TaxTMI 
TaxTMI 
2022 (8) TMI 25
X X X X Extracts X X X X
X X X X Extracts X X X X
....distribution as well as import and export of beer, alcohol, and spirit. The assessee filed return of income on 28th November, 2014, declaring loss of Rs.30,47,68,236/-. The return of income was picked up for scrutiny, which culminated into assessment order dated 19 December 2016. The learned Assessing Officer made only addition/ disallowance of Rs.22,10,175 under Section 14A of the Act. 03. The learned PCIT examined the record and found that during the impugned assessment year assessee has issued 7,15,500 equity shares at Rs.400 per share aggregating to Rs.26.82 crores to One Shri Rakesh Kumar Wadhwan. The assessee has merely submitted a share valuation report as on 31st December, 2013 which has been placed on record and ld AO has not examined to ensure whether share valuation is in accordance with the provision of section 56(2)(viib) of the Act or not. Therefore, a notice under Section 263 of the Act was issued on 12 March 2018. 04. Assessee submitted a reply wherein assessee submitted that shares have been issued based on valuation report of the Chartered Accountant. It is submitted that the share value as on 31st March, 2013 was derived at Rs.288.70 and on 31 December 2013....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion (a)(ii) of section 56(2)(viib) of the IT Act, 1961, which was being accepted for the A.Y. 2015-16 and A.Y. 2016-17. 5. The Learned Pr.CIT has erred in law that even calculation of net worth as per explanation (a)(i) of section 56(2)(viib) of the IT Act, 1961 read with prescribed method i.e. as per Rule (11UA) does not specifically speak about exclusion of share application money. 6. The Learned Pr.CIT has erred in law & on ignoring the facts Appellant Company has provided all the documents as required by AO on matter of valuation of share issued. 7. The learned Pr.CIT has erred in not considering the detailed submissions made by the appellant Company during the 263 proceedings and completely disregarding the case laws relied upon by the Appellant Company to meet the ends of revenue. 8. The Appellant craves leave to add to and/ or amend and/ or delete and/ or modify and/ or alter the aforesaid grounds of appeal as and when the occasion demands. 9. All the aforesaid grounds of appeal are independent, in the alternative and without prejudice to one another." 06. Facts show that Assessee Company is engaged in the business of manufactu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s such a jump in the valuation of the share according to learned PCIT valuation should have been made after exclusion of share application money from the net value at Rs. 312.88 per share and therefore the company had issued shares at a high value which is in contravention of rule 11 UA of the IT rules. 07. After hearing the assessee, the learned PCIT held that the order passed by the learned assessing officer is erroneous insofar as prejudicial to the interest of the revenue for the following reasons:- i. Share application money is neither covered in paid-up share capital nor as a reserve and therefore share application money pending allotment should not have been considered while calculating net worth of the company. ii. The share valuation report was submitted during the assessment proceedings but no further examination of share valuation report was carried out by the learned assessing officer. Therefore it is not correct to assume that the learned assessing officer has been satisfied on the share valuation report. Mere furnishing of the documents and in absence of any discussion and verification, no satisfaction can be derived by the learned AO. ii....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry was made by learned AO with respect to the shares issued at a premium and share application money. e. Value of share issued a required to be determined in accordance with method prescribed Under rule 11 UA (2) which says that it can be discounted cash flow method wherein the valuation derived is Rs. 569.17 per share or as may be substantiated by the company to the satisfaction of the AO wherein the valuation report shows the value at Rs. 312.82 per share, whichever is higher of these two valuation should be adopted. Accordingly the value of share can be 569.17 per share. Thus there is no prejudice caused to the revenue. f. He relied upon several judicial precedents. He referred to the decision of coordinate bench in case of Deputy Commissioner of income tax versus Credtalpa 134 Taxmann.com 223 that the law does not given authority to the learned assessing officer to pick and choose one of the methods of the share valuation and make the addition. He further relied upon the decision of the honourable Bombay High Court in case of Vodafone M Pesa limited versus principal Commissioner of income tax 92 taxmann.com 73 stating that the valuation basis has to be the dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for making roving and fishing inquiries which have already been concluded by the AO only for the reason that it is not carried out in the manner, learned PCIT thinks. Once again he relied upon the decision of the honourable Bombay High Court in case of CIT versus development credit Bank Ltd 323 ITR 206. h. He also justified that that share application money should be included in the net worth calculation made by the independent valuer. He referred to the provisions of the companies act and explained to us that how the valuation of share is required to be made to compute the net worth. He stated that the rule 11 UA (2) the shares are to be valued at book value and it does not require to exclude share application money. According to him it requires to reduce book value of liabilities only. He placed reliance on the decision of the coordinate bench in case of reliance payment solutions Ltd versus PCIT to submit that revision powers u/s 263 cannot be invoked merely because AO did not give specific reasons for accepting assessee's submissions. i. He specifically submitted that for assessment year 2014 - 15 assessee issued 97,000 shares on 27th of March 2014, in assessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed principal Commissioner of income tax u/s 263 of The Income Tax Act is proper or not. 013. The first claim made by the learned authorised representative is that during the course of assessment proceedings the learned assessing Officer has completely examined issue of shares at a premium. The first notice u/s 142 (1) of the act was issued by the learned assessing officer on 22/8/2016 which is placed at page number 6 of the paper book number one wherein at paragraph number 26 the learned assessing officer asked the assessee to furnish the details of unsecured loans, share capital raised and sale application money. The AO asked to file confirmation in respect of loans, share capital, share application money received during the year along with documentary evidences to prove that the identity, creditworthiness and capacity of the investors. The assessee replied on 20 October 2016 which is placed at page number 1 of the paper book number 1, per para 26 assessee submitted that assessee has received share application money of Rs. 28.62 crores, party was details of the same is attached herewith. Further on 15 December 2016 a letter was addressed to AO placed at page number 102 of the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st of December 2013. The valuation of share has been made as Under:- (In lakhs) serial number Particulars As at 31st of March 2013 (audited) As at 31 December 2013 (9 months on audited) 1 Shareholders' fund Equity share capital 317.86 317.86 Reserve and surplus 8859.55 9625.18 Share application money [ 715500 shares @ Rs 400/- each ] 0 2862 Net worth (shareholders funds 9177.41 12,805.04 2 Number of equity shares 31,78,550 31,78,550 3 Value per share 288.73 402.86 015. On examination of the above working, the learned principal Commissioner of income tax was of the view that despite there is no substantial change in the business of the assessee the share valuation has gone up from Rs. 288.73 to Rs. 402.86. This is only because of the reason that while valuing the shares as on 31 December 2013, valuer has taken share application money as a shareholders' funds and therefore the value of number of shares (existing) have gone up. The issue will arise that whether inclusion of share application money in the net worth....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be substantiated 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, whichever is higher; 017. However, in present case, the valuation made by the assessee is not in accordance with Rule 11UA , as assessee tried to increase the valuation by inclusion of share application money in net worth or consequently not increasing the total issued capital. Thus, it did not satisfy Clause (i) of above explanation. Further clause (ii) was not at all looked by AO with respect to other valuation, so there is no question of reaching at any satisfaction by LD AO. 018. Nothing was shown to us that on the issue of inclusion of share application money in net worth of the assessee and not increasing the number of shares or equity share capital by that amount while preparing valuation of shares can have two opinions. Therefore, even on that count argument of Assessee fails. 019. The argument of the assessee that in subsequent years' assessment....