2018 (2) TMI 1274 - AT - Income Tax

Share allotment at Rs.40 upheld as DCF value exceeded NAV; no s.40(a)(ia) disallowance; entry tax claim verified

The ACIT, Circle -2, Alwar Versus M/s Safe Decore Pvt. Ltd. And Vice-Versa

ITAT upheld the CIT(A): (1) share allotment price was within fair market value - DCF valuation (Rs.54.98) exceeded NAV (Rs.26.69), so allotment at Rs.40 ... Addition u/s 56(2)(vii)(b) r.w.r. 11UA of the IT Rule, in respect of the equity shares issued by the assessee company - Held that:- In view of the statutory provisions giving options to assessee to adopt any of the methods which can be compared with the Net Asset Value Method and the AO shall adopt the value whichever is higher. In the case of the assessee the Fair Market Value determined as per the discounted cash flow method at ₹ 54.98 per share which is higher than the valuation adopted by the AO as per the Net Asset Value at ₹ 26.69 per share. Therefore, the share allotted at ₹ 40 per share is within the fair market value as determined by adopting the discounted cash flow method. The Assessing Officer has not found any serious defect in the facts and details used in determining the fair market value under discounted cash flow method. Hence, we do not find any error or illegality in the impugned order of the Ld. CIT(A) qua this issue. TDS u/s 194C - Disallowance u/s 40(a)(ia) - non deduction of tds on handling charges - payment in question to the shipping agents of Non-Residents ship owners - Held that:- as per the CBDT Circular No. 723 dated 19/09/1995 payment made to the shipping agents of Non-Resident ship owners does not require deduction of tax at source. We further note that the Director International Taxation vide Certificate dated 23/06/2011 and 28/03/2013 respectively granted the exemption to the Non-Resident ship owners in question from deduction of tax at source. The assessee filed these certificates which are placed at page no. 13 and 14 of the paper book. Therefore, when the Department has already granted the exemption certificate to the Non- Resident ship owners then there is no obligation on the assessee to deduct tax at source in respect of the payment made to the shipping agents of these Non-Resident ship owners. Claim of entry tax disallowed on the ground that the assessee has not furnished any proof of payment - Held that:- We find that the E-challan dated 26/4/14 for sum of ₹ 1,37,635/-contains the details of assessee i.e. its name as well as address. The assessee has clarified that this amount of ₹ 1,37,635/- includes ₹ 1,35,313/- as entry tax and balance as interest. The AO has disallowed this amount for want of proof of payment whereas the assessee had produced this e-Challan dated 26/04/2014 having all the details. Accordingly, in view of the fact that, the e-Challan dated 26/4/2014 contains all relevant details including name of the assessee the AO is directed to verify details of the e-Challan and then allow the claims made on this account. Issues:1. Deletion of addition made under section 56(2)(vii)(b) of the Income Tax Act.2. Disallowance of payment of handling charges/commission under section 40(a)(ia) of the IT Act.3. Disallowance of entry tax.Issue 1: Deletion of addition under section 56(2)(vii)(b) of the Income Tax Act:The AO added Rs. 66,55,000 under section 56(2)(vii)(b) due to a discrepancy in valuation of equity shares issued by the assessee company. The AO applied Net Asset Value, while the assessee used the discounted cash flow method. The CIT(A) ruled in favor of the assessee, stating that the shares were within fair market value as per Rule 11UA of the IT Rules. The ITAT upheld the CIT(A)'s decision, emphasizing the option for the assessee to adopt any prescribed method under Rule 11UA, with the higher value being accepted. The ITAT found no error in the CIT(A)'s order.Issue 2: Disallowance of payment of handling charges/commission under section 40(a)(ia) of the IT Act:The AO disallowed Rs. 3,94,044 for handling charges/commission under section 40(a)(ia) as tax was not deducted at source. The assessee argued that payments to shipping agents of non-resident ship owners were exempt under DTAA and supported by CBDT Circular No. 723. The CIT(A) accepted the explanations and deleted the disallowance. The ITAT agreed, noting that the exemption certificates granted to the non-resident ship owners relieved the assessee from tax deduction at source, thus upholding the CIT(A)'s decision.Issue 3: Disallowance of entry tax:The AO disallowed entry tax of Rs. 1,35,313 citing lack of proof of payment. The CIT(A) sustained the disallowance due to the e-Challan not mentioning the assessee's name. However, the ITAT found an e-Challan dated 26/04/2014 with the assessee's details, including the entry tax amount. The ITAT directed the AO to verify the e-Challan details and allow the claim. Consequently, the ITAT dismissed the Revenue's appeal and allowed the Assessee's Cross Objection for statistical purposes.This detailed analysis of the judgment addresses the issues involved, the arguments presented, and the final decisions made by the authorities.