TaxTMI 
TaxTMI 
2024 (11) TMI 697
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt Year 2015-16 on 31.10.2015 declaring the loss of Rs. 1,34,25,127/-. 4.2 During the Financial Year 2014-15, the petitioner had issued 3,59,500 equity shares of Rs. 10/- each, at a premium of Rs. 143/- totaling to premium collected at Rs. 5,14,08,500/-. 4.3 Notices under section 133 (6) of the Income Tax Act,1961 [for short 'the Act'] were issued by the Income Tax Officer on 01.09.2017, 14.09.2017, 26.09.2017 and 20.05.2019 to conduct inquiry into the issuance of such share capital at such valuation. The petitioner filed replies to each of the notices issued under section 133 (6) of the Act. 4.4 It appears that the return filed by the petitioner was not taken for scrutiny and intimation under section 143 (1) of the Act was issued. 4.5 The respondent No. 1-Assessing Officer has issued impugned notice under section 148 of the Act on 29.03.2021 asking the petitioner to file a return of income for A.Y. 2015-16. The petitioner filed return in response to the notice under section 148 of the Act on 03.01.2022 and sought reasons recorded for reopening. 4.6 The respondent No. 1 provided reasons to the petitioner on 04.02.2022 which reads as under: "1. Brief details ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....edings before ITO(I&CI), it seen that the assessee has not achieved the goal what they have targeted for. Hence, difference of Rs.80/(as per Net Asset Value Rs.73)and as per DCF Rs. 153/-) per share required to be added per share. 4. Enquiries made by the AO as sequel to information collected/ received: During the AY 2015-16, Since, assessee had sold 359500 shares, amount of Addition comes the to Rs. 2,87,60,000/-which is required to be added u/s. 56 (2) (vii} (b) of the IT Act." 4.7 On receipt of the reasons recorded, the petitioner filed objection with respondent No. 1 on 15.02.2022 challenging the validity of the notice issued under section 148 of the Act. Respondent No. 2 disposed of the objections of the petitioner by order dated 03.03.202. Being aggrieved, the petitioner has preferred this petition challenging the notice issued under section 148 of the Act. 5. Learned advocate Mr. B.S. Soparkar appearing for the petitioner submitted that the impugned notice for reopening is without jurisdiction as the reasons recorded for reopening do not reflect that any income has escaped assessment. It was further submitted that the reasons recorded are fundamentall....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Income Tax vs. I.A. Hydro Energy (P) Ltd. reported in [2024] 163 taxman.com 408 wherein, it was held that when the option is given to the assessee as per Rule 11UA (2) of the Rules, the Assessing Officer can only verify the method of valuation adopted by the assessee and the same cannot be substituted by a different method. 6. On the other hand, learned Senior Standing Counsel Mr. Varun K. Patel for the respondent Assessing officer submitted that in the facts of the present case, no scrutiny assessment under section 143 (3) of the Act was made and as per the information received in the insight portal uploaded by ITO (I & CI), the assessee-company had sold 359500 shares at a premium of Rs. 143/- as against that there was a difference between the two valuation methods as prescribed under Rule 11UA (2) of the Rules and the Assessing Officer was therefore, justified in recording the reasons for issuing notice for reopening by recording reasons that there was a difference of Rs. 80/- between the Net Asset Value of Rs. 73/- per share and as per DCF of Rs. 153/- per share which has resulted into escapement of the income to the tune of Rs. 2,87,60,000/-(80X 3,59,500). 6.1 It was the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ected growth for the past three years and therefore a difference of Rs. 80/- between the two methods per share is required to be added as income of the assessee for the year under consideration. 8. The very basis of reopening adopted by the Assessing Officer is contrary to the provisions of the Act and the Rules. Section 56 (2) (viib) of the Act reads as under: "56. Income from other sources. "(1) xxx xxx xxx (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely:- xxxxxx [(viib) 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 that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE=total amount of paid up equity share capital as shown in the balance-sheet; PV=the paid up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method;..." 10. Clause (a) and (b) of the Rule 11UA (2) of the Rul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d cost of capital. In hindsight, on availability of the actual figures, if the future projections are not met, it cannot be said that the projections were wrong. To prove that the projections were unreliable, the learned Assessing Officer must examine how the valuation has been done. In a case future cash flow projections do not meet the actual figures, rejection of discounted cash flow method is not proper. If projected future cash flow and actual result matches, such situation would always be rare. For projecting the future cash flow certain assumptions are required to be made, there needs to be tested and then such exemptions becomes the base of estimation of such projected future cash flows. If there are no assumptions, there cannot be an estimate of future projected cash flows and then discounted cash flow method becomes redundant. For exercise of valuation, assumption made by the valuer and information available at the time of the valuation date are relevant. As the exercise of valuation must be viewed as on the date of the valuation looking forward and cannot be reviewed in retrospect. Further, the valuation is always made based on review of historical data and proj....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rket value can be determined to the satisfaction of the Assessing Officer. The provision provides an Assessee two choices of adopting either NAV method or DCF method. If the Assessee determines the fair market value in a method as prescribed the Assessing Officer does not have a choice to dispute the justification. The methods of valuation are prescribed in Rule 11UA (2) of the Rules. The provisions of Rule 11UA (2) (b) of the Rules provides that, the Assessee can adopt the fair market value as per the above two methods i.e., either DCF method or fair market value of the unquoted equity shares determined by a merchant banker. The choice of method is that of the Assessee. The Tribunal has followed the judgment of Hon'ble 2020 SCC OnLine ITAT 9482 Bombay High Court rendered in the case of Vodafone M-Pesa Ltd. v. Pr. CIT (supra) and has taken the view that the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a determination from an independent valuer to confront the Assessee but the basis has to be DCF method and he cannot change the method of valuation which has been opted by the Assessee. The decision of ITAT, Delhi in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the tax on such transaction. The Tribunal went further and observed that the Assessing Officer is not authorized to pick and choose a particular method of valuation of shares, since the option in that regard is specifically given only to the assessee as per Rule 11UA (2) of Income Tax Rules,that the AO can only verify method of valuation adopted by the assessee, but the same cannot be substituted by the AO by a different method i.e., NAV method, once the assessee has exercised option for the DCF valuation method. It held that the Assessing Officer was not correct in rejecting the DCF method and proceeding to value the shares by NAV method merely on the ground that there was a huge difference in projected figures and actual results available for some years. Xxxxx 18. We are of the opinion that the orders passed by the Income Tax Appellate Tribunal as well as the CIT(Appeals), are fairly comprehensive. Both of them have concurrently found that no consideration was received by the assessee-firm for allotment of the shares, therefore Section 56 (2) (viib) of the Act would not apply, and that it would have applied only if consideration was receive....