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2020 (10) TMI 1083 - AT - Income TaxViolation of Rule 46A - CIT(Appeals) non affording opportunity to the AO - Income from other sources - permitted method of valuation - assessee is a domestic company engaged in the business of internet services and infrastructure management services and assessee issued 19500 shares and received share premium - CIT(Appeals) deleted the addition made by the AO - HELD THAT - As agreed by both the parties that there was a violation of Rule 46A of the Income Tax Rules, 1962 (Rules), in as much as the CIT(A) did not confront the material that was placed before him to substantiate the valuation under the DCF method adopted by the Assessee in its report of valuation. The ld. counsel for the assessee, however, submitted that what was filed before the CIT(Appeals) was only financial statements to substantiate the valuation as made by the assessee. In our view, when the basis of conclusion of CIT(Appeals) is the financial statements filed by the assessee before him, it was incumbent upon the CIT(A) to have confronted the material filed before him to the AO in accordance with the mandate of Rule 46A of the I.T. Rules, 1962. Since there is a violation of Rule 46A of the Rules, the issue should be remanded back to the CIT(Appeals) for fresh consideration after affording opportunity to the AO. - Decided in favour of revenue for statistical purposes.
Issues:
1. Addition of excess share premium under section 56(2)(viib) of the Income Tax Act. 2. Acceptance of additional evidence during appellate proceedings without giving opportunity to the Assessing Officer. 3. Violation of Rule 46A of the Income Tax Rules, 1962 in the valuation process. Issue 1: Addition of Excess Share Premium under Section 56(2)(viib): The appeal by the revenue challenged the deletion of an addition of ?6,40,18,500 under section 56(2)(viib) of the Income Tax Act, related to the excess share premium received on allotment of equity shares. The Assessing Officer (AO) rejected the valuation report prepared using the Discounted Cash Flow (DCF) method, alleging that it was not based on independent analysis and was inflated to issue shares at a high premium. The AO valued the shares using the book value method, resulting in a difference treated as taxable income. The CIT(Appeals) deleted this addition, leading to the revenue's appeal before the Tribunal. Issue 2: Acceptance of Additional Evidence without Opportunity to AO: During the appeal process, it was acknowledged that there was a violation of Rule 46A of the Income Tax Rules, 1962, as the CIT(A) did not confront the material submitted to substantiate the valuation under the DCF method. The Tribunal noted that the CIT(A) should have followed the mandate of Rule 46A by providing an opportunity for the AO to examine the additional evidence. The issue was remanded back to the CIT(A) for fresh consideration after affording both the assessee and the AO an opportunity to be heard. Issue 3: Violation of Rule 46A and Remand for Fresh Consideration: The Tribunal, considering the violation of Rule 46A, set aside the CIT(A)'s order and remanded the issue of determining the fair market value (FMV) of the shares for fresh consideration. The decision was based on the need to adhere to procedural requirements and provide a fair opportunity for both parties to present their arguments. The Tribunal allowed the revenue's appeal for statistical purposes, emphasizing the importance of following the prescribed rules and ensuring a proper examination of evidence in tax matters. This detailed analysis of the judgment highlights the key issues raised, the arguments presented, and the Tribunal's decision regarding the addition of excess share premium, acceptance of additional evidence, and the violation of Rule 46A in the valuation process.
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