2023 (2) TMI 417 - AT - Income Tax

Income from other sources taxable u/s 56(2)(viib) - Issue of shares at a premium - Addition on account of share premium valuation - HELD THAT - CIT(A) after considering the submissions made by assessee has given a finding that the investor is a Venture Capital Fund (VCF) and assessee is a Venture Capital Undertaking. The aforesaid finding of CIT(A) has not been demonstrated by Revenue to incorrect or not in accordance with the provisions of the Act. Assessee has also demonstrated that the business of the assessee does not fall under the negative business list as specified by the Central Government. Revenue has not pointed to any fallacy in the findings of CIT(A) nor has demonstrated that the assessee s case does not fall under proviso to Section 56(2)(viib) of the Act. No reason to interfere with the order of CIT(A) on this issue and thus the ground of Revenue is dismissed. Addition being expense for valuation certification u/s 37(1) - Professional fee paid for share valuation certificate - CIT-A deleted the addition - submission of the assessee that the payment is towards the professional fee, which include monthly retainership fees for the professional services - HELD THAT - It is an undisputed fact that the aggregate amount has been paid to Vineet K. Gupta Co. Chartered Accountant. We find that CIT(A) after considering the submissions made by assessee has given a finding that the expenses claimed by the assessee have been incurred during the regular course of business and cannot be treated as capital expenses. Before us, Revenue has not pointed to any fallacy in the findings of CIT(A).No reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 21,57,85,188/- on account of share premium valuation.
2. Deletion of addition of Rs. 1,36,000/- being expense for valuation certification under Section 37(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 21,57,85,188/- on Account of Share Premium Valuation:

The Revenue appealed against the deletion of the addition of Rs. 21,57,85,188/- made by the Assessing Officer (AO) on account of share premium valuation. The AO had noted that the assessee issued shares at a premium significantly higher than the face value and questioned the justification for the premium. The assessee contended that the shares were issued to a Venture Capital Fund (VCF), M/s. Forum Synergies India Trust, and provided necessary documentation, including a valuation report using the Discounted Cash Flow Method (DCFM). The AO rejected the valuation report, deeming the assumptions unrealistic, and recalculated the fair market value using Rule 11UA, resulting in the addition.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, stating that the assessee was a Venture Capital Undertaking and the investor was a SEBI-registered VCF, thus falling under the proviso of Section 56(2)(viib) of the Act, which exempts such transactions from being taxed as income from other sources. The CIT(A) referred to the relevant documents and provisions, concluding that no addition under Section 56(2)(viib) could be made.

The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not demonstrate any error in the CIT(A)'s findings or show that the assessee's case did not fall under the proviso to Section 56(2)(viib). The Tribunal found no reason to interfere with the CIT(A)'s order, thus dismissing the Revenue's ground on this issue.

2. Deletion of Addition of Rs. 1,36,000/- under Section 37(1) of the Act:

The Revenue also appealed against the deletion of the addition of Rs. 1,36,000/- made by the AO under Section 37(1) of the Act. The AO disallowed the expense, considering it capital in nature, while the assessee argued it was a professional fee for regular business services, including monthly retainership.

The CIT(A) accepted the assessee's contention, stating that the expense was incurred during the regular course of business and could not be treated as a capital expense. The Tribunal agreed with the CIT(A), noting that the Revenue did not point out any error in the CIT(A)'s findings. Consequently, the Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the Revenue's ground on this issue.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the additions on both grounds. The Tribunal found that the assessee's transactions were justifiably exempt under the proviso to Section 56(2)(viib) and that the professional fee expense was rightly considered a regular business expense under Section 37(1).