Abir Hydro Power Private Limited Vs ITO (ITAT Delhi)
Summary: The assessee’s appeal for assessment year 2015-16 arose from the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi dated 21.02.2025, relating to proceedings under Section 143(3) of the Income Tax Act, 1961. The Tribunal first condoned a delay of 273 days in filing the appeal, relying on Collector, Land & Acquisition vs. Mst. Katiji & Others (1987) 167 ITR 471 (SC).
The first substantive issue concerned an addition of Rs. 33,91,50,000/- under Section 56(2)(viib) of the Act, representing the alleged excessive component of premium received on issuance of shares. The Tribunal noted that the impugned amount had admittedly come from the assessee’s holding company, Abhir Infrastructure Private Limited. The Tribunal relied on BLPYO (Project-1) Private Limited vs PCIT (2023) 151 com 47(Del.), which, as quoted in the order, held that Section 56(2)(viib) did not get attracted to a transaction between a subsidiary and its holding company.
The assessee further submitted that Section 56(2)(viib) required consideration for the “issue of shares” and relied on Shree Gopal Paper Mills Ltd. v. Commissioner of Income-Tax, [1967] 64 ITR 233 (Cal). It submitted that on 13.05.2015, after closure of the relevant assessment year, it executed a debenture subscription agreement and issued compulsorily convertible debentures to the holding company, thereby converting the entire share application money of Rs. 9,60,09,12,500/- into convertible equity shares. The Tribunal found, in this factual backdrop, that the lower authorities had erred in invoking Section 56(2)(viib) both for non-issuance of shares and for want of applicability of the provision. The addition was deleted.
The second substantive issue concerned disallowance under Section 37 comprising employees’ cost of Rs. 68,15,996/-, finance charges of Rs. 1,158/- and other expenses of Rs. 4,00,199/-. The Revenue submitted that the assessee had not carried out business during the relevant previous year. The Tribunal observed that the expenses were merely salary costs and other expenses and that no doubt regarding their genuineness had been raised in the lower proceedings. Relying on DCIT vs Gujra NRE 2008 118 TTJ (Calcutta) 822, the Tribunal deleted the impugned Section 37 disallowance of Rs. 33,91,55,421/-.
The Tribunal accordingly allowed the assessee’s appeal, with all remaining pleadings rendered academic.
Cases Discussed
- BLPYO (Project-1) Private Limited vs PCIT (2023) 151 com 47(Del.)
- Dy. CIT v. Ozone India Ltd. [2021] 126 taxmann.com 192/189 ITD 476 (Ahd. -Trib.)
- KBC India (P.) Ltd. v. ITO [IT Appeal No. 9710/Del/2019, dated 2.11.2022]
- Shree Gopal Paper Mills Ltd. v. Commissioner of Income-Tax, [1967] 64 ITR 233 (Cal)
- Collector, Land & Acquisition vs. Mst. Katiji & Others (1987) 167 ITR 471 (SC)
- DCIT vs Gujra NRE 2008 118 TTJ (Calcutta) 822
FULL TEXT OF THE ORDER OF ITAT DELHI
This assessee’s appeal for assessment year 2015-16 arises against the Commissioner of Income Tax(Appeals)/National Faceless Appeal Centre (for short, ‘CIT(A)/NFAC’), Delhi’s DIN & order No. ITBA/NFAC/S/250/2024-25/1073556761(1), dated 21.02.2025, involving proceedings u/s 143(3) of the Income Tax Act, 1961; hereinafter referred to as, “the Act”.
Heard both the parties at length. Case file perused.
2. For the reasons stated in the assessee’s/Revenue’s condonation averments, delay of 273 days in filing of the instant appeal is condoned in light of Collector, Land & Acquisition vs. Mst. Katiji & Others (1987) 167 ITR 471 (SC).
3. It transpires during the course of hearing that the first and foremost substantive ground challenges both the learned lower authorities’ assessment and lower appellate findings making section 56(2)(viib) addition of Rs. 33,91,50,000/- as allegedly representing the excessive component of premium received on issuance of shares. We make it clear that the impugned sum has admittedly come from the assessee’s eponymous holding company Abhir infrastructure private limited.
4. That being the clinching case, we hereby quote BLPYO (Project-1) Private Limited vs PCIT (2023) 151 com 47(Del.) holding that section 56 (2)(viib) does not get attracted in case of a transaction between a subsidiary and its holding company, as follows:
“10. We have carefully and dispassionately considered the rival submissions and perused the revisional order and the assessment order together with other documents and material placed before us and adverted to. The Pr.CIT, in the instant case, has sought to cancel the assessment order on the pretext that large share premium received against allotment of shares have not been enquired into.
11. The Pr.CIT has controverted the propriety of assessment order on the ground that requisite inquiries have not been carried out with reference to the receipt of huge share premium on allotment of shares on the touchstone of section 56(2)(viib) of the Act. The Pr.CIT also observed that the Assessing Officer has failed to examine the genuineness of the transaction of allotment of shares on the touchstone of section 68 of the Act.
11.1 As per case records, it is an undisputed fact that the shares have been allotted at a premium to its 100% holding company. Thus, applicability of section on 56(2)(viib) has to be seen in this perspective. The Co-ordinate Bench of Tribunal in Dy. CIT v. Ozone India Ltd. [2021] 126 taxmann.com 192/189 ITD 476 (Ahd. -Trib.) in the context of section 56(2)(viib) has analyzed the deeming provisions of section 56(2)(viib) of the Act threadbare and inter alia observed that the deeming clause requires to be given a schematic interpretation. The transaction of allotment of shares at a premium in the instant case is between holding company and it is subsidiary company and thus when seen holistically, there is no benefit derived by the assessee by issue of shares at certain premium notwithstanding that the share premium exceeds a fair market value in a given case. Instinctively, it is a transaction between the self, if so to say. The true purport of section 56(2)(viib) was analyzed in Ozone India Ltd.’s case (supra) and it was observed that the objective behind the provisions of section 56(2)(viib) is to prevent unlawful gains by issuing company in the garb of capital receipts. In the instant case, not only that the fair market value is supported by independent valuer report, the allotment has been made to the existing shareholder holding 100% equity and therefore, there is no change in the interest or control over the money by such issuance of shares. The object of deeming an unjustified premium charged on issue of share as taxable income under section 56(2)(viib) is wholly inapplicable for transactions between holding and its subsidiary company where no income can be said to accrue to the ultimate beneficiary, i.e., holding company. The chargeability of deemed income arising from transactions between holding and subsidiary or vice versa militates against the solemn object of section 56(2)(viib) of the Act. In this backdrop, the extent of inquiry on the purported credibility of premium charged does not really matter as no prejudice can possibly result from the outcome of such inquiry. Thus, the condition for applicability of section 263 for inquiry into the transactions between to interwoven holding and subsidiary company is of no consequence. We also affirmatively note the decision of KBC India (P.) Ltd. v. ITO [IT Appeal No. 9710/Del/2019, dated 2.11.2022] where it was observed that section 56(2)(viib) could not be applied in the case of transaction between holding company and wholly owned subsidiary in the absence of any benefit occuring to any outsider.
12. Preliminary enquiry, if undertaken, by Pr.CIT would have thus possibly changed the discourse in the present case.
13. As regards inquiry on the parameters of section 68 is concerned, it is the case of the assessee that the money/credit has been entered in the books of the assessee in preceeding Assessment Year 2013-14 and therefore, section 68 itself is not applicable qua AY 2014-15 in question. This notwithstanding, money has been received from holding company carrying substantial business activities and getting assessed year after year. On an enquiry from the Bench, the ld. counsel placed the assessment order dated 30.12.2019 passed by the Assessing Officer in pursuance of the impugned revisional order and submitted that the additions of Rs.65,48,60,220/- has been carried out under section 56(2)(viib) of the Act by re-determining the Fair Market Value. The assessee thus contends that the Assessing Officer was thus also satisfied with the parameters of section 68 of the Act towards such nature and source of such credits in the post revisional proceedings.
14. A revisional action of the Pr.CIT in the context of the facts of the case thus appears to be wholly unjustified and without meeting the jurisdictional requirement of section 263 of the Act. We thus find wholesome merit in the plea of the assessee for cancellation of the revisional order and restoration of the order of the Assessing Officer. We do so accordingly.
15. In the result, the appeal of the assessee is allowed.”
5. Learned counsel further quotes section 56(2)(viib) of the Act that it has to be invariably proved at the Revenue’s behest that such a consideration is for “issue of shares” which is to be read as actual issuance thereof in the concerned allottee’s name as per Shree Gopal Paper Mills Ltd. v. Commissioner of Income-Tax, [1967] 64 ITR 233 (Cal). Its case accordingly is that on 13.05.2015 after the closure of the relevant assessment year, it had executed a debenture subscription agreement and issued compulsorily convertible debenture CCVDs to holding company thereby converting the entire share application money of Rs. 9,60,09,12,500/- as convertible into equity shares of Rs. 10 each. He further invites the tribunal’s attention to the debenture subscription agreement(s) and the relevant certificates at pages 109 to 117 of the paperbook which has gone unrebutted from the Revenue side. We thus conclude in this factual backdrop that both the learned lower authorities have erred in law and on facts in invoking section 56 (2)(viib) addition in the assessee’s hands both for non-issuance of shares as well as for want of applicable of the statutory provision itself herein. The impugned addition stands deleted therefore.
6. Next comes the second substantive issue between the parties wherein the assessee seeks to reverse both the learned lower authorities action disallowing its section 37 in the assessment order as upheld in the lower appellate discussion. The same admittedly comprises of employees cost of Rs. 68,15,996/- finance charges of Rs. 1,158/- and other expenses of Rs. 4,00,199/-; respectively. Learned CIT(DR) vehemently submits that the assessee had not carried out business in the relevant previous year. We notice that the impugned expenses are mere salary costs etc wherein no doubt regarding genuineness thereof been raised in both the lower proceedings. These are compulsory business expenses in other words wherein it could not be held that they require to derive actual business income as per DCIT vs Gujra NRE 2008 118 TTJ (Calcutta) 822. We thus delete the impugned section 37 disallowance of Rs. 33,91,55,421/- made in the assessee’s hands in very terms.
All other remaining pleadings between the parties stand rendered academic.
7. This assessee’s appeal is allowed.
Order Pronounced in the Open Court on 15.07.2026.
