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Monday, April 22, 2013

No additions for mere violation of RBI’s norms on valuation of shares sold by non-resident to resident

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Zeppelin Mobile System GmbH
Additional Director of Income-tax
IT Appeal No. 5179 (Delhi) of 2010
Date of Pronouncement – 12.04.2013
Undoubtedly, the RBI Guidelines are Guidelines for the banks, issued for FEMA purposes. Clause 2.3 (supra) of these Guidelines refers to Regulation 10B (2) of the Foreign Exchange Management (Approval or Issue of Security By a Person Resident Outside India) Regulations, 2000. The very opening paragraph of these Guidelines (APB-III) shows that they are addressed to ‘Authorised Dealer (AD) Banks’. Thus, the duty to examine the compliance or otherwise of these Guidelines lies squarely within the purview of the ‘Authorised Dealer Banks’ and not the Income-tax Authorities. If the assessee, in the view of the Income-tax Authorities, had committed any violation of these Guidelines, the appropriate course open to them was to bring it to the notice of the banks. No further. Then, since the Guidelines have been issued for FEMA purposes, it is the FEMA Authorities who are competent to take appropriate action against the assessee on breach of the Guidelines. Rather, it is seen that no objection whatsoever has been raised by the RBI to the rate of Rs. 390/- per share, as maintained by the assessee and the RBI has accorded its approval. Had the alleged difference between the rates existed, thereby constituting a violation of the RBI Guidelines by the assessee, such violation would obviously have been taken care of and the approval would not have been accorded. On merits also, Sintex Industries Ltd., to whom the shares were sold by the assessee, has not denied such rate of Rs. 390/-per share. Rather, such rate stands admitted in the Memorandum of Understanding (supra) between the assessee and Sintex Industries Ltd. Nothing adverse or detrimental to the assessee’s case has been brought on record by the authorities below.
It is also pertinent to note that though the MoU (supra) has been discussed in the assessment order, neither the said document, nor the Remittance Certificate has been adverted to by the DRP. The Certificate of Remittance has also, as per the stamp borne on the copy of the assessee’s paper book filed before the DRP, been shown to have been filed before the DRP.
In view of the above, finding the grievance of the assessee to be justified, we accept it as such.

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