The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that addition made for premium on redemption of preference shares as deemed dividend not sustainable.
The assessee, M/s. Information Technology Park Ltd is a public limited company and is engaged in the business of developing, operating and maintaining industrial parks / Special Economic Zones. The assessee is a subsidiary of Ascendas Property Fund (India) Pvt Ltd (APFI). The assessee has issued 0.5% redeemable non-cumulative preference shares on 6th January 2003 and the same is subscribed by APFI. The preference shares are issued at a face value of Rs.100 per share and are redeemable at any time after 24 months but not later than 9 months from the date of allotment.
The assessee filed its original return of income for AY 2010-11 on 28.09.2010 declaring NIL income, after set off of brought forward business loss of Rs.65,66,55,271. The return was processed u/s. 143(1) and subsequently the case was selected for scrutiny under CASS and notice u/s. 143(2) & 142(1) were issued. During the assessment proceedings a reference was made to the Transfer Pricing Officer (TPO) for determination of the Arm’s Length Price (ALP) of this international transaction assessee entered into with AFPI.
The assessee has during the previous year relevant to AY 2010-11 redeemed some of the preference shares at a premium based on the valuation done the expert valuer by adopting the Net Asset Value (NAV) method. The TPO accepted the method of valuation adopted by the assessee i.e., NAV method, but reworked the redemption value based on book value of assets. The TPO arrived at the redemption value at Rs.286.80 per share which resulted in an adjustment of Rs.29,95,66,000 that arose out of the difference between the redemption value adopted by the assessee and the TPO.
The AO passed the final assessment order giving effect to the TP adjustment based on the letter filed by the assessee that the assessee would not be filing objections before the DRP and would prefer appeal with the CIT(Appeals). The assessee made detailed submissions before the CIT(Appeals) in this regard which were rejected by the CIT(Appeals) who proceeded to treat the premium on preference shares as deemed dividend. Aggrieved the assessee is in appeal before the Tribunal.
The Bench consisting of N V Vasudevan, Vice President and Padmavathy S, Accountant Member observed that “We are of the considered view that the excess premium paid to APFI by the assessee on redemption of preference shares cannot be taxed under Section 2(22)(d) or 2(22)(d) and delete the addition made by the CIT.”
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