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TMI Blog2021 (11) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... icable for quoted shares. Further, we notice that the AO has not referred to the date of Balance Sheet considered by him for determining the NAV, i.e., the date of Balance sheet is not discernible from the AO. We noticed that the valuer has considered the nearest available quarterly Balance Sheet for determining NAV. In effect, the AO has ignored the methodology prescribed in Rule 11UA for valuing quoted shares, which accounts for major difference in the valuation. Thus, the AO has misguided himself in determining the value under NAV method. Further, it is not discernible as to which Balance Sheet, the AO has referred for determining NAV. This is also lacunae in the computation made by the AO. We notice that the Ld DRP has also confirmed the draft assessment order passed by AO on this point without appreciating the above stated factual aspects. AO has not examined the DCF method of valuation submitted by the assessee and the value of shares determined by the AO under NAV also suffers from major defects. The reasoning given by the AO for rejecting DCF method of valuation would fall on the ground, since the NAV method adopted by the AO suffers from major defects. We notice that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me earned or be computed by considering only investments which have actually yielded exempt income. 3. The Appellant prays that the disallowance u/s 14A of the Act of ₹ 145,02,09,668/- be deleted or be appropriately reduced. Ground No.III : Addition on account of share premium received u/s 56(2)(viib) of ₹ 257,87,32,783/- 1. On the facts and in the circumstances of the case and in law, the Ld.AO pursuant to the directions of the Hon ble DRP, erred in making an addition of ₹ 257.87 crores as excess share premium allegedly collected in violation of the provisions of section 56(2)(viib) of the Act on the basis of several factual inconsistencies and infirmities including errors in calculation. 2. He failed to appreciate and ought to have held: a) The assessee is entitled to value the shares having regard to Explanation (a)(ii) to section 56(2)(viib) which prescribes that the fair market value (FMV) of shares shall be the value as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares; b) When the legislature provides option for valuation of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g reliance on the judgment of the Hon ble Orissa High Court in the case of Orissa Rural Housing Development Corporation Ltd. v. ACIT in Writ Petition (C) No.4554 of 2011, held that an error or omission can be rectified only filing a revised return within the prescribed time limit u/s 139(5) of the I.T.Act. Therefore, it was concluded by the DRP that the assessee is not entitled to raise such a claim before the Assessing Officer nor the Assessing Officer is empowered to entertain such claim. Pursuant to the DRP s direction, final assessment order was passed on 14.10.2019. 3.2. Aggrieved, the assessee has raised this issue before the Tribunal. The learned AR reiterated the submissions made before the Income Tax Authorities and also placed reliance on the order of the Tribunal in assessee s own case for assessment years 2010-2011, 2011-2012 and 2013-2014 in ITA Nos.2145, 2146 2148/Bang/2016 (order dated 08.02.2019). 3.3 The learned Departmental Representative, on the other hand, submitted that the assessee had voluntarily made the disallowance u/s 14A of the I.T.Act amounting to ₹ 145,02,09,668 and hence, was precluded from changing its stand and seeking the reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt reads as follow:- 20. Before parting, we may also note with reference to the Table of disallowance voluntarily made by the Assessee, which is part of the Paper Book before us for the four assessment years in question. In the Table quoted in the beginning of the order, shows that the Assessee himself computed and offered the disallowance beyond the exempted income in the particular year, namely AY 2009-10, as against the dividend income of ₹ 41,042/- and the Assessee himself computed disallowance under Rule 8D of the Rules to the extent of ₹ 2,38,575/-, which was increased to ₹ 98,16,104/- by the Assessing Authority. Similarly, for AY 2012-13, against Nil dividend income, the Assessee himself computed disallowance at ₹ 8,50,000/-, which was increased to ₹ 2,61,96,790/-. 21. We cannot approve even the larger disallowance proposed by the Assessee himself in the computation of disallowance under Rule 8D made by him. These facts are akin to the case of Pragati Krishna Gramin Bank(2018) 95 Taxman.com 41 (Kar.) decided by Karnataka High Court. The legal position, as interpreted above by various judgments and again reiterated by us in this ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year, the assessee-company had allotted 1,51,740 shares and 46,245 non CCD. The assessee had collected share premium of ₹ 258,24,26,100. The face value of each share is ₹ 10/-. The assessee stated that these shares have been issued based on the share valuation report obtained from a Chartered Accountant, who has valued the share by adopting Discount Cash Flow (DCF) method and also under Net Asset Value (NAV) method. During the course of assessment proceedings, the A.O. noticed that the value of shares adopted for the subsidiary company did not match with the Balance Sheet. Therefore, the AR was asked to submit the details of valuation of the shares issued and justify why the share premium received should not be taxed under income from other sources, in view of section 56(2)(viib) of the I.T. Act. The assessee filed written submissions on 13.12.2018 submitting the details and stated that shares issued during the year have been valued under DCF method and Net Asset Value method. The A.O. was of the view that the assessee cannot pick and chose with regard to valuation of certain assets. It was stated by the A.O. that for certain assets the assessee was valuing at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... until the assessee produces the evidences to substantiate the basis of projections in cash flow And provides reasonable connectivity between those projections in cash flow with the reality evidences by the material, it is not possible even for the Departmental Valuation Officer to conduct any exercise of verification of the acceptability of the value determine by the merchant banker. This is more particularly in view of the long disclaimer appended by the merchant banker at page no. 16 17 of the paper book which clearly establishes that no independent enquiry is caused by merchant banker to verify the truth or otherwise the figures furnished by the assessee at least on test basis. The merchant bankers solely relied upon an assumed without independent verification, the truthfulness accuracy and completeness of the information and the financial data provided 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 appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax paid TDS, Adv. Tax 24005000 Less Differed expenses Add Refund 24005000 Total (A) 14935058000 Book value of liabilities 14959063000 Less Paid up capital in respect of equity shares 430202470 Less Reserve and surplus 387906000 Less Payment of dividend on preference share and/equity share 0 Less Provision and tax 9546000 Less Other provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e premium collected during the year ₹ 257,87,32,783 7.15 As evident from the valuation method NAV method calculated as above, here is a huge gap between the value adopted by the assessee company and real value of the assessee company. It is true that, DCF method is largely based on presumptions or estimations; there will be difference between value as per DCF method and value as per NAV. 7.16 But, the huge difference between two values does not justify the adoption of DCF method which is not backed by any scientific working done independently by the Chartered Accountant. Thus, the DCF method fails. 7.17 The working of the Chartered Accountant is also considered by adopting the book value of the subsidiary which is as under:- Computation of fair value of equity shares as per Rule 11UA as on 30.9.14. Assets Market value Book value Value of shares Quoted shares of GMR infrastructure Ltd. 4,802.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not have reached astronomical figure of ₹ 2,26,996 in any case within a span of months. This also evidence the fact that when the book value is consistently adopted the other figures have been incorporated in a manner to inflate the value of the premium while the market value of the share of the subsidiary is adopted as red herring to bring the premium to the level of management desires. Thus, the valuation report has virtually no legs to stand on as it stands proven that what is stated to be book value also in fact is not the book value. The entire accountant s report thus stands discredited and hence, the Net asset value method is adopted to arrive at the excess premium as worked out at para 7.14 hereinabove. Calculation of excess security premium collected during the year. Total consideration received in respect of shares issued during the year ₹ 2,58,44,03,250 Less: 1 Face value of 197715 shares issued during the year ₹ 19,77,150 2. Fair market value of 197715 shares issued to resident at premiu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, franchises or any other business or commercial rights of similar nature. The assessee has substantiated the said value by a Valuation Report, which was done on the 'basis of the Fair market value of net etc held by the Company and also substantiated by DCF working. Objection No.3.4: The aforesaid reports have been rejected by the AO arbitrarily and under apparent factual errors and presumptions. Objection No. 3.5: If the AO was not satisfied with the valuation report, he ought to have referred the same to the Valuation Officer as per the provisions of section 142A of the Act. Objection No. 3.6: Section 56(2)(viib) of the Act being an antiavoidance provision introduced with the intention of deterring generation and use of unaccounted money, would not apply to cases where the issue of shares is to the existing shareholders on proportionate basis or genuine cases. Objection No. 3.7: On the facts and in this circumstances of the case and in law, the AO erred in proposing to make an addition of ₹ 257.87crores as excess share premium collected in violation of the provisions of Section 56(2)(viib) of the Act. 2.3.1 We note that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of share was determined at ₹ 13,208/- per share. (c) It is pertinent to note that the NAV was arrived on the basis of value of assets as on 30-09-2014. Since the valuation report is dated 15th November, 2014, the valuer has considered the Balance sheet prepared for the immediately preceding quarter ended 30-09-2014. The assessee is holding shares in its subsidiary GMR infrastructure Ltd and the said shares are listed in the market. The quoted market price as on 30-09-2014 was ₹ 17.55 per share and hence the realizable value of shares of GMR infrastructure Ltd was arrived on the basis of above said market price, which worked out to ₹ 4802.07 crores. (d) The assessee has made further issue of Non- Cumulative Convertible Preference Shares of ₹ 10/- each at a premium of ₹ 12,650/- each on 23-03-2015. (e) At that time, the assessee again obtained a valuation report dated 12th March, 2015. It is placed at pages 456-464 of the paper book. The valuer primarily valued the shares under DCF method at ₹ 12,631/- per share and corroborated the same under NAV method under which the share value was determined at ₹ 12,650/- per share. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quoted shares and securities are received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be,- (a) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation date, and (b) the lowest price of such shares and securities on any recognized stock exchange on a date immediately preceding the valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date there is no trading in such shares and securities on any recognized stock exchange; We notice that the AO has omitted to consider the above provisions applicable for quoted shares. Further, we notice that the AO has not referred to the date of Balance Sheet considered by him for determining the NAV, i.e., the date of Balance sheet is not discernible from the AO. We noticed that the valuer has considered the nearest available quarterly Balance Sheet for determining NAV. In effect, the AO has ignored the methodology prescribed in Rule 11UA for valuing quoted shares, which accounts for major difference in the valuation. Thus, the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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