TaxTMI 
TaxTMI 
TaxTMI 
2024 (6) TMI 649
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....siness of energy and infrastructure development and has received approval from TANGEDCO to set up 50MW solar plant in Tamil Nadu. The assessee filed its return of income declaring total income at 'Nil' for AY 2016-17 in question. The return filed by the assessee was subjected to scrutiny assessment under Section 143(3) of the Act. 3.1 During the course of the assessment proceeding, the AO inter alia observed that the assessee has issued and allotted 1,00,000 Optional Convertible Preference Shares (hereinafter referred to as 'OCPS') @ 1,000/- per OCPS to subscriber M/s. Hindustan Clean Energy Ltd. and received premium of Rs. 9,90,00,000/-. The assessee clarified that it has received funds of Rs. 10 cr. for its flagship Solar power plant in the state of Tamil Nadu from its 100% holding company viz Hindustan Clean Energy Ltd. against which the assessee co. has allotted 1,00,000 Optionally Convertible Preference Shares (OCPS) of Rs. 1000/- having a face value of Rs. 10 at a premium of Rs. 990/-. The AO did not find the premium charged on issue of OCPS to be justifiable and thus rejected the FMV declared by the Assessee. The AO recomputed the Fair Market Value (FMV) of OCPS at Rs. 639.....
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....ining the F.M.V. in accordance with Rule 11UA(1)(c)(c)/DCF Method. 4.2 Assessing Officer however, computed the F.M.V. on Net Assets Value at Rs. 639.17 per OCPS and considered the balance @ 360.83 per OCPS as excess premium and added the same u/s 56(2)(viib) of the Act. 4.3 After considering the totality of the facts and circumstances of the case, provisions of Law and decided cases, it is noticed that the facts and circumstances of the case, issues and applicable provisions of Law to the present case are covered by various cases relied upon by the appellant. 4.4 I have seen the balance sheet of the appellant and the assessment order. It is noticed that in the assessment order at page number 10 the AO has rightly taken the net asset value for shareholders, i.e. Rs. 1,77,42,664/- But denominator of 27759 number of shares is not correct. Because there are 10,000 equity shares and 17,759 OCPS, which are not equivalent. In this regard, balance sheet needs to be referred where number of shares outstanding as on 31.03.2015 are given, in point no. (d) of note 2 of the balance sheet it is cleared mentioned that every OCPS will be converted into 100 equity shares which means 1 OCPS is....
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....then same cannot be discarded to impose other option. The assessee's option has been rejected by the Ld. CIT(A) on the ground it does not stand the test of one of option, which he deems fit. Not only that valuation method adopted by the assessee to value its underlying asset, that is, Mail Today shares has been rejected on the ground that DC method applied is not correct. DCF method is a recognized method where future projections of various factors by applying hindsight view and it cannot be matched with actual performance, and what Ld. CIT(A) is trying to do is to evaluate from the actual to show that the Company was running into losses, therefore, DCF is not correct. Valuation under DCF is not exact science and can never be done with arithmetic precision, hence the valuation by a Valuer has to be accepted unless, specific discrepancy in the figures and factors taken are found. Then AO or CIT (A) may refer to the Valuer to examine the same." 4.7 As per various tribunal orders, it was held that as per Rule 11UA(2), assessee could opt for DCF method and if assessee had so opted for DCF method, AO could not discard the same and adopt other method i.e. NAV method of valuing shar....
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.... taken into account. 6.1 The Revenue has controverted the action of the CIT(A) on the touchstone of Section 56(2)(viib) of the Act towards allotment of OCPS to the subscriber M/s. Hindustan Clean Energy Ltd. which is the existing shareholder, holding 100% of the equity shares of the assessee-company as a holding company. On facts, the defense of the assessee are three fold (a) the OCPS has been subscribed and allotted to its 100% holding co. and therefore the deeming fiction of s. 56(2)(viib) to charge the capital receipts to taxation is not applicable at the threshold (b) the compulsory convertible preference shares issued at similar premium which were to be compulsorily converted into equity shares was accepted in the completed assessment of earlier year. Such facts are a matter of record with only discernible difference this year being, the assessee in the instance has the 'option' available for conversion into equity shares within specified period whereas in the earlier year, the conversion was built mandatory in the issue of CCPS without any option (c) while the face value of pref. share is Rs. 10 at a premium of Rs. 990 per OCPS, however if the option is exercised, the subsc....
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....inter alia observed that the deeming clause requires to be given a schematic interpretation. The transaction of allotment of shares at a premium in the instant case is between holding company and it is subsidiary company and thus when seen holistically, there is no benefit derived by the assessee by issue of shares at certain premium notwithstanding that the share premium exceeds a fair market value in a given case. Instinctively, it is a transaction between the self, if so to say. The true purport of Section 56(2)(viib) was analyzed in Ozone case and it was observed that the objective behind the provisions of Section 56(2)(viib) is to prevent unlawful gains by issuing company in the garb of capital receipts. In the instant case, not only that the fair market value is supported by independent valuer report, the allotment has been made to the existing shareholder holding 100% equity and therefore, there is no change in the interest or control over the money by such issuance of shares. The object of deeming an unjustified premium charged on issue of share as taxable income under Section 56(2)(viib) is wholly inapplicable for transactions between holding and its subsidiary company whe....