TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 966
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....hout assigning proper reasons and justification. 3. The CIT (Appeals) failed to appreciate that the appellant would squarely fall under the definition of Venture Capital Undertaking as provided u/s 56(2)(viib) read with explanation (c) of Section 10(23FB) of the Act and hence the addition made under section 56(2)(viib) was completely erroneous and not justifiable, thereby to be reckoned as bad in law. 4. The CIT (Appeals) failed to appreciate that there was no legal bar against outsourcing of activities involved in manufacturing or processing of goods while the requirement of the Appellant should be engaged in the manufacturing or processing of goods, either itself, or through some agency under its supervisory control or direction to qualify/to fall within the definition of Venture Capital Undertaking, thereby fortifying the exclusion canvasssed for the non applicability of the relevant provisions under consideration. 5. Without prejudice to the above, the CIT (Appeals) ought to have appreciated that the Discounted Cash Flow method adopted by the Appellant through an independent valuer was as per the provisions of Rule 11UA of the Income Tax Rules, 1962 and hence ought to hav....
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....2.05 crores from M/s. Fulcrum Venture India Trust (Trustee - IL & FS Trust Company Ltd) for allotment of equity shares with a premium of Rs. 22/- per share. The assessee has justified issue of share premium at Rs. 22/- per share with the help of valuation report from an independent auditor. The AO, rejected explanation furnished by the assessee and according to the Assessing Officer, the assessee could not justify value of shares at Rs. 32/- per share. Although, it has followed discounted cash flow (DCF) method to determine the share price, but there are some infirmities in projections considered by the assessee to arrive at a free cash flow, where the projected turnover and profit before tax considered by assessee for assessment year 2016- 17 & 2017-18 is much higher than the actual turnover achieved for two assessment years. Therefore, rejected valuation report submitted by the assessee and determined fair value of equity shares under rule 11UA of the I.T. Rules, 1962 by adopting Net Asset Value (NAV) method and determined per equity share price at Rs. (-)6.15. Since, the face value of equity shares issued by the assessee is at Rs. 10 per share, excess consideration received over....
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.... It may be seen from the above that the appellant is only purchasing the products manufactured by Puneet for marketing. Thus. the appellant is not manufacturing any goods on its own but only intended to market the products manufactured by another entity called PUNE:ET. The appellant cannot therefore be considered as a manufacturer of any goods and would not fall within the definition of Venture Capital undertaking and consequently the provisions of section 56(2l(viib) would apply. As already stated supra, the AR has not given any valid reasons against the rejection of the DCF method and its valuation given in the valuer's report and therefore the same has to be upheld. The AR has relied on the decision of the Mumbai Bench in the case of M/s Ozoneland Agro P Ltd.. In this case, the ITAT has held that the AO cannot compel an assessee to adopt a particular method of valuation. Under Rule 11UA, an assessee can opt either the value as per Net asset value or discounted cash flow method (DCF). ln the appellant's case, the AO has not adopted a different method for valuing the shares. In other words, the AO has not adopted the net asset value while rejecting the value shown by the appe....
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....sustain additions made towards disallowance of share premium u/s. 56(2)(viib) of the Act. In this regard, he relied upon the decision of ITAT, Chennai Benches in the case of S.A. Metro Plots (P) Ltd vs ITO [2022] 144 Taxmann.com 173. 8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee has received share premium for allotment of equities and such share premium has been justified with the help of valuation report submitted by an independent auditor. The assessee has followed DCF method for determination of share price. The AO made additions towards excess premium over and above face value u/s. 56(2)(viib) of the Act, on the ground that the assessee could not justify valuation of shares under DCF method with necessary financials. According to the AO, there is a big difference between projected financials for assessment year 2016-17 & 2017-18, when compared to actual financials for these two assessment years. Therefore, he has rejected DCF method and has adopted NAV method and determined fair value per share at Rs. (-)6.14 per equity share. Since, the assessee has charged premium over and above fair va....
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.... to projected free cash flow and actual cash flow. Therefore, we are of the considered view that the issue needs to go back to the file of the AO to re-examine method followed by the assessee to arrive at fair market value of equity shares and this view is supported by the decision of ITAT, Chennai Benches in the case of S.A. Metro Plots (P) Ltd vs ITO (supra), where the Tribunal under identical set of facts which is held as under: "6. After careful consideration of factual matrix, it could be gathered that during this year, the assessee has converted compulsory convertible preference shares (CCPS) into equity shares of Rs.100/- each along with hefty premium of Rs.1500/- per share. The book value of the shares, as computed by Ld. AO work out to around Rs.103/- per share and hence, the differential has been added to the income of the assessee u/s 56(2)(viib). In support of valuation, the assessee has furnished valuation report wherein valuation has been done on the basis of DCF valuation. The valuation has been found to be flawed since the projections grossly vary with actual financial results. The Ld. AO observed that the projection was purely based on surmises and guesswork only....