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TMI Blog2019 (3) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case before us. We uphold the action of the AO in determining the share premium collected in the assessee s hand u/s 56(2)(viib) r.w.r. 114A(2)(a) of the Rules and the action of the CIT(A) in upholding the AO s action / addition. Grounds of assessee s appeal are dismissed. Claim for write off of bad debts - HELD THAT:- CIT(A) rendered a finding that these amounts are expended towards advertisement expenses incurred for and on behalf of the franchisees, which was to be reimbursed by them to the assessee. The assessee s explanations that the franchisees were unable to reimburse the aforesaid expenses incurred by the assessee on their behalf due to insufficient / tight cash flow position and therefore the same has to be written off as advertisement expenses; in the view of the CIT(A); does not qualify to be Revenue to be written off as bad debts. We find that the findings rendered by the CIT(A) has not been controverted by the assessee before us. No further documents / details were furnished by the assessee. In this factual matrix of the case, as discussed above, we uphold the action of the factual findings rendered by the authorities below in disallowing the assessee s clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned ITO while making additions u/s 56(2) (viib) of the Act, disregarded the facts and circumstances of the case and has concluded Assessment in a mechanical manner without application of mind. 4. That the Learned CIT(A) and the Learned ITO misconstrued the provisions of section 56(2)(viib) of the Act and should have appreciated the fact that the price at which a transaction is undertaken between a willing buyer and a willing seller of sound mind is the FMV which does not require any further justification. 5. That the Learned ITO ought to have appreciated the intent of the provisions of section 56(2)(viib) of the Act and should have examined if the instant case is fit for invocation of the provisions of section 56(2)(viib) of the Act. 6. The Learned CIT(A) mis-interpreted the intent of the provisions and amendments with respect to section 56(2)(viib) of the Act. 7. That the Learned CIT(A) and the Learned ITO grossly erred by applying the provisions of section 56(2)(viib) of the Act without appreciating the fact that all the shares are issued to the parent company and the parent company is the sole shareholder and therefore, the price at which the shares are issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance placed by the Appellant of ruling in the case of CIT vs Poddar Cement Private Limited 119971 92 Taxman 541 (SC) and Green Infra Ltd - Mumbai ITAT 12013] 38 taxmsnn.com 253(Mum-Trib). 13. That the Learned CIT(A) and the Learned ITO ought to have appreciated that Section 56 of the Act intends to Tax only Income and not capital receipts the share premium received is a capital receipt and cannot be taxed under Section 56 (2) (viib) of the Act. 14. That the Learned CIT(A) and the Learned ITO has failed to acknowledge the fact that the amount of ₹ 46,70,166 written off and claimed as bad debt was a genuine business expenditure of the Appellant and the Appellant is eligible for deduction such expenditure. 15. That the Learned CIT(A) and the Learned ITO ought not to have stepped into the shoes of a businessman to decide if the Appellant could have recovered the debt. 16. That the Learned CIT(A) erred in holding that the ruling of Apex court in the case TRF Ltd 323 ITR 397, relied by the Appellant is not applicable in the instant case. The Learned CIT(A) has also grossly erred in holding that the Appellant does not fulfil the conditions stipulated in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m exigible to tax u/s 56(2)(viib) of the Act. Aggrieved with the aforesaid addition, the assessee took this issue in appeal before the CIT(A). The CIT(A), after examining the facts of the case and considering all the issues raised by the assessee, has passed a detailed order, upholding the addition made by the AO. 5.2 Before us, the assessee filed detailed statement of facts outlining the facts of the case along with the grounds of appeal. The assessee also filed a paper book (pages 1 to 319) containing a note of submissions, various documents, including copy of the valuation report of M/s. Sreenivasan Govardhan and copies of various judicial pronouncements to justify the assessee s position on the valuation of share premium by the DCF Method. These have been perused and carefully considered. The learned AR of the assessee made detailed oral submissions on the various points outlined in the written submissions and also referred to various judicial decisions. 5.3 Per contra, the learned DR for Revenue emphatically supported the orders of the authorities below. According to the learned DR, the assessee company is only one year old and the impugned shares have been issued to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vaani Estates Pvt. Ltd., Vs. ITO in ITA No.1352/Chny/2018 dated 27.08.2018; (iii) Rameshwaram Strong Glass (P) Ltd., Vs. ITO (2018) 96 taxmann.com 542 (Jaipur Trib.). 5.4.2 It is necessary and relevant for us to examine the assessee s contention that section 56 of the Act intends only to tax income and not capital receipts and that share premium is a capital receipt. The definition of the term Income has been expanded by Finance Act, 2012 w.e.f. 01.04.2013 by including the following clause in section 2(24) of the Act: (xvi) any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of subsection (2) of section 56 . 5.4.3 Clause (viib) of sub section (2) of section 56 of the Income Tax Act, 1961 was inserted vide Finance Act, 2013 w.e.f. 01.04.2013 i.e., for and from Assessment Year 2013-14. It reads as under: Where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany / person. 5.4.4 The assessee s contentions to the effect that any price between the willing buyer and willing seller is the FMV and it does not require any justification, is not tenable. Acceptance of such a contention would lead to a situation that any share premium collected is allowable as long as both the buyer and seller accept it. Such a contention if accepted, in our considered view, would render the provisions of section 56(2)(viib) of the Act otiose and defeat the very purpose for which these provisions have been brought into the statute. Therefore, we find that this contention put forth by the assessee is untenable. The fact of the matter, in our opinion, is that the insertion of the aforesaid provisions (supra) provides for a mechanism to determine the share premium and any excess premium is to be brought to tax. 5.4.5 Another contention put forth by the assessee that since all the shares are issued to the parent company, therefore the price at which the shares are issued is not relevant; is also not tenable. The provisions of law does not make an exception to shares issued to the promoter company / parent company. It provides for taxing of any excess share pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered that the basis of the estimates adopted in the valuation under DCF Method was not produced and the assessee was not able to substantiate the same. Even before us, the basis for estimates adopted in the valuation under DCF Method was not furnished by the assessee. Therefore, it is amply clear that the AO has not disregarded the use of DCF Method for valuation. The AO has not accepted the valuation adopted by the assessee as the parameters taken by the assessee in adopting the DCF Method are defective and / or not verifiable. 5.4.7 The assessee has also contended that the AO has taken the lower of the valuation, whereas he is required to adopt the higher valuation. In our view, this contention of the assessee is not correct. The valuation adopted by the assessee using the DCF Method has not withstood the scrutiny of the AO. The assessee has not been able / failed to furnish the details that went into and formed the basis for the projections made by the assessee. As pointed out by the CIT(A), there is absolutely no correlation between the figures adopted by the assessee in its projections and the actual figures reported. Since the very basis for the DCF valuation was itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the company. A perusal of this long disclaimer clearly shows that the merchant banker did not do anything reflecting their expertise, except mere applying the formula to the data provided by the assessee. We, therefore, are unable to brush aside the contention of the Revenue that the possibility of tailoring the data by applying the reverse engineering to the pre determined conclusions. 16. For all these reasons, we are of the considered opinion that there has not been any possibility of verifying the correctness or otherwise of the data supplied by the assessee to the merchant banker, in the absence of which the correctness of the result of DCF method cannot be verified. This left no option to the AO but to reject the DCF method and to go by NAV method to determine the FMV of the shares. Without such evidence, it serves no purpose even if the matter is referred to the Department's Valuation Officer. We, therefore, do not find any illegality or irregularity in the approach of conclusions are by the authorities below. While confirming the same, we dismissed the appeal as devoid of merits. 17. In the result, the appeal of the assessee is dismissed. 5.8.8.2 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vertisement for and on behalf of the franchisees; which was to be reimbursed by them. (ii) As the franchisees asked for writing off these amounts, as they were having insufficient cash flow, the assessee waived off these expenses. (iii) The assessee did not bring on record any evidence to establish that these amounts were included in the income of the assessee; either in this year or in earlier years. (iv) In doing so, the learned CIT(A) relied on the decision of the Hon ble Karnataka High Court in the case of United Breweries Ltd., (321 ITR 546) (Kar.). 6.3.1 Before us, the assessee reiterated its contentions as put forth before the CIT(A); namely that the two main conditions for write off of any amount as bad debts is as under: (i) The amounts involved were shown as revenue and duly reflected in the books of accounts as such; and (ii) That, in case these amounts or part thereof are recovered, it will be shown again under revenue and offered to tax. 6.4 In regard to the assessee s contentions before him, the CIT(A) rendered a finding that these amounts are expended towards advertisement expenses incurred for and on behalf of the franchisees, which was to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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