IT : RBI Guidelines have been issued for FEMA purposes. No additions for violation of RBI’s norms on valuation of shares sold by non-resident to resident
The assessee, M/s Zeppelin Mobile Systems GmbH -a tax resident of Germany. It has an Indian subsidiary called Zeppelin Mobile Systems India Ltd., which is a closely held unlisted company under the Indian Companies Act, 1956. It is engaged in the business of designing, manufacturing and assembling of Polyurethanes Foam based Prefab Structures, Telecom Shelters and derivatives. During the year, the assessee had sold part of the shares held by it in its Indian subsidiary to M/s Sintex Industries Ltd and returned capital gains from such sale on basis of sale price of Rs. 390 per share. AO contended that as per RBI’s guidelines, valuation should be Rs. 400 per share and DRP made additions @ Rs.10 per share accordingly.
Undoubtedly, the RBI Guidelines are Guidelines for the banks, issued for FEMA purposes 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. 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. In the result, assessee’s appeal allowed.