TaxTMI 
TaxTMI 
2026 (7) TMI 1693
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....e Act") 2. In law and in the facts and circumstances of the Appellant's case, the CIT(A) erred in upholding the validity of the assessment proceeding passed by the Id. AO when the assessment proceeding is void and bad in law. 3. In law, facts, and circumstances of the Appellant's case, the Ld. CIT(A) erred in upholding the action of the Ld. AO, for an addition of Rs. 15,94,76,753 /- to the total income on account of interest income accrued on inter-corporate deposits under section 28 of the Act. Interest income can be said to have accrued or arisen only when the taxpayer has a vested right to receive the amount in question and in the Appellant's case, the right to receive interest from borrower companies was specifically waived prior to its being accrued; became a condition and on account of total uncertainty and weak financial position, there was no accrual. Thus, the addition made is based on hypothetical reason. Therefore, the addition made by Id. AO deserves to be deleted. 4. In law and on the facts and circumstances of the Appellant's case, the Id. AO grossly erred in and the Id. CIT(A) erred in confirming the disallowance on account ....
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.... loan and advances to the subsidiary entities at the interest of Rs. 6.10%. The funds were given out of borrowed funds. The AO noted that even though the rate of interest was very less as compared to prevailing market rate, the assessee did not offer interest of Rs. 15,94,76,753/-. Therefore, the AO issued a show cause notice on 01.01.2024 asking the assessee as to why addition of interest on loan and advances amounting Rs. 15,94,76,753/-should not be made. In response to that the assessee submitted a reply vide letter dated 19.01.2024. The assessee submitted that the interest income on Inter-Corporate Deposits given to subsidiary/group companies was not accounted for because of uncertainty of receipt of interest. As per the Income Tax Act, only real income only should be taxed. For this the appellant relied upon the decision in the case of H.M. Kashiparekh & Co. Ltd. vs. CIT 39 ITR 706 (Bom), Morvi Industries Ltd. vs. CIT 82 ITR 835 and State Bank of Travancore vs. CIT (Kerala HC). However, the AO was not convinced with the reply of the assessee. The AO noted that in the audited financial, the Auditor had mentioned that because of uncertainty of recovery of interest of loan and ad....
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....reason to interfere with or deviate from the findings of the Ld. CIT(A). Consequently, the ground raised by the assessee is dismissed, and the order of the Ld. CIT(A) is upheld. 9. Ground No. 4 raised by the assessee relates to challenging the order of the Ld. CIT(A) in confirming the disallowance under Section 14A of the Act read with Rule 8D in respect of the investment made in a Limited Liability Partnership (LLP). 10. We have heard the Ld. DR and perused the material available on record. The Ld. CIT(A) has dealt with this issue in detail in his order, and the operative findings are contained in paragraph 10.3.1 and the same is reproduced herein below: 10.3.1 An identical disallowance u/s 14A was made by the AO in the assessment order of the appellant for the A.Y.2020-21. On the same facts, the AO has made disallowance of Rs. 2,52,430/- u/s 14A in A.Υ.2022-23. 11. After considering the order passed by the Ld. CIT(A) and the material placed on record, we find that the Ld. CIT(A) has passed a well-reasoned order on this issue which needs no interference. 12. No new facts, circumstances, or documentary evidence have been brought on record by the assesse....
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....mstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of short term capital loss of Rs. 19,92,740/- from sale of equity shares without considering the fact that the valuer has not made any independent valuation, rather, relied on the details provided by the management of the company to arrive at the valuation of the shares?" 14. Ground Nos. 1 and 2 raised by the Revenue are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in deleting the addition made by the AO under Section 68 of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order. 15. We have heard the Ld. DR and perused the material available on record. The Ld. CIT(A) has dealt with this issue in detail in his order, and the operative findings are contained in paragraph 6.3.8 and the same is reproduced herein below: 6.3.8 The appellant received loan of Rs. 2,42,44,000/- from Imagine Reality Pvt. Ltd., Bliss Apartment (Mumbai) Pvt. Ltd., Bliss Villa (Delhi) Pvt. Ltd. Imagine Estate Pvt. Ltd. and Imagine Homes Pvt. Ltd. During the assessment proceedings, to discharge onus u/s. 68 of the Act, the ....
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..... was nothing but a kickback in lieu of the risky and favourable loans granted by Rana Kapoor from Yes Bank Ltd. to NBFCs by misuse of his official position. 17. It has been submitted that, although the AO, as per the available information, had rightly noticed that Rana Kapoor had misused his official position by giving risky and favourable loans against which he received kickbacks in the form of loans in entities controlled by Rana Kapoor and his family members, it was the case of the AO that the funds received were illegally siphoned out to foreign entities controlled by Rana Kapoor and his family members. As far as the assessee company is concerned, the family members of Rana Kapoor were only shareholders. Thus, the funds received from Imagine Realty Pvt. Ltd., Bliss Apartment (Mumbai) Pvt. Ltd., Bliss Villa (Delhi) Pvt. Ltd., Imagine Estate Pvt. Ltd., and Imagine Home Pvt. Ltd. were alleged to be a diversion of funds for illegal purposes and, therefore, failed the test of genuineness. It was also brought on record that the assessee company was one of the companies used by Rana Kapoor for siphoning out funds to foreign entities. It was, therefore, contended that the interest ....
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....assessee shall not seek any adjournment on frivolous grounds and shall remain cooperative during the course of the proceedings. 22. Ground No. 3 raised by the Revenue relates to challenging the order of the Ld. CIT(A) in deleting the disallowance of long-term capital loss of Rs. 29,65,89,309/-. 23. We have heard the Ld. DR and perused the material available on record. The Ld. CIT(A) has dealt with this issue in detail in his order, and the operative findings are contained in paragraphs 8 to 8.3.3 and the same is reproduced herein below: 8. Ground no.4 is regarding disallowance of long term capital loss of Rs. 29,65,89,309/-- 8.1 During the assessment proceedings, the AO observed that the assessee has claimed long term capital loss of Rs. 29,65,89,309/- on sale of shares of M/s. Imagine Property Pvt. Ltd. The AO issued a show cause notice on 01.01.2024 asking the assessee as to why the long term capital loss of Rs. 29,65,89,309/- should not be disallowed. In response to that the assessee submitted a reply. The assessee submitted that the long term capital loss was incurred from sale of shares of Imagine Property Pvt. Ltd. The transaction was executed relying ....
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.... Explanation. For the purposes of this section, "quoted share" means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business." 4.5 For determining full value of consideration the valuation was required to be carried out as per Rule 11UAA of the I.T Rules. "[Determination of Fair Market Value for share other than quoted share. 11UAA. For the purposes of section 50CA, the fair market value of the share of a company other than a quoted share, shall be determined in the manner provided in sub-clause (b) or sub-clause (c), as the case may be, of clause (c) of sub-rule (1) of rule 11UA and for this purpose the reference to valuation date in the rule 11U and rule 11UA shall mean the date on which the capital asset, being share of a company other than a quoted share, referred to in section 50CA, is transferred.]" Now, the Rule 11UA of "Determination of fair market value. 11UA. (1) For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall b....
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.... law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PV = the paid-up value of such equity shares; PE = total amount of paid-up equity share capital as shown in the balance sheet] COME TAY DEPARTMEN (c) the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to 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. 4.5 From the above, the Appellant submits that the valuer by applying the above acceptable method has provided his valuation report which cannot be disturbed by merely referring the disclaimer and thus rejecting the valuation report is not correct. 4.6 In view of the above, Appellant submits that the transaction with M/s Imagine Property Pvt. Ltd. was on the basis of v....
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....to rule 11UA, and was considered as nil - Assessing Officer thus made addition of Rs. 51 lakhs as income of assessee under section 56(2) (viib) Whether since assessee company had filed valuation report obtained from an Accountant as per requirement of rule 11UA which was based on relevant rule for valuation of shares and thus, discharged his onus by submitting relevant report in support of fair market value adopted, however, said report of accountant was not considered by lower authorities, impugned addition made by Assessing Officer was not justified and same was to be deleted - Held, yes [Para 8.4] [In favour of assessee]" (ii) Decision of Hon'ble ITAT Delhi in the case of The Dy. C.I.T Circle - 11(1) New Delhi vs. HometrailBuildtech Pvt Ltd vide ITA No. 6095/DEL/2019 dated 15.09.2023 wherein it was held as under: 8. The Assessing Officer noticed that there was a huge difference between the financial projections and actual projections submitted by the assessee. The assessee was asked to furnish share valuation certificate as per book valuation and was show caused to explain why share premium received should not be added u/s 56(2)(viib) of the Act. 1....
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.... 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 the unquoted shares shall be determined as per the prescribed methods and shall be taken whichever is higher fair market value by comparing the value based on the asset of the company. Therefore, the Net Asset Value method as well as any of the other methods prescribed under Rule 11UA of the IT Rules, whichever is higher shall be adopted as per the option of the assessee. 4.1 In view of the statutory provisions giving options to assessee to adopt any of the methods which can be compared with the Net Asset Value Method and the AO shall adopt the value whichever is higher. In the case of the assessee the Fair Market Value determined as p....
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....214 wherein it was held as under. "9. We have heard the rival submissions and perused the relevant materials placed on the record of the Tribunal. In this case, the assessee had issued 2,00,000 equity shares of face value of Rs. 10/- to One M/s. Enbee Resources (P.) Ltd., on 7-1-2003 at Rs. 180/- per share which included premium of Rs. 170/- per share. It is the explanation of the assessee that since the fair market value as per the valuation in accordance with rule 11UA(2)(B) was Rs. 189/- and the assessee had issued shares at Rs. 180/-including premium of Rs. 170/-, which is less than the fair market value, no amount was required to be taxed as income from other sources u/s. 56(2)(viib) of the Act. As per rule 11UA(1)(c)(b) of the Rules, it is the prerogative of the assessee to estimate the fair market value of the shares issued by it adopting one method out of two methods ie. discounted cash flow method or book value method. The revenue authorities cannot force the assessee to adopt particular method for valuing the fair market value of the share especially of the assessee to chose any method either discounted or book value method for estimating the fair market value of....
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....cribed under Rule 11UA and the Assessing Officer cannot dictate his opinion and force the appellant to choose any one of the methods which he seems is beneficial to revenue. The valuation done by the appellant is in accordance with section 56(1)(vii) (b) r.w Rule 11UA and the same cannot be rejected more particularly when no discrepancy in the working provided by the appellant following such prescribed method has been pointed out by the Assessing Officer. During the course of assessment proceedings, Appellant has given complete details of new share capital issued by it and no discrepancies are pointed out in such details and there is no reason for charging higher premium from existing shareholders. In view of same disallowance has been made without any logical finding and on mere surmises, hence liable to be deleted. 4.7 In connection to the above, it is submitted that it is on the discretion of the Appellant to choose the method for valuation of shares. In the present case, Appellant has relied on the calculation of the independent valuer and computed its liability and if that has resulted into loss cannot be the basis for rejecting the valuation. 1. Appellant su....
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....ur Good Honour would appreciate that in the present case as well information which was true to the knowledge of Appellant was provided to the valuer on the basis of which valuation was carried out. 1. It is submitted that the reference made by Ld. AO for rejecting such valuation report given by Appellant is merely on the disclaimer made by the valuer in the valuation report ignoring the working given for valuation of such shares in the valuation report. Also when such report was rejected by Appellant, no working or other calculation was given by the Ld. AO for the correct valuation of such shares. This implies that the Ld. AO was in haste of making completing the assessment and with a pre-determined mindset, without considering the facts available has disallowed amount of long term loss of Rs. 29,65,89,309/- 1. Further it is submitted that if the Assessing officer was not satisfied with the valuation report and was of the opinion that valuation done by the independent valuer was wrong, he could have issued notice u/s 142A of the Act referring the case to the registered valuer for valuation of such unlisted shares. But instead, he proceeded for finalization of asse....
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....ibabu 118 taxmann.com 463 (Vishakhapatnam ITAT), Ashoka Industries Ltd. 120 taxmann.com 214 (Cuttack ITAT) and Agra Portfolio (P) Ltd vs. Pr.CIT 161 taxmann.com 303 (Delhi). The appellant also submitted that the AO did not point out any discrepancies in the Valuation Report of the Valuer. If the AO was not satisfied with the Valuation Report, he could had referred the case for valuation of shares u/s. 142A of the Act. Thus, the appellant submitted that the long term capital loss incurred by the assessee should be allowed. 8.3.3 In the case of the appellant the AO has rejected the Valuation Report by stating that the Valuation Report was based on the information available in public domain and as provided by the management company. The AO has not pointed out any specific discrepancy in the Valuation Report. The valuations of shares of Imagine Property Pvt. Ltd. was made by -the independent Valuer as per book value method. Book value method of valuation of shares r.w.s.50CA of the Act. The AO by a general remark has rejected the Valuation Report. is one of the recognized method of valuation of shares, as prescribed in Rule 110A Further, the AO has not determined the correct v....