Authorgen Technologies Pvt Ltd Vs PCIT (ITAT Chandigarh)
Conclusion: Revision order was remanded back for re-examination of assessee qualification as venture capital as where the amount had been received from the Venture Capitalists, the provisions of section 56(2)(viib) were not applicable. However, there was no finding by the Commissioner of Income Tax (Appeals) [CIT(A)] against the claim of the assessee under Section 56(2)(viib).
Held: Assessee’s case was selected for complete scrutiny to examine matter relating to large share premium amount received during the relevant to impugned assessment year. Assessed income was determined by AO at a loss of Rs. 20,99,12,982/- by making an adjustment on account of transfer pricing, addition on account of ESI/EPF and disallowance under section 14A. Assessee-company thereafter carried the matter in appeal before CIT(A) and before the appeal, assessee opted for Vivad Se Vishwas (VSV) Scheme 2020, therefore, CIT(A) granted leave to assessee to withdraw its appeal against the adjustment and other matters relating to disallowances so made by AO. Thereafter, CIT issued a show cause u/s 263 to assessee-company on the reason that the identity, genuineness and credit worthiness of the person / companies from whom assessee received share capital and premium had not been established. It was accordingly held that the order so passed by AO was prima facie erroneous and prejudicial to the interest of the Revenue and assessee was asked to show cause as to why the order might not be revised under the provisions of Section 263. CIT held that during the course of assessment proceedings, AO vide order sheet entry asked assessee to explain as to why the addition be not made by invoking the provisions of Section 56(2)(viib) and thereafter, accepted the plea of the assessee that the shareholders to whom CCPS were issued are venture capital providers and provisions of Section 56(2)(viib) were not applicable where shares were issued at face value or in case, funds were received from Venture Capitalists. CIT held that AO simply accepted the version of the assessee that the provisions of Section 56(2)(viib) were not applicable in the case of the assessee and no further inquiries were made/conducted by him. Thereafter, invoking provision of Section 56(2)(viib), the difference of Rs. 34.53 [ Rs. 47.05 – Rs. 12.51 ] per share was brought to tax by making an addition of Rs. 2,59,25,331/- to the total income of the assessee wherein the assessed loss earlier determined under section 143(3) was brought down to Rs. 18,39,87,651/- as against initial assessed loss at Rs. 20,99,12,982/-. Assessee again carried the matter in appeal before CIT(A) and challenged the action of the AO in making addition of share premium on the ground that the AO had erred in holding that identity, credit worthiness of the investor was not proved and secondly making the addition of share premium under section 56(2)(viib). It was held that assessee had not taken any fresh ground of appeal as from the original assessment proceedings, it was a consistent stand of assessee that where the amount had been received from the Venture Capitalists, the provisions of section 56(2)(viib) were not applicable. At the same time, what was equally relevant to note that assessee had to qualify as venture capital undertaking. As to how assessee qualified as a Venture Capital Undertaking and the investor company qualifies as a Venture Capital Fund, the relevant information/documentation had been submitted for the first time before CIT(A) (and not before AO) during the set aside proceedings. However, there had been no finding recorded to this fact by CIT(A). There was no finding of either AO or CIT(A) and given that AO in his report had sought time to examine the matter and carry out detailed verification of the contention so raised by assessee and documentation so submitted in support thereof, it was deemed appropriate to set aside the matter for the limited purpose of verification of assessee’s claim under the proviso to section 56(2)(viib). AO would examine all the contention so raised including the decisions of Coordinate Benches quoted at Bar and decide the matter as per law after providing reasonable opportunity to assessee.
