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2019 (8) TMI 442 - AT - Income TaxRectification u/s 254 - addition u/s 56 - Valuation of shares - certificate of recognition granted to the assessee company on 24.10.2017 recognising the assessee company as a startup company valid up to 7 years from the date of incorporation on 09.06.2011 - HELD THAT - As we examine the grounds raised by the assessee before the tribunal in these two years to find out whether this issue was raised by the assessee that the provisions of clause (viib) of sub section (2) of section 56 are not applicable to the assessee because I am deciding the M. Ps. and therefore, if this issue was not raised in these two appeals, the same cannot be raised in M. P. proceedings. The issues raised in these appeals as per various grounds are regarding rejection of the report of valuation, adoption of value of shares at ₹ 100/- in A. Y. 2014 15 and ₹ 714.38 in A. Y. 2015 16 and regarding the adoption of valuation method and there is no such ground raised in any year about non applicability of the provisions of clause (viib) of sub section (2) of section 56 of Income tax Act, 1961. Hence, these arguments are not relevant for the purpose of deciding these two M. Ps. because in M. P. proceedings, new issue cannot be raised. Not deciding of certain grounds - There is no merit in this claim that these grounds are not decided. The claim as per Ground No. 5 is this that the assessee can adopt any method of valuation of shares. This is admitted position of facts that the assessee adopted DCF method of valuation of shares. The assessee adopted the value of shares at ₹ 400/- per share and in support thereof, the assessee submitted a report of the valuer dated 15.11.2013. As per another report of a different valuer dated 02.02.2012, the value determined as per DCF method was ₹ 100/- per share. The AO and the tribunal did not accept the valuation report dated 15.11.2013 because this report is by the auditors of the assessee company and as per Rule 11 U (a), any Fellow member of ICAI other than the auditor can be a valuer. The earlier report dated 02.02.2012 is by an eligible Chartered Accountant and as per this report, the value determined as per DCF method was ₹ 100/- per share. Hence, it is seen that the value ultimately adopted by the AO and approved by the tribunal is under DCF method and hence, there is no change in method. Therefore, these grounds being Ground No. 5 of original grounds and Ground No. 1, 2 and 3 of additional grounds do not survive and therefore, this is not correct to say that these grounds were not decided. Method of valuation of shares - adopting the value of shares at ₹ 714.38 per share as per NAV method as against the value of premium of ₹ 1528.55 per share as per assessee s valuation report dated 02.05.2014 based on DCF method - HELD THAT - Valuation report is prepared by M/s Amarnath Kamath Associates, Chartered Accountants. The audited accounts of the assessee company for the year ending as on 31.03.2014 dated 30.08.2014 is available on pages 3 to 37 of the paper book and both are by the same firm of Chartered Accountants and therefore, this is not a valid report in view of Rule 11 U (a) of Income Tax Rules, 1962. In this year, the tribunal approved the action of the AO of adopting NAV as against DCF method by the assessee by observing that since no valid report of a valuer is available, the AO determined FMV of share on the basis of NAV method and taxed the excess amount received by the assessee and learned CIT (A) has confirmed such addition and in view of these facts, no interference is called for in the order of CIT (A). There is no specific discussion or decision on this aspect that whether the AO can adopt NAV method when the assessee has adopted DCF method. In this year, I find force in this claim that Ground No. 3 5 of Original grounds and Grounds No. 1 to 3 of additional grounds were not decided by the tribunal in A. Y. 2015 16.
Issues: Non-adjudication of specific grounds in the original and additional grounds of appeal for AY 2014-15 and AY 2015-16.
Analysis: 1. The M.P. filed by the assessee highlighted that certain grounds were not addressed by the tribunal for AY 2014-15 and AY 2015-16. The assessee argued that the provisions of section 56, particularly clause 2 of the Proviso, allowed the assessee to choose a valuation method. The assessee contended that as per a specific notification, the provisions of section 56 were not applicable due to the company's recognition as a startup. The tribunal was urged to rectify the apparent mistake in the order under section 254(2). The revenue disagreed, citing a judgment emphasizing that authorities need not address every ground if not pressed before them. 2. The first aspect addressed was whether the provisions of section 56 were applicable to the assessee based on the notification and recognition as a startup. The tribunal found that the issue was not raised in the original appeals for both years, making it irrelevant for the M.P. proceedings. The grounds raised in the appeals focused on the valuation method adopted by the assessee and the rejection of valuation reports, not the applicability of section 56 provisions. 3. In the detailed examination of the grounds raised for AY 2014-15, it was revealed that certain grounds were indeed decided by the tribunal, contrary to the assessee's claim. The tribunal had approved the valuation method used by the assessee, and the grounds related to valuation did not stand. However, for specific Ground No. 6 and 7, which were not decided, the tribunal order was recalled for further consideration. 4. For AY 2015-16, the tribunal had not decided certain grounds related to the valuation of shares. The tribunal upheld the AO's adoption of NAV method over the DCF method used by the assessee due to the absence of a valid valuation report. The tribunal's decision was based on the lack of a proper report, leading to the rejection of the assessee's valuation method. Grounds related to this issue were not addressed by the tribunal. 5. The judgment of the Hon'ble Allahabad High Court regarding the necessity for authorities to address pressed grounds was examined. The court's decision in a different case was found inapplicable to the present case due to differing factual circumstances. Consequently, the tribunal order for AY 2015-16 was recalled to decide the specific grounds that were not addressed initially. 6. Ultimately, the M.P. for AY 2014-15 was partly allowed, and the M.P. for AY 2015-16 was fully allowed, leading to a recall of the tribunal order for further examination of the specific grounds that were not decided initially. Conclusion: The judgment addressed the non-adjudication of certain grounds in the original and additional grounds of appeal for AY 2014-15 and AY 2015-16, leading to the recall of the tribunal order for further consideration of those specific grounds.
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