TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 303
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....bmitted that relevant information from time to time. During assessment proceedings, Assessing Officer observed that during the year assessee has allotted 8438 new shares having face value of Rs. 10 and at a premium of Rs. 10,655.85 per share. Therefore, assessee has raised paid up share capital and addition of Rs. 8,99,14,062/- in the share premium account. The assessee was asked to furnish relevant documents on the issue of large share premium receipt. In response, assessee submitted valuation report determining the value of shares using the Discounted Cash Flow (DFCF) Method, copy of engagement letter of advisory, copy of Board Resolution and copy of share application forms etc.. The Assessing Officer after perusing the valuation report furnished by the assessee found certain discrepancies in the projection used for determining the fair market value using DFCF method. The assessee was asked to furnish further details on the abovesaid valuation report. In response, assessee has submitted the details of projections before the Assessing Officer which is produced at pages 2 to 5 of the assessment order. After comparing the table submitted by the assessee, the Assessing Officer observ....
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....eters which is based on certain assumptions and it cannot be accurate. Further, the appellant has also provided reasons for not resulting to such robust projections. 7.6 With regard to the contention of appellant that in a case where appellant has shown FMV through DFCF method by a CA, the AO is not require to disregard the same, it has relied upon the decision of Hon'ble ITAT Delhi in the case of Cinestaan Entertainment Pvt. Ltd. in ITA No. 8113/Del/2018. In this recent judgment, the Hon'ble ITAT after considering the facts, which is similar to that of appellant, has very clearly held that:- "33. Section 56(2) (viib) is a deeming provision and one cannot expand the meaning of scope of any word while interpreting such deeming provision. If the statute provides that the valuation has to be done as per the prescribed method and if one of the prescribed methods has been adopted by the assessee, then Assessing Officer has to accept the same and in case he is not satisfied, then we do not find any express provision under the Act or rules, where Assessing Officer can adopt his own valuation in DCF method or get it valued by some different Valuer. There has to be....
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....s and not applicable here. Looking to the difference in facts, I do not have any reason to differ with the said comparison. Accordingly, the case of Cinestaan Entertainment Pvt. Ltd. is followed and the addition is deleted. These grounds of appeal are allowed." 4. Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :- "1. That the order of the Ld. CIT(A) is erroneous & contrary to facts and law. 2. That the Ld. CIT(A) has erred in facts and law in deleting the addition on account of difference between actual amount paid for shares and fair market value of shares of Rs. 8,94,55,878/- u/s 56(2)(viib) of the Act not following the order of the jurisdictional ITAT in the case of M/s Agro Portfolio Private ltd. Vs. ITO, Ward 1(4), New Delhi in ITA No. 2189/Del/2018. 3. That the Ld.CIT(A) has erred in facts and law in not appreciating the fact that during assessment proceedings the appointed valuer of shares couldn't provide any evidence towards the independent application of mind in carrying out the valuation even when questionnaire was issued asking for details to establish the same. 4. That the Ld....
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....ntage taken for projecting the revenue and expenses of future years, where revenue Is growing at percentages upto 356.6% whereas expenses grew only at maximum 108.4%. In response to which assessee has contended that it is engaged in service sector, where gross margin and net profit margin phenomena does not apply and change In expenditure Is not In proportion with the change in revenues (Point 2 on top at Page 6 of AO's Order). The contention of the assessee that expenses do not grow with Increase in revenue in service sector Is contrary to the Inherent nature of service sector where revenue is driven by the manpower and number of teams/personnel employed. It may be noted that even In case of service sector growing company, the company's variable expenses (such as variable manpower, content writer, etc. in the present case) also grow in line with the growth in revenue, though company's fixed expenses grow at slower rate. Therefore, CIT-A's reliance on the fact, assessee's projected revenue can grow at much higher rate than the growth rate of expenses, being against the commercial and economic rationale, is prayed to be reversed. Some more facts....
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.... by CIT-A while deleting the additions made u/s 56(2) (viib) is distinguished as follows: a. In the sold case of Cinestaan Entertainment, the Assessing Officer while making addition u/s 56(2) (viib) compared the projections with actuals (that is subsequent to the date of valuation), which is in violation of DCF Method (Para 15 of the Cinestaan Entertainment (P) Ltd. Vs ITO). However, In the present case Assessing Officer has compared the projections used by the assessee company with the actual figures of the assessee company of past financial years (that Is prior to date of valuation) (Pg 4 of AO Order). b. In the said case of Clnestaan Entertainment, the Assessing Officer while making addition u/s 56(2) (viib) rejected the valuation of the assessee on Illegal grounds but also failed to provide any alternate fair value of shares (Para 17 of the Cinestaan Entertainment (P) Ltd. Vs ITO). However, in the present case Assessing Officer while rejecting the valuation report of the shares of the assessee company als0 provided for the computation of fair market value of shares of the assessee company (Para 5 Pg 7 of AO Order). (4) In the case of DCIT Vs M/s NCL G....
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....he judgement of Principal Commissioner of Income Tax v. M/s S.G. Asia Holdings (India) Pvt. Ltd. (Civil Appeal No. 6144 of 2019), where the Apex Court has provided similar guidelines in Para 7, 8 of its order." 6. On the other hand, ld. AR of the assessee submitted detailed submissions which are reproduced below :- 1. The appellant is the Private Limited Company, who e-filed income tax return of AY 2016-17 on 17.10.2016 declaring loss of Rs. 1,36,05,019/-. 2. The appellant had engaged government agency named "PNB Investment Services Limited" for arranging private equity and finding suitable investors for their company. 3. The case was selected for Limited scrutiny and notice was sent u/s 143(2) which was duly complied from time to time. 4. The Appellant Company has issued 8438 shares at the premium of Rs. 10655.85 per share, having Face value of Rs. 10 each during the AY 2016-17. 5. It is pertinent to note that simultaneously, Promoters of appellant company also sold 5625 shares @ premium of Rs. 10656.67 per share, and duly declared capital gain income related to sale of shares and tax paid thereof in their individual returns. ....
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.... 56(2)(viib) the satisfaction of the Assessing Officer is required only if the assessee opts for FMV under Explanation a(ii) of section 56(2)(viib). 13. Assessing officer is not required to be satisfied if the fair market value of shares is determined under Explanation a(i) of section 56(2)(viib) i.e. in accordance with such method as may be prescribed. Further, the Act gives no option to the Assessing Officer other than to accept FMV, if the fair market value of shares is determined in accordance with such method as may be prescribed 14. When the Act/ rules allows to choose one of the two methods, it was beyond the jurisdiction of the AO to insist upon a particular system and the assessee is at liberty to adopt any one of the methods and he adopted the method as per prevailing law. The ld. AO had no power as per Rule and Act to impose his own rules. 15. The assessee has preferred to get fair market value as per Option (b) above as determined by a Chartered Accountant as per the Discounted Free Cash Flow Method. 16. The Ld. Assessing Officer cannot adopt a method of his choice, especially when Rule 11UA gives an option to the appellant company to....
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....option given to the Assessing Officer hence, the Assessing Officer has no right to change the method of valuation AO can refuse the method of valuation. (ii) DCIT vs. Kisaandhan Agri Financial Services Provaye Limited, ITA no. 8734/Del/2019, dated 15.03.2023 - Held that section 56(2)(viib) creates a legal fiction whereby the scope and ambit of expression 'income' has been enlarged to artificially tax a capital receipt earned by way of premium as taxable revenue receipt. Hence, such a deeming fiction ordinarily requires to be read to meet its purpose of taxing unaccounted money and thus needs to be seen in context of peculiar facts of present case. The legal fiction has been created for definite purpose and its application need not be extended beyond the purpose for which it has been created. B ringing the premium received from holding company to tax net under these deeming fictions would tantamount to stretching provision to an illogical length and will lead to some kind of absurdity in taxing own money of shareholders without any corresponding benefit. (iii) India Today Online Pvt. Ltd. vs. Ito, Dated 15.03.2019, ITA no. 6453 & 6454/Del/2018 - Held that L....