TaxTMI 
TaxTMI 
2025 (2) TMI 1398
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....ssessee company engaged in real estate and infrastructure development had filed its return of income declaring loss of Rs. 29,69,90,473/-. During the year under consideration the assessee company had issued rights share of Rs. 27,14,286 shares each to its two holding companies namely M/s.Shriram Properties Pvt Ltd and Sun Apollo investment Holding LLC, and consequently earned share premium of Rs. 32,57,14,320/-. The Ld. AO had queried about feasibility of invocation of Rule 11 UA(2) of the Income Tax Rule in the case. The assessee had applied discounted tax flow method - a prescribed method for valuation of the company under Rule 11UA. The assessee had informed the Ld. AO that one of the company namely Sun Apollo Investment Holding LLC was a non-resident company. The Ld. AO rejected assessee's arguments holding that projections are only a method of sampling which should always be closure to reality and that the calculation of the assessee are based upon surmises and guess work. Consequently he proceeded to reject the calculations made by the assessee under DCF method and applied ratio laid down in Rule 11UA(2) viz-a-viz the NAV method. The addition of Rs. 11,67,14,298/- was seminal....
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....he NAV, we find force in the argument of the assessee that it was bound by the instructions of the RBI mandating adoption of DCF method when shares are issued to overseas entities. The action of the assessee therefore cannot be faulted. 4.1 We have also noted another dimension of the impugned controversy. However, before examining the same it is necessary to extract the relevant provisions of section 56 (2)(viib) and Rule 11UA reproduced hereunder:-. Section 56(2) in The Income Tax Act, 1961 "....(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 :- --------------------------------------------------------------------- (viib) 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 sha....
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....ed 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 not including the following amounts, namely:- (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation, other than 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, 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 liabil....
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....f the present case the assessing officer of Revenue has split the transaction in two parts for one part it applies DCF method and for another part it applies NAV method. The Ld. First Appellate Authority directs adoption of DCF method but on the basis of valuation of the Ld. AO done by NAV method. The question that arises is whether for a composite transaction, the extant law provides two opposite treatment. In view of the fact that the RBI guidelines mandate adoption of DCF method in share transactions concerning non-resident companies and also that Rule 11UA(2)(b) provides and option, we do not find any fault in action of the assessee to adopt valuation as per DCF method. We have also noted that there is nothing in law which mandates the Revenue would have the option of applying two different method of accounting in case of a solitary composite transaction. Thus, we find sufficient force in the argument of the assessee forwarded by Ld. Counsel for the appellant assessee. 4.5 We have also noted that the Hon'ble Delhi High Court in the case of FIS payment solutions and services India Pvt Ltd vide its order dated 29.07.2024 in respect of WP(C) 10289/2024 and CM APPL 42097 / 2024 ....
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....e Co-ordinate Bench of Tribunal in DCIT v. Ozone India Ltd. in ITA No. 2081/Ahd/2018 order dated 13.04.2021 in the context of Section 56(2)(viib) has analyzed the deeming provisions of Section 56(2)(viib) of the Act threadbare and inter alia observed that the deeming clause requires to be given a schematic interpretation. The transaction of allotment of shares at a premium in the instant case is between holding company and it is subsidiary company and thus when seen holistically, there is no benefit derived by the assessee by issue of shares at certain premium notwithstanding that the share premium exceeds a fair market value in a given case. Instinctively, it is a transaction between the self, if so to say. The true purport of Section 56(2)(viib) was analyzed in DRP Act Tribunal 2023 SCC OnLine ITAT 397 This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 09/08/2024 at 22:30:50 Ozone case and it was observed that the objective behind the provisions of Section 56(2)(viib) is to prevent unlawful gains by issuing company in the ....
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....lding 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." This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 09/08/2024 at 22:30:51 5. Mr. Bhatia, learned counsel appearing for the respondent on instructions states that the respondents remain bound to act in terms of the declaration of the law as embodied in the decisions of the Tribunal aforenoted and that consequently the DRP may be called upon to revisit the direction impugned herein. 6. In view of the aforesaid, we find no occasion to go into the challenge raised with respect to the Section 56(2)(viib), since the apprehension of the writ petitioner stands duly allayed in light of the stand taken by the respondents herein and who have conceded to the enunciation of the legal position by the Tribunal in the decisions aforenoted. 7. We accordingly allow the writ petitio....
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....he addition of Rs. 11,67,14,298/-. The ground of appeal No.2 raised by the assessee is therefore allowed. 5.0 The next issue raised by the assessee through ground no.3 is regarding an addition made by the Ld. AO of Rs. 1,03,95,911/- on account of prior period expenses. The Ld. Counsel for the assessee submitted that the Ld. AO noted that the assessee had claimed even amount on account of accumulated depreciation as on 01.04.2011. The Ld. AO made the impugned addition on the premise that as the impugned expenditure does not pertains to the year under consideration therefore the same cannot be allowed as a deduction. The Ld. CIT(A) confirmed the findings of the Ld. AO holding that the additional depreciation has been claimed by the assessee on account of reclassification of assets in accordance with the provisions of Company Act 2013. The Ld. CIT(A) held that the assessee is entitled to depreciation as permissible under the section 32 of the act and which has been allowed. The Ld. DR placed full reliance on the order of lower authorities. 5.1 We have heard rival submissions in the light of material available on records. The Ld. Counsel for the assessee has submitted that the Ld....