TaxTMI 
TaxTMI 
2019 (3) TMI 272
X X X X Extracts X X X X
X X X X Extracts X X X X
....f, and without prejudice to one another: 1. Taxation of excess share premium received as income from other sources under section 56(2)(viib) of the Income-tax Act, 1961 ['the Act'] 1.1. Appellant's choice of method of valuation as per law a) The learned Commissioner of Income-tax (Appeals) ['CIT(A)'] erred in upholding the order of the Assessing Officer ['AO'] and confirming his action of bringing the share premium to tax under section 56(2)(viib) of the Act. b) The learned CIT(A) failed to appreciate that: * Rule 11UA(2) of the Income-tax Rules, 1962 ['Rules'] has explicitly conferred an option upon the tax payer to adopt any of the methods either Net Asset Va....
X X X X Extracts X X X X
X X X X Extracts X X X X
....#39;s future business objectives, expansion plans, industry, economic scenario, customer sentiments, etc. prevalent at the time of drawing such forecasts and these could not have been compared with the actuals to expect the same figures as were anticipated in the past. c) The learned CIT(A) failed to appreciate that: * The Appellant was incorporated in 2009 and had initially introduced 2 line of business activities in the health care sector; given the competitive market conditions, it decided to drop one of its business lines; * The projections were drawn based on future expectations w.r.t both the business lines and comparison with actual numbers, when one of the business line was dropped off is incorrect and unr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ince: a) Preference shareholders get preference over equity shareholders in terms of payment of dividend and repayment of equity and hence, the NAV of the Company represents the value of equity shares and not preference shares; b) Preference shares are 'quasi-debt' instruments, they stand on a different footing from equity shares and hence, the tests applied to equity shares could not be arbitrarily applied to preference shares. The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds, which may be raised at the time of hearing, it is pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee that in the present case, the valuation is to be done of preference shares and not equity shares and therefore, sub clause (c) of sub rule (c ) of Rule 11UA (1) is applicable and as per the same, these shares are to valued at a price it would fetch if sold in open market. He further submitted that copy of written submissions filed by the assessee before CIT (A) is available on pages 103 to 112 of the paper book and in particular, our attention was drawn to page 108 of the paper book and it was pointed out that it was submitted by the assessee before CIT (A) that sub clause (c) of Rule 11UA (1) (c) is applicable in the present case but in spite of this, there is no decision of CIT (A) on this aspect as per the impugned order and therefore....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce shares but this evidence is brought on record as an additional evidence and there is no comment of any of the authorities below on it. Hence, in our considered opinion, this aspect of the matter should be decided first as to which Rule/Sub Rule/ sub clause is applicable in the facts of the present case and thereafter, the matter should be decided as per the applicable Rule/Sub Rule/ sub clause. All the terms of the issue of preference shares have to be looked into for this purpose to find out whether the present receipt of share premium is for issue of preference shares or for issue of equity shares because even if it is found that because of limited voting right only, the said shares are not equal to equity shares, then also, this is i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he projections given by the management to the chartered accountant for his certificate are on a scientific basis because the said Chartered Accountant has adopted those projections without commenting anything on its acceptability. Hence, only those projections of cash flow should be adopted which are based on a scientific basis. In respect of estimation of something for future, the estimation has to be on a scientific basis. This view of us is supported by the judgments of Hon'ble Apex court rendered in the case of Rotork Controls India (P) Ltd. as reported in 314 ITR 62 and in the case of Bharat Earth Movers vs. CIT as reported in 245 ITR 428. In both these cases, the dispute was regarding estimation of future liability on account of warra....