TaxTMI 
TaxTMI 
2026 (5) TMI 1069
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....e 2. The assessee is an individual and Managing Director of Vikran Group, which is engaged in the business of procuring and setting up of power transmission and distribution lines on contract basis. The assessee had filed original returns of income for the respective assessment years declaring income under the heads business, house property and other sources. 3. A search and seizure action under section 132 of the Act was carried out in the case of Vikran Group on 24.03.2021 and concluded on 05.04.2021. Consequent thereto, proceedings under section 153A were initiated and notices were issued, in response to which the assessee filed returns of income declaring the same income as originally returned. 4. During the course of assessment proceedings, the Assessing Officer examined the material gathered during the search and investigation and noticed that the assessee along with her family members had acquired certain companies through intermediary holding companies at a value allegedly lower than their fair market value. The Assessing Officer observed that the underlying companies had raised substantial share capital and premium without any commensurate business activity and th....
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....r-wise material facts are tabulated below: Particulars A.Y. 2015-16 A.Y. 2016-17 Date of filing of Original Return 10.09.2015 05.08.2016 Returned Income (Original & 153A) Rs. 3,68,800/- Rs. 6,56,800/- Notice u/s 153A Issued on 03.12.2021 Issued on 03.12.2021 Return filed u/s 153A 10.12.2021 10.12.2021 Turnover / Business Receipts Rs. 5,86,310/- Rs. 6,36,310/- Net Profit Rs. 2,25,105/- Rs. 2,45,606/- House Property Income Rs. 2,43,693/- Rs. 2,43,693/- Underlying Company Identified by AO M/s Ratnagiri Financial Advisory Pvt. Ltd. (later Vikran Engineering & Exim Pvt. Ltd.) M/s Bahar VintradePvt. Ltd. (later Vikran Global InfraprojectsPvt. Ltd.) Year of Incorporation of Underlying Company 2009 2009 Initial Share Capital Rs. 1,00,000/- Rs. 1,00,000/- Share Capital + Premium Raised Rs. 14.02 crore (premium Rs. 490 per share) Rs. 14.50 crore (premium Rs. 490 per share) Intermediary Holding Companies (i) Farista Financial Consultants Pvt. Ltd. (ii) Deb Suppliers & Traders Pvt. Ltd. (i) Florence Multimedia Pvt. Ltd. (ii) Sarvapalaka VanijyaPvt. Ltd. Mode of Acquisition by....
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....ted that such conclusions were drawn without any cogent evidence and merely on the basis of statements of third parties, namely the alleged entry operators, without affording opportunity of cross-examination, thereby violating the principles of natural justice. 12. Further, by way of additional grounds raised before the CIT(A), the assessee contended that no incriminating material was found during the course of search in relation to the impugned transactions and, therefore, the additions made under section 153A were not sustainable in law. It was also contended that the Assessing Officer had effectively invoked the principles akin to GAAR in a backdoor manner, which was impermissible for the relevant assessment years. The assessee relied upon judicial precedents, including the decision in the case of Vodafone India Services Pvt Ltd vs Union of India, in support of its contentions. 13. The CIT(A), after considering the assessment order, material placed on record and submissions of the assessee, examined the issue of addition made under section 56(2)(vii)(c) in both the assessment years in the light of the factual matrix and applicable legal provisions. 14. For A.Y. 2015-16,....
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....ose of section 56(2)(vii)(c) had to be restricted to the shares actually purchased. 18. The CIT(A) further held that the Assessing Officer had erred in adopting the fair market value of shares of the underlying company and in not applying the valuation mechanism prescribed under Rule 11UA applicable for the relevant year. It was held that the purchase consideration paid by the assessee for shares of the holding companies was not less than their fair market value and hence the provisions of section 56(2)(vii)(c) were not attracted. Accordingly, the CIT(A) deleted the addition of Rs. 3,59,67,310/- made by the Assessing Officer. 19. Thus, in both the assessment years, the CIT(A) held that the addition made under section 56(2)(vii)(c) by adopting the fair market value of shares of the underlying companies was not sustainable in law and deleted the additions in entirety. 20. Aggrieved by the orders of CIT(A), the Revenue is in appeal before us raising following grounds of appeal: In ITA No. 713/Mum/2025 for A.Y. 2015-16 1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred deleting the addition of Rs. 6,97,84,787/- made u/s 5....
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.... 1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred deleting the addition of Rs. 3,59,67,310/- made u/s 56(2)(vii)(c) on account of purchasing the shares of a company at a price less than its fair market value, without appreciating the fact that M/s Florence Multimedia Pvt. Ltd. (the holding company of M/s Bahar Vintrade Pvt. Ltd.) was only paper company and was involved in sham transactions and all shares of this company were acquired by the assessee along with her family members and hence, the assessee was one of the ultimate beneficiary of the transaction. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the fact that at the same time, Shri Rakesh Markhedkar (family member of the assessee) had directly purchased 1700 shares of M/s Bahar Vintrade Pvt. Ltd. @ Rs500/- per share and by purchasing shares of M/s Florence Multimedia Pvt. Ltd. @ Rs. 10/-, the assessee ultimately had got 74570 shares of Bahar Vintrade Pvt. Ltd. wherein assessee's family members had became director just before the transactions and all this arrangement was done to acquire the shares of Bahar Vintrade....
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....e transactions. It was submitted that the shares of M/s Farishta Financial Consultants Private Limited and M/s Deb Suppliers and Traders Private Limited were acquired on 12.12.2014 and 05.12.2014 respectively. It was further submitted that for the purpose of valuation under Rule 11UA, the balance sheets of the said companies as on 31.03.2014, being the balance sheet immediately preceding the valuation date, were considered. The assessee clarified that the investments in M/s Ratnagiri Financial Advisory Private Limited were duly reflected as part of non-current assets in the books of the holding companies and supporting documents such as balance sheets and ledger accounts were furnished. The assessee also relied upon valuation reports of the holding companies to contend that the shares were acquired at a value not less than their fair market value as determined in accordance with Rule 11UA.Further, a chronology of events was placed on record to demonstrate the incorporation of the holding companies, acquisition of shares by the assessee and her family members at face value, and the earlier shareholding pattern of M/s Ratnagiri Financial Advisory Private Limited. It was thus contende....
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....uild-up in the holding companies and their investor entities were not relevant for determining the fair market value under Rule 11UA and no independent material had been brought on record by the Assessing Officer to substantiate such allegations. Accordingly, it was contended that the addition made by the Assessing Officer was unsustainable both on facts and in law. 29. We have carefully considered the rival submissions and perused the material available on record, including the assessment orders, orders of the CIT(A) and the judicial precedents relied upon by the parties. The sole issue for adjudication in the present appeals relates to the addition made under section 56(2)(vii)(c) of the Act by invoking Rule 11UA of the Income-tax Rules, 1962. 30. At the outset, we find that the issue arising in the present appeals is no longer res integra and stands squarely covered by the decisions of the Co-ordinate Benches in the cases of family members of the assessee on identical facts. In particular, we note that in the case of Shri Nakul Markhedkar, the Co-ordinate Bench has considered an identical factual matrix and dismissed the appeals of the Revenue. 31. For the sake of clari....
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....e amended Rule specifically mandates look-through valuation, which was absent in the earlier Rule. In this regard, the Hon'ble Delhi High Court in the case of PCIT vs. Minda SM Technocast Pvt. Ltd. [2023] 155 taxmann.com 548has held that for the relevant assessment year, the fair market value of unquoted shares is required to be determined strictly in accordance with Rule 11UA as it stood during that year, which mandated adoption of the book value of assets as per the balance sheet. The Hon'ble Court further held that the Assessing Officer committed an error in applying the amended valuation mechanism, which came into effect from 01.04.2018, to an earlier assessment year and, therefore, such application was impermissible in law. 35. Applying the above legal position to the facts of the present case, we find as under: (i) The assessee has acquired shares of the holding companies and not the shares of the underlying company. (ii) For the purpose of section 56(2)(vii)(c), the property received is the shares of the holding companies and therefore valuation must be confined to such shares alone. (iii) The Assessing Officer, however, has disregarded the stat....