Unreported Tribunal Decisions – December 2022

By Ajay R. Singh Advocate and CA Rohit Shah

1. Value of Shares Determined by Merchant Banker shall be Taken forComputation of Perquisite and TDS Liability

Facts:
The facts of the case were that the assessee was engaged in the manufacturing and sales of wines in India, and a survey under section 133A of the Income Tax Act, was carried out in the case of the Assessee, on 10/10/2018, wherein according to the assessing officer, the assessee violated provisions relating to deduction of tax at source, including section 192 of the Income Tax Act. according to the Assessing Officer the assessee company had allotted 40,000 warrants, at the option of conversion into shares at the rate of Rs 155 per share. The company having got the fair market value determined through a merchant banker, who worked out the fair market value of the shares at Rs. 194.15 per share, the assessee company had accordingly worked out the perquisites in the hands of the employee and accordingly it had deducted tax at source (TDS) on the perquisite amount, in terms of section 192. However, according to the assessing officer, during the relevant assessment year, M/S Reliance capital had sold shares of the assessee company at the rate of Rs 850 per share and therefore, he held the view that fair market value should have been computed by taking the market value at the rate of Rs 850 per share. Accordingly, he computed the quantum of perquisite and liability in terms of section 201(1) and interest under section 201 (1A), leaving the assessee company aggrieved to prefer an appeal before the CIT (A). However, on further appeal the CIT (A) deleted the liability raised under section 201(1) and interest under section 201 (1A). The Revenue preferred appeal before the ITAT.

Held:
Assessee submitted that while computing the fair market value of the equity shares allotted to the employee, the assessee has followed the procedure laid down in Rule 3(8) of the Rules. Under the Rules, in case of shares of unlisted company, the fair market value shall be the value determined by a merchant banker. The merchant banker has also been defined in the Rules, and the said Rule has been reproduced by the Ld. Assessing Officer in the impugned order. The Ld. DR could not controvert the factual aspect as pointed out by the assessee. Relying on the assessee’s submission. Ld. ITAT upheld the order of the Ld. CIT(A) and thus dismissed revenue’s appeal.

 ACIT (TDS)-2(2) vs. Sula Vineyards Pvt. Ltd.[ITA No.12/MUM/2022] AY 2018-19

2. Denial of Exemption on Long Term Capital Gains us 10(38)

Facts:
The assessee had filed the return declaring total income of Rs. 13,92,790. The assessee has shown income from speculation business and income from other sources. The return of income filed by the assessee was processed under section 143 (1) of the Act. Pursuant to the information received from Directorate of Investigation that assessee is a beneficiary of an organized racket of generating bogus entries of long term capital gains in penny stocks, notice under section 148 of the Act was issued initiating reassessment proceedings in the case of the assessee. After receipt of reasons, assessee filed detailed objections before the Assessing Officer. The AO passed an order under section 143(3) r/w section 147 of the Act after, referring to information gathered and collected from the investigation wing pertaining to survey action conducted in the case of company, i.e. First Financial Services Ltd, in whose shares assessee had transacted. Accordingly, sum of Rs. 84,45,050 being long term capital gains claimed by the assessee was treated as unexplained investment made by the assessee in cash to obtain the equivalent amount as bogus profit on sale of shares and was added to the total income of the assessee. Further, the AO made an addition of Rs. 22,712, being the commission charged by the brokers @ 0.25% for providing accommodation entry, on the basis that the payment would have been made in cash by the assessee over and above the total sale value of Rs. 90,85,050.

During the course of hearing, ld AR submitted that SEBI vide interim order dated 19/12/2014 and 11/08/2015, inter-alia, restrained 154 entities, including the assessee, from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions, pending investigation in the script of in case of First Financial Services Ltd. The directions issued vide aforesaid interim orders were, inter-alia, confirmed vide subsequent orders passed by SEBI. Subsequent to the interim orders, SEBI carried out an investigation to look into the role of debar entities in price manipulation in scrips of First Financial Services Ltd. Vide interim order dated 06/09/2017, the earlier interim orders were modified by SEBI and 91 entities including the assessee against whom directions were issued vide aforesaid interim orders and thus the SEBI vide order dated 06/09/2017, inter-alia, has revoked its earlier interim directions against 91 entities including the assessee upon completion of the investigation.

Held:
Since, the very transaction of the assessee in the scrips of First Financial Services Ltd, which resulted in long term capital gains to the assessee, has been found to be not violative of provisions of relevant Act and Rules by the SEBI upon necessary investigation and even the initial restraint order was revoked vide interim order dated 06/09/2017, therefore, Hon’ble ITAT deleted the addition made by the AO by treating the said transaction to be a penny stock transaction resulting in bogus long term capital gains.

Sunita Chaudhry v. Income Tax Officer 18(3)(4), Mumbai[ITA No. 143/MUM/2022] AY 2013-14