TaxTMI 
TaxTMI 
2026 (7) TMI 1299
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....ether sales turnover/receipts have been correctly offered for tax". Accordingly, statutory notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') was issued and served on the assessee. Thereafter, a notice u/s. 142(1) along with a questionnaire were issued and served on the assessee in response to which the AR of the assessee appeared from time to time and filed the requisite details. 3. During the course of assessment proceedings the Assessing Officer noted that the assessee company was incorporated on 19th February 1992. The assessee has claimed its business as manufacturing and sale of automobile components. It was submitted that the company is making efforts to undertake suitable engineering activities. The Assessing Officer observed from the available record that the assessee company has not yet commenced its business since inception. It has no operational income during any of the years which is apparent from the returns available in system from AY 2007-08 till assessment year 2016-17. 4. The Assessing Officer noted that the authorized capital of the assessee company, M/s Dhanna Engineering Pvt Ltd as on 31.03.2015 was only 10,000 shares at....
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.... 6. The Assessing Officer noted that the shareholding pattern of the company M/s. Jaya Hind Investments Pvt. Ltd. is as under: Mr. P.A. Firodia=83150(16.63%) Mr. A.N. Firodia=120300(24.06%) M/s. Jai Hind Industries Ltd=249500(49.90%) M/s. Prasanna Holdings Pvt Ltd=28700(5.74%) 7. He observed that immediately on receipt of this amount in the bank, on 8th October 2015, the company transferred its funds towards Foreign Direct Investment in shares of a Foreign Company namely Rivulis Irrigation Limited, Israel. The Assessee Company invested Rs. 195,89,65,714/- (USD 30 million) for 2,500 number of Equity shares of NIS 0.01 each fully paid representing 20% stake in Rivulis Israel. The Investment was claimed to be done as per the Reserve Bank of India guidelines for Overseas Direct Investment under the Automatic route. The assessee submitted the outward remittance request dated 24th September 2015 made to HDFC Bank, Model Colony. 8. He noted that the valuation certificate for Valuation of shares of Rivulis Irrigation Limited, Israel as on 31st March 2015 prepared by Ernest & Young. The funds which are invested in Rivulis, Israel by the assessee com....
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.... Rivulis Irrigation India Private Limited (formerly known as FIMI Irrigation India Pvt. Limited) (In short Rivulis India). Rivulis India has issued shares of Rs. 10/- each at a premium of Rs. 2,594/- per share to the assessee company M/s. Dhanna Engineering. As per the Certificate of Chartered Accountant, Fair market value of these shares calculated as per Rule 11U and 11UA i.e. on the basis of Discounted Cash flow method is Rs. 2,550/- per share. The assessee enclosed the valuation certificate of Chartered Accountant dated 11.08.2015. The Company has been allotted Shares at Rs. 2,604/- per share including share premium. Name of Company No. of shares issued to the assessee Dhanna Engineering Total Investment (Rs.) Rivulis Irrigation India Private Limited (formerly known as FIMI Irrigation India Pvt. Limited) 49,020 @ 2604 12,76,48,080 12. He noted that the shareholding pattern of the company M/s. Rivulis Irrigation India Ltd (Rivulis India) is as under: M/s. Rivulis Irrigation Ltd = 99,999(51.00%) M/s Rivulis Plastro Limited=1(0.00%) M/s. Dhanna Engineering Pvt Ltd=49,020(25%) M/s. Pinnacle Industries Limited = 23,529(12%) ....
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....ets of the NBFC M/s. Jai Hind on 31st March 2016 are at Rs. 669.20 crores and during the year investment made Outside India through the assessee company is at Rs. 195.89 crores. This is 29.27% of the total assets of the NBFC company. This would certainly have attracted prohibition, had the company Jai Hind (NBFC) invested directly abroad apart from general prohibition on investment in sector other than Financial. 16. The Assessing Officer observed that during FY 2018-19, the assessee company M/s. Dhanna Engineering Pvt Ltd and M/s. Jai Hind Investment Pvt Ltd along with their other two related companies have been amalgamated in M/s. Jaya Hind Industries Limited, a related company. The National Company Law Tribunal (NCLT) has approved the Scheme of Merger under Sections 230 to 232 of the Company Act, 2013, by Absorption of M/s. Jaya Hind Investments Private Limited (1st Transferor Company) and M/s. Ahmednagar Engineering Private Limited (2nd Transferor Company) and M/s Prasanna Holdings Private Limited (3rd Transferor Company) and M/s. Dhanna Engineering Private Limited (4th Transferor Company) with M/s. Jaya Hind Industries Limited (Transferee Company) and their respective share....
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....ib) of the Act and Rule 11UA of the Income Tax Rules, 1962 (hereinafter referred to as 'the Rules'). According to him, the book value method is not the single method by which the shares are valued and the DCF method is also a recognized method under the Rules for valuation of shares. Although there is option with the assessee to value shares either at book value or at DCF at its discretion, the appropriate or realistic valuation is the responsibility of the assessee. The Assessing Officer narrated the faults with both the valuation method. According to him the assessee has done valuation under Rule 11UA of the Rules before issuance of shares to the investors, the valuer has prepared a certificate of valuation under Rules 11UA by applying DCF method only. The Assessing Officer asked the assessee to explain as to why the share price should not be taken at face value of Rs. 10/- as the methods adopted by the assessee for valuation is unrealistic. The assessee submitted that it is engaged in the business of manufacturing and sale of automobile components and parts and is making efforts to undertake suitable engineering activities. The Assessing Officer, therefore, was of the opinion th....
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....mstances in this case, it is clearly observed that the share value is manipulated to suit the investment look like genuine and then on the same day funds were invested in Rivulis Israel. The share valuation of the assessee company is, therefore, rejected as being unrealistic and unreliable for the facts mentioned supra. Therefore, the value of shares is taken at Face Value of Rs. 10 and the total excess of the amount received in the garb of share premium is treated as income of the assessee "under other sources" u/s. 56(2)(viib). The excess share premium of Rs. 215,11,40,000 is treated as income of the assessee and is added to total income of the assessee under the head Other Sources u/s. 56(2)(viib). The assessee has filed inaccurate particulars of its income therefore penalty proceeding u/s. 271(1)(c) is initiated separately. 21. Before the Ld. CIT(A) / NFAC the assessee filed certain additional evidences based on which the Ld. CIT(A) / NFAC called for a remand report from the Assessing Officer. After considering the remand report of the Assessing Officer and the rejoinder of the assessee to such remand report, the Ld. CIT(A) / NFAC upheld the addition made by the Assessing Of....
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....e at such a high premium of Rs. 3,646/ -. The appellant has cleverly made the valuation by selling investments in listed companies of Bajaj Group, a one time transaction which were standing in its balance sheet at a book value. Taking recourse to the provisions of rule 11UA and thereby valuing its share at high value to justify the receipt of an exceptionally higher premium on right issue shares issued to its related party investor M/s. Jay High Investment Pvt. Ltd. and the series of transaction were entered with a purpose of making investment in Rivulis Israel. The investor company M/s. Jai Hind Investments Ltd was a NBFC company. This company was prohibited from investing in "Non Financial Sector" abroad as per the general guidelines for investment abroad was prescribed by the Reserve Bank of India (RBI) vide its circular under heading "Master Circular - Opening of Branch/Subsidiary/Joint Venture/ Representative office or Undertaking Investment Abroad by NBFCs" vide letter No. RBI/2015-16/24 DNBR (PD) CC. No. 060/03.10.119/2015-16" dated 01st July, 2015. Therefore, Jai Hind had utilized the assessee company M/s. Dhanna Engineering Pvt. Ltd. as 'a Vehicle' company through ....
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....Rs. 3,646/- and therefore, receipt shares capital/share premium of Rs. 2,15,70,40,000/- during the year under consideration. However, total of the assets of the company as on date of its share valuation (18.09.2015) was Rs. 4,43,33,602/- which primarily include receipts from sale of quoted investments. The net asset value of the company, as on date of share valuation, was Rs. 4,43,33,602/ -. It was evident that the appellant company was having no business activity since its inception and had been holding to its investments in few quoted and unquoted shares. The valuation done immediately after sale of its quoted shares which was one time transaction can't be said to be realistic. In these circumstances, the value derived by Book Valuation Method was not realistic. The 5,90,000 rights shares are issued to M/s. Jay Hind Investments Pvt. Ltd. at a Premium of Rs. 3,646/- per share. This Premium value came to Rs. 215,11,40,000/-, This Premium was credited to Securities Premium Reserve and Rs. 59,00,000 received against share capital on face value of Rs. 10 was credited to Paid Up Capital. The huge share premium and capital totaling to Rs. 215,70,40,000/- was received in the company ....
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....hare capital of Rs. 1,00,000/- being 10,000 equity shares of Face Value of Rs. 10 each. The Book Value of its shares comes to Rs. 550/- per share as on 31st March 2015. For the A.Y. 2015-16, the assessee had received income from other sources being Rs. 9,10,825/- and Net Income shown before tax was Rs. 8,60,931/- 8.11 Further, it is stated that the complete transaction of issue of shares is basically driven by intent to make an investment abroad in Rivulis Israel and its related domestic company Rivulis India. The appellant company had tried to give "form' to this transaction as issue of shares to M/s. Jai Hind Investment Pvt. Ltd. (NBFC). The real "substance of the transaction" was of making an investment in Rivulis Israel and also Rivulis, India both of which are into Micro Irrigation/ Agriculture Sector. The investor company M/s. Jai Hind Investment Pvt. Ltd., being an NBFC, had limitations over direct foreign Investment in an entity abroad in 'a sector other than Finance' and also over 15% of its owned funds. Therefore, the appellant company was chosen as a vehicle and share was valued unrealistically by manipulating the DCF method and also making unrealist....
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....umstances. Therefore, it can be concluded that the excess share premium of Rs. 215,11.40,000/- was rightly treated as income of the assessee and rightly added to total income of the assessee under the head Other Sources u/s. 56(2)(viib) by the AO while passing the assessment order. 8.16 In this regard, it is relevant to mention here the landmark decision of the Hon'ble Supreme Court in the case of Mc Dowell & Company Limited vs The Commercial Tax Officer on 17 April, 1985, wherein the Hon'ble Apex Court has held that tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. 8.16.1 Further, in another decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings Vs. Union of India (2012) 341 ITR 1 (SC), wherein the Hon'ble Apex has held as under :- "In this case, the Supreme Court clarified the stance on the anti-avoidance....
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....r a pre-planned scheme with the connivance of AJL and AICC. The transaction which had been undertaken had resulted into the benefit of the assessee-company in the form of huge immovable properties held by the AJL. Rule 11UA could not be applied to value the shares of AJL as real object was not to acquire shares in AJL but to gain control of immovable properties of AJL." 8.17 Further, reliance is also placed on the recent decision of the Hon'ble ITAT, Ahmedabad in the case of Parasmani Gems (P.) Ltd. vs. Deputy Commissioner of Income-tax* [2024] 169 taxmann.com 87 (Ahmedabad - Trib.) dated 21.11.2024, wherein the Hon'ble Tribunal had decided the appeal in favour of the revenue on the similar. The head note of the said decision is as under :- "Section 56 of the Income-tax Act, 1961 - Income from other sources - Chargeable as (Share premium) - Assessment year 2013-14 - Whether provision of section 56(2)(viib) was made explicit that if consideration was received for issue of shares that exceeded fair value of such shares, then consideration received for such shares, as exceeding fair market value of shares, shall be chargeable to tax under head income from oth....
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....o step down subsidiary of the assessee, in other words LNB Solar Energy Private Limited which is a wholly owned subsidiary of the assessee company, also has two wholly owned subsidiary companies namely a) PSPPL & b) MAPL.[Para 10] • From perusal of the said valuation report, it is found that the said valuation of assessee company is calculated after considering the net worth of two step down subsidiaries namely a) PSPPL & b) MAPL All throughout the proceedings, the contention of the assessee referring to various judgments is that once there is a report prepared as per rule 11UA(2)(b), then it has to be accepted and the valuation process so adopted and the results arrived at should not be doubted.[Para 11] • Now, so far as the preparation of the valuation report and its technical aspects are concerned, no comments are being made. However, it is an admitted fact that for the preparation of such valuation reports by the experts which in this case is a Chartered Accountant, the basic information is supplied by the management and based on such information the valuation reports are prepared. In case wrong information or an incorrect information is inadvertently ....
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.... by the Assessing Officer for making the addition of Rs. 8.05 crores received towards share premium in the hands of the assessee. Thus, the finding of Commissioner (Appeals) is reversed, addition at Rs. 8.05 crores made by the Assessing Officer is confirmed.[Para 15]" 8.17.2 Further, reliance is also placed on the recent decision of the Hon'ble ITAT, Delhi in the case of Sagitarius Securities (P.) Ltd. vs. Income-tax Officer*, [2023] 148 taxmann.com 335 (Delhi - Trib.) dated 05.01.2023 wherein the Hon'ble Tribunal had decided the appeal in favour of the revenue on the similar. The head note of the said decision is as under :- "Section 56 of the Income-tax Act, 1961, read with rule 11UA of the Income- tax Rules, 1962 - Income from other sources - Chargeable as (Share premium) - Assessment year 2014-15 - During relevant year, in spite of zero business activities, assessee-company issued shares to two companies in consideration of 60,000 shares received from two companies and submitted valuation report for said shares at Rs. 75 per share - Report filed by assessee was not accepted by Assessing Officer on ground that basis of valuation being balance sheet as o....
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.... of the IT Act read with Rule 11UA of the IT Rules, the Appellant had correctly determined the fair market value of the shares as per the prescribed book value method for valuation of its shares. 1.3. The Learned CIT(A) failed to appreciate that as per the provisions of Rule 11UA of the IT Rules, an option is available with the Appellant, to determine the fair market value of the shares, either as per the book value method or as per discounted cash flow method. Once the Appellant had opted for the book value method, it would be beyond the jurisdiction of the Learned CIT(A) to determine and opine on the discounted cash flow method for computing the fair market value of shares. 1.4. The Learned CIT(A) failed to appreciate that once the Appellant opts for the book value method as per the provisions of Section 56(2)(viib) of the IT Act read with the provisions of Rule 11UA of the IT Rules for the computation of the fair market value, the only jurisdiction of the Learned CIT(A) was to check the correctness of the computation of the fair market value as per the opted method and not to travel beyond such determination and to opine on the appropriateness, defects, flaws a....
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.... 3. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 23. The Ld. Counsel for the assessee submitted that the assessee had an option to choose the method for determining the valuation of its shares under Rule 11UA of IT Rules and once such option is exercised by the assessee, it is not open for the Assessing Officer and the CIT(A) to determine the valuation of such share by any other method. He submitted that the assessee had exercised the option of valuing its shares as per the NAV Method prescribed under Rule 11UA(2)(a) of the IT Rules. To arrive at the fair market value, the assessee had prepared its Audited Financial Statements as on 18th September 2015 and the same were duly audited by the Statutory Auditors of the assessee. Based on the Audited Financial Statements as on 18 September 2015, the fair market value of Rs. 3,656 per equity share of the assessee company was arrived at and though not required, was certified by an independent Chartered Accountant. He submitted that the Assessing Off....
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....o believe that as the valuation is less in one method and the assessee has adopted the method having higher valuation method, then there is escapement of income. He emphasized that neither the Assessing Officer nor the Ld. CIT(A) / NFAC has authority under the provisions of the Income Tax Act or Income Tax Rules to question the choice of method adopted for valuing the shares by the assessee. For the above proposition, he relied on the following decisions: i) Vodafone M-Pesa Limited vs. PCIT (2018) 92 taxmann.com 73 (Bom) ii) Agra Portfolio (P.) Ltd. vs. PCIT (2024) 161 taxmann.com 303 (Del) iii) Parasmani Gems (P.) Ltd. vs. DCIT (2024) 169 taxmann.com 87 (Ahmedabad - Trib.) iv) Medplus Health Services (P.) Ltd. vs. ITC (2016) 68 taxmann.com 29 (Hyderabad - Trib.) v) PCIT vs. Cinestaan Entertainment Pvt Ltd (2021) 433 ITR 82 (Del) vi) Akash Ceramics (P.) Ltd. vs. ITO (2024) 168 taxmann.com 407 (Gujarat) vii) PCIT vs. I.A. Hydro Energy (P.) Ltd. (2024) 163 taxmann.com 408 (HP) viii) ACIT vs. Safe Décor (P) Ltd (2018) 90 taxmann.com 161 (Jaipur - Trib.) ix) M/s. Innoviti Payment Solutions Pvt Ltd v....
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....he issuance of shares were undertaken by the assessee to circumvent the FEMA provisions and that, Jai Hind Investments Private Limited, being a non-banking financial company (NBFC) could not have invested in Rivulis Irrigation Limited, Israel directly and Jai Hind Investments Private Limited by investing in the Appellant (being a CIC) had tried to circumvent the FEMA provisions. He submitted that there is no violation of any FEMA provisions. He submitted that the Assessing Officer and the CIT(A) had no jurisdiction to travel beyond the provisions of the IT Act, the IT Rules and the computation as per the NAV Method. The Assessing Officer and the CIT(A) had no right whatsoever to adjudicate upon the FEMA provisions and to further check/comment on the correctness of the investment by Jai Hind Investments Private Limited into the assessee. Their jurisdiction is limited to adjudicate upon the matters only as per the provisions of the IT Act and IT Rules. 29. He submitted that in the present case, the observations of the Assessing Officer and the CIT(A) regarding FEMA provisions and Reserve Bank of India ("RBI") are completely misplaced and irrelevant to the issue at hand, i.e. the v....
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....suing 5,90,000 equity shares of Rs. 10 each on right basis at a premium of Rs. 3,646/- per equity share. The assessee prepared the audited financial statements for the period from 01.04.2015 to 18.09.2015 which were placed before the Board of Directors of the assessee and were approved by the Board. The assessee undertook the valuation from an independent Chartered Accountant for computing the fair market value of equity shares as per NAV method and DCF method. As per NAV method, the fair market value of equity shares was determined to be Rs. 3,656/- per equity share whereas as per DCF method the fair market value of equity shares was determined to be at Rs. 1,684/- per equity share. The Board of Directors of the assessee decided to adopt the fair market value as per NAV method and accordingly 5,90,000 equity shares with a face value of Rs. 10 each were issued on right basis at a premium of Rs. 3,646/- per equity share which were issued to the existing shareholders. The existing shareholders of the company renounced their right to subscribe to the equity share capital in favour of Jai Hind Investments Private Limited and Jai Hind Investments Pvt Ltd then subscribed to 5,90,000 equi....
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.... nor rejected/disputed the NAV Method calculation. It is his submission that the Assessing Officer also did not find any irregularities or inconsistencies in the computation as per the NAV Method and the fair market value of Rs. 3,656/- реr equity share of the assessee is undisputed and unqualified by the Assessing Officer as well as the Ld. CIT(A) / NFAC. Further, the Assessing Officer also did not dispute the computation of fair market value by the assessee vis-à-vis the crisp and clear formula prescribed under Rule 11UA(2)(a) of the IT Rules. 35. So far as the allegation of the Assessing Officer and the Ld. CIT(A) / NFAC that issuance of shares were undertaken by the assessee to circumvent the FEMA provisions and that Jai Hind Investments Private Limited, being a non-banking financial company (NBFC) could not have invested in Rivulis Irrigation Limited, Israel directly and Jai Hind Investments Private Limited by investing in the assessee had tried to circumvent the FEMA provisions is concerned, it is his submission that there is no violation of any FEMA provisions. It is also his submission that the Assessing Officer and the Ld. CIT(A) / NFAC had no jurisdi....
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....ed on account of the fair market value of the shares which had been issued at a premium to its holding Company for purposes of Section 56(2)(viib) of the Act. This for the reason that the Assessing Officer had for purposes of determining the fair market value of the shares issued to its holding Company substituted the Discounted Cash Flow (DLF) method by the Net Asset Value (NAV) method. This was contrary to Rule 11UA of the Income Tax Rules, 1902 (Rules) as it provides an option to the Assessee to arrive at a fair market value of the shares either by the method as prescribed in Rule 11UA(2)(a) of the Rules i.e. NAV Method or in terms of Rule 11(2)(b) of the Rules Le. DCF Method. .... 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 deman....
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..... 18. We note that the view as taken by the Bombay High Court in the aforenoted judgment appears to have been consistently followed by Tribunals of different regions as would be evident from the discussion which ensues. We, in this regard, firstly take into consideration the judgment rendered by the Mumbai Bench of the ITAT in Dy. CIT v. Sodexo Facilities Management Services India (P) Ltd. [IT Appeal No. 2945 (Mum.) o 2022, dated 25-5-2023) where it was held as under: "18. On the other hand, Ld. Counsel for the assessee submitted that the AO has not accepted the method of valuation which was furnished by the assessee. The valuer computed the FMV by averaging the valuation as per PECV method as well as net asset value method. He submitted that when the legislation has conferred an option on the assessee to choose a particular method of the valuation, the AO cannot find fault in the said recognized method and adopting the method of his own choice. In support of this, he relied on the decision of the Hon'ble Jurisdictional High Court in the case of Vodafone M-Pesa Ltd. v PCIT (2018) 164 DTR 257/ 256 Taxman 240 (Bom)(HC). As far as the worth of food division is co....
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....des the method of providing the FMV of unquoted shares to be determined at the option of the assessee. 17.2. Once the assessee applied particular method of valuation, (in the present case DCF method), then it is the duty of the Assessing Officer / ld.CIT(A) to scrutinize the valuation report within the four corners or parameters laid down while making the valuation report under DCF method only. It is not permissible for the Assessing Officer to reject the method opted by the assessee and apply a different method of valuation and the Assessing Officer can definitely reject the valuation report but not the method. In case, the AO rejected the valuation report, then the AO has to carry out a fresh valuation report by applying the same valuation method and determine the fair market value of the unquoted shares. 18. Therefore, in our view, the Assessing Officer was incorrect in concluding that the DCF method is "quite unrealistic and inapplicable" to the terms of the Income Tax Act. On the contrary, the DCF method is quite applicable and was required to be applied by the Assessing Officer to determine the FMV of the unquoted shares. ........." 20. A more detailed discu....
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....ojecting the future cash flow certain assumptions are required to be made, there needs to be tested and then such exemptions becomes the base of estimation of such projected future cash flows. If there are no assumptions, there cannot be an estimate of future projected cash flows and then discounted cash flow method becomes redundant. For exercise of valuation, assumption made by the valuer and information available at the time of the valuation date are relevant. As the exercise of valuation must be viewed as on the date of the valuation looking forward and cannot be reviewed in retrospect. Further, the valuation is always made based on review of historical data and projected financial information provided by the management. Further report of expert will always include limitation and responsibilities but that does not make his report incorrect. Of course, if there are errors in the working of projected cash flow, estimating the projected revenue and projected expenditure as well as in adoption of cost of equity and discount factor, the learned Assessing Officer is within his right to correct it after questioning the same to the assessee. The learned Assessing Officer can also quest....
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....ailable on the date of valuation and projection of future revenue. There is no dispute that the methodology adopted by the respondent-assessee has been done applying a recognized and accented method. Since the performance did not match the projections, the Revenue sough to challenge the valuation, on that footing. This approach lacks material foundation and is irrational since the valuation is Intrinsically based on the projections which can be affected by various factors We cannot lose sight of the fact that the valuer makes forecast or approximation, based on the potential value of business. However, the underlying facts and assumptions can undergo change over a period of time. The courts have repeatedly held that valuation is not an exact science, and therefore, cannot be done with arithmetic precision. It is a technical and complex problem which can be appropriately left to the consideration and wisdom of experts in the field of accountancy, having regard to the imponderables which enter the process of valuation of shares. The appellant-Revenue is unable to demonstrate that the methodology adopted by the respondent-assessee is not correct, The Assessing Officer has simply rejec....
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....once the assessee had exercised option of a DCF valuation method as per Rule 11UA(2) of the Income Tax Rules. 20. We agree with the reasoning adopted by the CIT(Appeals) confirmed by the ITAT on all aspects and find that no substantial questions of law arise in this appeal for consideration by this Court." 42. We find the Jaipur Bench of the Tribunal in the case of ACIT vs. Safe Décor (P) Ltd reported in (2018) 90 taxmann.com 161 (Jaipur - Trib.) has observed as under: "4. We have considered the rival contentions as well as the relevant material on record. There is no dispute that the assessee has issued the shares to M/s Jasmine Pvt. Ltd., during the year under consideration. Further, the fair market value as per the provision of section 56(2)(vii)(b) has to be determined in accordance with the method prescribed under Rule 11UA of the IT Rules and as per sub-Rule (2) of Rule 11UA, discounted cash flow method is one of the prescribed method. Therefore, it is the option of the assessee to adopt any of the prescribed method under Rule 11UA(2) of the IT Rules Section 56(2)(vii)(b) read with Explanation has specifically provided that the fair market value of....
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....not change the method of valuation which has been opted by the assessee....." 44. We find the Jaipur Bench of the Tribunal in the case of Rameshwaram Strong Glass (P) Ltd vs. ITO reported in (2018) 96 taxmann.com 542 (Jaipur - Trib.) has observed as under: "4.5.6......... It appears that the authorities below have ignored Explanation (a) below S. 56(2)(viib). The said Explanation provides that the fair market value of the shares shall be the value (i) as may be determined in accordance with such method at may be prescribed i.e. u/r. 11UA: or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the valve, 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. Accordingly. the value computed under the Rule at Rs. 95.90 per share is higher than Rs. 65.31 or Rs. 32.76 per share and therefore, the higher valuation has to be adopted. Moreover, it is only the Explanation (a)(ii) speaks of the satisfaction of the AO but there appears, no such condition ....
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.... assessee has issued shares to circumvent the FEMA provisions especially when the subsequent transaction was approved and there has been no allegation by RBI or any other governmental authority under the FEMA provisions. 49. We find the Hon'ble Bombay High Court in the case of PCIT vs. Milestone Real Estate Fund (supra) has held that the PCIT cannot arbitrarily use its revisionary power u/s. 263 of the Act to deny the venture capital exemptions simply by substituting its subjective views for the Assessing Officers. The relevant observations of the Hon'ble High Court read as under: "14. The ITAT held that though the learned PCIT has observed that the Assessee has violated the conditions imposed under the SEBI Regulations by investing in mutual funds, she has not specified which provision of the SEBI Act or Regulations have been violated. The ITAT held that on carefully going through the VCF Regulations, the ITAT was unable to locate any restriction/condition imposed therein prohibiting the Assessee from investing in mutual fund units. The ITAT further referred to the clarification issued by SEBI, wherein it was specifically stated that there is no prohibition in investin....
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....ity since the exclusive jurisdiction to answer this issue vests with the Charity Commissioner. On this basis, the CIT held that the ITO could not have recorded a finding of violation of the Scheme, unless an adverse view to that effect had already been taken by the Charity Commissioner (who was the competent authority to adjudicate the issue as to whether there was a violation of the Scheme), which had admittedly not been done in the present case, even till date. The CIT has also relied on a decision of Gujarat High Court in Hiralal Bhagwati vs. CIT in support. 12. In the impugned order, whilst considering the said issue, the ITAT has also referred to its earlier decision passed in the Assessee's own case wherein, after analysing the similar set of facts in the previous year, they had held that in law. the ITO could not have usurped the role of the Charity Commissioner and declare that the Assessee had breached the Scheme, more so when, there was no evidence produced, which stated otherwise. The ITAT also was impressed with the fact that the ITO could not have gone into this issue and recorded such an erroneous finding in the absence of any evidence before him that the....
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...." 52. Similar view has been taken by the various Benches of the Tribunals and the Hon'ble High Courts which are placed in the paper book. We, therefore, are of the considered opinion that the jurisdiction of the Assessing Officer and the Ld. CIT(A) / NFAC under the IT Act is limited to adjudicate upon the matters only as per the provisions of IT Act and not FEMA and therefore addition cannot be made on this ground. 53. So far as the allegation of the Revenue that issuance of right shares by the assessee was not genuine and it was merely a façade created to give transaction a legitimate colour is concerned, we find neither the Assessing Officer nor the Ld. CIT(A) / NFAC has spelled out and explained as to what is the tax benefit that the assessee had received by issuing the right shares. 54. We find force in the argument of the Ld. Counsel for the assessee that the assessee had multiple options to raise funds to make further investments which included to issue shares or to borrow funds. Both the options are valid under the IT Act without any income-tax implications. The assessee is free to choose whichever option it thinks is appropriate to raise the funds and that t....
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....nance Bill 2012 had stated at para 155 as follows "I propose a series of measures to deter the generation and use of unaccounted money. To this end, I propose- Increasing the onus of proof on closely held companies for funds received from shareholders as well as taxing share premium in excess of fair market value. Taxing of unexplained money, credits, investments, expenditures etc., at the highest rate of 30%, irrespective of the slab of income." 8. From the above observations of the Hon'ble Finance Minister it is clear that the intention behind introduction of section 56(2)(viib) is to discourage the generation and use of unaccounted money....." 57. We find the Mumbai Bench of the Tribunal in the case of M/s. Impact Retail Tech Fund Pvt Ltd. vs. ITO vide ITA No. 2050/Mum/2018 has observed as under: "14. At this stage, we notice that AO invoked the provision of section 56(2)(vib) merely because the fair market value of the shares are NIL and the advances received towards share capital over above the fair market value is taxable under section 56(2)(vib) The argument of the tax authorities are that no prudent investor will invest mo....
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.... 2004, in terms of which an Indian party requires prior approval of the concerned regulatory authorities both in India and abroad, to make an investment in an entity outside India engaged in financial services activities. Further in terms of the Master Circular on Direct Investment in Joint Venture (JV) / Wholly owned subsidiary (WOS) abroad dated July 01, 2013 (as amended from time to time) issued by Foreign Exchange Department, RBI. regulated entities in the financial sector making investments in any activity overseas are required to comply with the above regulation. Instances have been observed where NBFCs have made overseas investments without regulatory clearance of the Department of Non-Banking Supervision. Reserve Bank of India. Any investments made by NBFCs without regulatory clearance is a violation of FEMA 2004 and attracts penal provisions. In this regard, it is emphasised that all NBFCs desirous of making any overseas investment must obtain 'No Objection' (NoC) of the Department of Non-Banking Supervision of RBI before making such investment, from the Regional Office in whose jurisdiction the head office of the company is registered. Applications in t....