AI Drafter 
TaxTMI 
TaxTMI 
2025 (4) TMI 541
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.... 143(3) 4 16/PUN/2024 2017-18 14.11.2023 Rs.9,25,05,871/- 143(3) 5 17/PUN/2024 2018-19 14.11.2023 Rs.3,79,79,669/- 143(3) r.w.s.143(3A) & 143(3B) 2. Since identical grounds have been raised in these appeals we therefore proceed to dispose of these appeals by this consolidated order for the sake of convenience. 3. In ITA No.13/PUN/2024 for the A.Y.2014-15, assessee has raised following grounds of appeal : "1. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in sustaining the reassessment order passed by Ld. AO under section 147 of the Act which is without jurisdiction, illegal and thus, the said reassessment order deserves to be quashed and set aside. 2. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in sustaining the reassessment order passed by Ld. AO under section 147 of the Act which was reopened based on the change on opinion without bringing any fresh tangible material on record and thereby further erred in overlooking the fact that the issue of taxation of share premium was duly examined during the course of original as....
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....g the illegal actions of Ld. AO in disregarding DCF method and thrusting NAV method, to compute the FMV of shares issued by the Appellant from time to time; and thereby, working out extra share premium and holding the same as taxable u/s 56(2) (viib) of the ITA, 1961. 10. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in upholding the action of Ld. AO in not appreciating that choice of a valuation method, as per Rule 11UA(2) rests with the Appellant Company and not with the AO and hence, Ld. AO as well as Ld. CIT-Appeal has erred in computing the FMV by applying the NAV method. 11. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in not referring the matter of valuation of shares of the Appellant Company through the office of Departmental Valuation Officer u/s 55A of ITA, 1961 and has further erred in assigning cryptic and incorrect reasoning while dismissing this ground which incorrect and hence, bad-in-law. 12. On the facts and in the circumstances of the case, Ld. CIT-Appeal/ AO has erred in law and on facts, in rejecting the valuation report given by M/s ....
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....g proper trail of funds, and ensuring all tax compliances, etc., Ld. AO should not have made said addition. 6. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in not adjudicating and considering the additional evidences submitted by the Appellant during the course of appellate proceedings and thereby has erred in sustaining the addition made by Ld. AO and hence, the said addition as well as orders deserve to be quashed. 7. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in upholding the illegal actions of Ld. AO in disregarding DCF method and thrusting NAV method, to compute the FMV of shares issued by the Appellant from time to time; and thereby, working out extra share premium and holding the same as taxable u/s 56(2) (viib) of the ITA, 1961. 8. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in upholding the action of Ld. AO in not appreciating that choice of a valuation method, as per Rule 11UA(2) rests with the Appellant Company and not with the AO and hence, Ld. AO as well as Ld. CIT-Appeal has erred in c....
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....ON of the project property. For the year under consideration, i.e. 2014-15, assessee company declared nil income in the return of income filed on 29.09.2014. Case processed u/s. 143(1) of the Act and subsequently after being selected for scrutiny, order u/s. 143(3) of the Act was passed on 21.06.2016. Since the assessee did not submit relevant details as called for during the regular assessment proceedings inspite of giving several opportunities and assessment proceedings getting time barred, ld. AO had reason to believe that income of the assessee has escaped assessment within the meaning of section 147 and initiated the reassessment proceedings after taking prior approval from the concerned authority. The main reason for reopening was that the assessee issued the shares at a share premium of Rs. 85.057 whereas the value of each share as per NAV method was Rs. 19/-. Ld. AO accordingly after issuing proper reasons to believe reopened the assessment and validly issued the notices required for carrying out the re-assessment proceedings. During the course of re-assessment proceedings, ld. AO only focussed to the issue of Fair Market Value (FMV) of the shares issued by the assessee com....
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....ncerns and either transferred out back to them or invested in other non-current investments. Thus neither the funds nor assets are owned by assessee. (v) The assessee has not submitted as to how by any stretch of imagination, inspite of various hurdles as discussed and explained by the assessee as above, it was possible to complete and construct a 75 bed hospital or later 119 bed hospital (Which naturally requires considerable construction time and time for machinery and equipments installation) complete with all permission and approval by F.Y. 2013-14, so as to generate the revenue as per DCF valuation. Even the ITR filed by the assessee does not show any revenue till A.Y. 2018-19. While it is true that projection need not meet actual but projection should be logical and possibility should exits at the time of making them. The assessee has cursorily just stated that the construction work is in progress at the time of assessment proceedings ongoing u/s 143(3) of IT Act earlier. In this context, the landmark judgment of the Honorable Supreme Court in the case of Sumati Dayal Vs CIT (SC) 214 ITR 801 wherein it is observed that "the apparent must be considered as real until i....
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....ubmitted under DCF method, it is seen that the valuer has relied upon the future projections of the revenue and profit given by the management and has not conducted any independent enquires. More revenue and profit as projected by management, has been adopted as such by the valuer CA so as to show more free cash flow to arrive at a pre-determined price of share and, for that matter such price per share was not even determined in the valuation report of the CA as per DCF method submitted during the course of the assessment proceedings: iii. It is further seen from the verification of the valuation report that huge projection of the revenue and profit were made to create free cash flow even though, as a matter of fact assessee did neither own any land and, it was taken on lease from group company only on 02-03-2015 vide registered agreement. Thus, the construction of Hospital did not commence at least till 02.03.2015 and thus, projections of revenue done were not correct. iv. In the valuation report dated 10.01.2014, the revenue for FY 15-16 has been projected at Rs. 6.98 Crs whereas, in another valuation report dated 21.01.2015 (filed during the course of assessmen....
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.... 65244895 Paid up value of equity shares (PV) 10 Fair market value of unquoted Equity Shares [(AL) xPV]/PE 19 (18.45) 6. Hence, the valuation as per NAV method which comes to Rs. 19/- per share is taken as value of shares on which it should be issued. Taking the NAV Rs. 19 per share, the value of 2018458 shares is worked out at Rs. 38350702/- (2018458 Rs. 19) on which the shares should be issued as against the face value of Rs. 20184580/; (2018458 Rs. 10). Therefore the excess share premium over and above the NAV @Rs.19 per share at Rs. 89641183/- (Rs.107807305-(Rs.38350702-Rs.20184580)) is added u/s 56(2)(viib) of IT Act and taxed accordingly. Penalty proceedings u/s 271(1)(C) of the IT Act are also initiated for furnishing inaccurate particulars of income. 1 Total income as per computation of income 0 2 Add: As discussed in Para 3,4,5 above 189641183 3 Total Income assessed 189641183 Rounded off : 189641180 8. Aggrieved assessee preferred appeal before the ld.CIT(A) challenging the validity of the reopening proceedings and also challenged the addition made u/s. 56(2)(viib) of the Act b....
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....ra 2 to 4) and referred Cinestan Entertainment P Ltd -2021:DHC:780-DB [2021] - Delhi HC (para 13 to 15) 4. Agra Portfolio P. Ltd-464 ITR 348 [2024] - Delhi HC (para 16 to 17 & 22 to 23) 5. PCIT vs. I.A. Hydro Energy P. Ltd-163 taxmann.com 408 [2024]- (para 19 &20) 6. Shah Finlease Pvt Ltd v. DCIT-TS-927-ITAT-2024-Mum-dt. 17.12.24 7. Patel Minerals Pvt. Ltd [TS-01-ITAT-2025(JODH)] - dt. 02.01.25 12. On the other hand, Ld. Departmental Representative vehemently argued supporting the orders of the lower authorities. Ld. DR submitted that assessee failed to establish the credentials, financials have not been submitted and the projections made by the assessee company have no basis. Further, he submitted that the DCF method is not applicable to the assessee company as the project has gone off the track. Therefore, ld.CIT(A) has rightly sustained the addition made by the AO u/s. 56(2)(viib) of the Act. Ld. DR while arguing the case also referred to the following written submissions which read as follows : "1. Facts of the case: 1.1 The assessee is a private limited company Incorporated on 16/08/2013 in the business of the assessee h....
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....usive about the value of the shares and accordingly issued notice u/s 142 (1) seeking clarifications. One of the main contentions of the AO was that the valuation report that was prepared was based on projected financial statements prepared by the management. Accordingly, the details and facts given by the management on which the said valuation was done was sought by the AO. Further, the valuer had also qualified as report by stating that key assumptions on the company's financial projections were derived from the management and that the estimate of the value did not constitute a fairness opinion or solvency opinion and should not be relied as such. Among other things, the AO sought the following details: (i) the intrinsic value of the share as per NAV (ii) to furnish the DCF computation by incorporating actual figures for financial years 2014-15, 2015-16, 2016-17 and 2017-18 (as on date) for which the values were known. Reasons for divergences if any with projections were to be explained with supporting details. (iii) to clarify whether hospital was sold and the status of the construction/renovation of the proposed hospital as on date. (iv) ....
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....ns made as per the DCF method in the light of discrepancies as pointed out by the AO. 3.1 The assessee was asked to substitute the actual figures that were available instead of the un-substantiated projections and use the same DCF method to submit the valuation of the premium. The same was never furnished by the assessee till date. 3.2 It needs to be appreciated that the right of the assessee to opt for the DCF method of valuation of unquoted shares is not being challenged by the Department but at the same time there is no provision in the Income-tax Act, 1961 or the Income-tax Rules, 1962 to prohibit the AO from examining the claim of projections being made on which the valuation of shares depend as per the DCF method. Further, the assessee was appraised of the rationale behind rejecting the unsubstantiated projections and was given ample opportunity to substantiate the same and therefore it cannot be said that the AO had not followed the law of natural justice. The CIT (A) has also given a finding that the assessee was given ample opportunity to make necessary compliance to the satisfaction of the AO when a remand report was sought on the additional evidence fil....
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....ts. It is quite evident that since the regular scrutiny proceedings were getting time barred ld. AO had no other option except to conclude the regular assessment proceedings and carry out the re-assessment proceedings for which a proper reason to believe has been issued and the contents of the reason to believe have sufficient merit because the assessee has adopted DCF method to procure the report from a person who is not authorised to issue such report and therefore the very basis of charging share premium against the issue of shares was incorrect and not in accordance with law. Ld.CIT(A) has dealt with this issue legal issue observing as under : "Appellant's Contentions and Submissions regarding ground for erroneous initiation of 147 proceedings: As per statement of facts and grounds of appeal as above. Decision: In course of appeal proceeding it was clearly stated by the appellant in his statement of facts that during scrutiny assessment the appellant voluntarily disclosed all materials before the then AO. Hence it is also placed by the A,R of the appellant nothing new had come to the knowledge of the Ld. AO. The same record what was available on record to ....
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....Bombay), it is observed and decision delivered by Hon'ble Judges- Section 147 of the Income-tax Act, 1961-Income escaping assessment - Non-disclosure of primary facts - Change of opinion - Assessment year 2006-07-Whether, even in absence of assessee's, failure to disclose material facts, where there is complete failure on part of Assessing Officer to apply his mind, during original assessment proceedings, to points on which assessment is sought to be reopened, it can be said that there is tangible material and reason to believe that income has escaped assessment - Held, yes Keeping in view of the above decisions the relevant ground of the appellant is dismissed." 14. From going through the above finding of the ld.CIT(A) as well as the decisions referred therein and also taking into consideration the facts of the instant case, we find that since material information was not disclosed properly in the regular scrutiny proceedings as well as in the income-tax return, ld. AO was very well within his jurisdiction to issue notice u/s. 148 of the Act and carry out the re-assessment proceedings u/s. 147 of the Act. Therefore, the legal issue raised in grounds of appeal N....
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....ayment 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." 16. From perusal of the above Rules, we notice that the option is available with the assessee to either adopt the NAV or DCF method. In the instant case, the assessee adopted DCF method and the Valuation Report was to be procured from the Merchant Banker. The assessee has procured the Valuation Report from his Auditor namely Mr. Arvind Yenemadi. Auditor of the assessee company cannot issue the Valuation Report under DCF method. Onl....
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....CR 01-01-2019 Demand & NPA Notice received from Andhra bank u/s. 13(2) of Act 54 of 2002 for enforcement of security interest. Notice received to - Borrower, Mortgagor and by all guarantors 05-01-2019 NPA Notice from Andhra Bank 25-01-2019 Demand & NPA Notice (Symbolic Possession Notice) received from Andhra bank u/s. 13(2) of Act 54 of 2002 for enforcement of security interest 1-06-2019 Symbolic possession taken by Andhra Bank 09-07-2019 Notice From Andhra Bank informing about sale of Property (30days Notice) (Rule 6(2) /8(6) of Security Interest (Enforcement) Rule 2002) 31-07-2019 Letter from Andhra bank for transfer of account to specialised Asset recovery branch, Mumbai 25-09-2019 OTS request from Accord Mediplus Pvt.Ltd. to Andhra bank, Mumbai 01-10-2019 Letter from Andhra Bank for rejection of OTS request Dt.25.09.19 07-11-2019 2nd OTS request from Accord Mediplus Pvt.Ltd. to Andhra bank, Mumbai 16-11-2019 Recovery Notice from Advocate Nitin R. Shaha on behalf of Andhra Bank 27-11-2019 Letter from Andhr....
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....V) method. This was contrary to Rule. 11UA of the Income Tax Rules, 1902 (Rules) as it provides an option to the Assessee to arrive at a fair market value of the shares either by the method as prescribed in Rule 11UA(2) (a) of the Rules i.e. NAV Method or in terms of Rule 11(2) (b) of the Rules i.e. DCF Method. 6. In exercise of the above option, the petitioners had provided a valuation report dated 11th March, 2015 as required of a Merchant Banker which determines the fair market value of shares at Rs. 24.79 on adoption of DCF Method. The Assessing Officer did not accept the valuation report dated 11th March, 2015 as provided by the Merchant Banker to arrive at the fair market value of the shares on the DCF Method as according to him, the report was not credible. However, the Assessing Officer without any justification gave a complete go-by to the DCF Method and adopted the NAV Method to determine the fair market value of the shares. This according to the petitioner was in the face of Rulell(UA) (2) of the Rules which gives an option to an Assessee to determine the fair market value of shares by either of the two methods ie. the NAV or the DCF Method. It is submitted that....
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....ld be asked to deposit in excess of 20% of the demand for stay of the balance demand. Thus, prima-facie, the direction on the part of the Commissioner directing payment of 50% of the demand of Rs. 62.38 crores payable consequent to the order dated 22nd December, 2017 is bad in law. 9. We note that, the Commissioner of Income-Tax in the impugned order dated 23rd February, 2018 does not deal with the primary grievance of the petitioner. This, even after he concedes with the method of valuation namely, NAV Method or the DCF Method to determine the fair market value of shares has to be done/adopted at the Assessee's option. Nevertheless, he does not deal with the change in the method of valuation by the Assessing Officer which has resulted in the demand. There is certainly no immunity from scrutiny of the valuation report submitted by the Assessee. Therefore, the Assessing Officer is undoubtedly entitled to scrutinise the valuation report and determine a fresh valuation either by himself or by calling for a final determination from an independent valuer to confront the petitioner. However, the basis has to be the DCF Method and it is not open to him to change the method of....
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....n equity shares" Therefore these interpretation are unacceptable being illogical and unjustified. Accordingly, I fully agree with the observation and decision narrated in the assessment order of the AO in as much as the same is justified and logical and as per law. Therefore the addition Rs. 18,04,78,120/-made by the AO invoking provision of section 56(2)(viib) of the I.T Act stand confirmed. Accordingly the said ground is dismissed." 21. On perusal of the above finding given by the ld.CIT(A), we find that the order is cryptic. Ld.CIT(A) has only harped on the technical aspect of the Valuation Report given by the auditor of the assessee company with regard to issue of Equity Shares and merely confirmed the action of the AO. It is the contention of the ld. Counsel for the assessee that the assessee company submitted the Valuation Report before ld.CIT(A) as an additional evidence which was obtained from M/s. Pantomath, a Class-I Merchant Banker on 24.04.2019 but ld.CIT(A) has ignored the same. Further, there is no discussion on merits on the issue. We therefore, considering the facts and circumstances of the case, deem it proper to give one more opportunity to the assessee and dir....