utilise the VC opportunity given to it even on its own request. 11.9.6.1. Shareholding pattern and share movement pattern in respect of the two initial subscribers, viz., M/s. Otter Ltd and M/s. Link Investment Trust have been prepared in the following tabular format. FY Otter Ltd Credit Suisse (Singapore) Ltd Link Investment Trust Securities premium Reserves as per B/S (Rs.) 2016-17 1,08,97,559 no of shares issued) Amount [Share Rs. 520.30. received: Rs.566,99,99,925 value: share premium per share @ Rs. 510.30] 25.36,998 (no of shares issued) Rs. 132,00,00,059 premium per share @ Amount received: [Share value: Rs. 520.30. share Rs. 510.30] 57,659 (no. of sh....
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....ue of 3,93,987 = Rs.162.74.41.515 Rs.132.00.00,059= Rs.30,74,41,456. The per share value of 3,93.987 no of shares = Rs. 30,74,41,456/ 3,93,987 Rs.780.33. The per share value in FY Rs.520.30. Whereas the valuation of each share as per Rule 11UA determined by the AO is Rs.210. When the share value as per R. 11UA was at Rs. 210 at and the share value as per assessee's self- serving valuation report Rs. 520.30. then how come the shares were issued at a value of Rs.780.33 in the later at years, which is much higher than the first issue Rs.520.30, particularly when the Turnover of the share issuing company (i.e. the assessee) recorded was Rs. 1332.69 Crores against the projected Turnover of Rs.1580.36 Crores? Furthermore, why was the shares issue price in later years for M/s. Credit Suisse at a variance from the shares issue price for M/s otter Ltd? Further, as per the details submitted by the appellant-assessee before the JAO in rectification proceedings M/s. Otter Ltd, claimed to be non-resident company, initially purchased 57,659 no of shares for a total consideration of Rs. 2,99,99,978/- from the appellant-company along with purchase of an....
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....emium per share in later years with shockingly decreasing performance of the appellant-assessee on all fronts vis- à-vis the projected performance in valuation report. In such a scenario these subscribers appear to be the holders of shares for the ultimate benefit of M/s. Hero Fincorp Ltd as per the mandate of M/s. Hero Fincorp Ltd. 11.9.6.3. It appears that the root of all these investments with such huge disproportionate premiums is a joint effort of the appellant-assessee (M/s. Hero Fincorp Ltd) and M/s. ChrysCapital VII LLC. M/s. ChrysCapital LLC has its Indian associate enterprises, viz., M/s. Chrys Capital Investment Advisors (India) Put Itd. M/s. ChrysCapital Advisors LLP, M/s. Chrys Capital Associates LLP, M/s. Nuvo ChrysCapital Advisors Pvt Ltd. The domestic entities involved in share transfers after making Initial private placement to the two foreign entities viz., M/s. Otter Ltd (Mauritius) are many, viz., M/s. ChrysCapital Investment Advisors (India) Put Itd. M/s. ChrysCapital Advisors LLP, M/s. Chrys Capital Associates LLP, M/s.Nuvo Chrys Capital Advisors Pvt Ltd. Some of the shareholders of M/s. Hero Fincorp Ltd are also shareholders in M/s.Ch....
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....deputies would acquire the shares at much lesser price than the initial issue price of (private placement). The final stroke of huge gains would be received by the issuing company when it issues IPO through bourses fixing the premium even in much excess of the private placement price. This whole episode as described in the preceding lines occurred in the case of the appellant-assessee company. These particulars are essential to adjudicate the grounds raised by the appellant. However, the details are not forthcoming from the appellant. 11.9.7. The appellant-assessee adopted colourable devices for circumventing the provisions of Sec. 56(2) (viib) by organising the share issue first to M/s. Otter Ltd to the extent of 57,659 no of shares and thereafter organising the purchase transaction by M/s.Link Investment Ltd from M/s. Otter Ltd to the extent of 57,659 no of shares. The Hon'ble Supreme Court in the case of Mc Dowell & Co Ltd vs CTO, [1985] 154 ITR 148 (SC) held that it is not open to a taxpayer to so arrange his affairs as to reduce burden of taxation to minimum and such a process constitutes tax evasion and further held Colourable devices cannot be part of tax planni....
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....or the reasons discussed by the FAO in assessment order and for the reasons and arguments advanced by the FAA in this appeal order. 11.9.8. The powers of the first appellant authority (FAA) are co-terminus with the powers of the AO as per the decision of Hon'ble Supreme Court in Jute Corporation of India Ltd vs CIT [1991] 187 ITR 688. Further It was held in the case of Yogendra Prasad Santosh Kumar vs CIT [2014] 44 taxmann.com 299 (All HC) that "there is no provision in Income Tax Act which will permit withdrawal of an appeal, once it is filed and registered". Also it was held in "M. Loganathan vs ITO [2012] 25 taxmann.com 174 (Mad HC)" and in "Jagmondas Gokaldas vs CWT [1963] 50 ITR 578 (Bom HC) that the appellant has no right to withdraw appeal without the permission of the appellate authority. Moreover, the appellant has not specifically given any letter of withdrawal of this ground of appeal. However, the appellant-assessee in its letter dated 08- 03-2024 stated as follows ... "It is respectfully reiterated that in view of rectification order dated 09.05.2023 passed by the assessing officer, grounds of appeal Nos. 8 to 8.6 raised by the appellant challengi....
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....7. It next transpires that the legislature has subsequently omitted the above statutory expression "being a non-resident" from the statute itself vide Finance Act, 2023 w.e.f. 01.04.2024, whereas, the impugned assessment before is 2017-18 only. The Revenue could further not dispute that the Explanatory Memorandum to Finance Act, 2023 has made it clear that the above statutory omission is effective from the 1st day of April, 2024 and to be applied in relation to assessment year 2024-25 and subsequent assessment years. 9. It is thus apparent that once the assessee had issued it's shares to the non-resident companies only, learned CIT(A)'s action upholding the impugned section 56(2)(viib) addition; whether or not the Assessing Officer rectification is considered, could not be held as sustainable in law by any stretch of imagination. 10. The Revenue vehemently argues that the given fact that the CIT(A) was already seized of the matter, the Assessing Officer's action accepting the assessee's section 154 rectification application (supra) has rightly been ignored which has led him to confirm the impugned addition. It is noticed in this backdrop that there is no such ....
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.... PER : MAHAVIR SINGH, VICE PRESIDENT (THIRD MEMBER) Order under Section 255(4) of the Income-tax Act, 1961 By the order of President, ITAT vide U.O. No.F.28-Cent. Jd(AT)/2025 dated 28th April, 2025, the undersigned has been nominated to adjudicate the difference of opinion between the learned Judicial Member and learned Accountant Member on the following question :- "1. Whether, in the facts and circumstances of the case, learned CIT(A)/NFAC's action upholding section 56(2)(vii)(b) addition of Rs. 418,66,34,625/- in assessee's hands, deserves to be reversed?" 2. Brief facts are that the assessee filed its return of income on 30th October, 2017, which was revised on 5th October, 2018. The assessee's case was selected for scrutiny through CASS by issuing notice under Section 143(2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') dated 2nd September, 2018. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has issued 1,34,92,216 number of equity shares at the rate of Rs. 520.30 each at a premium of Rs. 510.30 per share. The Assessing Officer required the assessee to explain vide ....
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....der: - Issue price : Rs.520.30 per share - FMV determined by AO : Rs. 210 per share - Excess premium alleged : Rs.310.30 per share Pertinently AO: (a) failed to appreciate that section 56(2)(viib) is, per se, not applicable to receipt of share capital from non-residents; (b) made addition alleging that there is variation between projections for DCF valuation with actual results; (c) proceeded to apply Net Asset Value ('NAV') method. 17.01.2020 Assessee filed rectification application u/s 154, inter-alia, submitted that the provisions of section 56(2)(viib) are, per se, not applicable on non-residents along with following: (a) Particulars/details of the non-resident subscribers, already on record; and (b) Foreign inward remittance certificates (FIRC), further substantiating remittances from outside India; 28.01.2020 Appeal filed before CIT(A) on various issues, including above issue [rectification application was pending] 21.02.2020 Show cause notice issued by the PCIT-04, Delhi u/s 263, inter-alia, observing as under :- - CIT noted, "Out of these three shareholders, M....
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....he case of Otter Limited, Mauritius 4. I have heard learned Counsel for the assessee as well as learned CIT(DR). I have perused the case records including the assessment order, the order of the learned CIT(A), the rectification order passed by the AO, orders passed by the Learned Brother Members, Paper Book filed by the Assessee and the written Submissions filed by the learned Counsel for the assessee as well as learned CIT(DR). The above question raised is argued on three facets. 5. To adjudicate this question, the first facet argued by the Assessee is that once the assessment order passed by the AO is rectified under Section 154 of the Act deleting the addition made by the AO on account of share premium under Section 56(2)(viib) of the Act, is it open to CIT(A) to adjudicate on the same issue as the same was rendered infructuous? 5.1 Learned Counsel for the assessee, first of all, drew my attention to the assessment order framed wherein, the Assessing Officer has made the addition on differential premium of Rs. 310.30 per share against the total shares issued of 1,34,92,216 in numbers for a total amount of Rs. 418,66,34,625/- to the returned income of the assessee under ....
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.... * Originally issued by Otter Limited who subsequently sold it to Link Investment Trust. 04. It is evident that the subscribers to the above share capital were all non-residents on which provisions of section 56(2)(viib) is not applicable. Hence, as per the submission of the assessee company and records available, the contention of the assessee is found to be in order. 4.1 It is further worthwhile to mention that assessee has filed show cause notice u/s. 263 of the I.T. Act by PCIT-4, dated 21.02.2020 in which vide para 5, the following observation was given which is reproduced as under :- "The above section clearly indicates that the provision is applicable to a transaction of issuance of shares to resident shareholders. However, the shares were issued to M/s Otter Ltd, M/s Credit Suisse (Singapore) Limited and M/s Link Investment Trust. Out of these three shareholders, M/s Otter Ltd., M/s Credit Suisse (Singapore) Limited are foreign companies having foreign addresses and therefore non -resident. Since, provision of section 56(2)(viib) of the Act are not applicable to aforesaid issue of shares by the assessee to non-resident, the invocat....
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....54. However, any fact which can be established through a long process of verification and inquiries, cannot be a simple mistake and mistake apparent from record. 11.9.5. For a moment let us presume that the assessee claimed before the FAO during assessment proceedings that the excess premium was not taxable u/s. 56(2)(viib) giving the reason that the subscribing companies are not Indian resident companies. Despite such submission if addition was made u/s. 56(2)(viib) by the FAO then it suggests that the FAO has duly applied his mind and taken a conscious decision of making addition u/s. 56(2)(viib). Thus in this case also, as opposed to the case in para 11.9.4 the claim of the assessee made before the FAO and/but ignored by the FAO cannot become a mistake apparent from the record. Thus, in either of these two cases (i.e. (a) where the assessee did not make a claim before FAO as discussed in para 11.9.4, or (b) where the assessee made a claim before FAO but ignored by FAO, as discussed in para 11.9.5) excess premium paid by M/s. Otter Ltd and M/s. Credit Suisse (Singapore) Ltd and assessed u/s. 56(2)(viib) cannot be the subject matter of rectification proceedings b....
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....y facts and provisions of law. Following the ratio of Hon'ble High Court of Allahabad in the case of Kesharwani Zarda Bhandar vs CIT, [2013] 30 taxmann.com 387 it is now held that the JAO committed a grave mistake of rectifying the Order passed by NFAC without allowing the natural process of appeal. The rectification order u/s. 154 is non-est in law because the complex Issues of assessing the share premium u/s.56(2)(viib) r.w.r. 11UA can be fathomed and unwound only when the whole chain of share transactions is carefully perused, analysed and applied to the provisions of law; whereas no such exercise has been done by the JAO u/s. 154 proceedings. The JAO cannot undo the whole assessment exercise through a simple 2 page rectification order. If the JAO had confronted the assessee on the submissions made u/s.154 before her/him, s/he could have easily understood that the issue was not simple as projected by the assessee. If confronted on facts and provisions of law, the issue of rectification as was projected in rectification petition would no more be a mistake apparent from record for the reasons discussed by the FAO in assessment order and for the reasons and arguments advanced b....
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.... are needed for proper adjudication. In other words, this ground is dismissed as not adjudicated. Therefore, the addition of Rs.418,66,34,625 u/s. 56(2)(viib) made by the FAO/NFAC is fully restored in Its entirety by treating the Rectification Order dated 17th Jan 2020 passed u/s.154 by the JAO as another mistake and thus as non-est while at the same time not adjudicating the grounds of appeal raised by the appellant against the addition u/s. 56(2)(viib), for want of facts. The Id. JAO is directed to give appeal effect to this appeal order by considering the assessment order passed by FAO/NFAC and ignoring the rectification order passed by the JAO." 8. In view of the above facts, Learned Counsel for the assessee made arguments that there is no bar in AO passing the rectification order under Section 154 of the Act during pendency of the appeal before the learned CIT(A) and once the Assessing Officer accepted the position by deleting the addition by exercising the jurisdiction u/s 154 of the Act, Revenue no longer can be treated as aggrieved party. He argued that once the rectification order is passed by the Assessing Officer by putting a closure of the matter, l....
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....ally of the provisions of sub- section (1), the following income shall be chargeable to income tax under the head "income from other source", namely: "Where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident any consideration for issue of shares that exceeds the shares as exceeds the fair market of the shares. 5. The above section clearly indicates that the provision is applicable to a transaction of issuance of shares to resident shareholders. However, the shares were issued to M/s Otter Limited, M/s Credit Suisse (Singapore) Limited and M/s Link Investment Trust. Out of these shareholders, M/s Otter Limited and M/s Credit Suisse (Singapore) Limited are foreign companies having foreign addresses and therefore non-resident. Since, provision of Section 56(2)(viib) of the Act are not applicable to the aforesaid issue of shares by the assessee to non-existent, the invocation of provisions of Section 56(2)(viib) of the Act is beyond the scope of statutory mandate. Consequently, addition made u/s. 56(2)(viib) is not sustainable. The addition made by the AO u/s. 56(2)(viib) of....
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....were not available before the AO in regard to the status of the assessee and hence, held that the rectification proceedings are invalid. She relied upon the decision of the Hon'ble Madras High Court dated 29.04.2025 in the case of Prima Urban Development India Ltd. Vs. ACIT (2025) 174 taxmann.com 201 (Madras). 11. Learner DR further took me through the submissions filed by the AO and argued that no verification has at all been carried out in this case. She argued that in this case, relief was granted under Section 154 of the Act and as such, if factual verification was not possible, then the rectification is totally vitiated. She contended that admittedly, no verification was, and could have been done in the proceedings under Section 154 of the Act as in the present case. When asked as to what is the nature of the verification, the AO would like to carry out, she argued that the basic facts relating to these two subscribers, namely, Otter Limited and Credit Suisse (Singapore) Limited that these two parties are non-residents or not, cannot be verified from the assessment records. She argued that simplicitor from the addresses that these are situated out of India does not infe....
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....earned CIT(A) disposed of these appeals, he proceeded to adjudicate on these issues. That course of action, in our considered view, was not permissible. When the very disallowance of exemption, which was agitated in appeal, stood deleted, it was not open to the learned CIT(A) to adjudicate on the correctness of the disallowance. While on this aspect of the matter, we may usefully refer to the following observations made by Hon'ble Gujarat High Court, in the case of Nitin Babubhai Rohit v Dharmendra Vishnubhai Patel [(2018) 409 ITR 276 (Guj.)] wherein Their Lordships have, inter alia, observed as follows: " .... .we find it somewhat unusual to note that the Commissioner (Appeals) even after the revisional authority had set aside the order of penalty, proceeded to decide the appeal of the assessee. Even if the Commissioner of Income-tax (Appeals) was personally of the opinion that the revisional order should not have been passed, once such order was passed, he must abide by the discipline of a quasi-judicial structure and respect the order as it stands. Unless the order of the revisional authority was set aside by competent authority or Court, its effect must be allowed ....
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.... by clause (a) thereof and an appeal against an order imposing a penalty is covered by clause (b) thereof. In other words, independent appeals arise out of orders of assessment and orders imposing any penalty. In this case, the order that was before the Commissioner (Appeals) was an order imposing a penalty and not an assessment order. If the assessment order that resulted in the penalty proceedings being instituted was before the Commissioner (Appeals), the direction may have been justified. However, in the appeal arising out of the order imposing the penalty, the matter pertaining to some other income escaping assessment did not fall within the purview of the expression "any matter arising out of proceedings in which the order appealed against was passed". It is only elementary in law that what cannot be done directly cannot be done indirectly either. If authority is needed even for this fundamental legal proposition, the same is contained in numerous judgments of Hon'ble Supreme Court of India, including in the rather recent cases of Ram Jethmalani v. Union of India [(2011) 13 taxmann.com 189 (SC)land CIT v. Paharpur Cooling Towers Pvt Ltd. [(1996) 219 ITR 618 (SC)].The rect....
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....ar 2016-17, relevant to this year assessment year 2017-18, issued 13492216 equity shares of face value of Rs.10 per share at a premium of Rs. 510.30 per share, on preferential allotment basis, for raising the funds to non-residents company namely, Otter Ltd and Credit Suisse (Singapore) Limited. The Assessing Officer added the differential premium of Rs.310.30 per share against the total shares issued and added back the same at Rs. 4186634625 under Section 56(2)(viib) of the Act. Learned Counsel for the assessee argued that the amount against the said equity shares was remitted by the aforesaid non-residents shareholders to India in foreign currencies under the foreign direct investment policy of Reserve Bank of India. In support of this, assessee filed copy of Foreign Inward Remittance Certificate (FIRC) from Credit Suisse (Singapore) Ltd. and Otter Limited (Mauritius), which are enclosed in assessee's paper book page number 119 and 120. Learned Counsel argued that the provisions of Section 56(2)(viib) of the Act are applicable only when shares are issued by the company to a resident in India. Whereas in the present case, as pointed out above, the entire share capital was issu....
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....0,00,059 in your company. This entity has a number of Indian entities, such as M/s. Credit Suisse Consulting India Pvt Ltd, M/s, Credit Suisse Securities India Pvt Ltd, M/s. Credit Suisse Finance India Pvt Ltd and M/s, Credit Suisse Services India Pvt Ltd, etc., through which the M/s. Credit Suisse (Singapore) Ltd has been influenced to make investment in the appellant company. In view of this please explain why the place of effective management as envisaged u/s.6(3) cannot be invoked in your case in respect of M/s. Credit Suisse (Singapore) Ltd. 3. The third investor, M/s. Link Investment Trust is Delhi based entity in which case the provisions of Sec 56(2)(viib) are directly applicable. Please explain why and how the provisions of Sec. 56(2)(viib) are not applicable in respect of M/s. Link Investment Trust." 17. The assessee replied by filing complete details of subscribers i.e. of non-resident allottees along with their addresses, number of shares issued, amount subscribed by each subscriber, FIRC, Tax Residency Certificate of both the companies, namely, Credit Suisse (Singapore), a foreign company incorporated in Singapore and Otters Limited, a foreign Company incor....
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....r the relevant assessment year is made and also placed before the CIT(A). Learned Counsel for the assessee further stated that the presumption of the Department, that this entity has a number of Indian entities, such as Credit Suisse Consulting India Pvt. Ltd., Credit Suisse Securities India Pvt., Credit Suisse Finance Pvt. Ltd. And Credit Suisse Services Ltd. through which Credit Suisse (Singapore) Ltd. has been influenced to make investment in the assessee company, is based on presumption, conjectures and surmises. There is no evidence qua this. 18. As regards to 3rd investor Link Investment Trust, which is Delhi-based entity, but originally the shares were allotted and subscribed by only two companies i.e., Credit Suisse Singapore and Otters Ltd. Mauritius. Subsequently, Link Investment, a resident Indian had purchased shares from Otters Limited, as noted above, but that does not make the original allotment as non-est rather these are transaction of sale and purchase between the two parties. It was argued that since the shares were initially allotted to non-residents, the provision of Section 56(2)(viib) of the Act are not applicable to such transaction. In view of the above,....
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....t, I noted that the assessee filed the following details :- S. No. Particulars 1. Details of amounts received along with details of non-resident share applicants. 2. List of Allottees 3. Foreign Inward Remittance Certificates (FIRC) 4. Valuation Report as per Rule 11UA substantiating fair valuation of issuance of shares as per DCF method 5. Relevant extracts of the Tax Audit Report for AY 2017-18 indicating that nothing is taxable under section 56(2)(viib) 6. Copy of SCN issued by PCIT u/s. 263 nothing that the subscribers are non-residents and section 56(2)(viib) is not applicable 7. Detailed reply on non-applicability of section 6 [POEM test vis-a-vis DTAA] 8. Tax Residency Certificates (TRCs) of Credit Suisse (Singapore) Ltd. & Otters Limited, Mauritius 9. ITAT Order in the case of Credit Suisse (Singapore) Ltd. for AY 2017-18, noting that the assessee is non-resident. 10. Intimation u/s. 143(1) in the case of Otter Limited, Mauritius. From the above details, it is clear that these two parties viz., Credit Suisse Singapore and Otters Ltd. Mauritius are non-residents and all the details were available before the....
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....purposes of DTAC. Clause (3) of article 4 provides that if, after application of the detailed rules provided in article 4, it is found that a person other than an individual is a resident of both 5 the Contracting States, then it shall be deemed to be a resident of this Contracting State in which its place of effective management is situated. The DTAC requires the test of "place of effective management" to be applied only for the purposes of the tie-breaker clause in article 4(3) which could be applied only when it is found that a person other than an individual is a resident both of India and Mauritius. We see no purpose or justification in the DTAC for application of this test in any other situation. The High Court has held, and the respondents so contend, that the Assessing Officer under the Income-tax Act is entitled to lift the corporate veil, but the circular effectively bars the exercise of this quasi-judicial function by reason of a presumption with regard to the certificate issued by the competent authority in Mauritius ; conclusiveness of such a certificate of residence granted by the Mauritius tax authorities is neither contemplated under the DAC, nor under the ....
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....e court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non est based upon some hypothetical assessment of the "real motive" of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot G afford to chase a will- o'-the-wisp. The judgment of the Privy Council in Bank of Chettinad's case [1940] 8 ITR 522, wholeheartedly approving the dicta in the passage from the opinion of Lord Russel in Westminster's case [1936] AC 1 (HL) ; [1935) 19 TC 490, was the law in this country when the Constitution came into force. This was the law in force then, which continued by reason of article 372. Unless abrogated by an Act of Parliament, or by a clear pronouncement of this court, we think that this legal principle would continue to hold good. Having anxiously scanned McDowell's case (1985] 154 ITR 148 (SC), we find no reference therein to having dissented from or overruled the decision of the Privy Council in Bank of Chettinad's case [1940] 8 ITR 522 (PC). If any, the principle appears to have been reiterated with approval by the C....
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....see's case, as subscribers to share capital were non-residents and therefore, the provisions of Section 56(2)(viib) of the Act are not applicable in the given facts and circumstances of the case. In view of the above discussion, I delete the addition in dispute on merits also on this second facet of the arguments. 24. The third facet argued by the assessee on merits is that the impugned addition under Section 56(2)(viib) of the Act is not sustainable for the reason that the action of the Assessing Officer in applying NAV method to determine FMV in contradiction to DCF method adopted by the assessee's valuer is grossly incorrect. According to the learned Counsel, the valuer's report along with management's estimate to arrive at various indices adopted to compute future growth of the company were submitted before the Assessing Officer as well as before learned CIT(A). It was contended that the management's estimate contained the entire rationale for the projections adopted by the valuer while arriving at the FMV of the shares issued. Accordingly, it would be appropriate that the shares were issued at FMV of the respective shares and therefore, no part of the sh....