2022 (6) TMI 828 - AT - Income Tax

Stay on collection/recovery of the tax and interest demands - assessee had filed a petition, seeking blanket stay on demand during the pendency of the first appeal, before the learned Principal Commissioner of Income Tax-V, Mumbai - taxability of share premium under section 56(2)(viib) of the Act, and later as also under section 68 - HELD THAT - As it is not a fit case for the grant of blanket stay- as prayed by the assessee. In any event, the matter has come up for consideration before Hon ble jurisdictional High Court, and Their Lordships have declined a similar prayer of the assesee, during the pendency of the first appeal, on merits. There is no material change in facts and circumstances of the case as before Their Lordships as before us now. The two companies investing in the assessee before us are Mauritian companies and seem to be special purpose vehicles, and, at the stage of the hearing of stay petition and based on the material before us, it is not possible for us to, even prima facie, take a call on their bonafides and genuineness. On the face of it, the computation of share premium is devoid of any basis inasmuch as once the person computing the net present value of the discounted cash flow, which anyway varies significantly in the different certificates issued by the same firm, is unable to form a well-considered opinion on the correctness of projected future cash flows, the entire valuation exercise is degraded to a mechanical calculation. That does not, in the absence of any additional material So far as foreign investors are concerned, based on the material before us at the stage of hearing of this stay petitions, prima facie the genuineness, a necessary ingredient of tests envisaged under section 68, is far from established. Additionally, so far as domestic investors are concerned, as of the stage of the hearing of this stay petition, there is no material whatsoever to show the reasonableness of the share premium received vis- -vis the fair market value of shares. The taxability under section 56(2)(vii) is thus far from even seriously challenged. While the assessee has the liberty to make detailed arguments, and also to bring to our notice any material demolishing these prima facie observations, as and when the occasion to do so arises, as the things are before us at present, we do not think it is a fit case for even the grant of stay- leave aside the grant of a blanket stay, as is prayed for by the assessee. We decline to interfere in the matter.

Summary

Issues:
1. Stay on collection/recovery of tax and interest demands under section 143(3) of the Income Tax Act, 1961 for the assessment year 2018-19.
2. Taxability of share premium under sections 56(2)(viib) and 68 of the Act.
3. Assessment of the company's losses and share issuance at a premium.
4. Rejection of the stay petition by the Principal Commissioner and the High Court.

Issue 1: Stay on Tax and Interest Demands
The assessee sought a stay on tax and interest demands amounting to Rs 123,18,75,369 for the assessment year 2018-19. The assessee had not paid any part of the demands and did not intend to pay. The Principal Commissioner had earlier rejected a blanket stay petition during the pendency of the first appeal, which was confirmed by the High Court. The assessee approached the Appellate Tribunal seeking a stay, emphasizing their inability to pay any outstanding dues.

Issue 2: Taxability of Share Premium
The Assessing Officer questioned the taxability of share premium under sections 56(2)(viib) and 68 of the Act. The valuation of shares issued at a high premium was scrutinized, with discrepancies noted in the valuation methods used. The Assessing Officer considered the share issuance as unrealistic and unexplained, leading to the assessment of a higher amount than the returned loss. The genuineness of foreign and domestic investors and the reasonableness of the share premium received were questioned.

Issue 3: Assessment of Company's Losses and Share Issuance
The company, engaged in manufacturing non-alcoholic beverages, incurred increasing losses over the years. The share issuance at a premium to Mauritius-based entities, a resident director, and an Indian actress was examined. The Assessing Officer suspected the premium as unrealistic and recommended action under anti-tax avoidance laws. The assessment was framed at a higher amount than the returned loss, leading to an appeal by the assessee.

Issue 4: Rejection of Stay Petition
The Appellate Tribunal declined to grant a blanket stay on tax and interest demands, citing the previous rejection by the Principal Commissioner and the High Court. The Tribunal found no material change in circumstances to warrant a different decision. Prima facie observations highlighted the lack of basis in the share premium valuation and the unestablished genuineness of foreign and domestic investors. The Tribunal dismissed the stay petition, emphasizing that the observations were preliminary and should not influence the final decision on merits.

In conclusion, the Appellate Tribunal dismissed the stay petition, refusing to grant a blanket stay on tax and interest demands. The Tribunal highlighted the lack of basis in the share premium valuation and the unestablished genuineness of investors. The decision was based on limited arguments and material available at the stay petition stage, with a reminder that these observations should not impact the final decision on merits.