9911796707
TMI Blog2020 (6) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... ccrued to the assessee and therefore, in our considered opinion, this judgment of Hon ble Gauhati High Court is squarely applicable in the present case. - Additions deleted. Addition by invoking the provisions of section 56(2)(viib) - assessee has obtained valuation report of Shri. P. Chandrasekhar, Chartered Accountant, where the value of the shares of the assessee company was recommended at 527/- per share as per DCF method but the AO adopted FMV method and made this addition - HELD THAT:- In the present case we prefer to follow the judgment of Hon ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr. CIT [ 2018 (3) TMI 530 - BOMBAY HIGH COURT] in preference to the judgment of the Hon ble Kerala High Court cited by DR of the Revenue rendered in the case of Sunrise Academy of Medical Specialities (India) (P.) Ltd. Vs. ITO [ 2018 (8) TMI 203 - KERALA HIGH COURT] because this is settled position of law by now that if two views are possible then the view favourable to the assessee should be adopted and with regard to various Tribunal orders cited by learned DR of the Revenue which are against the assessee we hold that because we are following a judgment of Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o S.Ps. are also filed by the assessee for these 2 years. All were heard together and are being disposed of by way of this common order for the sake of convenience. 3. First, we take up the appeal of the assessee for Assessment Year 2015-16 i.e., in ITA No.2541/Bang/2019. The grounds raised by the assessee are as under: 1. That the order of the learned Commissioner of Income Tax (Appeals) is prejudicial to the interests of the appellant, is bad and erroneous in law and against the facts and circumstances of the case 2. Grounds regarding Notional lease rent - ₹ 2,36,67,539 2.1. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the addition of lease rent of ₹ 2,36,67,539/- on a notional basis even though the appellant has not received the above amount. 2.2. That the learned Commissioner of Income Tax (Appeals) erred in law and on fact in confirming the addition of notional rent of ₹ 2,36,67,539/- on the plant and machinery leased to sister concerns on the ground that the rent charged by the appellant is not at par with the fair market value even though no material was brought on record to substantiate the FMV arrived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the disallowance u/s. 14A of the Act to the extent of ₹ 25,68,400/- which is actual dividend income claimed as exemption. Each of the above grounds is without prejudice to one another and the appellant craves leave of the Hon'ble Income Tax Appellate Tribunal, Bangalore to add, delete, amend or otherwise modify either all or any of the above grounds either before or at the time of hearing of this appeal. 4. In the course of hearing, it was submitted by learned AR of the assessee that ground No.1 is general. Regarding ground No.2, he submitted that the notional addition made by the AO and confirmed by the learned CIT(A) is not justified. He placed reliance on the judgment of Hon'ble Gauhati High Court rendered in the case of Highway Construction Co. Pvt. Ltd., Vs. CIT 199 ITR 702, copy available on pages 57 - 61 of the assessee's Paper Book. As against this, learned DR of the Revenue filed written submissions regarding ground No.2 in Assessment Year 2015-16. It was the submission of learned DR of the Revenue that additional evidence filed by the assessee should not be admitted and in this regard, she placed reliance on three judicial pronouncements which are noted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease rent charged by the appellant to its subsidiaries. It is an established and accepted notion that a business enterprise is established for earning some income. It is the hope of earning profits that inspires people to start business. Profit is essential for the survival and growth of ever. business unit. Therefore, the argument of the appellant that the AO cannot determine the FMV of lease rental is not correct. Further, the appeallant has argued that the AO failed to appreciate that the machinery let out is unique to construction activities and arc not generally available in the market for leasing except to related parties. Even going by such argument of the appellant its unique and rare machine would normally fetch more lease rental for the appellant. It is observed that the AO has discussed the issue logically and has advanced cogent reasons for determining the FMV for lease rental in the case of the appellant. The computation of lease rental at the rate of 8% of the WDV of the assets h) the AO is also considered reasonable." 6. From the above paras reproduced from the order of CIT(A), it comes out that the addition was made by the AO on this basis that fair market value (F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had not bargained for interest, or had not collected interest, we fail to see how the income-tax authorities can fix a notional interest as due, or collected by the assessee. Our attention has not been invited to any provision of the Income-tax Act empowering the income-tax authorities to include in the income interest which was not due or not collected. In this view, we answer question No. (ii) in the negative, that is, in favour of the assessee and against the Revenue." 7. From the above para reproduced form the judgment of Hon'ble Gauhati High Court, it comes out that in a case where the income is not actually received by the assessee and it has not accrued to the assessee, then under no provisions of Income Tax Act, the income tax authorities are authorized to include such income which was neither due nor collected. In the present case also, this is not the case of the AO that higher amount of lease rental was received by the assessee or it has accrued to the assessee and therefore, in our considered opinion, this judgment of Hon'ble Gauhati High Court is squarely applicable in the present case. No contrary decision of Hon'ble Karnataka High Court or of Hon'ble A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of Hon'ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd. Vs. Pr. CIT as reported in 256 Taxmann 240 and in this case, the Tribunal duly considered the Tribunal order cited by learned DR of the Revenue having been rendered in the case of Agro Portfolio Pvt. Ltd., Vs. ITO (supra). Regarding the judgment of Hon'ble Kerala High Court, it was submitted that since Hon'ble Bombay High Court judgment is in favour of the assessee at least to the extent of restoring the matter back to the file of AO, the same should be followed in preference to the judgment of Hon'ble Kerala High Court cited by learned DR of the Revenue. 9. We have considered the rival submissions. First of all, we reproduce paras 11 to 14 from the Tribunal order cited by learned AR of the assessee having been rendered in the case of Innoviti Payment Solutions Pvt. Ltd., Vs. ITO (supra). These paras are as follows: "11. As per various tribunal orders cited by the learned AR of the assessee, it was held that as per Rule 11UA (2), the assessee can opt for DCF method and if the assessee has so opted for DCF method, the AO cannot discard the same and adopt other method i.e. NAV method of valuing sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the facts need to be stayed." 12. As per above Para of this judgment of Hon'ble Bombay High Court, it was held that the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a final determination from an independent valuer to confront the assessee. But the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee. Hence, in our considered opinion, in the present case, when the guidance of Hon'ble Bombay high Court is available, we should follow this judgment of Hon'ble Bombay High Court in preference to various tribunal orders cited by both sides and therefore, we are not required to examine and consider these tribunal orders. Respectfully following this judgment of Hon'ble Bombay High Court, we set aside the order of CIT (A) and restore the matter to AO for a fresh decision in the light of this judgment of Hon'ble Bombay High Court. The AO should scrutinize the valuation report and he should determine a fresh valuation either by himself or by calling a final determination from an independent valuer and confront the same to the assessee. But the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irical data or industry norm if any and/or Scientific Data, Scientific Method, scientific study and applicable Guidelines regarding DCF Method of Valuation." 10. From the paras reproduced above, it is seen that in this case, the Tribunal has followed the judgment of Hon'ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr. CIT (supra). The Tribunal has noted that as per the judgment of Hon'ble Bombay High Court, it was held that AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a determination from an independent valuer to confront the assessee but the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee. The Tribunal has followed the judgment of Hon'ble Bombay High Court and disregarded various other Tribunal orders against the assessee which were available at that point of time. In the present case also, we prefer to follow the judgment of Hon'ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr. CIT (supra) in preference to the judgment of the Hon'ble Kerala High Court cited by DR of the Revenue rendered in the case of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but this is an apparent mistake in the grounds of appeal raised by the assessee because as per the P & L Account, this amount of exempt dividend income was earned by the assessee in the preceding year and not in the present year. At this juncture, the Bench wanted to see the computation of the income filed by the assessee along with return of income because in the present year also, assessee has shown an income of ₹ 58,88,121/- as profit on sale of investments (Net). The Bench wanted to see as to whether this income is claimed as exempt or declared as taxable. In reply, it was submitted by learned AR of the assessee that he will file the computation of income after the hearing is over. Learned DR supported the orders of authorities below. 13. We have considered the rival submissions and we find that this is the claim of the learned AR of the assessee that there is no exempt income earned by the assessee in the present year but he has not filed the computation of income to establish that and we find that the assessee has earned in the present year ₹ 58,88,121/- as profit on sale of investments (Net) and in the absence of computation, we do not know whether it is claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- which is the difference between actual expenditure incurred and lease rent charged. 3. Disallowance of share issue expenses of ₹ 1,25,09,633/- 3.1. That the learned Commissioner of Income-Tax (Appeals) erred in law and on facts in confirming the disallowance of ₹ 1,25,09,633/- being incurred towards issue of shares and qualifies for deduction u/s. 35D of the Act. 3.2. Without prejudice to the above ground, that the learned Commissioner of Income-Tax (Appeals) ought to have allowed the sum of ₹ 1,25,09,633/- as deduction u/s. 37(1) of the Act. Addition u/s. 56(2) (viib) - ₹ 23,92,68,988/- 4.1. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the addition of ₹ 23,92,68,988/- u/s. 56(2) (viib) of the Act on the ground that the value of the shares issued exceeds the fair market value per share. 4.2. That the learned Commissioner of Income Tax (Appeals) ought to have held that the assessing officer has no jurisdiction to go beyond the valuation report issued by chartered accountant. 4.3. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in upholding the action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s available to the assessee as per earlier technical collaboration agreement with its parent company. The government informed the assessee that it will approve of such an agreement only if the assessee agreed to dilute the shareholding of the parent company in its capital by offering at least 25% thereof to the Indian Public. It is also noted in this case that the Government insisted upon the fulfilment of this precondition. The assessee issued fresh equity capital and for issue of such fresh capital, the assessee incurred an aggregate expenditure of ₹ 9,32,946/-. Such expenditure was disallowed by the AO but the same was allowed by Hon'ble Bombay High Court by holding as under: "It is clear that we must find the aim and objects, from a businessman's point of view, in incurring the said expenditure. It is established, upon the Tribunal's finding, that the assessee had no need for funds. It is established that it had need only of the technical collaboration arrangement to run profitably. What, therefore, motivated the businessman in the assessee was the expediency of ensuring the continuance of the technical collaboration arrangement. The object and purpose of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital was required for working capital needs and for this reason also, the expenses for issue of share capital should be allowed as revenue expenditure. But we find no merit in these contentions. Whatever be the scope of work of M/s. Avendus Capital Pvt. Ltd., the nature of expenses remains same. Even if the fresh share capital is to meet working capital needs, then also, the nature of expenses remains same and hence the entire amount of such expenses is to be considered as capital expenditure as has been held by Hon'ble Apex Court in these two judgments having been rendered in the case of Brooke Bond India Limited Vs. CIT (supra) and PSIDC Ltd., (supra). Hence, we decline to interfere in the order of learned CIT(A) on this issue because this issue was decided by him by following these two judgments of Hon'ble Apex Court and we find no infirmity therein. Accordingly, ground No.3 of the assessee's appeal is rejected. 20. In the result, appeal of the assessee for Assessment Year 2016-17 is partly allowed in the terms indicated above. 21. Both the Stay Petitions are dismissed as infructuous because we have decided the appeals itself. 22. In the combined result, assessee's appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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