TaxTMI 
TaxTMI 
TaxTMI 
2023 (7) TMI 728
X X X X Extracts X X X X
X X X X Extracts X X X X
....rties, we noticed that the delay is caused due to the lockdown enforced by the Government of India due to Covid-19 pandemic. The delay in filing the appeal is due to proper reasoning accordingly the delay is condoned. 4. Brief facts of the case are, assessee filed its return of income on 30.09.2015 declaring total income of Rs.. Nil and claimed loss of Rs.. 1,04,62,533/- and the return was processed u/s. 143(1) of Income-tax Act, 1961 (in short "Act"). Subsequently case was selected for scrutiny under CASS. Accordingly, notices u/s. 143(2) and 142(1) were issued and served on the assessee. In response authorized representative of the assessee attended and submitted the relevant information as called for. 5. Assessee is engaged in the business of online retail sale of pharmaceuticals, medical and orthopedics goods and toiletry articles. The company is incorporated on 11.06.2014 i.e., in the current Assessment Year. Assessee declared income under the head income from Business and Profession. During the current assessment year assessee has issued shares at a face value Rs.. 10/- with a premium of Rs.. 1240/-. Assessing Officer issued notice u/s. 142(1) of the Act to the assessee ask....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther conditions currently prevailing and the information made available to them. It should be understood that the subsequent developments may affect their views and that they are under no obligation to update, revise or reaffirm the views expressed by them in this report. Further, he observed that the valuation report was obtained from Chartered Accountant whereas as per rule, they are supposed to obtain from a Merchant Banker. 7. With the above said observations, Assessing Officer observed that the valuation done by the valuer cannot be accepted both on the reasonable and technical ground. The entire value of share premium received of Rs.. 3,87,47,520/- on allotment of 31248 shares is considered in excess of fair market value of shares of Rs.. 10 per share. Therefore the premium received is considered excess in view of the section 56(2)(viib) of the Act and the same was added to the total income of the assessee. 8. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) and before the Ld. CIT(A) assessee submitted as under: - (i). The Valuation Report prepared by the Accountant gives detailed scientific reasoning for arriving at the Fair Market Value of the share premium....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re all fact based where facts of each case are different. In the present case, the premium charged on a share of Rs. 10/- is Rs. 1240/- per share, i.e. the premium is 124 times more than the face value of shares. From perusal of the facts of the case, it is obvious that there is no justification or scientific basis for the shares of the appellant company to command a premium of Rs. 1240/-. After considering the totality of the facts and the position of law, I have come to a conclusion that the AO has rightly made this addition. Ground of appeal no. 2 is dismissed." 10. Aggrieved, assessee is in appeal before us raising following grounds in its appeal: - "(1) The Ld. CIT(Appeal) has erred in law and on the facts of the case in confirming the action of the Assessing Officer in taxing share premium of Rs. 3,87,47,520 as Income under section 56(2)(viib) of the Income Tax Act. The action is unjustified and unwarranted. Without prejudice, the addition is excessive. (2) The Ld. CIT(Appeal) has erred in law and on the facts of the case in confirming the action of the Assessing Officer in rejecting in toto the valuation by Chartered Accountant under Rule 11UA of the Income Tax Rules....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ingly he rejected the valuation report with the above observation as well as the valuation report should have been obtained from the merchant banker rather than the Chartered Accountant firm. Even Ld.CIT(A) has sustained the additions as well as findings of the Assessing Officer. We have considered the issue under consideration carefully and we observe that in the first year of operation assessee has issued 31248 shares with a premium and valued by adopting one of the method approved in the Rule 11UA of the I.T. Rules. As per the facts on record we observe that assessee has selected one of the method approved in the Rule 11UA of I.T. Rules and it is supposed to get report from merchant bankers but assessee has taken the report from Chartered Accountant Firm. Except the report obtained from the Chartered Accountant Firm assessee has followed the due process of law. 14. With regard to the disclaimer made by the valuer it is a standard practice of the Valuer's to give a disclaimer in any report issued by them and merely based on the above said disclaimer Assessing Officer carried away with the disclaimer and made the disallowance u/s. 56(2)(viib) of the Act. Before us assessee has fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he fair market value, the past history may or may not be available in a given case and therefore, the other relevant factors may be considered. The projections are affected by various factors hence in the case of company where there is no commencement of production or of the business, does not mean that its share cannot command any premium. For such cases, the concept of start-up is a good example and as submitted the income-tax Act also recognized and encouraging the start-ups." DQ (International) Ltd. vs. ACIT (ITA 151/Hyd/2015) "10...... In our considered view, for valuation of an intangible asset, only the future projections along can be adopted and such valuation cannot be reviewed with actuals after 3 or 4 years down the line. Accordingly, the grounds raised by the assessee are allowed". The aforesaid ratios clearly endorsed our view as above. 34. In any case, if law provides the assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected because neither the Assessing Officer nor the assessee have been recognized as expert under the law. 35. There is another very important angle to view such cases, is th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve, the AO held that the valuer has not independently valued the prospects of the assessee company and has merely relied on the information supplied by the assessee company. Based on the above as also the finding that actual performance was very far away from the projections in the report thereby the projections were not scientific and management provided figures as suitable to them for charging premium on shares, the AO himself computed the fair market value of shares and made addition of Rs. 207.99 cr. u/s. 56(2)(viib), In considering the above facts, the ITAT relying upon the decision of Delhi ITAT in Cinestaan Entertainment P. Ltd. v. ITO, Delhi Bench 'B', ITA No.8113/Del/2018, AY 2015-16, order dated 27.05.2019 held as under- "18. Considered the rival submission and material placed on record, we notice from the records that assessee has issued rights shares to its shareholders with share premium after duly valuing the shares based on DCF method and the valuation was done by a merchant banker. At the time of assessment proceedings, assessee has submitted valuation report and the AO verified the valuation report and found that all the projections and other informatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to value the valuation of shares or other volatile securities. Since, Ld. CIT(A) has compared the factuals with projections and assessee has achieved 40% of the actual results is too harsh to the assessee and the valuation is done in order to carry out certain activities by the management. In this case, the valuation was used to issue of rights shares. The AO or Ld. CIT(A) is trying to evaluate the accuracy of the valuation at the time of assessment, this is not proper and also the factuals are based on so many factors subsequent to adoption of projection and valuation. Accordingly, we are not in a position to accept the method adopted by Ld. CIT(A)." Delhi ITAT in case of M/s. Clearview Healthcare P. Ltd. v. ITO, ITA No.2222/Del/2019, AY 2014-15, order dated 03.01.2020-wherein it is held as under- "5. I have heard both the parties and perused the relevant records especially the orders of the revenue authorities and the case law cited by Ld. Counsel for the assessee. I find that assessee has continuously impressed on one significant basic factual aspect to establish the correctness of share premium obtained u/s 56(2)(viib) of the Act by stating that on 01/12/2014 (during AY 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....memorandum to Finance Act, 2012 by which stated provision was brought into the law and stated share premium is a clean money and so is not covered within provisions of section 56(2)(viib) of the Act (legislative intent is to apply said provision where money received is not clean and is unaccounted money received in garb of share premium where as no where it is case of revenue that stated money is not clean money. For the sake of convenience, I am reproducing the legislative intent behind section 56(2)(viib) inserted by Finance Act 2012 as under:- "As per memorandum explaining provisions to Finance Bill 2012: "....Share premium in excess of the fair market value to be treated as income Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head "Income from other sources". It is proposed to insert a new clause in section 56(2). The new clause will apply where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face val....