In arecent ruling, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) has quashed the revision order passed under section 263 of the Income Tax Act, 1961 against Oyo holding that share transactions between subsidiary and its holding company does not covered by Section 56(2)(viib) of the act.
Oyo Hotels & Homes , the assessee challenged the First Appellate order passed by Pr. Commissioner of Income Tax, Delhi-7 [“Pr. CIT(A)”] under section 263 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 24.04.2021 passed under s. 143(3) r.w.s 144B of the Act pertaining to assessment year 2018-19.
It was challenged that PCIT has erred in passing the impugned order under section 263 of the Act for the subject year without satisfying the pre-conditions for initiating revisionary proceedings as , the order should be erroneous; and the order should be prejudicial to the interests of the revenue.
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The Assessing Officer ( AO ) has grossly erred in law in terms of challenging/not accepting the valuation report obtained by the Appellant from Category 1 Merchant Banker. The PCIT has erred in stepping in the shoes of the AO and directing the AO to make addition without appreciating the quasi-judicial powers of AO.
Without prejudice to the above, the addition proposed and consequential levy of tax proposed vide impugned order passed by PCIT is baseless and erroneous, without considering the complete facts of the present case. The addition proposed vide the impugned order is erroneous as the same is not limited to excess premium but also take within its ambit the face value of shares.
As per the grounds of appeal, the assessee has challenged the revisional directions towards applicability of s. 56(2)(viib) of the Act with reference to issuance of Compulsorily Convertible Preference Shares (‘CCPS’) by the assessment company to its holding company.
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The Counsel pointed out at the outset that the assessee is wholly owned subsidiary of Oravel Stays Limited (‘OSL’). During FY 2017-18 relevant to AY 2018-19, the assessee issued 33,33,333 series AI Compulsorily Convertible Preference Shares (‘CCPS’) to its holding company at issue price of INR 150 per share aggregating to INR 49,99,99,950/- (including premium of INR 140 per share).
The Pr.CIT in the revisional order observed that the Fair Market Value (‘FMV’) of CCPS as per Rule 11U of the income Tax Rules, 1962 stands at INR 33.55/- only and thus invoked section 56(2)(viib) of the Act with a view to tax the excess premium so charged by the assessee company while issuing CCPS to its holding company. In this regard, Counsel referred to following decisions of the Co-ordinate Bench of the High Court & Coordinate Benches which has addressed the issue in favour of the assessee.
The Counsel thus submitted that the decisions rendered by the Co-ordinate Benches clearly reflect that the provisions of section 56(2)(viib) of the Act would not apply in the present case where the transaction is between the assessee (subsidiary company) with its 100% holding company as issuance of share to the holding company cannot be seen to involve circulation of any unaccounted money of the assessee company per se.
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The Counsel thus submitted that the twin conditions of section 263 do not simultaneously exist in the present case. The deeming fiction of s. 56(2)(viib) would not apply and consequently, the assessment order cannot be regarded as ‘erroneous’ per se. Hence jurisdiction under section 263 is not available to the revisional authority. The Counsel thus sought suitable relief in the matter.
A two-member bench of Shri Pradip Kumar Kedia, Accountant Member & Shri Yogesh Kumar Us, Judicial Member observed that both the decisions of the Tribunal are on the point that section 56(2)(viib) has to be seen in proper perspective and having regard to the object of enactment of section 56(2)(viib), the transactions between holding company and its wholly owned subsidiary company towards issuance of shares etc. are not covered within the ambit of section 56(2)(viib) in the absence of any benefit per se arising from such transactions.
While allowing the appeal, the Tribunal held that the assessment order which is subject matter of revision, cannot be branded as ‘erroneous’ per se. Thus as rightly stated on behalf of the assessee, the pre-requisites of section 263 are not satisfied in the present case. The impugned revisional order passed under section 263 of the Act is thus set aside and quashed.
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