TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 565
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....ble DRP erred in sustaining the suo-moto disallowance made by the Appellant in its Return of Income u/s 14A, which, in the course of assessment proceedings, was inter alia sought to be restricted to the extent of dividend income. 2. He failed to appreciate and ought to have held that i. The assessing officer is duty bound to assess correct income irrespective of the income returned by the assessee; and ii. The Appellant had made a specific claim during the course of assessment that the suo moto disallowance u/s 14A be restricted to exempt income earned or be computed by considering only investments which have actually yielded exempt income. 3. The Appellant prays that the disallowance u/s 14A of the Act of Rs. 145,02,09,668/- be deleted or be appropriately reduced. Ground No.III : Addition on account of share premium received u/s 56(2)(viib) of Rs. 257,87,32,783/- 1. On the facts and in the circumstances of the case and in law, the Ld.AO pursuant to the directions of the Hon'ble DRP, erred in making an addition of Rs. 257.87 crores as excess share premium allegedly collected in violation of the provisions of section 56(2)(viib) of the Act on the basis of several factual....
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.... on the CBDT Circular No.5/2014 dated 11.02.2014, held that even if there is no exempt income earned by the assessee during the year, disallowance u/s 14A can be made. Pursuant to the draft assessment order dated 28.12.2018, the assessee filed objections before the Dispute Resolution Panel (DRP). 3.1 The DRP vide its directions dated 30.09.2019, upheld the disallowance u/s 14A of the I.T.Act amounting to Rs. 145,02,09,668. The DRP by placing reliance on the judgment of the Hon'ble Orissa High Court in the case of Orissa Rural Housing Development Corporation Ltd. v. ACIT in Writ Petition (C) No.4554 of 2011, held that an error or omission can be rectified only filing a revised return within the prescribed time limit u/s 139(5) of the I.T.Act. Therefore, it was concluded by the DRP that the assessee is not entitled to raise such a claim before the Assessing Officer nor the Assessing Officer is empowered to entertain such claim. Pursuant to the DRP's direction, final assessment order was passed on 14.10.2019. 3.2. Aggrieved, the assessee has raised this issue before the Tribunal. The learned AR reiterated the submissions made before the Income Tax Authorities and also placed relianc....
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....ee therein had made voluntarily disallowance u/s 14A of the I.T.Act more than the dividend income earned and the Tribunal confirmed the disallowance made u/s 14A of the I.T.Act. However, the Hon'ble Madras High Court held that the disallowance u/s 14A of the I.T.Act cannot exceed the exempt income earned during the relevant assessment year. The relevant finding of the Hon'ble Madras High Court reads as follow:- "20. Before parting, we may also note with reference to the Table of disallowance voluntarily made by the Assessee, which is part of the Paper Book before us for the four assessment years in question. In the Table quoted in the beginning of the order, shows that the Assessee himself computed and offered the disallowance beyond the exempted income in the particular year, namely AY 2009-10, as against the dividend income of Rs. 41,042/- and the Assessee himself computed disallowance under Rule 8D of the Rules to the extent of Rs. 2,38,575/-, which was increased to Rs. 98,16,104/- by the Assessing Authority. Similarly, for AY 2012-13, against Nil dividend income, the Assessee himself computed disallowance at Rs. 8,50,000/-, which was increased to Rs. 2,61,96,790/-. 21. We c....
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....g the return of income. Therefore, the AO is directed to restrict the disallowance u/s 14A of the I.T.Act to Rs. 27,37,47,187. 3.8 In the result, ground No.II raised by the assessee is allowed. Ground No.III : Addition on account of share premium received u/s 56(2)(viib) of Rs. 257,87,32,783/- 4. During the relevant assessment year, the assessee-company had allotted 1,51,740 shares and 46,245 non CCD. The assessee had collected share premium of Rs. 258,24,26,100. The face value of each share is Rs. 10/-. The assessee stated that these shares have been issued based on the share valuation report obtained from a Chartered Accountant, who has valued the share by adopting "Discount Cash Flow" (DCF) method and also under "Net Asset Value" (NAV) method. During the course of assessment proceedings, the A.O. noticed that the value of shares adopted for the subsidiary company did not match with the Balance Sheet. Therefore, the AR was asked to submit the details of valuation of the shares issued and justify why the share premium received should not be taxed under income from other sources, in view of section 56(2)(viib) of the I.T. Act. The assessee filed written submissions on 13.12.2018....
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....he one adopted by the assessee, and if for any reason the AO has any doubt recording such valuation report and does not agree with the same is bound to make a reference to the Income tax Department Valuation Officer to determine the fair market value of such capital asset. This is so because unless and until the assessee produces the evidences to substantiate the basis of projections in cash flow And provides reasonable connectivity between those projections in cash flow with the reality evidences by the material, it is not possible even for the Departmental Valuation Officer to conduct any exercise of verification of the acceptability of the value determine by the merchant banker. This is more particularly in view of the long disclaimer appended by the merchant banker at page no. 16 & 17 of the paper book which clearly establishes that no independent enquiry is caused by merchant banker to verify the truth or otherwise the figures furnished by the assessee at least on test basis. The merchant bankers solely relied upon an assumed without independent verification, the truthfulness accuracy and completeness of the information and the financial data provided by the company. A perusal....
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....iculars Amount in Rs. 1. Value of Asset 14959063000 Less Tax paid TDS, Adv. Tax 24005000 Less Differed expenses Add Refund 24005000 Total (A) 14935058000 Book value of liabilities 14959063000 Less Paid up capital in respect of equity shares 430202470 Less Reserve and surplus 387906000 Less Payment of dividend on preference share and/equity share 0 Less Provision and tax 9546000 Less Other provisions 83000 Less Contingent liabilities 0 827737470 Total (L) 14131325530 Paid up equity share capital (PE) 430202470 Paid up value of share equity shares (PV) 10 Paid up equity share capital as per balance sheet (PE) A-L 803732470 (A-L)/PE 1.868 Fare value per each equity share as per Rule (A-L)/PE*PV 18.68 Calculation of excess security premium collected during the year Total consideration received on issue of share premium. 2584403250 ....
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.... Paid up equity share capital 30,20,247 Fair value per equity share 12,466 2,26,996 7.18 It will be seen from the above that when the consistent valuation method of book value is substituted then the share value stands at Rs. 2,26,996/-. However, there is nothing brought on record to evidence the fact that this value was the book value as on date of issue of shares. Further, it will be seen that the NAV arrived at as at 30.09.2014 stands at Rs. 18.68 which in any case could not have reached astronomical figure of Rs. 2,26,996 in any case within a span of months. This also evidence the fact that when the book value is consistently adopted the other figures have been incorporated in a manner to inflate the value of the premium while the market value of the share of the subsidiary is adopted as red herring to bring the premium to the level of management desires. Thus, the valuation report has virtually no legs to stand on as it stands proven that what is stated to be book value also in fact is not the book value. The entire accountant's report thus stands discredited and hence, the Net asset value method is adopted to arrive at the excess prem....
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....by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. The assessee has substantiated the said value by a Valuation Report, which was done on the 'basis of the Fair market value of net etc held by the Company and also substantiated by DCF working. Objection No.3.4: The aforesaid reports have been rejected by the AO arbitrarily and under apparent factual errors and presumptions. Objection No. 3.5: If the AO was not satisfied with the valuation report, he ought to have referred the same to the Valuation Officer as per the provisions of section 142A of the Act. Objection No. 3.6: Section 56(2)(viib) of the Act being an antiavoidance provision introduced with the intention of deterring generation and use of unaccounted money, would not apply to cases where the issue of shares is to the existing shareholders on proportionate basis or genuine cases. Objection No. 3.7: On the facts and in this circumstances of the case and in law, the AO ....
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....ethod." Thus, the valuer has primarily valued the shares under DCF method and corroborated the same under Net Asset Value (NAV) method. As per NAV method, the value of share was determined at Rs. 13,208/- per share. (c) It is pertinent to note that the NAV was arrived on the basis of value of assets as on 30-09-2014. Since the valuation report is dated 15th November, 2014, the valuer has considered the Balance sheet prepared for the immediately preceding quarter ended 30-09-2014. The assessee is holding shares in its subsidiary GMR infrastructure Ltd and the said shares are listed in the market. The quoted market price as on 30-09-2014 was Rs. 17.55 per share and hence the realizable value of shares of GMR infrastructure Ltd was arrived on the basis of above said market price, which worked out to Rs. 4802.07 crores. (d) The assessee has made further issue of Non- Cumulative Convertible Preference Shares of Rs. 10/- each at a premium of Rs. 12,650/- each on 23-03-2015. (e) At that time, the assessee again obtained a valuation report dated 12th March, 2015. It is placed at pages 456-464 of the paper book. The valuer primarily valued the shares under DCF method at Rs. 12,631/-....
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....ies shall be the transaction value as recorded in such stock exchange; (ii) if such quoted shares and securities are received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be,- (a) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation date, and (b) the lowest price of such shares and securities on any recognized stock exchange on a date immediately preceding the valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date there is no trading in such shares and securities on any recognized stock exchange;" We notice that the AO has omitted to consider the above provisions applicable for quoted shares. Further, we notice that the AO has not referred to the date of Balance Sheet considered by him for determining the NAV, i.e., the date of Balance sheet is not discernible from the AO. We noticed that the valuer has considered the nearest available quarterly Balance Sheet for determining NAV. In effect, the AO has ignored the methodology prescribed in Rule 11UA for valuing quote....