TaxTMI 
TaxTMI 
2020 (7) TMI 71
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....s of Rs. 14,38,104/-. During the previous year the Assessee had issued equity shares of face value of Rs. 10/- each at a premium of Rs. 146.17 per share and the premium collected during the previous year is Rs. 2,29,31,200/-. The Assessing Officer concluded the assessment taxing the amount of Rs. 2,29,31,200/- as income of the company invoking the provisions of section 56(2)(viib) of the Act. The computation of the Assessing Officer is as under: - Rs. Income as per return before setoff 13,55,467 Add: Income from other sources (U/s.56(2)(viib)) 2,29,31,200 2,42,86,667 Less: Unabsorbed depreciation 14,49,282 Revised total income 2,28,37,385 3. The Assessing Officer has brought to tax the share premium of Rs. 2,29,31,200/- as income invoking the provisions of section 56(2)(viib) of the Act. As per the provisions of sec.56(2)(viib) of the Act, if a company in which public are not substantially interested, receives in any previous year, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares, if exceeds the fair Market Value of the shares shall be taxed as ....
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.... 7. As far as valuation 64,033 shares have been allotted to M/s.Krishnan Muthukumar & Group. The plea of the Assessee was that since the valuation is supported by a valuation report as provided under Rule 11UA(2) of the Income Tax Rules, 1962 (Rules) there was no case for the Assessing Officer to invoke the provisions of section 56(2)(viib) of the Act in regard to this allotment also. 8. The second category of shares issued at a premium relates to issue of 60831 equity shares of the total value of Rs. 95 lacs issued to the following persons: Name of the share holder No. of shares Date of allotment of shares Face value of shares @ Rs. 10/- Premium received at 146.17 per share Mr.Krishnan Raman 20,277 28.01.2013 2,02,770 29,63,897 Mr.Thaiparambil Jude Derick Jose 20,277 28.01.2013 2,02,770 29,63,896 Mr.Srikanth Muralidhar 20,277 28.01.2013 2,02,770 29,63,897 9. It was the plea of the Assessee that in respect of 60831 equity shares of the value of Rs. 95 lacs issued on 28.01.2013 to the aforesaid persons, that the Assessee purchased Intellectual Property Rights (IPR) from the aforesaid three promoters for a considera....
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....e, the fundamental basis of arriving at a free cash flow itself is prima facie erroneous. This value has not been compared with the NAV method or any other method leading to a face of creditability. Since the projection made by the assessee is not acceptable effort has been made to value the share as per section 56 r.w.r. 11UA. The same is worked out as under: - FMV under rule 11UA calculated as on 30.04.2012: Particulars Amount in Rs. Assets A Fixed Assets 42,46,140 Bank account 1,69,726 44,15,866 Liabilities L Current liabilities 20,056 Share capital in Rs. PE 46,16,670 Face value per share PV 10 Book value per share (A-L)/PE x PV 9.52 12. It can be seen from the above that the Assessing Officer has disputed the values adopted in the DCF method and with a finding that, the book value per share is Rs. 9.52 onl....
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.... has not been any possibility of verifying the correctness or otherwise of the data supplied by the assessee to the merchant banker, in the absence of which the correctness of the result of DCF method cannot be verified. This left no option to the AO but to reject the DCF method and to go by NAV method to determine the FMV of the shares. Without such evidence, it serves no purpose even if the matter is referred to the Department's Valuation Officer. We, therefore, do not find any illegality or irregularity in the approach of conclusions are by the authorities below. While confirming the same, we dismissed the appeal as devoid of merits." 14. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. Before the Tribunal the ld.counsel for the Assessee submitted that shares totaling 60831 issued to Mr Krishnana Raman, Mr Thaiparambil Jude Derick Jose, and Mr. Srikanth Mudaliar of the total value Rs. 95 lakhs has been allotted to promoters of the company on 28.01.2013 in lieu of price/consideration for IPR owned by them which they sold to the Assessee under an agreement dated 28.01.2013. It was therefore, argued that the provisions of section 56(2)(vii....
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....r method i.e. NAV method of valuing shares. In the case of M/s. Rameshwaram Strong Glass (P) Ltd. vs. The ITO (Supra), the tribunal has reproduced relevant portion of another tribunal order rendered in the case of ITO vs. M/s Universal Polypack (India) Pvt. Ltd. in ITA No. 609/JP/2017 dated 31.01.2018. In this case, the tribunal held that if the assessee has opted for DCF method, the AO cannot challenge the same but the AO is well within his rights to examine the methodology adopted by the assessee and/or underlying assumptions and if he is not satisfied, he can challenge the same and suggest necessary modifications/alterations provided ITA No. 2541/Bang/2019 ITA No. 37/Bang/2020 S. P. Nos. 29 and 59/Bang/2020 the same are based on sound reasoning and rationale basis. In the same tribunal order, a judgment of Hon'ble Bombay High Court is also taken note of having been rendered in the case of Vodafone M-Pesa Ltd. vs. PCIT as reported in 164 DTR 257. The tribunal has reproduced part of Para 9 of this judgment but we reproduce herein below full Para 9 of this judgment. "9. We note that, the Commissioner of Income-Tax in the impugned order dated 23rd February, 2018 does no....
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....imself or by calling a final determination from an independent valuer and confront the same to the assessee. But the basis has to be DCF method and he cannot ITA No. 2541/Bang/2019 ITA No. 37/Bang/2020 S. P. Nos. 29 and 59/Bang/2020 change the method of valuation which has been opted by the assessee. In our considered opinion and as per report of research committee of (ICAI) as reproduced above, most critical input of DCF model is the Cash Flow Projections. Hence, the assessee should be asked to establish that such projections by the assessee based on which, the valuation report is prepared by the Chartered accountant is estimated with reasonable certainty by showing that this is a reliable estimate achievable with reasonable certainty on the basis of facts available on the date of valuation and actual result of future cannot be a basis of saying that the estimates of the management are not reasonable and reliable. 13. Before parting, we want to observe that in the present case, past data are available and hence, the same can be used to make a reliable future estimate but in case of a start up where no past data is available, this view of us that the projection should be o....
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....e also, we prefer to follow the judgment of Hon'ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr. CIT (supra) in preference to the judgment of the Hon'ble Kerala High Court cited by DR of the Revenue rendered in the case of Sunrise Academy of Medical Specialities (India) (P.) Ltd. Vs. ITO (supra) because this is settled position of law by now that if two views are possible then the view favourable to the assessee should be adopted and with regard to various Tribunal orders cited by learned DR of the Revenue which are against the assessee we hold that because we are following a judgment of Hon'ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr. CIT (supra), these tribunal orders are not relevant. In the case of Innoviti Payment Solutions Pvt. Ltd., Vs. ITO (supra), this judgment of Hon'ble Bombay High Court was followed and the matter was restored back to the file of AO for a fresh decision with a direction that AO should follow DCF method only and he cannot change the method opted by the assessee as has been held by the Hon'ble Bombay High Court. The relevant paras of this Tribunal order are already reproduced ab....
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.... the balance-sheet, but not including the following amounts, namely:- (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balanc....