TaxTMI 
TaxTMI 
2025 (6) TMI 245
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....CIT(A)], whereby the Assessee's appeal against an assessment order dated 18.12.2018 passed under Section 143 (3) of the Act was rejected. 2. The learned ITAT had faulted the AO and the CIT(A) in calculating the Fair Market Value [FMV] of the shares allotted by the Assessee to its existing shareholders by replacing the valuation of equity shares held by the Assessee in a downstream company - South Asia FM Ltd. [SAFL]. The Assessee had for the purpose of computing the FMV of its shares had valued its holding in SAFL by discounted cash flow [DCF] method; the AO had ignored the said valuation and replaced the same by book value of the said investments. Resultantly, the FMV of the shares issued by the Assessee to its shareholders significantly reduced. 3. The learned ITAT found that the valuation report furnished by the Assessee was required to be accepted, as there was no error either in the methodology or the accuracy of the data on which the report was premised. The onus to find fault in the data or the method for calculating the value of the shares as computed in terms of the expert's report furnished by the Assessee rested on the AO and he had not discharged its onus to do so....
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....nces of the case and law, the order of the ITAT is perverse and non-speaking in nature?" 5. It is necessary to briefly note the relevant facts in the present case. The Assessee is in the business of providing software support / maintenance services and prior to financial year [FY] 2015-16 held strategic equity stake of 20% in SAFL. Undisputedly, SAFL is a valuable company having 39 FM broadcasting licenses and FM radio business across various cities in India. SAFL at the material time also held 49% shares in digital broadcasting companies (three in numbers) owning FM radio licenses in metro cities of Delhi, Mumbai and Calcutta. All FM stations were operated under a common and a well known brand named 'Red FM'. The entire share capital of SAFL was held by three entities: the Assessee held 20%; Sun TV Ltd. (a listed company) held 60% of the shareholding and South Asia Multimedia Technology Ltd., a Mauritian company held 20% of the equity capital. 6. SAFL required to raise funds for investing in its business and had accordingly offered rights issue at a price of Rs. 20/- per share including share premium of Rs. 10/-. The rights issue were fully subscribed and each of the three s....
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....on 56 (2) (viib) of the Act reads as under: "Income from other sources. 56. (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 :- *** *** *** (vii-b) 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 venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation.-For the purposes of this clause,- (a) the fair market value of the shares shall be the value- (i) as may be determined in accordance with such met....
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....les or as substantiated by the company, whichever is higher. He further states that there could be no exercise of determining which value would be higher in absence of a comparable FMV as determined under the Rule 11UA of the Rules as required in terms of Explanation (a) (i) to Section 56 (2) (viib) of the Act. 18. In our view the said contention is not persuasive as the AO had already determined that FMV of the equity shares is negative and according to it, the said negative value was arrived in accordance with Rule 11UA of the Rules. Thus, even if the AO's calculation of FMV under Rule 11UA of the Rules is accepted and it is found that the higher value as determined by the Assessee was substantiated, the Assessee's valuation of the FMV was required to be accepted. 19. It is relevant to note in the present case that the shares issued by the Assessee to its shareholders were to fund the purchase of shares of SAFL. The share issue was on rights basis and were subscribed to the shareholders in the ratio of the shares held by them. The funds raised had been deployed by purchasing the shares of SAFL. The value at which SAFL's shares were subscribed by the Assessee has not been ob....