Income Tax Appellate Tribunal - Delhi
Ambarnuj Finance & Investments Pvt ... vs Dcit, Central Circle-26, Delhi on 9 April, 2025
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A", NEW DELHI
BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER,
AND
SHRI SUDHIR PAREEK, JUDICIAL MEMBER
ITA NO. 4127/Del/2024
A.YR. : 2018-19
Ambarnuj Finance & Investments Pvt. VS. DCIT, Central Circle-26,
Ltd, New Delhi
Shop 243, North Ex Mall, Sector-9,
Rohini, Delhi - 85
(PAN: AAACA5799F)
(APPELLANT) (RESPONDENT)
Appellant by : Ms. Shilpi Jain, CA
Respondent by : Sh. Javed Akhtar, CIT(DR)
Date of hearing : 01.04.2025
Date of pronouncement : 09.04.2025
ORDER
PER SHAMIM YAHYA, AM :
The assessee filed the present appeal against the order of the Ld. CIT(Appeals)-29, New Delhi dated 14.8.2024 pertaining to assessment year 2018-19 on the following grounds:-
1. On the facts and circumstances of the case, the order passed by the learned CIT (A) is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, Ld. CIT(A) has erred both on facts and in law in confirming the addition of Rs. 1,48,267 treating it as income from other sources as per provisions of section 56(2)(viib) of the IT Act, 1961.
3. On the facts and circumstances of the case and in view of CBDT notification 81/2023 dated 25.09.2023 introducing safe harbor of 10% by curative amendment in Rule 11UA of the Income tax Rules 1962, the Ld. CIT(A) has erred in confirming the addition as the difference between fair value adopted by the AO and issue price is only 0.88% i.e. less than 10%.
4. On the facts and circumstances of the case, the learned CIT(A) has erred in both on facts and in law in upholding the assessment which was made without giving adequate opportunity to the assessee company i.e without issuing Show Cause Notice to the assessee company.
5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition which has been made by indulging in gross conjecture and surmises without bringing any adverse material on record.
6. The appellant craves leave to add, amend or alter any of the grounds of appeal.
2. The brief facts of the case are, that, return declaring total loss of Rs.75,73,058/ - was filed by the assessee on 18.08.2018. As noted by the AO, the case of Assessee was selected for limited scrutiny under CASS. Subsequently, assessment was completed vide order dated 20.04.2021 after making additions at Rs. 2,66,665/-. During the assessment proceedings, it was noted by the AO that appellant had received the share capital alongwith premium from the related parties. It was seen that 6,17,777 shares were sold to the related parties at Rs. 27 per share i.e. face value of Rs. 10/- and premium of Rs. 17/- per share. A valuation certificate under Rule 11UA of the I.T. Act, 1961 was also submitted by the appellant wherein the value of each share of the appellant company was evaluated at Rs. 26.76 per share. Accordingly, the difference (being Rs. 27- Rs. 26.76) for 6,17,777 shares at Rs. 1,48,267/- was added back by AO as excess consideration as per the provisions of section 56(2)(viib) of the Act.
3. Upon assessee's appeal Ld. CIT(A) noted the following submissions of the assessee:
"During the course of appellate proceedings, it was contested by the appellant that the share premium has been computed in accordance with valuation under Rule 11 UA. It was also contested that the variation from the valuation report is within the range of 10%. In this regard, reliance was also placed on the CBDT notification 81/2023 dated 25.9.2023."
3.1 However, Ld. CIT(A) was not convinced with the aforesaid submissions of the assessee, hence, he confirmed the AO's order by observing as under:-
"I have perused the facts of the case and the submissions on record. It is seen that there was a clear difference between the issue price of the share and the price valued under Rule 11UA. Under these circumstances, AO under statutory obligation to invoke the provisions of section 56(2)(viib), more so, in the present case as the parties to whom the shares was issued were related parties of the appellant company. The addition therefore appears to be highly reasonable and in accordance with the provisions of the law. The notification under reference by the appellant in the above para was effective from
2|Page 25.09.2023 and does not pertain to the year under reference. Therefore, the addition made by AO is confirmed and these grounds of appeal are dismissed."
4. Against the above order, assessee is in appeal before us.
5. We have heard both the parties and perused the records. Ld. Counsel for the assesee submitted that the issue in dispute is squarely covered by the CBDT Notification dated 25.9.2023 and in support of her contention, she submitted the following submissions :
"CBDT has issued a notification dated 25.09.2023 which is a safe harbor to mitigate the hardship faced from unintended consequences of Section 56(2)(viib) which is :
Sub rule : 4 (4) For the purposes of clause (A) or clause (b) of sub-rule (2), where the issue price of the shares exceeds the value of shares as determined in accordance with -
(i) sub-clause (a) or sub-clause (b) of clause (A), for consideration received from a resident, by an amount not exceeding ten per cent of the valuation price, the issue price shall be deemed to be the fair market value of such shares;
(ii) sub-clause (a) or sub-clause (b) or sub-clause (d) of clause (A), for consideration received from a non-resident, by an amount not exceeding ten per cent of the valuation price, the issue price shall be deemed to be the fair market value of such shares.
Therefore, as per the notification, the difference is (0.88%) which is less than 10% in the present case.
Now, with regard to applicability of this notification, the assessee company is placing the reliance on judgment of Sakshi fincap Pvt. Ltd. vs. ITO dated 16.4.2024 passed by the ITAT, Delhi wherein, it was held in para 15 that amendment by the CBDT is curative and will apply retrospectively."
5.1 Per contra, Ld. DR relied upon the order of the AO.
6. We have carefully considered the submissions and perused the records. We find that assessee's plea is that CBDT's notification dated 25.9.2023 duly supports the case of the assessee and also the ITAT, Delhi decision in the case of Sakshi Fincap (Supra) expounds the
3|Page same proposition. For this purpose, we can gainfully refer the decision of the Tribunal in the case of Sakshi Fincap (Supra) as under:-
"12. We find that the CBDT after having detailed cons ultation with various stakeholders, in order t o mitiga te the hardship faced fro m the un-intended consequences of Section 56(2 )(viib ) read wit h rule 11UA, via notification 81 /2023 da ted 25.0 8.2 023 has introduced a safe harbor of 10 % variation in value. Relevant extract of the notific ation are as follows:
"(4) For t he purposes of clause (A) or clause (B) of sub-r ule (2 ), where the issue price of the shares exceeds the va lue of shares as determined in accordance with -
(i) sub-clause (a) or sub-clause (b ) of clause (A), for consideration received from a resident, by an amount not exceeding ten per cent, of the valuation price, the issue price shall be deemed to be the fair market value of such s hares;
(ii) sub -clause (a) or sub-clause (b) or sub -clause (d) of clause (A ), for consideration received I from a non- resident, by an amo unt not exceeding ten per cent, of the valua tion price, the issue price shall be deemed to be the fai r ma rket value of such shares."
13. From perusal of ab ove notification, it is evident that where the difference between the issue price a nd value adopted by the AO is 10 % or less, i n such cases issue price will be deemed to be the fair value of sh ares for the purpose of Rule 11UA of the Income Tax Rules, 1962. In the present case the issue price is Rs.1 5 per share and the value adopted by the AO is Rs.14 .68/per share, hence the difference between the issue pr ice and value adopted by AO is Rs .0.32 i.e. 2.2 1% (0.32/15 ) which is less the
4|Page then the safe harbor of 10% variation in value introduced by CBDT notification 81/2023 dated 25.08.2 023.
14. Hence, in view of above mentioned submission and curative amendment introduced by CBDT notification 81/2023 dated 25 .08.2023, addition of Rs.50,77,334/- u/ s 56(2)(viib ) read with R ule 11UA is unsustai nable.
15. With regard to the applicability of the amend ment introduced by CBDT noti fication 81/2 023 dated 25.0 8.2 023 which is a curative amend ment and the same will be a pplicable retrospectively, we find that the Hon 'ble Apex Court in the case of Allied Motors Pri vate Limited Vs. C IT, 1997 (3 ) TMI 9 - (SC ) Dated March 10, 1997, has observed that where a proviso which is inserted to remedy unintended consequences and to make the provisio n workable, a proviso which supplies an obvi ous omission in the section and is required to be read into the section to give the section a reasonable interpretation, requi res to be treated as retrospective in operati on, so th at a reasonable interpretation can be given to t he section as a whole, relevant findin g of the apex c ourt are as under:
"A proviso which is inserted to remedy unintended con sequences and to make the " provision workable, a proviso which supplies an obvious omission in the section an d is required to be read into the sectio n to g ive the section a reasonable interpret ation, requires to be treated as retro spective in operatio n, so that a reasonable interpretation can be given to the section as a whole.
Thi s view has been accepted by a numbe r of High C ourts. In the case of CIT vs. Chandul al Venichand [1994] 209 ITR 7, the Gujarat Hi gh Court has held that the first proviso to section 43B is retrospective and sales tax for the las t quarter paid before the filing of the return for the assessment year is deductible. This
5|Page decision deals with assessment year 1984-85. The Calcutta High Court in the case of CIT vs. Sri Jagannath S teel Corpo ration [1991] 191 ITR 676, has taken a s imilar view holding that the statutory lia bility for sales tax actually discharged after the expiry of the accounting year in compliance with t he relevant statute i s entit led to deduction under section 43B. The High Court ha s held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court i n the a bove case held the amendment to be curative and explanat ory and hence retrospective. The Patna High Court has als o held the amendment i nserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Un ion of India [1991] 189 ITR 70. It has held the amendment inserting fi rst proviso to be retros pective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first provis o to section 43B will be available only prospectively does not appear to be correct. As observed by G. P. Singh in his Principles of St atutory Interp retation, 4th Edn., page 291, " It is well settled that if a statute is curative or merely declar atory of the previous law, retrospective o peration is generally intended." In fact the amendment would not serve its object in such a situatio n, unl ess it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained."
16. Further, reliance in this regards is placed upon t he ITA T Mumbai jud gment in the case of Shaista Irphan Mogul Vs. ACIT, CC-5 (3) , Mumbai, 20 21 (8) TMI 270 - ITAT Mumbai, Dated July 1, 2021:
"9. Upon careful consideration we note th at the difference between value declar ed and value as per stamp value autho rity is less than 10%. This is within the toler ance li mit specified in section 50C. The authorities belo w have rejected it on the
6|Page premise that the t olerance limit w as int roduced by the Finance Act, 2018; hence it is n ot applicabl e for the year un der consideration .
We n ote the plea that the a mendment was i ntended to cure a hardship and hence retrospective has been duly accepted in the ITAT decisio n referred i n the assessee's s ub mission above. Moreover, the speech of Hon'ble F inance Minister while introducing the provisions duly support this premise. Moreover, in such situation curative provision to remove hardship sh ould be retrospective is duly suppor ted by Hon'ble Supreme Court decision in the case of Allied Moters (P) Ltd. (91 Taxman 2 05 ) by the following exposition.
"A proviso which is inserted to remedy unintended consequences and to make the proviso workable, a pr oviso which supplies an obvious omission in the section and is require to be read into the section to give the section a reasonable interpretation, requi res to be treated as retrospective in oper ation so t hat a reasonable interpretation can be given to the section as a whole."
Und oubtedly this amend ment was don e to obviate hardships arisin g out of minor variation in value of tran saction qua 50C valuatio n. In this view of the matter assessee's plea succeeds. Hence, we set aside the orders of the authorities below and decide the issue in favour of the assessee. "
17. The amendment brought in Rule 11UA of the Act was introduced to mitigate the hardship faced by taxp ayers by the un- intended invocation of Section 56(2)(vlib ) read with rule 1 1UA and therefore the same is a curative amendment. In view of the of the above ment ioned judgment of Apex court an d ju dgments of multiple bench's tribunals , it is establish ed in law that where an amendment which is inserted to remedy u nintended co nsequences
7|Page and to make the pro viso workable, an amend ment which sup plies an obvious omission in the section an d is required to be read into the sectio n to g ive the section a reasonable interpret ation, requires to be treated as retrospective in operation so that a reasonable in terpret ation can be given to the section as a w hole. Hence, in view of above mentioned submis sion s a nd judic ial pronouncements curative amendment in Rule 11UA of the Income Tax Rules, 1962 introduced by CBDT notification 81/202 3 dated 25.08.2023 will apply retrospectively and conseq uently, the addition of Rs.50,77,334 u/s 56(2)(viib) read with rule 11UA is unsustainable as the difference between issue price and value adopted by AO is 2.1% i.e. less than 10%.
7. Upon careful consideration, we find that the issue involved in the instant appeal is squarely covered by the aforesaid decision and as well as per the notification, the difference is 0.88% which is less 10% in the present case. Accordingly, we allow the grounds raised by the assessee.
8. In the result, the Assessee's appeal is allowed.
Order pronounced on 09/04/2025.
Sd/- Sd/-
(SUDHIR PAREEK) (SHAMIM YAHYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
SRBHATNAGAR
Copy forwarded to:-
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
Assistant Registrar
8|Page