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2018 (3) TMI 530 - HC - Income TaxStay of demand - determination of fair market value of the shares issued at a premium - Held that - In view of the fact that the petitioner s Appeal is pending before the CIT (A) and the issue of the fair market value of the shares issued at a premium by the petitioners to its holding Company would be an issue which would be subject matter of consideration in the appeal and would be appropriately dealt with by him in appeal. It is the petitioner s contention that the assessment order is without jurisdiction as it has ignored the DCF Method to arrive at fair market value of its shares, it would be open to the petitioners to file an application for stay of the order dated 21st December, 2017 passed by the Assessing Officer to the CIT (A) in its pending Appeal. In the above circumstances, there would be a stay of the order dated 21st December, 2017 to the extent of the demand raised for a period of 4 weeks from today. In case, the petitioner files a stay application to the CIT (A) within a period of 4 weeks from today, the demand of ₹ 62.38 crores arising consequent to the impugned order dated 21st December, 2017 is stayed till the stay application is disposed of and for a further period of 2 weeks thereafter.
Issues:
Challenge to order of Principal Commissioner of Income Tax for partial stay of demand under Section 220(6) of the Income Tax Act, 1961. Analysis: 1. The petition challenged the order of the Principal Commissioner of Income Tax, which partially rejected the petitioner's representation seeking complete stay of a demand of ?62.38 crores arising from an assessment order. The petitioner filed an appeal to the CIT (A) against the assessment order dated 21st December, 2017, and also applied for a stay under Section 220(6) of the Act. The Assessing Officer rejected the application for complete stay, directing the petitioners to pay 20% of the demand. The petitioners then approached the High Court through a Writ Petition. 2. The petitioners contended that the Assessing Officer had incorrectly substituted the Discounted Cash Flow (DCF) method with the Net Asset Value (NAV) method for determining the fair market value of shares, contrary to Rule 11UA of the Income Tax Rules. The petitioners had provided a valuation report using the DCF method, which was not accepted by the Assessing Officer. The petitioners argued that the impugned order was against statutory provisions and sought an unconditional stay of the demand. 3. The Revenue argued that the projected sales figures used for the DCF method were inflated, leading to an incorrect fair market value of shares. The Revenue contended that even if the DCF method was applied correctly, some amount of demand would still be payable. The Revenue supported the Assessing Officer's examination of the valuation report submitted by the Assessee. 4. The High Court noted that the impugned order had enhanced the payment from 20% to 50% of the disputed demand, which was beyond the Commissioner's authority. The Court observed that the Commissioner did not address the primary grievance of the petitioner regarding the change in valuation method by the Assessing Officer. The Court emphasized that the Assessing Officer must base any fresh valuation on the DCF method chosen by the Assessee. 5. The Court held that the demand needed to be stayed pending the appeal before the CIT (A) as the issue of fair market value would be considered in the appeal. The Court granted a stay of the demand for a specified period, allowing the petitioner to file a stay application with the CIT (A). The Court clarified that the CIT (A) could dispose of the appeal along with the stay application after notice to the parties. 6. In conclusion, the petition was disposed of with the direction for a stay of the demand pending the appeal, subject to the petitioner filing a stay application with the CIT (A) within a specified timeframe. The Court emphasized that the controversy was narrow and allowed the CIT (A) to decide on the matter after due notice to the parties.
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