TaxTMI 
TaxTMI 
2024 (2) TMI 604
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....n 143(2) and 142(1) of the Act were issued and served on the assessee, in response assessee filed the details through e-proceedings. 3. The assessee is engaged in providing technology enhancement in respect of legal courses for training and skilling. During the course of assessment proceedings, Assessing Officer observed that assessee is issued shares with huge premium during the year under consideration. It was observed that the shares were issued to three (3) shareholders with the face value of Rs..10/- and premium of Rs..495.58/- per share. During the course of assessment proceedings, the assessee was asked to justify the issue of shares at premium. 4. In response, assessee vide letter dated 04.12.2019 filed the submissions on 18.12.2019 along with the valuation report dated 02.09.2016. The Assessing Officer has reproduced the part of valuation report at Page No. 4 and 5 of the assessment order. After considering the valuation report the Assessing Officer observed that the valuer has adopted the Net Asset Value Method and revalued the investments shown in the books of the assessee company which is in the form of equity investments in M/s. Mylaw Learning Resources Private L....
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....te Limited) is a holding company and owns 100% Shares of its step-down subsidiary i.e. Mylaw Learning Resources Private Limited (also known as 'rainmaker Learning Resources Private Limited"). 2. As per the Share subscription agreement dated 19th September 2016 entered between the investor and the Company. In the First Paragraph itself it refers to the business in the subsidiary as under- A The Company is a private company limited by shares engaged in inter alia developing learning resources for law students and legal professionals and is the holding company of Rainmaker Learning Resources Private Limited ("Mylaw), which operates and manages www.mylaw.net.... 3. Further the Point No. 5.2 of the said agreement read as under:- 5.2 The Company also confirms that it is putting place an advisory board for the myLaw business and sould look to invite various investors. including the Investor, to the advisory board so as to benefit from their experience and suggestions for the myLaw business moving forward. Thus it is quite evident that it is not a simple case of sale and purchase of shares but is a case of Sale of Business which is emanating....
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.... however as the actual business operation is with the Subsidiary Company and the Cash Flow Projection of the Subsidiary Company has been considered and the Valuer has clearly mentioned that he has followed Cash Flow procedure for the purpose of arriving at the FMV of Investment. Hence to arrive at the conclusion that the value of equity shares is not in accordance with prescribed Income Tax rule 11UA is not correct. 08. The Cash Flow Projections, which incidentally, a consolidated Cash Flow with regard to Business, as the Holding Company does not have any Business was part of the report and is duly certified by the Chartered Accountant. 09. The Company has raised investments previously as well and the valuation of the shares of the Company was scrutinized in the earlier years as well. Copy of the assessment order for A.Y. 15-16 & 14-15 are enclosed herewith for your reference. 10. Even in earlier years the same methodology has been followed by the Company and has been accepted by the Department. Hence as a matter "principle of consistency should be followed by the department. We relied on the following case laws in support of the Principal of Consistency:....
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....quity share of the company." 9. The Assessing Officer proceeded to revalue the shares of the assessee company by adopting the Net Asset Value Method and arrived at the fair market value per share at Rs..284.36/-. Accordingly, he came to the conclusion assessee has charged excessive premium of Rs..222.22/- per share. Accordingly, he disallowed Rs..65,79,934/- and added to the income of the assessee. 10. Aggrieved assessee preferred appeal before the Ld. CIT(A) and filed detailed submissions before him. After considering the detailed submissions, Ld. CIT(A) dismissed the appeal filed by the assessee by observing as under: - "7. While it is accepted that it is appellant's discretion to adopt a method for valuation of shares best suited to it but the fact of this case are different. Here, there is no business, as also acknowledged by the appellant in the holding company. More importantly, the appellant cannot adopt hybrid method by pick and choose, as per its suitability, selecting NAV for its asset and liabilities and DCF method for subsidiary company. Further, here the applicant has issued 29,610 fresh equity shares of the company to 3 persons and no shares were tr....
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....8.2019. 14. Considered the rival submissions and material placed on record, we observe from the record that assessee is a holding company of wholly owned step down subsidiary (MLRPL) and we observe from the record that all the education and training activities are carried through wholly owned subsidiary company and assessee is merely a holding company not carrying on any activities. The assessee decided to issue shares to the new investors for that purpose assessee has revalued the business and it has taken a valuation report from a qualified valuer and the valuer has adopted Discounted cash flow Method for the purpose of valuing the wholly owned subsidiary company and adopted the value determined by him for the subsidiary company for which assessee was holding shares of 49999 shares in its balance sheet. While valuing the shares of the assessee company the valuer has adopted Net Asset Value and replaced the value of investments which was Rs..348.26 lakhs and replaced with Rs..1752.73 lakhs. While valuing the shares of the assessee company he has adopted Net Asset Value Method to value the shares at Rs..506.72 per share. Accordingly, the shares were issued to the new investors. ....
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....lly owned subsidiary company was carried out on the basis of Discounted cash flow Method which is one of the approved method under Rule 11UA of I.T. Rules. 19. Coming to the valuation of assessee's company since the assessee does not carrying out any activity except investments in subsidiary company most of the assets and liabilities are at historical cost except there may be changes in the investments made by the assessee in its subsidiary companies. The value of investments will not remain same and as per the new Accounting Standards the valuation of subsidiary has to be made every year. The value of shares of subsidiary company will change every year based on its performance. Therefore, the assessee has valued its shares adopting one of the methods mentioned under Rule 11UA of I.T. Rules i.e., Net Asset Value Method for its own shares and the variables in its balance sheet i.e, investments made in subsidiary company which was revalued based on Discounted cash flow Method which is also one of the approved method under Rule 11UA of I.T.Rules. Therefore, the method adopted by the assessee to value its own shares are within the method prescribed under Rule 11UA of I.T. Rules. ....