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TMI Blog2024 (1) TMI 1134X X X X Extracts X X X X X X X X Extracts X X X X ..... r assistance to the assessee as in that case the assessee established ownership of buses by documentary evidence whereas in the case at hand purchase of wind mill in the Financial Year 2014-15 could not be proved with documentary evidence. The twin conditions precedent, namely ownership and use of the asset i.e. wind mill, for purposes of assessee s business during the Financial Year 2014-15 relevant to A.Y. 2015-16 are not satisfied in the case of the assessee. We, therefore decline to interfere and decide ground No. 1 against the assessee. Addition u/s 56(2)(viib) - shares being issued at excessive rate - adopting a different method i.e. Net Asset Value method of valuation - HELD THAT:- As not in dispute that the assessee issued 12,03,000/- equity shares to its 100% holding company, at a premium of Rs. 40/- each. It is also not in dispute that shares have been issued at premium based on fair market value as computed and certified by Chartered Accountant who determined the fair market value in accordance with Discounted Cash Flow method which is a well recognised method of valuation under Rule 11UA of the Income Tax Rules, 1962. In this view of the matter, in our humble opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the well settled principle of beneficial ownership. (v) That the procedure followed by the seller so as to suit its convenience cannot be relevant for drawing adverse inference in the case of appellant. 2(i) That on facts and circumstances of the case, the Ld. CIT(A) has grossly erred in confirming addition to the extent of Rs. 3,24,20,850/-u/s 56(2)(viib) of the Income Tax Act, 1961 in respect of premium even though the valuation of Fair Market Value of equity shares is duly supported from valuation report issued by Chartered Accountant. (ii) That the valuation of shares is on the basis of Discounted Cash Flow Method as prescribed under Rule 11UA and Financial projections being based on reasonable estimate of future projects, the observations of CIT(A) are irrelevant and misconceived. (iii) That Ld. CIT(A) has failed to appreciated the factual matrix and logic of DCF method as prescribed under Rule 11UA, the upholding of addition u/s 56(2)(viib) is on arbitrary and mechanical basis. (iv) That Ld. CIT(A) cannot disregard the valuation report of Chartered Accountant and substitute hypothetical value for working out the correctness of the premium in term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eror company completes all the activities / obligations prescribed under the slum sale agreement Further, the said date is to be achieved within 180 days from the date of execution of agreement i.e 180 days from 23.03.2015. c. That the obligations/activities prescribed under the agreement includes: 1. Registration of land lease deed in favor of the appellant company 2. Submission of letter from GEDA to GUVNL directing or transfer of power purchase agreement in favor of the appellant company 3. No dues certificate from lender to the wind mill business. 4. Receipt of all approvals / consents / permissions from Government of Gujarat, Gujarat Electricity Regulatory commissioner, Electricity Distribution Company etc 5. Transfer of Power Purchase agreement in the name of appellant company. 6. Signing of O M contract in the name of appellant company. 7. Transfer of all other ancillary assets/liabilities. 8. Achievement of completion date as per the slump sale agreement d. That the above obligations/activities have not been achieved / completed before the end of the Financial Year under consideration Le. 31.03.2015. e. That the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the operation and management agreement to run the wind mill was executed between the appellant company and M/s Suzion Global services Ltd on 27/07/2015 with effective date from 01/07/2015 which is also one of the essential conditions for completion of sale as per the slump sale agreement. The effective date and the execution date of this agreement both fall in subsequent year. This also signifies that no sale of wind mill has taken place in the year under consideration. i. That the enquiry from the assessing officer of M/s Ansal Properties Infrastructure Limited (seller) also shows that no sale of wind mill has been declared by the seller in its books of account for the F. Y. 2014-15 relevant to AY 2015-16. j. That the first payment for purchase of wind mill by the appellant has been claimed to be made of 23.04.2014 of Rs. 3 crores, however, the due diligence study report of the wind mill was completed on 28.12.2014. Accordingly, this shows that the prior to the date of agreement their may be only some private arrangement between the parties for exchange of money in form of advance/loan. 3.4 Based on the above observations, the AO in the assessment order has disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bilateral act. Based on the consent and agreement of both the parties. Accordingly, it is onus of the appellant to prove that how the transfer of asset and put to use of the same has taken place in the your under consideration in light of the fact that the seller party has not recorded any sale transaction in its books of accounts. In this regard it is also relevant to refer to the comments / objections raised by GUVNL vide its letter dated 10.04.2015 (quoted in the assessment order) that no request for transfer of power purchase agreement has been initiated by M/s Ansal Properties Infrastructure Limited (seller) and there is no board resolution which could depict that all their rights, obligations, assets and liabilities have been assigned in favor of the appellant company. The said comments/ objections raised by GUVNL also leads to the conclusion that M/s Ansal Properties Infrastructure Limited (seller) has not transferred the wind mill in the name of the appellant company till the completion of year under consideration. Further, the appellant has also not been able to bring any evidence on record in the form of any confirmation / copy of board resolution of M/s Ansal Prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t company. The revenue declared by the appellant can at best be said to be a private arrangement of revenue sharing between the parties to compensate the appellant for interest and other expenses. However, the said arrangement does not change the fact that the transfer of wind mill has not completed in the year under consideration so as to make the appellant eligible for claiming of depreciation of the same as per the provision of section 32 of the act. Further it is noted that the appellant in its written submission has failed to controvert the said observations of the AO in the assessment order and has only argued the matter on the ground that it has paid 94% of the consideration till the completion of this year and has booked revenue from the sale of power. However, it is relevant to point out here that nothing has been brought on record by the appellant which could prove the possession and the use of wind mill by it in the year under consideration which is the essential factors for claiming of deduction of depreciation Accordingly, the disallowance of depreciation of Rs. 12,96,28,561/- made by the AO is hereby confirmed. Hence, the ground of appeal is ruled against the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee as in that case the assessee established ownership of buses by documentary evidence whereas in the case at hand purchase of wind mill in the Financial Year 2014-15 could not be proved with documentary evidence. The twin conditions precedent, namely ownership and use of the asset i.e. wind mill, for purposes of assessee s business during the Financial Year 2014-15 relevant to A.Y. 2015-16 are not satisfied in the case of the assessee. We, therefore decline to interfere and decide ground No. 1 and its sub-grounds against the assessee. 9. Ground No. 2(i) to (iv) relate to addition of Rs. 3,24,20,850/- u/s 56(2)(viib) of the Act which has been confirmed by the Ld. CIT(A) by observing and recording his findings as under: 4.2. I have carefully considered the assessment order and written submissions filed by the Ld AR The AO in the assessment order has added Rs 3,24,20,850/ under section 56(2)(viib) on account of shares being issued at excessive rate. The facts of the case are that the appellant company has issued 12.03,000 shares at the rate of Rs 50 per share. The said value taken by the appellant is based on the valuation report issued by Chartered Accountant wherein va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked out the fair market value of shares at Rs. 23.05 per share. Based on the said value of share the AO in the assessment has worked the excessive value recovered by the appellant company at Rs. 3,24,20,850/- which has been added in the hands of the appellant under section 56(2)(viib) of the Act. 4.3. The appellant in the written submissions made during the appellate proceedings has tried to justify the financial projections for 20 years used in the valuation report prepared as per discounted cash flow method which has been rejected by the AO in the assessment order. The appellant in this regard has submitted that it has fully acquired the 12MW wind mill project of M/s Ansal Properties Infrastructure Limited (APIL) also disclosed revenue with respect to the same in the year under consideration. Further as regards the 46.4 MW windmill project of M/s KS Oils Limited, the appellant submitted that as on the valuation dated i.e 14.11 2014 the appellant through its holding company submitted its bid to the State Bank of India and was declared highest bidder on 24.11.2014 and said acquisition was in final stage at that time in support of the contention the appellant has submitted c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant was not justified in taking projections with respect to the said project. In this regard it is noticed that as on the date of valuation of the shares le 14.11.2014 the appellant did not even had the technical due diligence report/study based since the report has been issued by the expert m/s Mitcon Consultancy Engineering Services Limited, Pune for the first time on 26.12.2014. As on the date of valuation the appellant did not have any document or evidence in its hand which could have enabled it to even work out the correct cost of the project. Accordingly, it is reasonably concluded that the appellant did not have any material/document/reasonable, basis for calculating or working the projected financial for the next 20 years on the date valuation of shares. Hence, projections of the appellant company with respect to the 12 MW power project convict the said the reliable for the purpose of valuation of shares. 4.6. Further as regards the 46.4 MW project with respect the claim of the appellant is that as on the date of valuation of shares the bid was already filed and later on it was declared to be highest bidder, I am of the view that the projection of the appellant with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant had acted highly superficially in making projections with respect to a project with which it had no nexus on the date of valuation of shares and using the said projections for the purpose of valuation of shares in this regard, it is also noticed that the appellant has not even the basis or documents or facts and figures based on which the projections were made and subsequently used by the valuer in valuation report. Hence, projections of the appellant company with respect to the 48 4MW power project cannot be said be reliable for the purpose of valuation of shares. 4.7 Further, the submission of the appellant that in future it has acquired two windmill power projects of 9 MW on 14.06.2017 and 1.8 MW on 20.04.2017 which have generated reasonable revenue and accordingly the same substantiates the projections made by it in the valuation report, is baseless and not tenable. The argument of the appellant in first place cannot be accepted, since, it has not be specified whether the said argument was taken before the AO or not and documentary evidences brought forward in this regard in form of copy of sale certificate dated 14.06.2017 from J k bank for purchase of 9 MW power pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined the fair market value at Rs. 50.50 per share in accordance with the Discounted Cash Flow method as prescribed under Rule 11UA(2)(b) of the Income Tax Rules, 1962. This was not acceptable to the Ld. AO who recomputed the fair market value at Rs. 23.05 per share on the basis of Net Worth of the company amounting to Rs. 2,77,29,150/- and added the difference of Rs. 3,24,20,850/- (Rs. 6,01,50,000 Rs. 2,77,29,150/-) to the income of the assessee u/s 56(2)(viib) of the Act. The Ld. AR contended that Discounted Cash Flow method is a well recognised method of valuation and if consideration for issue of shares is based on such method, the Ld. AO cannot invoke the provisions of section 56(2)(viib) of the Act. The Ld. AR pointed out that the assessee has issued the shares to its 100% holding company, M/s Goyal MG Gases P. Ltd. and therefore the provision of section 56(2)(viib) are not applicable. He placed reliance on the decisions of Delhi Bench of the Tribunal in M/s KBC India Pvt. Ltd. vs. ITO in ITA No. 9710/Del/2019 dated 02.11.2022 and in DCIT vs. Hometrail Buildtech Pvt. Ltd. in ITA No. 6095/Del/2019 dated 15.09.2023. 11. The Ld. CIT-DR relied on the orders of the Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emium. 10. In the facts of the present appeal, the transaction relating to allotment of shares is between a holding company and its wholly owned subsidiary. Therefore, no outsider is benefited through such transaction. When the assessee-company has been promoted by the holding company, infusion of additional fund through share premium can only benefit either the holding company or the subsidiary and no third party is involved. In such a scenario, logically, no addition can be made under section 56(2)(viib) of the Act. For arriving at such conclusion, I draw support from the decisions of the Tribunal in the case of ACIT Vs. Y. Venkannachaudhary (supra) and Vaani Estates Pvt. Ltd. Vs. ITO (supra). 10. Even otherwise also, it requires consideration, whether the FMV of the shares allotted by the assessee can be taken at Rs. 1,500/- per share as per the assessee or Rs. 1082 per share as determined by the Assessing Officer. Undisputedly, the assessee has got the FMV of the shares valued through a registered valuer. As per the said valuation report, the registered valuer has applied the Net Asset Value method by considering the value of land at Delhi admeasuring 5.35 acres owned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. 15. The Hon'ble High Court of Delhi in the case of PCIT Vs. Cinestaan Entertainment 433 ITR 82 has held a under: 13. From the aforesaid extract of the impugned order, it becomes clear that the learned ITAT has followed the dicta of the Hon'ble Supreme Court in matters relating to the commercial prudence of an assessee relating to valuation of an asset. The law requires determination of fair market values as per prescribed methodology. The Appellant-Revenue had the option to conduct its own valuation and determine FMV on the basis of either the DCF or NAV Method. The Respondent-Assessee being a start-up company adopted DCF method to value its shares. This was carried out on the basis of information and material available on the date of valuation and projection of future revenue. There is no dispute that methodology adopted by the Respondent- Assessee has been done applying a recognized and accepted method. Since the performance did not match the projections, Revenue sought to challenge the valuation, on that footing. This approach lacks material foundation and is irrational since the valuation is intrinsically based on projections which can be af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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