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TMI Blog2018 (10) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of companies in which Public are not substantially interested. When the addition itself is not permissible what point will be served by the assessing officer’s enquiries in this regard is beyond comprehension. A.O. has dealt with the issue. He has been provided with the valuation report. In these circumstances further enquiry as directed by the learned CIT will not only be a futile exercise, it would serve no purpose whatsoever. We also note that the proviso to section 68 in this regard is also not applicable to company in which public are substantially interested. This proviso mandates that the companies to whom inter alia shares at premium are issued should also satisfy the A.O. - Directions of the ld. CIT(A) can neither remove any error from the A.O.’s order nor cure any prejudice or loss to revenue. - Decided in favour of assessee. - I.T.A. No.3505/Mum/2018 - - - Dated:- 22-10-2018 - Shri Shamim Yahya, AM And Shri Ram Lal Negi, JM For the Appellant : Shri Kirit Kamdar/Shri Gajendra Jain Shri Parth Achwal For the Respondent : Shri Abhakala Chanda ORDER PER SHAMIM YAHYA, A. M.: This appeal by the assessee is directed against the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh valuation seemed to camouflage unpalatable device to introduce monies. That shares at premium has also been issued to companies who claimed to be non-resident but their status has not been established before the assessing officer. Further, the ld. CIT referred to the provisions of section 56(2)(viib). Accordingly, notice under section 263 was issued with assessee as under: 'From the case records, it is evident that M/s Mukand Limited and M/s Sumitomo Corporation. Japan, have formed a joint venture for the manufacture of bright bars and wires in India Mukund Ltd and Sumitomo. Japan will carry out the business through the assessee company i.e M/s Mukand Sumi Metal Processing Ltd a joint venture company. As per the joint venture agreement dated 29/10/2012. various conditions were laid down for the start of business which included transfer of land at Lonad The assessee company has not carried out any business activity during the year under consideration which has been elaborately discussed and proven by the AO in para 5 of his assessment order u/s 143(3) dated 31/3/2016 while disallowing the claim of depreciation made by the assessee. 2.1. During the year under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 face value of such shares, the aggregate consideration received for such shores exceeds the fair market value of the shares : Provided that this clause shall not apply where the consideration for issue of shares is received - a) By a venture capital undertaking from a venture capital company or a venture capital fund or b) By a company from a class or classes of persons as may be notified by the Central Government on this behalf Explanation - For the purposes of this clause - a) The fair market value of the shares shall be the value - I) As may be determined in accordance with such method as may be prescribed or ii) as may be substantiated by the company to the satisfaction of the Assessing Officer based on me value, on the date of issue of shares, of its assets, including intangible assets being good will, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature whichever is higher. 3 1, From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny in which the public are substantially interested. 3.5 The term ''company in which the public are substantially interested is defined in section 2(18) of the Act. The said definition includes a company in which shares carrying not less than 50% of the voting power due held by a listed company. 3.6 It may be noted that Mukand Limited (a listed company) holds more than 50% of voting power in Mukand Surni. In this regard, attention is invited to Note 1 of the Notes to Account forming part of the Annual Report for FY 2012-13 (please refer Pacje No. 56) which evidences the fact that Mukand Siitiri is a subsidiary of Mukand Limited, which is a listed, company. 3. 7 Accordingly, Mukand Surni qualifies as a company in which the public are substantially interested'' as per The provisions of section 2(18} of the Apt, and hence the provisions of section 56(2)(uiib) are not applicable. 4 Other observations made in the notice issued under section 263: 4.1 Further to the above submissions, Mukund Surni objects to certain observations made in the notice dated 5 February 2018 issued under section 263, which are discussed below: Para No. in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of the business of bright bars and wires which was transferred from Mukand Limited to Mukand Sumi, The said business has been carried out by Mukand Limited since 1990 and commands a good value in the market. The valuation of shares of Mukand Sumi is primarily on account of the said business of bright bars and wires which is now held by Mukand Sumi. 2.3 Such shares at premium have also been issued to Sumitomv Corporation. Japan arid Sumitorn.o Corporation Asia Pie. Ltd., Singapore stating these two companies to be non-resident whereas the status lias not been established before the AO nor was it enquired into by the AO. It is very clear from the Annual Report, of Mukand Sumi that the said companies of the Sumitomo group are companies registered in Japan and Singapore respectively. These companies are dearly non-residents in India for tax purposes, In this regard, dining the course of the assessment proceedings, Mukancl Sumi had also submitted copies of FC-GPR filed for issue of shares to foreign investors, which clearly s}iow that the said investors are registered in Japan and Singapore respectively. (Copies of FCGPR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making necessary enquiries or verification, which should have been done. 6. In view of the discussion above, the assessment order for A.Y. 2013-14 u/s. 143(3) dated 31.03.2016 is erroneous in so far it is prejudicial to the interest of revenue, and is required to be set aside u/s 263 of the I T Act for necessary enquiry and verification of the details and passing of an order on the issues afresh. Accordingly, I. Principal Commissioner of Income Tax - 3. Mumbai. in exercise of powers conferred upon me u/s 263 of the I. T. Act, 1961, hereby set aside the order dated 31/03/2016 for A Y 2013-14 u/s 143(3) of the Income Tax Act 1961 to that extent and direct The AO to enquire, verify, analyse and evaluate and work out the valuation after giving sufficient opportunities to the assessee company to represent its case and pass the order accordingly. 6. Against the above order, the assessee is in appeal before us. 7. We have heard both the counsel and perused the records. We find that as evident from the detailed submission hereinabove, the provisions of section 56(2)(viib) invoked in the notice u/s. 263 by the ld. CIT is not applicable to the assessee company. As the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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