Recognised start-up to get CBDT approval for issue of shares at premium, within prescribed time

The Department of Industrial Policy and Promotion has issued notification dated 16-12019 to partly modify the notification dated 1 1-42018 in terms of which start-ups may be able to obtain approval from CBDT for purposes of Section 56(2)(viib) of the Income Tax Act, 1961. The earlier notification to seek approval of CBDT for issue of shares at a premium, required the start-up to apply to the CBDT, to obtain a report from a merchant banker regarding the fair market value of shares and did not provide any time frame within which CBDT granted or declined approval. The notification now states that CBDT may grant or decline approval within a period of 45 days from date of receipt of the application from DIPP which will forward the application of the recognised start-ups. However, if the start-up has already issued shares and the assessment order has been passed for the relevant financial year, the start-up cannot apply for such approval. Further the condition as to obtaining report from merchant banker has been removed.

Ratio Decidendi

Profits from hedging contracts on raw materials are 'derived from' industrial activity

The assessee claimed deduction of profit arising from hedging contracts in respect of raw material contending that such profits were derived from its manufacturing activity/industrial undertaking of manufacturing Lmethnol. The department argued that the income from speculation business could not form part of profit derived from manufacturing business. However, the High Court agreed with the reasoning of the assessee that the hedging contracts had been entered to avoid the effect of high price fluctuation and to ensure predictability in profits derived from it's business and that any loss/reduction in profit due to high price of raw materials would have qualified as business loss. Thus, the fact that profit arose from a hedging contract would not detract it from being 'derived from' industrial activity. [Pr CIT v. Jindal Drugs Ltd. - 2019- TIOL-34-HC-Mum-lT]

Reopening of assessment is justified where it is based on findings of the Tribunal in another assessee's case

In the assessment of assessee's son, the AO had treated certain investment as unexplained investment and made addition thereon. On appeal, the Tribunal had deleted such addition on the ground that the assessee and her son, were first and second holder respectively, of such investments and the addition as an unexplained investment, if any, should have been made in the hands of assessee being the first holder and not in the hands of son who was the second holder of such investment.

Based on the aforesaid findings of the Tribunal in the case of Assessee's Son, the AO reopened the assessment of the assessee and made certain additions thereon. The CIT(A) and the Tribunal confirmed the action of the AO. On further appeal, the High Court whilst upholding the reopening, held that the finding of the Tribunal in the case of Assessee's son that the addition on account of unexplained investment can only be made in the hands of Assessee being the first holder of such investment, amounted to 'cause' or 'justification' for the AO to reason to believe that the income of the Assessee with reference to these unexplained investment, has escaped assessment. [Smt. S. Rajalakshmi v. ITO - ITA 2517 of 2018, decision dated 25th October 2018 (Bombay High Court)]

No separate transfer pricing adjustment on delayed receipt from AE when operating margin is higher than that of comparables

The assessee received certain payments after the date mentioned in the services agreement with the Associated Enterprise (AE). A transfer pricing adjustment was made on account of delayed receipt of receivables from the AE of the assessee by treating the amounts due as unsecured loan and computing interest on the same based on the bank lending rate. However, the assessee argued that such interest was already built into the price charged and also since the operating profit was found to be acceptable, no separate adjustment for interest on outstanding receivables was required. The Tribunal held that no separate adjustment was required following the ratio laid down in Kusum Healthcare, 6814/DEL/2014. As regards the contention of the revenue department that it had preferred as SLP against the judgement, the I TAT held that so long as the operation of the judgment of the High Court in Kusum Healthcare had not been stayed, it was binding. [Orange Business Services India v. Dy. C.I. T. - ITA No. 6751/DEL/2018, ITAT Delhi, decision dated 31-12-2018]

Sale of listed shares off market on commercial consideration when not a colourable device

The assessee had sold shares to a group company off market at a price below market value and claimed loss on the transaction. However, it did not claim it as a set off against any other income. The revenue department contended that the said listed shares could have been sold by the assessee on the stock exchange and the transaction was a colourable device. The assessee however put forth an argument that since it was selling a huge number of shares (about 30 lakhs) it wanted to avoid a glut in the market which would have brought down the price of shares. The assessee also argued that the Income Tax Act did not contain any provision for valuation of quoted shares and the price declared by it may be accepted. The Tribunal accepted the arguments of the assessee and held that since the revenue has not discharged its onus to prove that the assessee had received some benefit over and above the sales consideration, the transaction could not be treated as a sham transaction. [Aura Securities P Ltd v. DCIT - ITA No.218/AHD/2016, ITAT, Ahmedabad decision dated 31-12-2018]

Rental income received from unsold portion of property constructed by a real estate developer is assessable to tax as income from house property.

The assessee was engaged in the business of development of real estate projects. During the impugned assessment year, the assessee had earned rental income from unsold portion of properties and offered to tax it as 'income from house property'. The AO assessed the said rental income as 'business income'. The CIT (A) and the Tribunal reversed the action of the AO. On appeal, the Bombay High Court held that the assessee was not engaged into the business of letting out properties and therefore, income arising from such letting out, would be assessable as 'income from house property'. The High Court declined to rely on decisions in the case of Chennai Properties and Investments Limited v. CIT (2015) 14 SCC 793 (SC)] and Rayala Corporation Private Limited v. ACIT (2016) 15 SCC 201 (SC)] on the ground that the assessees' in those cases, were engaged into the business of letting out properties whereas in the present case, the assessee is not engaged into letting out properties. The High Court relied on the judgement in the case of CIT v. Sane & Doshi Enterprises (2015) 377 ITR 165 [CIT v. Gundecha Builder ITA No. 347 of 2016 (Bombay High Court)]

First appellate authority cannot add a new source of income to enhance assessment in appellate proceedings

The assessee had received certain property worth about Rs. 12 crores as part of settlement in a suit it had filed against the land aggregator who had failed to procure the land as per the contract. The assessee had advanced about Rs. 1 crore initially. During the proceedings in appeal before CIT (A), the first appellate authority sought to treat the difference between the advance of Rs. 1 crore and the value of property as income of the assessee. The I TAT however held that the power of enhancement vested in the CIT (A) did not extend to introducing a new source of income. It was opined that the assessing officer had already considered the facts but did not treat it as income and it was not open for the CIT (A) to treat the same as income at appellate stage. [Radiance Realty Developers India Ltd v. DC/ T - 2019 (1) TMI 534 - ITAT Chennai]

Delay in filing of appeal to be condoned where appeal on identical issues for earlier assessment years is pending before High Court.

The Assessee had filed the appeal before the High Court with condonation of 1662 days delay in filing the appeal. The reason set out for condonation was that the appeals on identical issues for earlier assessment years have already been admitted and are pending for final adjudication before the High Court. The High Court held that from the stage of AO to the Tribunal, the assessee was represented by the professional and merely because identical issues in earlier assessment years were admitted and are pending, would not amount to bona fide reasons for condonation of undue delay of 1662 days. On further appeal, the Supreme Court however held that where identical issues are already pending, the High Court should not resort to technical views for condonation of delay in filing the appeal. The Supreme Court condoned the delay in filing the appeal before the High Court and directed the appeal to be decided on merits. [Anil Kumar Nehru through his Power of Attorney Ankit Agrawal v. ACIT - Civil Appeal No(s). 1 1750/2018 (Supreme Court)]