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TMI Blog2020 (7) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... ar the Assessee had issued equity shares of face value of Rs. 10/- each at a premium of Rs. 146.17 per share and the premium collected during the previous year is Rs. 2,29,31,200/-. The Assessing Officer concluded the assessment taxing the amount of Rs. 2,29,31,200/- as income of the company invoking the provisions of section 56(2)(viib) of the Act. The computation of the Assessing Officer is as under: - Rs. Income as per return before setoff 13,55,467 Add: Income from other sources (U/s.56(2)(viib)) 2,29,31,200 2,42,86,667 Less: Unabsorbed depreciation 14,49,282 Revised total income 2,28,37,385 3. The Assessing Officer has brought to tax the share premium of Rs. 2,29,31,200/- as income invoking the provisions of section 56(2)(viib) of the Act. As per the provisions of sec.56(2)(viib) of the Act, if a company in which public are not substantially interested, receives in any previous year, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares, if exceeds the fair Market Value of the shares shall be taxed as income from other sources. 4. Aggrieved by the order of the AO the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11UA(2) of the Income Tax Rules, 1962 (Rules) there was no case for the Assessing Officer to invoke the provisions of section 56(2)(viib) of the Act in regard to this allotment also. 8. The second category of shares issued at a premium relates to issue of 60831 equity shares of the total value of Rs. 95 lacs issued to the following persons: Name of the share holder No. of shares Date of allotment of shares Face value of shares @ Rs. 10/- Premium received at 146.17 per share Mr.Krishnan Raman 20,277 28.01.2013 2,02,770 29,63,897 Mr.Thaiparambil Jude Derick Jose 20,277 28.01.2013 2,02,770 29,63,896 Mr.Srikanth Muralidhar 20,277 28.01.2013 2,02,770 29,63,897 9. It was the plea of the Assessee that in respect of 60831 equity shares of the value of Rs. 95 lacs issued on 28.01.2013 to the aforesaid persons, that the Assessee purchased Intellectual Property Rights (IPR) from the aforesaid three promoters for a consideration of Rs. 95 lakhs. In lieu of this purchase, 60,831 equity shares were allotted to the promoters at the value of Rs. 156.17 per share (Rs. 10/- towards the face value and Rs. 146.17 per share towards the premium), the same value at which the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 56 r.w.r. 11UA. The same is worked out as under: - FMV under rule 11UA calculated as on 30.04.2012: Particulars Amount in Rs. Assets A Fixed Assets 42,46,140 Bank account 1,69,726 44,15,866 Liabilities L Current liabilities 20,056 Share capital in Rs. PE 46,16,670 Face value per share PV 10 Book value per share (A-L)/PE x PV 9.52 12. It can be seen from the above that the Assessing Officer has disputed the values adopted in the DCF method and with a finding that, the book value per share is Rs. 9.52 only as on 30.04.2012. 13. On appeal by the Assessee, the first appellate authority viz., the ld.CIT(A) has held that the Assessing Officer is well within his powers to disturb the valuation of the chartered accountant furnished by the Assessee substantiating the fair market value. The ld. CIT(A) relied on the decision of ITAT, Delhi in the case of Agro Portfolio (P) Ltd Vs Income Tax Officer, Ward-1(4), Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment'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." 14. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. Before the Tribunal the ld.counsel for the Assessee submitted that shares totaling 60831 issued to Mr Krishnana Raman, Mr Thaiparambil Jude Derick Jose, and Mr. Srikanth Mudaliar of the total value Rs. 95 lakhs has been allotted to promoters of the company on 28.01.2013 in lieu of price/consideration for IPR owned by them which they sold to the Assessee under an agreement dated 28.01.2013. It was therefore, argued that the provisions of section 56(2)(viib) of the Act could not have been invoked, because the premium received was not in cash and such premium and allotment of shares were not against the existing assets of the company but acquiring a new asset. 15. On the above submission, we find that the ld.CIT(A) has held as follows: (in para 4.3 of his order) "............... As regards the claim of the appellant that the promoters had not paid anything in cash and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to examine the methodology adopted by the assessee and/or underlying assumptions and if he is not satisfied, he can challenge the same and suggest necessary modifications/alterations provided ITA No. 2541/Bang/2019 ITA No. 37/Bang/2020 S. P. Nos. 29 and 59/Bang/2020 the same are based on sound reasoning and rationale basis. In the same tribunal order, a judgment of Hon'ble Bombay High Court is also taken note of having been rendered in the case of Vodafone M-Pesa Ltd. vs. PCIT as reported in 164 DTR 257. The tribunal has reproduced part of Para 9 of this judgment but we reproduce herein below full Para 9 of this judgment. "9. We note that, the Commissioner of Income-Tax in the impugned order dated 23rd February, 2018 does not deal with the primary grievance of the petitioner. This, even after he concedes with the method of valuation namely, NAV Method or the DCF Method to determine the fair market value of shares has to be done/adopted at the Assessee's option. Nevertheless, he does not deal with the change in the method of valuation by the Assessing Officer which has resulted in the demand. There is certainly no immunity from scrutiny of the valuation report submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee should be asked to establish that such projections by the assessee based on which, the valuation report is prepared by the Chartered accountant is estimated with reasonable certainty by showing that this is a reliable estimate achievable with reasonable certainty on the basis of facts available on the date of valuation and actual result of future cannot be a basis of saying that the estimates of the management are not reasonable and reliable. 13. Before parting, we want to observe that in the present case, past data are available and hence, the same can be used to make a reliable future estimate but in case of a start up where no past data is available, this view of us that the projection should be on the basis of reliable future estimate should not be insisted upon because in those cases, the projections may be on the basis of expectations and in such cases, it should be shown that such expectations are reasonable after considering various macro and micro economic factors affecting the business. 14. In nutshell, our conclusions are as under:- (1) The AO can scrutinize the valuation report and the if the AO is not satisfied with the explanation of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs cited by learned DR of the Revenue which are against the assessee we hold that because we are following a judgment of Hon'ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr. CIT (supra), these tribunal orders are not relevant. In the case of Innoviti Payment Solutions Pvt. Ltd., Vs. ITO (supra), this judgment of Hon'ble Bombay High Court was followed and the matter was restored back to the file of AO for a fresh decision with a direction that AO should follow DCF method only and he cannot change the method opted by the assessee as has been held by the Hon'ble Bombay High Court. The relevant paras of this Tribunal order are already reproduced above which contain the directions given by the Tribunal to the AO in that case. In the present case also, we decide this issue on similar line and restore the matter back to the file of AO for a fresh decision with similar directions. Accordingly, ground No.3 of the assessee's appeal is allowed for statistical purposes. 18. The gist of the conclusion is that the law contemplates invoking provisions of section 56(2)(viib) of the Act only in situations where the shares are issued at a premium and at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balance-sheet; PV = the paid up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method. 19. The provisions of Rule 11UA(2)(b) of the Rules provides that, the Assessee can adopt the fair market value as per the above two methods and the choice of method is that of the Assessee. 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) and has taken the view that the AO can scrutinize the valuation re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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