TaxTMI 
TaxTMI 
2023 (5) TMI 1463
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.....2016 for A.Y. 2016-17 admitting total income of Rs.44,60,320/- under normal provisions and Book Profit u/s I15JB of the Income Tax Act, 1961. The case was selected for limited scrutiny and the Assessing Officer issued notice u/s 143(2) of the Act dt.14.07.2017. In response to the said notices, assessee company filed the required information / details. 2.1 However, the Assessing Officer did not satisfy with the submissions made by the assessee and the Assessing Officer added back the income to the tune of Rs.3.75 crore in the hands of the assessee. Thereafter, the Assessing Officer had completed the assessment by making certain additions including the addition of Rs.3,75,00,000/- towards share premium. Thereby assessed the total income of the assessee at Rs.5,91,25,461/-. The findings of the Assessing Officer as mentioned in Para 7.2 which is to the following effect : "7.2 From the above, the following conclusions are drawn for assessing the share premium received by the assessee as income from 'other sources' as per provisions of section 56(2)(viib) a) The assessee was having no business for the last several years, and yet it was valued at Rs.400/- per....
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.... 0 5.42 0 Profit before Interest, Tax (PBITA) 144.69 59.25 133.08 252.57 128.67 93.50 Interest 95.82 17.89 89.82 137.87 85.02 33.84 Profit before Tax 48.87 41.36 43.26 114.69 43.66 57.18 Tax 15.15 0 13.41 0 1353 0 Profit after Tax 33.72 41.36 29.85 114.69 30.12 57.18 From the above statistics for three F. Ys., it can be observed that projections under DCF method are nowhere matching with the actual statistics. For the purpose of illustration depreciation and interest amounts can be compared they are not at all near to projections, there is huge variation to projections and actual. Further, in the valuation report, the average share value was arrived by taking the share valued as per DCF method, Book Value Method and Market value of properties, but, in the same valuation report it failed to submit book value method valuation report and how the market value of the properties was valued also not produced. Therefore, the assessee failed to substantiate how valued under DCF method, hence, the valuation adopted under DCF method may be rejected. 4.7 On....
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....ived at Rs.412/- for a total equity shares of 1,61,050. The appellant has determined Fair Market Value of shares issued at premium on the basis of Discount Cash Flow (DCF) method in accordance with Rule 11UA(1)(c)(b) r.w.s. 56(2)(viib) of the Act and valuation report was prepared as per guidelines given by ICAI. 4.9 In view of the above, the method adopted by the appellant under Rule 11UA(1)(c)(b) r.w.s. 56(2)(viib) of the Act is held to be correct and hence, the action of the AO in treating the share premium received of Rs.3,75,00,000/- u/s 56(2)(viib) of the Act is not justified and hence directed to be deleted. As a result, the grounds raised in this regard are allowed." 4. Feeling aggrieved by the order passed by the Ld. CIT(A), the Revenue is in appeal before us on the grounds mentioned herein above. 5. Before us, ld. DR for the Revenue had submitted that the assessee during the year under consideration had issued the shares at a premium of Rs.300/- to its holding company namely, M/s. NCL Altek and Seccolor Limited. During the assessment year, the Assessing Officer has called upon the assessee to justify the valuation of the shares. The assessee, in response, th....
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....This report is based on data and explanations provided by the management and certain other data pulled *out from -various Government websites believed to be reliable. I have not independently verified any of the information contained herein. Neither the company nor affiliated bodies corporate, nor the directors, shareholders, managers, employees or agents of any of them, makes any representations or warranty, express or implied as to the accuracy, reasonableness or completeness of the information contained in the report. All such parties and entities expressly disclaim any and all liability for, or based on. or relating to any such information contained in, or errors in or omissions from, this report or based on or relating to the recipients use of this report." 7. The ld. DR had further submitted that the ld.CIT(A) had not examined the Chartered Accountant, who had given the report on valuation of the shares and further the assessee was not having any business prior to issuance of shares. It was the contention of ld. DR that the issuance of shares at premium rates by the assessee to its holding company is just a camouflage to bring the undisclosed income of the assessee in the ....
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....rse of scrutiny proceedings, it should have produced the same before the A.O., where it failed to do so, instead, in its submissions it simply stated that the share valuation was done as per DCF method. 5. The valuation report submitted by the assessee is based on DCF method the projections given the assessee in the Valuation Report and actual figures are as under as per the ROIs filed for the A.Ys. 2016-17, 2017-18 and 2018-19 for the F.Ys.2015-16, 2016-17 and 2017-18 respectively. *** Image left intentionally. 5.1 From the above statistics for the three F.Y-s. it can be observed that projections under DCF method are now here matching with the actual statistics. For the purpose of illustration depreciation and interest amounts can be compared they are not at al near to projections, there is huge variation to projections and actual. Further, in the valuati9on report, the average share value was arrived by taking the share valued as per DOE method, Book Value Method and Market value of properties, but, in the same valuation report it failed to submit book value method valuation report 'and how the market value of the properties was valued also not prod....
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....of the payer; or 35[(e)from any local authority as defined in the Explanation to clause (20) of section 10; or (f)from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or (g)from any trust or institution registered under [section 12AA or section 12AB].] 38[(vi) where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006 39[but before the 1st day of October, 2009], the whole of the aggregate value of such sum: Provided that this clause shall not apply to any sum of money received- (a) from any relative; or (b) on the occasion of the marriage of the individual40; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or (f) from any fund or....
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.... not apply to any sum of money or any property received- (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or (g) from any trust or institution registered under 45[section 12AA or section 12AB]; 46[or] 46[(h) by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of section 47.] (f) "stamp duty value" means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;] 52[(viia) 53where a firm or a company not being a company in which the public are substantially interested, receives, in any previ....
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....t the company has under reported the said income in consequence of the misreporting referred to in sub-section (8) and sub-section (9) of section 270A for the said previous year.] 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 method as may be prescribed59; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; 60[(aa) "specified fund" means a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012 made under the Securities and Exchange Boar....
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....et value of quoted shares and securities shall be determined in the following manner, namely,- (i) if the quoted shares and securities are received by way of transaction carried out through any recognized stock exchange, the fair market value of such shares and securities shall be the transaction value as recorded in such stock exchange; (ii) if such quoted shares and securities are received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be,- (a) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation date, and (b) the lowest price of such shares and securities on any recognized stock exchange on a date immediately preceding the valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date there is no trading in such shares and securities on any recognized stock exchange; 31[(b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner, nam....
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....be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation.] 32[(2)33 Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely:- (a) the fair market value of unquoted equity shares = (A-L) x (PV), (PE) where, A = book value of the assets in the balance sheet as reduced by any 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 and any amount shown in the balance sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; L = book value of liabilities shown in the balance sheet, but no....
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.... of this report of research committee of (ICAI) as reproduced above, the first and most critical input of DCF model is the Cash Flow Projections. It is also noted in the same Para of this report that the DCF value is as good as the assumptions used in developing the projections. It is also noted that these projections should reflect the best estimates of the management and take into account various macro and micro economic factors affecting the business. In the same Para of this report, some important points to be kept in mind with regard to cash flow projections are also noted. At this point, we feel it proper to take note of two judgments of Hon'ble apex court rendered in the case of Bharat earth Movers vs. CIT, 245 ITR 428 and in the case of Rotork Controls India (P) Ltd. vs. CIT, 314 ITR 62. In the first case, the issue in dispute was regarding estimation of future liability of leave encashment and it was held by Hon'ble apex court in this case that the liability should be capable of being estimated with reasonable certainty though the actual quantification may not be possible. It was held that if this is satisfied than the liability is not a contingent liability. In th....
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....tions/ alterations provided the same are based on sound reasoning and rationale basis. In the same tribunal order, a judgment of Hon'ble Bombay High Court is also taken note of having been rendered in the case of Vodafone M-Pesa Ltd. vs. PCIT as reported in 164 DTR 257. The tribunal has reproduced part of Para 9 of this judgment but we reproduce herein below full Para 9 of this judgment. 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 confro....
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....available on the date of valuation and actual result of future cannot be a basis of saying that the estimates of the management are not reasonable and reliable. 13. Before parting, we want to observe that in the present case, past data are available and hence, the same can be used to make a reliable future estimate but in case of a start up where no past data is available, this view of us that the projection should be on the basis of reliable future estimate should not be insisted upon because in those cases, the projections may be on the basis of expectations and in such cases, it should be shown that such expectations are reasonable after considering various macro and micro economic factors affecting the business. 14. In nutshell, our conclusions are as under:- (1) The AO can scrutinize the valuation report and the if the AO is not satisfied with the explanation of the assessee, he has to record the reasons and basis for not accepting the valuation report submitted by the assessee and only thereafter, he can go for own valuation or to obtain the fresh valuation report from an independent valuer and confront the same to the assessee. But the basis has to....