TaxTMI 
TaxTMI 
2026 (3) TMI 1270
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....0.12.2017 made additions of Rs. 34,94,381/- and Rs. 9,06,45,649/-. Against order dated 30.12.2017 of Ld. AO, assessee filed appeal before Ld. CIT(A) which was partly allowed vide order dated 11.09.2019. 3. Being aggrieved, appellant assessee filed present appeal on following grounds: "Re: General 1. That the Id. Commissioner of Income tax (Appeals) [CIT(A)'] erred on facts and in law in upholding the order passed by the assessing officer under section 143(3) of the Income Tax Act, 1961 ('the Act'). Re: Disallowance made under section 56(2) (vii) (b) of the Act 2 That the CIT(A) erred on facts and in law in affirming the addition of Rs. 9,06,45,649, on account of alleged excessive premium received on issuance of shares in terms of section 56(2)(viib) of the Act. 3. That the CIT(A) erred on facts and in law in holding that the premium charged by the appellant on shares issued was unjustified and unsatisfactory without considering the detailed justification provided by the appellant. 4. That the CIT(A) erred on facts and in law in rejecting the Discounted Cash Flow ['DCF'] method for valuation of shares and i....
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.... 12. That the assessing officer erred on facts and in law in charing interest under section 234D of the Act." 4. Ld. Authorized Representative for appellant assessee submitted that the appellant had received share application money from Triguna Hospitality Ventures (India) Private Limited ("Triguna"), against which shares were duly allotted. It is respectfully submitted that Triguna, in turn, had received share application money from (i) InterGlobe Enterprises Ltd., (ii) AAPC Singapore Pte. Ltd., and (iii) APHV India Investco Pte Ltd., against which shares were also allotted. 4.1 Hon'ble ITAT, in the case of Caddie Hotels (P.) Ltd. vs. PCIT/DCIT [202 ITD 351]-a sister concern of the appellant-had comprehensively adjudicated upon the issue and thereafter accepted the valuation of shares issued by the assessee to (i) Inter Globe Enterprises Ltd., (ii) AAPC Singapore Pte Ltd., and (iii) APHV India Investco Pte Ltd., i.e., the very same investors involved in the present case. 4.2 Hon'ble High Court of Delhi vide order dated 02.09.2024has affirmed that the order of Caddie Hotels (supra) in the case of Pr. CIT vs. Caddie Hotels Pvt. Ltd. ITA 470/2024, however fol....
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....s of the appellant, as per the provisions of section 71 of the Act. 4.8 The AO erred in not granting the appellant the benefit of set off losses, even if he decided to make the additions in the assessment order. The assessed loss, as per the impugned assessment order, would still be around Rs. 13 crores and therefore, the relevant adjustment was required to be made as per law. The demand raised as per the notice of demand as per section 156 of Act would have no legs to stand once this error is corrected. 5. Ld. Departmental Representative submitted as under: "1. Validity of Section 56(2) (viib) Application: * Legislative Intent: Section 56(2) (viib) of the Income Tax Act, 1961, is a deeming provision introduced to curb the practice of closely held companies issuing shares at inflated premiums, thereby converting unaccounted money into share capital. The AO and CIT(A) have correctly applied this provision to address the appellant's evident attempt to issue shares at values exceeding their fair market value (FMV). * Capital Receipts as Income: The provision creates a statutory exception where share premiums, otherwise capital in nature, are taxed ....
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.... was applied without supporting evidence, rendering the valuation speculative. * The AO correctly applied the FMV method under Rule 11UA to ensure compliance with Section 56(2)(viib). * Sustenance of Addition: The CIT(A) rightly sustained the addition made by the AO, as the appellant could not produce credible evidence even during appellate proceedings to rebut the findings. 6. Disclaimer in Valuation Reports: The merchant banker's disclaimer explicitly stated that the valuation relied solely on data provided by the appellant without independent verification. This renders the valuation unreliable and inadmissible as credible evidence. 7. Taxpayer's Obligation to Prove Valuation: * The burden of proof lies on the appellant to substantiate the valuation and the assumptions underlying it. In the absence of such evidence, the AO's findings and the CIT(A)'s order are unassailable." 6. From examination of record in light of aforesaid rival contention, it is crystal clear that Ground of Appeal Nos. 2 to 8 are regarding addition u/s 56(2) (viib), Ld. CIT(A) upheld addition of Rs. 9,06,45,649/- assessee had received as....
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....nd Mahindra 06.01.2015; 23.02.2015 4,15,385 1949 80,95,85,365 2. Shri Rakesh Jhunjhunwala 24.03.2015 19,207 2602 4,99,80,793/- 3. Shri Radhakishan Damani 4,53,799 90,95,46,200 10. The AO has disregarded the valuation report of the Respondent-Assessee primarily on the ground that the projections of revenue as considered for the purpose of valuation do not match the actual revenues of subsequent years. The AO has made additions based on the assumption that the Respondent-Assessee made no efforts to achieve the projection as made out in the valuation report and therefore the share premium received by the Respondent-Assessee is without any basis and contrary to provisions of Section 56(2)(viib) read with Section 2(24)(xvi) of the Act. Further, the AO held that the Respondent-Assessee has failed to submit any basis of projection. He also held the view that in order to achieve the said projection, the Respondent-Assessee should have invested the share premium amount to earn certain income/return and whereas the Respondent-Assessee made investments in zero percent debentures of its associate company and therefore the b....
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....t Income Tax Department cannot sit in the armchair of businessman to decide what is profitable and how the business should be carried out. Commercial expediency has to be seen from the point of view of businessman. Here in this case if the investment has made keeping assessee's own business objective of projection of films and media entertainment, then such commercial wisdom cannot be questioned. Even the prescribed Rule 11UA(2) does not give any power to the Assessing Officer to examine or substitute his own value in place of the value determined or requires any satisfaction on the part of the Assessing Officer to tinker with such valuation. Here, in this case, Assessing Officer has not substituted any of his own method or valuation albeit has simply rejected the valuation of the assessee. 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, th....
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....ailable on the date of the valuation and a projection of future revenue that valuer may fairly make on the basis of such information." ii) Rameshwaram Strong Glass Pvt. Ltd. v. ITO [2018-TIOL- 1358-ITAT-Jaipur) "4.5.2. Before examining the fairness or reasonableness of valuation report submitted by the assessee we have to bear in mind the DCF Method and is essentially based on the projections (estimates) only and hence these projections cannot be compared with the actuals to expect the same figures as were projected. The valuer has to make forecast on the basis of some material but to estimate the exact figure is beyond its control. At the time of making a valuation for the purpose of determination of the fair market value, the past history may or may not be available in a given case and therefore, the other relevant factors may be considered. The projections are affected by various factors hence in the case of company where there is no commencement of production or of the business, does not mean that its share cannot command any premium. For such cases, the concept of start-up is a good example and as submitted the income-tax Act also recognized and encouraging t....
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.... addition of Rs. 90.95 crores. The other points and various other arguments raised by the Id. counsel which kept open as same has been rendered purely academic in view of finding given above. 36. Other grounds are either consequential or have become academic, hence same are treated as infructuous. In the result appeal of the appellant assessee is allowed. 13. From the aforesaid extract of the impugned order, it becomes clear that the learned ITAT has followed the dicta of the Hon'ble Supreme Court in matters relating to the commercial prudence of an assessee relating to valuation of an asset. The law requires determination of fair market values as per prescribed methodology. The Appellant-Revenue had the option to conduct its own valuation and determine FMV on the basis of either the DCF or NAV Method. The Respondent-Assessee being a start-up company adopted DCF method to value its shares. This was carried out on the basis of information and material available on the date of valuation and projection of future revenue. There is no dispute that methodology adopted by the Respondent-Assessee has been done applying a recognized and accepted method. Since the perfo....
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.....1385 of 2018 has held as below: "15. A perusal of Rule 11UA(2) would indicate that the assessee is enabled to determine the FMV of the unquoted equity shares either in accordance with the formula prescribed in clause (a) or on the basis of a report drawn by a merchant banker who may have determined the FMV as per the DCF Method. 16. In our considered opinion, the language of Rule 11UA(2) indubitably places a choice upon the assessee to either follow the route as prescribed in clause (u) or in the alternative to place for the consideration of the AO a Valuation Report drawn by a merchant banker as per the DCF method. However, and as is manifest from a conjoint reading of Section 56(2)(viib) read along with Rule 11UA(2), the option and the choice stands vested solely in the hands of the assessee. 17. While it would be open for the AO, for reasons so recorded, to doubt or reject a valuation that may be submitted for its consideration, the statute clearly does not appear to empower it to independently evaluate the face value of the unquoted equity shares by adopting a valuation method other than the one chosen by the assessee. It is this aspect which was dul....