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2023 (7) TMI 1452
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....disposed of by this common order for the sake of convenience and brevity. 2. At the very outset, the ld. counsel for the assessee withdrew Cross Objections filed by the assessee. Therefore, the same are dismissed as withdrawn. 3. The peculiar facts for A.Y 2014-15 are that the impugned appeal by the Revenue in ITA No. 1721/DEL/2022 is for the assessment order framed pursuant to the direction of the PCIT u/s 263 of the Income-tax Act, 1961 [the Act, for short] and that order of the PCIT u/s 263 of the Act is under challenge in appeal before us by the assessee in ITA No. 2014/DEL/2021. 4. For the sake of our convenience, we would first address the appeals by the Revenue on the merits of the case. 5. Briefly stated, the facts of the case are that the assessee is a company incorporated under the Companies Act, 1956 and is engaged in the business of running, owning, establishing, taking over, run on lease all kinds of hotels, resorts, restaurants, holiday camps and other hospitality services in this regard. The assessee company was constructing hotels under the brand name of Novotel and Pullman in Aerocity, New Delhi and for the said purpose, it had entered into an agreement....
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....f receipt of money for issue of shares apart from the valuation report of the Chartered Accountant. 11. While completing assessment u/s 143(3) of the Act, the Assessing Officer discarded valuation of shares as submitted by the assessee. The Assessing Officer was of the firm belief that as the shares are issued at premium and value at which shares were issued was higher than the value determined u/s 56(2)((viib) of the Act r.w.r 11UA of the Rules, excess of the issue price over the value determined has to be assessed to tax u/s 56(2)(viib) of the Act. Consequently, the Assessing Officer made addition of Rs. 17,53,37,194/- qua investment towards equity received from the resident investor. 12. Similarly, for A.Y 2015-16, addition was made to the tune of Rs.39,34,10,900/-. In 2016-17, addition amounted to Rs. 58,20,07,914/- and in A.Y 2017-18 addition of Rs. 13,41,47,939/- was made. 13. Since the underlying facts in all the additions were identical, the ld. CIT(A) decided to dispose the appeals of the four A.Ys by a common order. 14. After considering the facts and submissions and finding that the valuation of shares is duly supported by a valuation report as per Rule 11UA ....
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.... Officer. Referring to the decision of the Hon'ble High Court of Delhi in the case of Cinestaan Entertainment [supra] the ld. DR pointed out that in that case since no alternative method of valuation was provided, the Hon'ble High Court accepted the discounted cash flow method. 17. Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities. It is the say of the ld. counsel for the assessee that the NAV applied by the Assessing Officer for determining the Fair Market Value is full of mathematical errors and if those mathematical errors are corrected, there would be no difference between the value adopted by the assessee and the valuation adopted by the Assessing Officer. 18. We have given thoughtful consideration to the orders of the authorities below. The entire quarrel revolves around the determination of fair market value of the shares. At the very outset, it has to be understood that the assessee has not issued and allotted shares to strangers but the shares have been issued to the existing promoters and existing shareholders. Therefore, the question of identity goes into oblivion. 19. Provisions of section 56(2)(vi....
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....gnized stock exchange shall be estimated to be the price it would fetch if sold in the open market on the valuation date and the appellant may obtain a report from a merchant banker or an accountant in respect of such valuation. (2) Notwithstanding anything contained in sub-clause (b) of clause (c) of subrule (1), the fair market value of unquoted equity shares for the purposes of sub clause (1) of clause (a) of Explanation to clause (vub) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the appellant, namely:- (a) The fair market value of unquoted equity shares = (A-L) XPV PE Where, A = book value of the assets in the balance sheet as reduced by any amount of tax paid as deduction or collection at source of as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance sheet as asset including unamortized amount of deferred expenditure which does not represent the value of any asset L= book value of liabili....
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....For the purposes of this rule and rule 11UA- (b) balance-sheet", in relation to any company, means- (1) for the purposes of sub-rule (2) of rule 11UA, the balance- sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under section 224 of the Companies Act, 1956 (1 of 1956) and where the balance-sheet on the valuation date is not drawn up, the balance-sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company; "valuation date" means the date on which the property or consideration, as the case may be, is received by the appellant." (emphasis supplied)" 20. From the above, we understand that the valuation of an unquoted equity shares in terms of Rule 11UA of the Rules can, at the option of the assessee, be determined as per either NAV Method or as per Discounted Free Cash Flow Method, which means that the option is given to the assessee and o....
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....7) Total Reserve & Surplus (INR)-(B) 516,247,160 839,243,174 516,247,160 839,243,174 Total Net Assets-(C=A+B) 3,566,483,380 3,950,550,364 516,247,160 839,243,174 Number of share (as per Note 3 of balance sheet) Equity share (Number) @ 10 each 6,689,222 12,796,319 6,689,222 12,796,319 Pref Share (Number) @ 100 each 29,833,440 29,833,440 29,833,440 29,833,440 Number of Convertible preference share computed @ INR 10 BY AO whereas actual Face Value of Preference 24. From the above chart, it can be seen that the Assessing Officer has not even considered equity and preference share capital. Further, number of convertible preference shares have been computed by the Assessing Officer @ Rs. 10/- whereas the actual face value is of Rs. 100/- per share. Because of these gross mathematical errors, the Assessing Officer computed the NAV as per....
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.... out by Mr. Vohra, the shares in the present scenario have not been subscribed to by any sister concern or closely related person, but by outside investors. Indeed, if they have seen certain potential and accepted this valuation, then Appellant-Revenue cannot question their wisdom. The valuation is a question of fact which would depend upon appreciation of material or evidence. The methodology adopted by the Respondent-Assessee, accepted by the learned ITAT, is a conclusion of fact drawn on the basis of material and facts available. The test laid down by the Courts for interfering with the findings of a valuer is not satisfied in the present case, as the Respondent-Assessee adopted a recognized method of valuation and Appellant-Revenue is unable to show that the assessee adopted a demonstrably wrong approach, or that the method of valuation was made on a wholly erroneous basis, or that it committed a mistake which goes to the root of the valuation process. 14. In view of the foregoing, we find that the question of law urged by the Appellant-Revenue is purely based on facts and does not call for our consideration as a question of law. 15. For the foregoing reasons,....