Transactions Between Holding & Subsidiary For Issuance Of Shares Not Covered U/S 56(2)(viib) Of IT Act: Delhi ITAT Quashes Revision Against OYO

The Delhi ITAT held that the transactions between holding and its wholly owned subsidiary entity towards issuance of shares are not covered within ambit of Sec 56(2)(viib) in absence of any benefit arising from such transactions. Referring to the Coordinate Benchs, the Bench of Pradip Kumar Kedia (Accountant Member) and Yogesh Kumar US (Judicial Member) reiterated that Sec 56(2)(viib) 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. As per the facts, the assessee, a wholly owned subsidiary of Oravel Stays Limited (OSL), had issued AI Compulsorily Convertible Preference Shares (CCPS) to its holding company. Even though the transactions at premium were accepted by the AO during original assessment, the Pr. CIT in the revisional order observed that the Fair Market Value (FMV) of CCPS as per Rule 11U stands at lower price and thus invoked Sec 56(2)(viib) with a view to tax the excess premium so charged by the assessee company while issuing CCPS to its holding company. The Bench found that referring to the decisions of the Co-ordinate Benches, it was claimed that the provisions of Sec 56(2)(viib) 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. Since the deeming fiction of Sec 56(2)(viib) would not apply in the present case, consequently, the assessment order cannot be regarded as 'erroneous' per se, and hence it was pleaded that jurisdiction u/s 263 is not available to the revisional authority. The Delhi High Court in the case of FIS Payment Solutions & Services India Pvt. Ltd. v UOI, observed that the Revenue conceded that it is bound to act in terms of declaration of law as embodied in the decisions of the Tribunal. Both the decisions of the Coordinate Benches of the Tribunal are on the point that Sec 56(2)(viib) has to be seen in proper perspective and having regard to the object of enactment of said section, the transactions between holding company and its wholly owned subsidiary company towards issuance of shares etc. are not covered within the ambit of Sec 56(2)(viib) in the absence of any benefit per se arising from such transactions. Thus, the assessment order which is subject matter of revision, cannot be branded as 'erroneous' per se, and the pre-requisites of Sec 263 are not satisfied in the present case, added the Bench. Hence, the ITAT allowed the Assesse's appeal and quashed the revisionary interference by the Pr. CIT u/s 263. Counsel for Appellant: Advocates Manuj Sabharwal, Devvrat Tiwari, Drona Negi Counsel for Respondent: Baljeet Kaur Case Title: OYO Hotels vs Principal CIT Case Number: ITA No.2611/Del/2024 Click here to read/ downloadthe Order

Transactions Between Holding & Subsidiary For Issuance Of Shares Not Covered U/S 56(2)(viib) Of IT Act: Delhi ITAT Quashes Revision Against OYO

Pankaj Bajpai

Tags