Category: Tribunal News: Part A-Domestic Taxation

Section 254: The Tribunal has jurisdiction to admit the additional grounds filed by the assessee to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee

FACTS
In respect of the appeal filed before the ITAT by the department, the assessee had filed its cross objections and had raised additional grounds in the cross-objections. Admission of the additional grounds was opposed in principle by the Learned Departmental Representative.

HELD
The ITAT followed the judgment of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd vs. CIT[1998] 97 Taxman 358/229 ITR 383 and admitted the additional ground filed by the assessee.

The Hon’ble Apex court in the abovementioned case considered that the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. The Hon’ble Apex Court also considered that the Tribunal will have the discretion to allow or not allow a new ground to be raised. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). It was held that the Tribunal has jurisdiction to examine a question of law having a bearing on the tax liability of the assessee, although not raised earlier, which arises from the facts as found by the authorities below, in order to correctly assess the tax liability of an assessee.

FACTS
The assessee company issued shares at fair market value of Rs. 50 as per audited financial statements of the assessee company. The assessee received from one investor company M/s Prraneta Industries Ltd [Now known as Aadhar Venture India Ltd], a sum of Rs. 45 lakhs in three transactions dated 18.06.2009. Information in this case was received and perusal of the information revealed that the said Investor Company is one of the conduit company which is controlled and managed by ShriShirish C. Shah for the purpose of providing accommodation entries. The statement of Shri Omprakash Khandelwal, Promoter of the Company was recorded where he admitted to provide accommodation entries of the Investor Companies after charging Commission at the rate of 1.8%. Therefore, reasons were recorded and the Ld. A.O. initiated
the reassessment proceedings under section 147 of the Act.

To substantiate the facts that the assessee had received genuine share capital/premium, the assessee filed before A.O. documentary evidences such as copy of the confirmation, ITR Acknowledgement, copy of Board Resolution, copy of share application along with Share Application Form, copy of Master Data, Certificate of Incorporation and evidence in respect of listing of shares at BSE of Investor Company along with ITR and balance-sheet of the Investor. The assessee also submitted that Shri Omprakash Khandelwal, Director of the Investor Company retracted from his statement, and therefore there was no case of reopening its assessment on the basis of such statement.

The A.O. considering the modus operandi of these persons and did not accept the explanation of assessee to have received genuine share capital and made addition of Rs. 45 lakhs under section 68 of the I.T. Act and also made addition of Rs. 90,000 on account of Commission. Aggrieved, the assessee filed an appeal before the CIT(A), however, the appeal of the assessee was dismissed. Aggrieved, the assessee filed further appeal before the Tribunal.

HELD
The ITAT observed that the Investor Company was assessed to tax and was a listed public limited company, therefore, its identity was not in dispute. The assessee had also proved creditworthiness of the Investor Company and that entire transaction had taken place through a banking channel, therefore, genuineness of the transaction in the matter was also not in dispute. The assessee also explained before A.O. that Shri Shirish C. Shah was neither Director nor shareholder of the Investor Company. The A.O. had not brought any evidence on record to dispute the above explanation of the assessee. Therefore, the assessee had been able to prove the identity of the Investor, its creditworthiness and genuineness of the transaction in the matter.

The ITAT considered following decisions rendered by co-ordinate benches of the ITAT:

i. INS Finance & Investment (P.) Ltd [IT Appeal No. 9266 (Delhi) of 2019, dated 29th October, 2020]

ii. Pr. CIT vs. M/s Bharat Securities (P.) Ltd (ITAT – Indore Bench later confirmed in Pr. CIT vs. M/s Bharat Securities (P.) Ltd [2020] 113 taxmann.com 32/268 Taxman 394 (SC)

These decisions considered identical issue on identical facts on account of share capital/premium received from M/s Prraneta Industries Ltd through Shri Shirish C. Shah based on his statement and statement of Shri Omprakash Khandelwal. This issue of receipt of share capital/premium was examined in detail by the Indore Bench of the Tribunal as well as Hon’ble Delhi Bench of the Tribunal and the addition on merits had been deleted.

The Order of the Indore Bench of ITAT was confirmed by the Hon’ble Madhya Pradesh High Court and ultimately, the SLP of the Department was dismissed confirming the Order of the Hon’ble Madhya Pradesh High Court.

Following these ITAT decisions, the ITAT did not find any justification to sustain the addition of Rs. 45 lakhs under section 68 of the I.T. Act, 1961 and addition of Rs. 90,000 under section 69C of the I.T. Act and deleted the addition of Rs. 45,90,000.

FACTS
The assessee company was incorporated on 01.03.2012 on the basis of joint venture agreement between M/s Sysmech Industries LLP, a resident and M/s Demas Company, a non-resident. Both the joint venture partners agreed to contribute to the project cost of the assessee company in the ratio of 60 and 40 while keeping share holding ratio 50:50.

On the basis of valuation of equity shares at Rs. 59.99 per share following the DCF method assessee issued shares to non-resident shareholder at the rate of Rs. 60 per share after necessary compliances under FEMA etc. However, shares to the resident shareholder were issued at Rs. 40 per share.

The assessee filed return of income declaring loss of Rs. 2,97,79,141 and the case was picked up for limited scrutiny to furnish the various details including the share valuation as computed under Rule – 11UA of the Income Tax Rules, 1962.

Since the assessee company had suffered a loss in the previous assessment year, the Assessing Officer (AO) rejected the valuation of shares under DCF and made an addition, equivalent to the amount of premium charged from resident shareholder for allotment of shares to the Indian entity Sysmech Industries LLP, under section 56(2)(viib) in the hands of assessee.

Aggrieved, assessee preferred an appeal to the CIT(A) who set aside the order passed by the AO by making an observation that as projected in the report of prescribed expert there has been marked improvement in the profit margins of the company in subsequent years and thus upholding the valuation done by the chartered accountant of the assessee on DCF Method.

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD
The Tribunal noted that the AO rejected the share valuation as computed under Rule 11UA for the reason that the shares were issued to a resident shareholder for a price which was lower than the price at which shares were allotted to non-resident shareholder and also for the reason that, according to the AO, DCF method could not be applied since the assessee company had suffered a loss in the previous assessment year.

According to the Tribunal, difference in the share price as issued to the resident company and that to the non-resident company was in furtherance of the clauses of joint venture agreement. The discounted factor has occurred due to difference in the share of capital contribution to the project cost. However, in the case in hand the AO without considering the relevant clauses of joint ventures agreement presumed that as there was difference in the valuation of share for resident and non-resident entity, the valuation given by prescribed expert is liable to be rejected.

The Tribunal relying on the decision of the Supreme Court in Duncans Industries Ltd vs. State of UP 2000 ECR 19 held that question of valuation is basically a question of fact. Thus, where the law by virtue of Section 56(2)(viib) read with Rule 11UA (2)(b) makes the prescribed expert’s report admissible as evidence, then without discrediting it on facts, the valuation of shares cannot be rejected. It noted that the AO has not disputed or questioned the financial, technical and professional credentials of the venturists for entering into the joint ventures agreement. The AO without disputing the details of projects, revenue expected, costs projected has discredited the prescribed expert’s report which is admissible in evidence for valuation of shares and to determine fair market value.

The Tribunal dismissed the appeal filed by the revenue.

FACTS
During the year under consideration, a sum of Rs. 11,44,000 was deposited, in cash, in the bank account of the assessee, a non-resident Indian, residing at Auckland, New Zealand since 2003. The Assessing Officer (AO) treated the same as cash credit under section 68 and added the same to the total income of the assessee.

Aggrieved, assessee preferred an appeal to CIT(A) where he stated that he accepted gift of Rs. 6.44 lakh and Rs. 5 lakh from his father and brother which was used by him for purchasing a property in Vadodra. According to the assessee, his father and brother were engaged in agricultural activity on the land held by them in their personal capacity as well as on land belonging to others and were able to generate annual agricultural income of Rs. 23 lakh approx. The assessee produced cash book, bank book, 7/12 extract and gift deed.

The CIT(A) called for a remand report from the AO wherein the AO mentioned that the date of deposit of cash in bank account of assessee was before the date of gift as mentioned in the gift declaration. Thus, he contended that source of cash deposited cannot be out of gift amount. The assessee, in response, submitted that there was a typographical error in the gift declaration. 7th October, 2011 was inadvertently typed as 27th October, 2011.

The CIT(A) held that the assessee is a very unusual and wealthy NRI who has accepted a gift from his father and brother who are claimed to be agriculturists. According to him, the donors do not have sufficient resources and capacity to gift wealthy assessee. Also, there was a contradiction in the gift deed. Therefore, CIT(A) confirmed the order of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD
As regards the mismatch of the time in the amount of cash deposits in the bank out of the gift received by the assessee, the Tribunal held that it was the revenue who doubted that the cash deposit is not out of the amount of gift received by the assessee. It held that the assessee has discharged his onus by submitting the details (including revised gift deed) that the cash was deposited out of the gift amount. Now the onus shifts upon the revenue to disprove the contention of the assessee based on documentary evidence. The Tribunal observed that no contrary evidence has been brought on record by the revenue suggesting that the amount of cash deposit is not out of the gift amount. It held that merely the difference in time between the cash deposited in the bank vis-à-vis cash received as gift cannot authorise the revenue authorities to draw inferences against the assessee until and unless some documentary evidences are brought on record contrary to the arguments of the assessee.

The Tribunal observed that admittedly it is very unusual that a wealthy NRI accepts a gift from his father and brother. Generally, the practice is different in society. As such NRIs give gifts to relatives. The Tribunal held that it found no prohibition for NRI for accepting gifts from relatives. In the absence of any prohibition, no adverse inference can be drawn against the assessee based on the prevailing system in society.

It also noted that assessee has furnished sufficient documentary evidence of his father and brother to justify the income in their hands from agricultural activity. But none of the authority below has made any cross verification from the concerned parties in order to bring out the truth on the surface. It held that AO before drawing any adverse inference against the assessee, should have cross verified from the donors by issuing notice under section 133(6) / 131 of the Act. The Tribunal held that no adverse inference can be drawn against the assessee by holding that the amount of cash deposited by the assessee in his bank represents the unexplained cash credit under section 68 of the Act.

The Tribunal set aside the order passed by the CIT(A) and directed the AO to delete the addition made by him.

FACTS
For Assessment Year 2014-15, assessee filed a return of income declaring a loss of Rs. 23,12,53,397. While assessing the total income, the Assessing Officer (AO) noticed that the assessee has claimed Rs. 1,94,33,166 as depreciation on non-compete fees. Since the AO was of the view that non-compete fee is not an intangible asset as per Section 32(1)(ii) and Explanation thereto, he asked the assessee to show cause why the same should not be disallowed. The AO following the ratio of the decision of Delhi High Court in Sharp Business Systems vs. CIT [(2012) 211 Taxman 567 (Del)] disallowed the claim of depreciation on non-compete fees.

Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO.

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD
The Tribunal noted that by an agreement entered in June 2011 the assessee acquired a restaurant in the name and style of Sagar Ratna. As per the terms of the agreement, the transferor had transferred all its rights, copyrights, trademarks, etc. in respect of the restaurant Sagar Ratna. The payment made by the assessee towards non-compete fee to the transferor was treated by the assessee as a capital expenditure and depreciation was claimed thereon for A.Y. 2012-13 and 2013-14 which was allowed.

The contention of the assessee that the claim be allowed on the ground that it has been allowed in the earlier years was rejected on the ground that in earlier years the authorities did not have the benefit of ratio laid down by jurisdictional high court in the case of Sharp Business System (supra).

The Tribunal noted that the Delhi High Court in Sharp Business System (supra) while dealing with an identical issue has come to a conclusion that non-compete fee though is an intangible asset it is unlike the items mentioned in Section 32(1)(ii) where an owner can exercise rights against the world at large and which rights can be traded or transferred. In case of non-compete fees the advantage is restricted only against the seller. Therefore, it is not a right in rem but a right in personam. The Tribunal mentioned that it is conscious of the fact that some other non-jurisdictional High Courts have held that non-compete fee is an intangible asset coming within the ambit of Section 32(1)(ii) of the Act and have allowed depreciation thereon, however, the Tribunal was bound to follow the decision of the jurisdictional High Court.

The Tribunal dismissed the appeal filed by the assessee.

FACTS I
In the course of assessment proceedings, the A.O. asked the assessee to explain certain amounts of sundry creditors. Notices u/s 133(6) were issued, but many of them were not complied with. Consequently, the A.O. made addition for the amount of sundry creditors. On further appeal by the assessee, the Commissioner (Appeals) confirmed the additions only in respect of two parties and deleted the entire balance addition. This was done considering the details filed by the assessee before him. The additions that were sustained were on account of failure of the assessee to furnish account details and relevant pay-out details.

Aggrieved, the assessee as well as Revenue preferred appeals before the ITAT.

HELD I
The Tribunal took into consideration the fact that the A.O. simply added the balance as on 31st March, 2004 without realising that the entire credit balance was out of the purchases made during the year, which were accepted as genuine and no adverse inference was drawn in respect thereof. Further, the assessee had paid all the outstanding amounts in the immediately succeeding years. Therefore, the ITAT allowed the assessee’s appeal and dismissed the Revenue’s ground of appeal. In reaching this conclusion, apart from the facts stated above, it also placed heavy reliance on the decision of the Delhi ITAT Special Bench in the case of Manoj Aggarwal vs. Dy. CIT (2008) 113 ITD 377. The principle upheld in that case was that once a certain amount was accepted as genuine, the same cannot be questioned later on. (The case was in respect of amount offered to tax under a Voluntary Disclosure of Income Scheme, which was credited in the books of accounts as per the requirement of the respective law on the scheme. It was held that once the amount is taxed under the scheme, the same could not be taxed again u/s 68.)

Therefore, by the same rationale, once purchases were accepted as genuine in the instant case, addition of credit balance which was entirely out of purchases for the year could not be made.

Section 40A(2)(b): Where the A.O. had not brought any comparable case to demonstrate that payments made by assessee to directors were excessive / unreasonable, no disallowance could be made

FACTS II
The assessee claimed certain amount expended towards directors’ remuneration. On asking for an explanation in respect of the same, the assessee furnished the details of remuneration paid to the directors and claimed that the same was as per industry norms and was not in excess of either the limits prescribed under the Act, or the industry norms for the particular class of industry. However, the A.O. was of the opinion that the assessee failed to justify the nature of services rendered by the directors so as to command such a huge remuneration. Therefore, the A.O. disallowed a part of the remuneration on the basis that it was excessive.

Before the Commissioner (Appeals), the assessee contended that the A.O. did not give any cogent reasons to justify the disallowance and that he grossly failed to show that such expenditure was excessive and / or unreasonable. Thus, the Commissioner (Appeals) deleted the disallowance made.

The Revenue filed a further appeal before the ITAT.

HELD II
The ITAT observed that the A.O. did not bring any comparable case to demonstrate that the payments made by the assessee were excessive / unreasonable, which is an onus cast upon him by the mandate of section 40A(2)(b).

A further observation was that the payees were also assessed to tax at the same rate of tax. The CBDT Circular No. 6-P dated 6th July, 1968 states that no disallowance is to be made u/s 40A(2) in respect of the payments made to the relatives and sister concerns where there is no attempt to evade tax. Considering the totality of the facts in light of the CBDT Circular (Supra), the ITAT dismissed the ground of appeal raised by the Revenue, thereby allowing the assessee’s claim of remuneration.

FACTS
The assessee company was engaged inter alia in trading in shares, futures and options. During the year under consideration, it claimed loss on account of trading in stock options. The A.O. found that SEBI had passed an ex parte interim order in the matter of illiquid stock options wherein the name of the assessee company also figured in the list of entities which had entered into non-genuine, fraudulent trades to generate fictitious profits / losses for the purpose of tax evasion / facilitating tax evasion.

However, the assessee explained before the A.O. that (i) it had acted as a bona fide trader as it had been doing in the past and complied with all procedures and requirements of the stock exchange, (ii) at the time of the relevant transactions / trades, the assessee could not have had any idea about any profit or loss in the said transactions, and (iii) the assessee was not connected with the counter-parties in the trade and there was no grievance of any of the investors or BSE. It also claimed that only 4.85% sale transactions allegedly matched with entities named by SEBI. The A.O., however, rejected this submission of the assessee and disallowed loss in trading from stock options. The Commissioner (Appeals) upheld the addition made by the A.O. on the basis that since detailed investigation was carried out by SEBI, no separate investigation was required to be done by the A.O. to disallow the bogus losses.

Aggrieved, the assessee filed an appeal before the ITAT.

HELD
The disallowance of loss made by the A.O. was deleted by the ITAT. In doing so, it observed that:

1. Trading in stock futures and options was done by the assessee regularly since past several years. The transactions were recorded in the books of accounts. The intrinsic value mentioned in the SEBI order was only one of the ways of calculating and there is no set formula / law / rule / circular which defines intrinsic value or prohibits trading below intrinsic value.
2. The A.O., in the assessment order, had observed that in screen-based electronic trading, ideally, it was not possible to choose the counter party for trade. The circuit breaker limits set by SEBI were not applicable to the Futures and Options (F&O) segment.
3. SEBI subsequently directed that there was no need to continue with the directions issued against the assessee company and others (these were the same orders relied upon by the Income-tax authorities). Thus, in principle, the interim order and subsequent orders of the SEBI which were the basis of passing the assessment order in question, were vacated by SEBI itself.
4. The assessee filed complete documentary evidence before the authorities like carrying out transactions through banking channels, fulfilling margin requirements mandated by SEBI, etc. The same were supported by contract notes. There was also no allegation made by BSE against any of the transactions carried out by the assessee company. The A.O. as well
as the Commissioner (Appeals) did not conduct any investigation on the documentary evidences filed by the assessee.
5. Loss on account of similar nature of transactions was incurred in the preceding year, which was not disallowed and hence, the A.O. ought to have followed the principle of consistency.
6. The ad interim order of SEBI was passed without hearing the objections of the assessee and when
those objections were considered, the interim order was diluted by giving permission to the assessee to deal
in the transactions. Since both the orders of SEBI relied upon by the A.O. were vacated by the SEBI, there was no material available with the authorities below so as to conclude that the assessee has entered into any dubious or other transactions deliberately to show business losses.
7. The ad interim order which was passed by SEBI ex parte would not disclose any precedent or ratio which may be binding on the Income-tax Department.

Based on the above observations, the disallowance was finally deleted.

FACTS
The assessee, an individual, had wrongly claimed certain interest expenditure under ‘income from other sources’ which was disallowed by the A.O. during assessment. At the appellate proceedings with the CIT(A), the assessee raised an additional ground that such interest be allowed under the head ‘Profits & Gains of Business / Profession’. The CIT(A) allowed the interest expenditure, but restricted the rate of interest to 12% p.a. The interest paid in excess of 12% was disallowed on the grounds that the rate of interest is higher (the assessee had paid interest ranging from 5% to 24%) than the interest received on Partnership Capital Account. The CIT(A), thus made a disallowance of interest in excess of 12% p.a.

Aggrieved, the assessee preferred an appeal with the Tribunal.

HELD
The Tribunal observed that the Department had accepted the genuineness of the loan transactions and also the same being for business purposes. Once the expenditure has been accepted to be business expenditure, the interest rate cannot be arbitrarily restricted. In order to disallow interest beyond a certain rate, it has to be shown that such interest was excessive or for extraneous consideration. Based on facts, the Tribunal noted that some of the parties to whom interest was paid at a rate of more than 12% included banks, non-banking financial institutions and some private lenders, and none of these parties was related to the assessee within the provisions of section 40A. Thus, the assessee’s appeal was allowed.

FACTS

Aggrieved, the assessee is in appeal before the Tribunal.

HELD

The Tribunal ruled in favour of the assessee, stating that such income has to be treated as income from ‘house property’ and all eligible deductions including interest on borrowed capital was to be allowed in computing such income.

The assessee’s appeal was thus allowed.

FACTS

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the A.O.

The assessee then preferred an appeal to the Tribunal where it contended that the lower authorities erred in holding that it was the owner of the road. Actually, the assessee had only been given the right to collect toll fee from vehicles entering the road which right could not be equated with ownership. On behalf of the assessee, reliance was placed on the following decisions:

(a) North Karnataka Expressway Ltd. vs. CIT [Appeal No. 499 of 2012]; (b) West Gujarat Expressway Ltd. [ITA Nos. 5904 & 6204/M/2012; order dated 15th April, 2015]; (c) Progressive Construction Ltd. [ITA No. 214/Hyd/2014; order dated 7th November, 2014]; (d) Kalyan Toll Infrastructure Ltd. vs. ACIT [ITA Nos. 201 & 247/Ind/2008; order dated 14th December, 2010]; and (e) Mokama Munger Highway Ltd. vs. ACIT [ITA Nos. 1729, 2145 & 2146/Hyd/2018; order dated
3rd July, 2019].

HELD

FACTS
In the course of assessment proceedings, the A.O. noticed that as per AIR Information and as per capital account filed by the assessee, he was in receipt of Rs. 1,12,35,326. Upon seeking an explanation, the assessee informed that on 29th March, 2010, he had granted an interest-free loan of US $2,00,000 to his cousin in Singapore. The remittance was made under the Liberalised Remittance Scheme of the RBI. The rate of exchange prevailing on that date was Rs. 45.14. On 24th May, 2012 the assessee received back the said loan of US $2,00,000. The exchange rate on the date of receiving back the loan was Rs. 56.18. Accordingly, the capital account of the assessee was credited with a sum of Rs. 1,12,35,326.

The A.O. was of the view that the difference in amount of Rs. 22,04,568 was of the nature of income. The assessee explained that the loan was given on a personal account to his cousin and was not a business transaction and there was no motive of any economic gain in the transaction. It was done in terms of the Liberalised Remittance Scheme of the RBI inasmuch as it was a permitted transaction and specifically on capital account. It was further explained that the transaction was capital in nature, therefore ‘the gain is in the nature of capital receipt and hence not offered for taxation’.

But these submissions did not impress the A.O. who held that ‘the gain on realisation of loan would partake the character of income under the head “income from other sources”’. Accordingly, he added a sum of Rs. 1,12,35,326 to the total income of the assessee as ‘income from other sources’.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the A.O. The assessee then preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the CIT(A)’s line of reasoning was no better. While he accepts that the transaction in question was in the capital field, he proceeds to hold that ‘income’ arising out of the loan transaction is required to be treated as ‘interest’ or ‘income from other sources’, but all this was a little premature because he proceeded to decide as to what is the nature of the income or under which head it is to be taxed, without dealing with the foundational plea that the scope of income does not include gains in the capital field. According to the Tribunal, if the transaction was in the capital field, as he accepts, ‘where is the question of a capital receipt being taxed as income unless there is a specific provision of bringing such a capital receipt to tax?’

The Tribunal held that where the loan is in a foreign currency and the amount received back as repayment is exactly the same, there is no question of any interest component at all.

The Tribunal allowed this ground of appeal filed by the assessee.

Amendment made to section 54B by the Finance Act, 2013 w.e.f. 1st April, 2013 making HUFs entitled for claiming benefit u/s 54B is clarificatory

FACTS
During the previous year relevant to the assessment year under consideration, the assessee HUF sold agricultural land and claimed benefit u/s 54B on subsequent purchase of another plot of land. The A.O., while assessing the total income of the assessee, denied the claim made by the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the denial of claim on the ground that for the assessment year under consideration, section 54B does not apply to HUFs.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD
The Tribunal held as under:

(i) the Hindu undivided family was entitled to the benefit of 54B even prior to the insertion of ‘the assessee being an individual or his parent, or a Hindu undivided family’ by the Finance Act, 2013;
(ii) the assessee is a person subjected to tax under the Act, and the person includes the individual as well as the Hindu undivided family. Therefore, the benefit of provisions of 54B cannot be restricted to only individual assessees;
(iii) the Revenue is duty-bound to make out a clear case of debarring the HUF from availing the benefit of section 54F / 54B and the assessee cannot be denied the benefit merely based on its interpretation. If the Revenue wanted to tax the assessee (HUF), then the statute should have provided specifically that the assessee in 54B is only restricted to a living individual and is not applicable to a Hindu undivided family;
(iv) further, the High Court had not considered that individual assessee and HUF can both be used as and when the context so desires and it will not lead to any absurdity. In case the assessee is a Hindu undivided family, the second part of section 54B, i.e., ‘of parents of his’, would not be applicable. Harmonious interpretation is required to be invoked so that the word used in the provisions would not become redundant or otiose;
(v) in case of doubt or confusion, the benefit in respect of taxability or exemption should be given to the assessee rather than to Revenue;
(vi) the Co-ordinate Bench in the matter of Sandeep Bhargava (‘HUF’) [(2020) 117 taxmann.com 677 (Chandigarh-Trib)] has held that an HUF is entitled to claim benefit of section 54B;
(vii) on the facts of the present case, the Tribunal found that the assessee, within two years of the sale of agricultural land, had invested the amount and purchased land in accordance with the requirement of section 54B and was entitled to the benefit of 54B;
(viii) the assessee HUF is entitled to the benefit of section 54B for the assessment year under consideration as the word assessee used in 54B had always included HUF, and further, the amendment brought on by the Finance Act, 2013 in section 54 by inserting ‘the assessee being an individual or his parent, or a Hindu undivided family’ was classificatory in nature and was introduced by the Ministry with a view to extend the benefit to the Hindu undivided family;
(ix) the Hindu undivided family (HUF) has been recognised as a separate tax entity; therefore, before and after the amendment, if the agricultural land which was being used by the HUF for two years prior to the transfer has been transferred by it and it purchases any other agricultural land within two years of such transfer, then it shall be entitled to the benefit of section 54B/54F.

FACTS
The assessee, a private limited company engaged in the business of manufacturing and trading of polycarbonate sheets, articles and high impact polystyrene articles, commenced business operations in the previous year relevant to the assessment year under consideration. For the A.Y. 2011-12, it filed its return of income declaring therein a loss of Rs. 17,39,073.

During the year under consideration, the assesse had issued 7,00,000 equity shares of Rs. 10 each at a premium of Rs. 115.361351 per share. Of the 7,00,000 equity shares issued, 3,57,000 were issued to a foreign company Bayer Material Science for a monetary consideration; 3,08,000 shares were issued to Malibu Plastica Private Limited (‘MPPL’) and 35,000 to Malibu Tech Private Limited (‘MTPL’) for non-monetary consideration, i.e., for purchase of polycarbonate extrusion and thermo-forming sheet material from the said Indian companies.

While assessing the total income of the assessee, the A.O. treated share premium of Rs. 8,07,52,945 (7,00,000 x 115.361351) as taxable u/s 56 on the ground that the assessee sought to justify the issue price of the shares by adopting the DCF method without furnishing business plans and projections to justify the premium; the year of issue of shares was the first year of business of the assessee; and the assessee has utilised the share premium for purposes other than those specified u/s 78 of the Companies Act, 1956; hence, the receipt of share premium partakes the character of revenue receipt taxable as income.

Aggrieved, the assessee preferred an appeal to the CIT(A), who upheld the action of the A.O. The assessee then preferred an appeal to the Tribunal.

HELD
The Tribunal noted that the addition had been made by the A.O. u/s 56(1) and hence what is to be adjudicated is limited and confined to the fact as to whether receipt of share premium per se could be treated as revenue receipt so as to make it taxable u/s 56(1).

It held that receipt of share premium per se cannot be treated as income or revenue receipt. In order to make a particular receipt taxable within the ambit of section 56(1), the receipt should be in the nature of income as defined in section 2(24). Share premium received by the company admittedly forms part of share capital and shareholders’ funds of the assessee company. When receipt of share capital partakes the character of a capital receipt, the receipt of share premium also partakes the character of capital receipt only. Hence, at the threshold itself, the receipt in the form of share premium cannot be brought to tax as revenue receipt and consequently be treated as income u/s 56(1).

The Tribunal noted that the Co-ordinate Bench of the Tribunal in the case of Credit Suisse Business Analysis (India) (P) Ltd. vs. ACIT [72 taxmann.com 131 (Mum-Trib)] has addressed the very same issue and decided in favour of the assessee. This order was the subject matter of challenge by the Revenue before the High Court and the question of law was not admitted by the High Court on the addition made u/s 56(1). A similar view has been taken by the Tribunal in the case of Green Infra Ltd. vs. ITO [38 taxmann.com 253].

The Tribunal dismissed in limine the observation made by the A.O. in his order that receipt of premium was akin to a gift and hence taxable u/s 56(1). It held that receipt of share capital and share premium is normal in case of a limited company and the same by no stretch of imagination can be equated with a gift. Moreover, a gift can be received only by individuals or HUFs and not by a company.

The Tribunal held that the case of Cornerstone Property Investment Pvt. Ltd. vs. ITO [ITA No. 665/Bang/2017 dated 9th February, 2018], on which reliance was placed by the Revenue, is distinguishable on facts as in that case addition had been made u/s 68 by doubting the genuineness of the parties from whom share premium had been received.

The ground of appeal filed by the assessee was allowed.

FACTS

Aggrieved, the assessee preferred an appeal to the CIT(A). The CIT(A) was of the view that the assessee is following the mercantile system of accounting. Once interest has accrued to the assessee, it becomes chargeable to tax, notwithstanding its non-receipt. He upheld the action of the A.O.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal held that the concept of ‘accrual of income’ needs to be considered in the light of the ‘real income theory’. Where accrual of income takes place but its realisation becomes impossible, such hypothetical income cannot be charged to tax. In the case of the mercantile system of accounting, an accruing income can be charged to tax only when it is likely to be received under the given circumstances. In a case where receipt of income, after its accrual, is marred with complete uncertainty as to its realisation, such an accrual gets deferred to the point of clearing of the clouds of uncertainty over it.

On consideration of the mercantile system of accounting in juxtaposition with the ‘real income theory’, the Tribunal held that the inescapable conclusion which follows is that the interest income of Rs. 26,125 cannot be included in the total income of the assessee for the year under consideration. Such income may be appropriately charged to tax on the regularisation of the operations of the bank, coupled with the possibility of receipt of income in the foreseeable future. For the year under consideration, the interest cannot be charged to tax.