TaxTMI 
TaxTMI 
2025 (6) TMI 1541
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....dering other various aspects as per the valuation standard as per the Companies Act, 2013, Valuation Standard issued by ICAI, other factors like discount on marketability, purpose of valuation & availability of willing buyers, realisability of Immovable property and margin of safety as they are not applicable for determining the FMV of unquoted shares for the purpose of section 56(2)(x) in accordance with the Rule 11U & 11UA of Income Tax Rules, 1962. 3. Whether in the facts and circumstances of the case and in law, the Ld. CIT (A) erred in accepting the second valuation report furnished by assessee for the purpose of land situated at Survey No. 79, 82, 83 & 86 Village-Yerur valuing at Rs. 7,44,67,966/- and not accepting the value of said land as determined by AO at Rs. 9,84,25,980/- in accordance with the Rule 16(c) of Stamp Duty Act based on first valuation report furnished by assessee. 4. Whether in the facts and circumstances of the case and in law, the Ld. CIT (A) erred in accepting the second valuation report furnished by assessee for the purpose of land situated at Survey No. 159/1, 2, Kochi Bhadravati, Chandrapur valuing at Rs. 60,75,383/- as per the IGR r....
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....r in the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the additions made on agricultural Income at Rs. 1,76,015/- only on the basis of land holding ignoring the fact that assessee could not produce any supporting documentary evidences with respect to the agricultural activities carried out by him and subsequent sale of agricultural produces. 11. The appellant reserves the right to alter, amend and add & modify any grounds of appeal during the Appellate Proceedings. 3. Grounds of appeal No.1 to 6 filed by the Revenue relate to the order of the Ld. CIT(A) in deleting the addition of Rs. 1,44,42,560/- made by the Assessing Officer u/s 56(2)(x) of the Act. 4. Facts of the case, in brief, are that the assessee is an individual and one of the directors of M/s. Metarolls Ispat Pvt. Ltd. The assessee filed his return of income on 30.12.2021 declaring total income of Rs. 2,94,34,790/-. A search and seizure action u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was carried out on 23.09.2021 in the case of Metarolls group of cases at Jalna and all other concerns related to this group of cases wherein the case of th....
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....it of 15% and 20%, the assessee had determined the fair market value at Rs. 544/- & Rs. 512/- respectively. The assessee had furnished second valuation report u/s 11UA (1)(c)(b) from Shri Vishal Holani, C.A. and he had arrived at the valuation of shares at Rs. 643.80 & rounded it off to Rs. 640/-. The first valuation report had determined the value of shares at Rs. 752.50/-. The difference of Rs. 112.50/- in first and second valuation report was due to change in value of immovable properties. 7. During the assessment proceedings, the change in the value of two immovable properties was not acceptable to the Assessing Officer. He noted that earlier value of immovable property situated at Survey Number 79, 82, 83 & 86, Yerur was determined at Rs. 10,07,20,500/-. However, later the value was reduced to Rs. 7,44,67,966/- due to claim of internal roads, DP Road & open land, Parking area & transport. On verification of the NA order passed by the competent authority, it was seen that NA permission was taken for erection of factory. In the Ready Reckoner the value of such NA land was to be determined by allowing 10% allowance in stamp duty value. These rules were made by state government....
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....alty proceedings u/s. 270A for under reporting of income are initiated herewith." 8. In appeal, the Ld. CIT(A) deleted the addition by observing as under: "5.2 I have gone through the submission of the appellant along with supporting documents submitted during the appellate proceedings as well as during the assessment proceedings before the Ld. AO. The appellant has contested the determination of fair market value of the equity shares of Meta Rolls Ispat Private Ltd (MIPL). During the year under consideration, the appellant has purchased the equity shares of MIPL from Smt Saroj Rathi. The appellant has submitted that while estimating the FMV of equity shares, various aspects need to be considered as per the valuation standards accepted under the Companies Act, valuation standards issued by the ICAI which are in line with international valuation standards, factors like- lack of discount on marketability, purpose of valuation and availability of willing buyers, realisability of immovable properties margin of safety, WDV of depreciable assets as per the Income Tax Act etc. The Ld. AO has determined the fair market value (FMV) of the shares as per rule 11UA and rejected the....
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....luation rules for stamp duty it is seen that the value arrived at Rs. 60,75,383/- is as per the IGR rate available on the website of Government of Maharashtra. Thus, the valuation adopted by the appellant is found to be reasonable. In view of this, impact of higher value of Re. 0.06 per equity shares worked out by the Ld. AO is Rs. 13,54,131/- ie. difference between value worked out by Ld. AO and Appellant divided by / Rs. 2,34,67,670/- paid up capital Rs. 10/- face value of equity shares. 5.2.3 Further, in the valuation report of Shri Vishal Holani, he has deducted the provision for gratuity and considered as liability which is payable in near future as most of the employees of the appellant company have submitted that they have their continuous service of more than 5 years and eligible for the gratuity entitlement, thus provision for gratuity is a certain liability, and the shareholders/members of the company are bound to be paid the gratuity. Thus, it is accounted as per the accounting standards. It is to be noted that the gratuity is mandatorily to be paid to those employees who have completed their service as per the rules and regulations of receipt of gratuity and pa....
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....shares without prior consent of previous shareholders. This arrangement is done only to transfer the shares internally among the promoters and is within the law. 5.2.5 As per the rules for valuation with regard to the Plant and machinery and other depreciable assets there are two values one is book value as per books and other is WDV as per the Income Tax Act. In the present case the book value as per books is higher than the WDV as per the Income Tax Act. Further as per the section 50C of the Income Tax Act, the capital gain is calculated by considering the WDV as per Income Tax Act. The reason behind the difference in these two mechanisms for arriving at the fair valuation is the question of law. However, the new shareholders might lose the benefit of tax saving on depreciation. Consequently, this element to determine the valuation of the unquoted equity shares is to be considered in a broader way. 5.2.6 Further while determining the deeming income under the Income Tax Act, various concepts are there such as Safe Harbor Rule, Section 50C etc for dealing with the practical difficulties and uncertainties. However, the section 50CA is silent on such deeming fiction....
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....ing the various practical difficulties to sell the immovable properties of the appellant companies by removing the plant thereon and required timeframe as well as some legal issues such as related to employees, demolishing the plant, the time taken for big industrial unit etc. the discount of 15% is to be considered on account of lack of marketability of shares needs to be given. Accordingly, as discussed above the fair market value of equity shares of MIPL comes to Rs. 544 and rounded to Rs. 540. Thus, the estimated addition under section 50CA or 56 (2)(x) of the Act deserves to be deleted. The addition made under section 56(2)(x) of the Act for purchase of equity shares of MIPL below the FMV determined by the Ld. AO of Rs. 1,44,42,560/- (i.e. purchase of equity shares of MIPL of 119360 Rs. 121 (Rs. 661/- FMV determined by the Ld. AO less Rs. 540 determined as per valuation as discussed above)) is, therefore, deleted. Grounds no. 1 to 3 of the appeal are, therefore, ALLOWED." 9. Aggrieved with such order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal. 10. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer an....
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.... the of valuation report submitted by the appellant along with the guideline rates of Industrial NA plot with open area, amenity area and parking area. The appellant has submitted the valuation as per stamp duty rules. It is seen that there are different rules for valuation of industrial NA plots based on criteria like open area, amenity area and parking area etc. Further, the appellant has submitted fair valuation of the land situated at Survey No. 79, 82, 83, and 86 of Yerur Village which is an undeveloped industrial NA land and the said land is a barren land. Further, the said land is not demarcated as usable land as per the NA order as per the Stamp Duty Authority Rules for valuation which need to be followed while assessing the fair value of the immovable property for levy of stamp duty purpose. On perusal of the valuation report it is seen that the Stamp Duty Authority Rules are followed by the valuer for assessing the value of Immovable property. Hence, the valuation done by the valuer of Land situated at Survey No. 79,82,83 and 86 Yerur Village (adjacent to Tadali MIDC) at Rs. 7,44,67,966/- is found to be reasonable since no uniform valuation rate is to be used for the enti....
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....n for gratuity divided by/ Rs. 2,34,67,670/- paid up capital * Rs. 10/- face value of equity shares). 5.2.4 The appellant has made the submission as to why there is no scope for estimating the value of equity shares under rule 11UA of the Income Tax Rules. The factors like concept of safe harbor limit or tolerance band or discount for lack of market ability apply when the valuation is considered as per the valuation standards and adopted under the companies act. The concern raised by the appellant is considered and seems to be logical and a valid ground on account of uncertainty to arrive at fair market value (FMV), basis of fair valuation, as it depends on various factors viz. The willingness of the buyer, type of assets, generation of income from those assets, legally clear and freely traded in open market, availability of willing buyers etc. In the present case the Rajuri group members and promoters had decided to part of their shareholding pattern of the company viz. Rajuri Steels Private Ltd (now Rathi Steel and Metal Private Limited (RSMPL), Meta Rolls Ispat Private Limited (MIPL). The promoters of this company have decided to exchange the shares of these companies a....
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....to Discounted Cash Flow method. On 25th September 2023 a notification was issued by the Central Board of Direct of Taxes (CBDT). The amended Rule 11UA provides five more methods of valuation for issue of unquoted equity shares viz. Comparable Company Multiple Method, Probability Weighted Expected Return Method, Option Pricing Method, Milestone Analysis Method and Replacement Cost Method. Further the Income Tax Act has also allowed the discount for lack of marketability. 5.2.8 As per the amended rules of shares valuation, the method to be used has to be from the prescribed methods as per the valuation standards issued by the ICAI valuation, in line with international valuation standards which has been adopted under the Companies Act and Insolvency and bankruptcy Code monitored by Insolvency and Bankruptcy Board of India (IBBI) and National Company Law Tribunal. The appellant has used weighted average of DCF, NAV and NAV of market value to determine the value of equity shares for calculation of fair valuation of shares. The same is most appropriate and in accordance with law and regulations accepted by the various statues and bodies which is most perfect to estimate the valu....
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....ation furnished by the valuer of the assessee of land situated at Yerur village. A perusal of the order shows that Ld. CIT(A) has passed a detailed and speaking order wherein he has also provided the reasons for allowing 15% discount in the value calculated as per Rule 11UA of the IT Rules. No contrary material has been brought on record by Ld. DR against the detailed reasonings of the Ld. CIT(A) on this issue. Therefore, in absence of any distinguishable feature brought on record we do not find any infirmity in the order passed by Ld. CIT(A) on this issue. Accordingly we confirm the same. Thus, the ground nos.1 to 6 raised by the Revenue are dismissed." 11. Since the facts of the instant case are identical to the facts of the case already decided by the Tribunal in the case of ACIT vs. Dwarkaprasad Bhikulal Soni (supra), therefore, in absence of any contrary material brought to our notice by the Ld. DR, we do not find any infirmity in the order of the Ld. CIT(A) on this issue. Accordingly, we uphold the order of the Ld. CIT(A) and dismiss the grounds of appeal Nos.1 to 6 raised by the Revenue. 12. Grounds of appeal No.7 and 8 relate to the order of the Ld. CIT(A) in deleting....
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.... search, penalty proceedings under clause (b) of subsection 1A of section271AAB of the IT Act, 1961 are initiated herewith. As the income falls under the category undisclosed income therefore Penalty proceedings u/s 271AAC of the IT Act, 1961 is also initiated separately herewith." 14. In appeal, the Ld. CIT(A) deleted the addition made by the Assessing Officer by observing as under: "6.2 I have gone through the submission of the appellant along with supporting documents submitted during the appellate proceedings as well as during the assessment proceedings before the Ld. AO. While making the addition on the above account, the Ld. AO relied upon the seized document which is a promissory note, stating that M/s Vikas Industries have taken a hand loan amounting to Rs. 26,00,000/- by way of cash and contained the details of cheques with cheque numbers, date of the cheque and the bank on which they are drawn as a security for the loan. The appellant had submitted the copy of ledger account of M/s Vikas Industries and bank statement substantiating that the loan of Rs. 25,00,000/- was given through banking channel. In support of the same, the appellant has also submitted an af....
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....were found with the assessee and on one Hundi it was clearly mentioned that the amounts are advanced in cash. Further, the assessee according to the Assessing Officer could not substantiate with any evidence to his satisfaction that these are not cash loans but paid by cheque. Further the seized documents also contain the calculation of interest on such advances. We find the Ld. CIT(A) deleted the addition, the reasons of which have already been reproduced in the preceding paragraphs. We do not find any infirmity in the order passed by the Ld. CIT(A) on this issue. It is an admitted fact that as per the bank statement produced by the assessee an amount of Rs. 25 lakh has been given to M/s. Vikas Industries on 24.08.2020 through banking channel. Further, the promissory notes are dated 15.11.2020. We find the assessee had explained that the original loan period was 3 months which was extended by entering into the promissory notes and taking the postdated cheques as security. Further it was submitted that the excess amount of Rs. 1 lakh is on account of interest to be receivable from M/s. Vikas Industries at the rate of 1.5% per month and therefore, the cheques amounting to Rs. 26 lak....
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....is not supported by any evidence. Since the cheque has not been encashed during the year under consideration, it is observed that the interest amount is still receivable. Considering the facts of the case and submission made by the appellant the addition made by the AO is deleted. The Ground no. 5 of the appeal is, therefore, allowed." 20. Since the assessee has admitted that he has given an amount of Rs. 25 lakh as loan to M/s. Vikas Industries, therefore, interest accrued on the same has to be added to the total income of the assessee. We, therefore, set aside the order of the Ld. CIT(A) and restore the order of the Assessing Officer on this issue. The ground No.9 raised by the Revenue is accordingly allowed. 21. Ground No.10 relates to the order of the Ld. CIT(A) in deleting the addition of Rs. 1,76,015/- made by the Assessing Officer treating the agricultural income as "Income from other sources". 22. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings noted that the assessee has not provided the details in support of agricultural income of Rs. 1,76,015/-. He, therefore, made addition of the same to the total income o....