The Income Tax Appellate Tribunal ( ITAT ), Mumbai Bench, has recently, while deciding an appeal filed before it, held that the value of shares determined by merchant banker shall be taken for the computation of perquisite and TDS liability.
The aforesaid observation was made by the Tribunal when an appeal was preferred before it by the Revenue, as directed against the order dated 28/10/2021, passed by the Commissioner of Income-tax (Appeals), Mumbai, in relation to an order dated 22/03/2019 passed under section 201(1)/201(1A) of the Income-tax Act, 1961, by the Assessing Officer, for the Assessment year 2018- 19.
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.
The issue raised in the appeal by the Revenue being relating to short – deduction of tax on perquisites to Mr. Rajeev Samant, the then director of the assessee company, according to the Assessing Officer the assessee company had allotted 40,000 warrants to Sh. RajjeevSamant during the Board of Directors meetings held on 09/02/2010, at the option of conversion into shares at the rate ofRs 155 per share.
It was found that out of 40,000 warrants, 20,000 warrants were converted to shares in the month of June 2017 and balance 20,000 warrants were converted into shares in the month of February 2018, wherein Mr Rajeev Sawanthad paidRs 62 lakh to the company for 40,000 shares.
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 assesse company had accordingly worked out the perquisites in the hands of Mr. RajeetSamath and accordingly it had deducted tax at source (TDS) on the perquisite amount of Rs 15,66,000, in terms of section 192 of the Income Tax Act, and deposited the tax into the Govt. account.
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 of the specified security (equity share of the assessee company) should have been computed by taking the market value at the rate of Rs850 per share.
Accordingly, he computed the quantum of perquisite and liability in terms of section 201(1) and interest under section 201 (1A) of the Income Tax Act, leaving the assesse 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) of the Income Tax Act, and it is in opposition of the said deletion that the Revenue has preferred the instant appeal before the Mumbai ITAT.
With Mr. Niraj Singh, the AR for the assesse submitting in the assessee’s favour as opposed by the submissions of Mr. Hoshang B. Irani, the DR for Revenue, the ITAT Bench consisting of Sandeep Singh Karhail, the Judicial Member, along with Om Prakash Kant, the Judicial Member, observed as follows :
“We find that for the purpose of computing fair market value of the equity shares allotted to the employee Sh. Rajeev Samant, the assesse 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 also”, the ITAT added.
“Further the Ld. DR could not controvert the factual aspect as pointed out by the Ld. Councel for theassesssee, though in our opinion, any omission on the part of the assessing officer in the case of the recipient cannot give right to the assesse to take benefit of the said omission.” they further observed.
Thus, dismissing the Revenue’s appeal the ITAT held:
“In the view of the above discussion, we do not find any error in the order of the Ld. CIT(A) on the issue – in- dispute, and we accordingly uphold the same”.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
