Aditya Birla Private Equity Trust Vs National Faceless Appeal Centre (ITAT Mumbai)
The assessee, a trust established under the Indian Trusts Act, 1882 and registered with SEBI as a Venture Capital Fund (VCF) under the SEBI (Venture Capital Fund) Regulations, 1996, filed its return for Assessment Year 2016-17 declaring nil income after claiming exemption of ₹47.76 crore under Sections 10(23FB), 10(34) and 10(35) of the Income-tax Act, 1961. The original assessment was completed under Section 143(3) on 30.12.2018 after scrutiny and acceptance of the returned income. Subsequently, the Assessing Officer reopened the assessment by issuing a notice under Section 148 on 31.03.2021 and, despite recording that an identical issue had already been decided in the assessee’s favour by the Tribunal for Assessment Year 2017-18, disallowed the exemptions in the reassessment order under Section 147 to keep the issue alive. The reassessment was based on allegations that the assessee had violated the SEBI VCF Regulations and the trust deed by investing in mutual funds and in mutual funds of associate companies. The Commissioner (Appeals) upheld the reassessment and denial of exemption.
Before the Tribunal, the assessee contended that the issues on merits were fully covered by the Tribunal’s decision in its own case for Assessment Year 2017-18. It relied on the earlier order holding that temporary investments in mutual funds were authorised by the Private Placement Memorandum read with the trust deed, that SEBI had not alleged any violation of the VCF Regulations, that SEBI had clarified registered VCFs could temporarily invest idle funds in liquid mutual funds and similar instruments, that the VCF functioned as a pass-through entity under Section 115U, and that exemptions under Sections 10(34) and 10(35) were also available. The assessee further submitted that the Assessing Officer had been informed during both the original assessment and reassessment proceedings about the temporary investments in mutual funds and that the income claimed exempt under Section 10(23FB) had already been subjected to tax in the hands of investors through Form 64.
