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TMI Blog2022 (3) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted declaration in Form No.2 that it fulfilled conditions mentioned in para 4 of the above referred notification. In the facts of the said case, the assessee thereafter, had filed Form No.2 in pursuance of para 5 of Notification dated 19.02.2019 on 23rd August, 2019. In the facts of the present case, we notice that the assessment order is dated 28.03.2016 and hence the assessee possibly may well argue that the said case is applicable, however, we find that in the facts of the said case, the Department had the benefit of the relevant documents whereas in the facts of the present case, the concerned authorities did not have the benefit of the factual claim supported by fresh evidences and hence have not taken into consideration either the legal position nor the factual position as is being now canvassed. Accordingly, we have deemed it appropriate to set aside this issue for fresh consideration on the basis of fresh evidences admitted and legal position thereon - Appeal of the assessee is allowed for statistical purposes. - ITA No. 901/CHD/2019 (Assessment Year : 2013-14) - - - Dated:- 4-1-2022 - SMT. DIVA SINGH, JM AND SMT.ANNAPURNA GUPTA Assessee by: Shri Tej Moha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Startup issued by the Department of Industrial Policy and Promotion dated 27.03.2019 it was his prayer that this may be admitted as additional evidence. Inviting further attention to the Gazette Notification of Ministry of Commerce and Industry dated 19.02.2019 it was submitted that its genuineness cannot be questioned and it also needs to be admitted as fresh evidence as it is on the basis of this document that exemption to be considered in terms of Clause (viib)of sub-section (2) of Section 56 of the Act. It was also his prayer that the letter dated 04.04.2019 intimating that the assessee has been so considered by CBDT Vide F. No.173/147/2019-ITA-I may also be admitted as fresh evidence. 3. In the background of these relevant documents, it was submitted that considering the facts and the issue involved in the present appeal, infact at this Forum itself a finding can be arrived at as no addition on facts could have been made. At the First Appellate stage, it was submitted that there has been a mis-appreciation of facts and since these documents were obtained only after the receipt of the impugned order while preparing the file and the appeal set that these lapses were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the submissions, the CIT(A) summed up the factual position requiring to be addressed as under : 1) Copy of the return and financial statement for the AY 2013-14 2) The pleas taken by you is that it is a venture capital undertaking with a startup capital of 1.14 crores (in the shape of Preference Shares and Equity Shares). Please provide necessary evidence i.e. D.I.P.P. registration certificate, if any to bolster your claims. 3) In the course of appeal proceedings another plea taken up is that one of the investors is a venture capital undertaking as per DIPP guideline. Evidence in this regard may also be submitted. 4) During the appellate proceedings it is noticed that your company has received an investment of ₹ 23,49,478/- from a Venture Capital Fund namely Multi Sector Seed Capital Fund. Evidence in this regard may be submitted. 5) One of the alternative pleas taken is that the difference between (i) the premium of ₹ 3860.64 at which shares were issued and (ii) valuation of ₹ 2600 should be taxed. You may please explain why this may not be assumed as a concession of taxability of the difference equally applicable to the investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reproduced as under: 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 face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received. (i) By a venture capital undertaking from a venture capital company or a venture capital fund (ii) By a company from a class or classes of persons as may be notified by the Central Government in this behalf 6. The India Venture Partnership Limited is a non-resident concern in respect of which the aforesaid section is not applicable. 5.3. The CIT(A) considering the submissions did not agree with them and instead came to the following conclusion : 7.4 I have considered the submission of the Counsel and perused the order of the Assessing Officer. Briefly the findings of the AO are that the case involves issuance of shares at a premium. The AO thereafter on negating the report of the statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (in) In this case, one of the fund, who had invested at the same share price, was SEBI registered Venture Capital fund and If the price is commercially agreed upon and is considered right w.r.t. the Venture Capital fund the same cannot be considered as not genuine for other resident Investors. 7.4.2 The case pertains to a company which has seen substantial investments from the directors, a fund that is claimed to qualify as a venture capital fund and a Mauritius based company. From records available on the public domain apart from submissions made during the course of hearings the character of the company has been severally projected/claimed as a market research agency, a venture capital undertaking and subsequently as a startup. The assessee has not buttressed how its activities get covered by the definition u/s 10(23FB) of a venture capital -undertaking . Details of 'charges registered' from ROC reveal that the company was a small branch for innovation and Start-Up Ginance. The second aspect clearly partakes the character of a non-banking financing which is specifically precluded from the definition of a venture capital undertaking u/s 10{23FB) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reover, there is no reason to intervene with AO's finding out the question of premium. This has to be seen further in light of the financial statements for the year revealing that the earning per share was Rs. (-)55. Clearly the financial statements depict a state of affairs where the earning per share was in the negative and therefore clearly it was a case where outlandish premiums were involved. On that basis the claims, that if the price of shares was considered as right in the case of investment by a venture capital fund the same should be held genuine in the case of resident investors, also fall. 5.4. On a reading of the above, it is seen that the relevant documents on which the assessee seeks a reliance for a favourable view have not been considered by the tax authorities. It is seen that the documents whose relevance to the issue and genuineness cannot be under suspicion, however, the fact remains that these were not brought to the notice of the tax authorities. The application dated 24.03.2021 prays for admission of the following evidences : Sr.No. Description 1. Copy of the Gazet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee before the CIT(A) were a reiteration of the arguments as advanced before the AO namely, that the assessee was a Startup and the provisions of Section 56(2)(b) were not applicable. In the facts of the present case, the claim of being a Startup let alone availability of supporting evidence was not made. For ready reference, facts as summed up by the Co-ordinate Bench are extracted hereunder for completeness: 7. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee reiterated its arguments taken before the Assessing Officer and claimed that it is a start up company and hence, provisions of section 56(2(viib) of the Act ITA No.1562/Chny/2019 C.O. No.83/Chny/2019 does not apply, where consideration for issue of shares is received from class of persons notified by Central Government, subject to such other conditions as may be specified. The assessee further submitted that it has obtained a certificate of recognition as a startup company from DIPP and as per Gazette Notification dated 19.02.2019, startup companies are outside the scope of section 56(2)(viib) of the Act. (empha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified the persons to be the persons defined u/s.2(31), being a resident, who is making an investment at premium in case of a start-up company. 4. This company is one in which the public are not substantially interested and fulfills the conditions specified in ITA No.1562/Chny/2019 C.O. No.83/Chny/2019 the Gazette notification number GSR 180(E) dated 17.02.2016. 5. Gazette notification GSR 127(E) dated 19.02.2019 clearly exempts start up from the ambit of section 56(2)(viib) of the Income Tax in section 4 of the said notification. Section 4 is reproduced below: 4. A Startup shall be eligible for notification under clause (ii) of the proviso to clause (viib) of sub-section (2) of section 56 of the Act and consequent exemption from the provisions of that clause if it fulfils the following conditions: (i) It has been recognized by DPHT under para 2(iii)(a) or as per any earlier notification on the subject (ii) aggregate amount of paid up share capital and share premium of the startup after issue or proposed issue of share, if any, does not exceed, twenty five crore rupees . 5.1. The AO has at no point of time questioned and doubted that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a moment, the assessee is covered by Gazette Notification GSR No. 127(E) dated 19.02.2019, but fact remains that whether it has satisfied conditions prescribed in para 4 of said Notification or not has to be seen. Since the assessee has not bought out evidence before the Assessing Officer at the time of assessment proceedings, matter may be set aside to the file of the Assessing Officer to verify facts with reference to CBDT ITA No.1562/Chny/2019 C.O. No.83/Chny/2019 circular No. 45/2016/F.No.173/103/2016 and Gazette Notification GSR No. 127(E) dated 19.02.2019. 6.4. The assessee on the other hand relied upon the CBDT Notification dated 09.08.2019 which has clarified the applicability of para 6 of the Gazette Notification which has taken into consideration the hardships faced by the Startup companies involving application of Section 56(2)(b) and has clarified that the said Notification will be applicable to those Startup companies also where addition u/s 56(viib) of the Act has been made in assessment order under the Income Tax Act before 19.02.2019 provided the assessee has specifically submitted declaration in Form No.2 that it fulfilled conditions mentioned in para 4 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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