2019 (4) TMI 410 - AT - Income Tax

Stay petition - huge difference of Valuation of shares between assessee and AO - assessee valued share as per rule 11UA - prima facie balance of convenience for grant of stay of entire demand - HELD THAT - Huge difference in the valuation done by the AO and working given by the assessee as per Rule 11UA, which prima facie appears to be based on the method laid down in Rule 11 UA, we are of the opinion it is not a prima facie case to reject the stay application and direct the assessee to pay such huge demand. Looking to the financial position of the assessee as on date and also as per the figure given in the audited balance sheet and profit for the year ending 31st March, 2018, it is seen that assessee does not have any means or any liquid asset to pay such a huge demand. Thus, prima facie balance of convenience is in favour of the assessee for grant of stay of entire demand. Accordingly, we are granting stay of entire outstanding demand of ₹ 59,61,35,380/- for the period of six months; or till the passing of the order whichever is earlier. Since appeal has already been posted on out of turn basis, therefore, we are adjourning the matter to be fixed for hearing on 6th May, 2019. Stay application filed by the assessee is allowed.

Summary

Issues Involved:
Stay of outstanding demand arising from valuation of shares under section 56(2)(viia) read with rule 11UA.

Issue 1: Valuation of Shares
The demand of ?59,63,15,380/- was mainly due to an addition made by the Assessing Officer (AO) on account of the valuation of shares under section 56(2)(viia) read with rule 11UA. The AO had valued the difference on the transfer of shares at ?1,35,11,59,300/-. The applicant argued that the calculation was incorrect and provided various propositions to support their claim. The AO's valuation was challenged on the grounds that it did not include the valuation of shares of 4 companies and contained errors in the calculation of the remaining 22 companies. The applicant demonstrated through correct calculations that the net aggregate value would be negative, amounting to Rs. (-)189 crores. The financial condition of the assessee was also highlighted, showing a lack of means to pay the substantial demand.

Issue 2: Hearing and Adjournment
During the hearing on 27th February 2019, the Counsel for the assessee argued against the adjournment requested by the Ld. CIT (DR), emphasizing the hardship caused by the huge demand. The Ld. Counsel contended that the demand was not enforceable due to various errors in the valuation done by the AO. Despite the request for adjournment, the Tribunal disposed of the stay application. The Tribunal acknowledged the need for further verification of the valuation calculations provided by both the AO and the assessee.

Issue 3: Decision on Stay Application
After examining the valuation calculations presented by the assessee, the Tribunal noted discrepancies in the AO's valuation methodology. The AO had excluded the valuation of shares of 4 companies based on negative values, which was contested by the Ld. Counsel. The assessee's calculations showed a significant difference in the fair market value, indicating errors in the AO's assessment. Considering the substantial variance in valuations and the financial position of the assessee, the Tribunal granted a stay of the entire outstanding demand of ?59,61,35,380/- for six months or until the passing of the order, whichever is earlier. The matter was adjourned for further hearing on 6th May 2019.

In conclusion, the Tribunal granted a stay of the outstanding demand based on the valuation of shares, highlighting discrepancies in the AO's calculations and the financial constraints faced by the assessee. The decision was made to allow time for further verification and examination of the valuation discrepancies before the final order.