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TMI Blog2024 (7) TMI 886X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of share premium u/s 56(2)(viib) - assessee at a higher rate allotted the share - AO determined the share at Rs. 4.38 per share whereas the valuer made the valuation made at Rs. 69.41 per share and that the valuation report was not furnished to AO during the course of assessment proceedings - HELD THAT:- The assessee completed the valuation during the transfer of shares from intercompany adjustment. Rule 11UA was duly followed and assessee completed the valuation in NAV with a rate of 69.41 per share. On the other hand, the revenue had calculated without rejecting the valuation report of the merchant banker duly placed by the assessee at the time of assessment proceedings. The issue was duly resolved by the Ld.AR by inviting our attention where the proof is attached that the assessee placed the valuation report before the Ld. AO. The change of method of valuation cannot be done by Ld.AO. We fully relied on the order of PNP Maritime Services (P.) Ltd [ 2024 (7) TMI 393 - ITAT MUMBAI] Shanta Blankets (P.) Ltd [ 2024 (4) TMI 836 - ITAT DELHI] The Ld.AR relied on the decision in the case of BLP Vayu (Project-1) P. Ltd [ 2023 (6) TMI 209 - ITAT DELHI] From talking tour from this or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout providing an opportunity of personal hearing through video conferencing to the Appellant, despite the specific request of the Appellant. 2. The Appellant, therefore, prays that the impugned order passed in gross violation of the principles of natural justice be held as bad in law and the additions/disallowances made be deleted. GROUND NO. III; DISALLOWANCE OF CLAIM OF DEPRECIATION ON COMPUTER SOFTWARE AMOUNTING TO Rs. 84,40,051/2- 1. On the facts and in circumstances of the case and in law, the Ld. CIT(A), erred in upholding the AO's action of calculating depreciation on computer software @ 25% instead of @ 60% as claimed by the Appellant. 2. The Appellant prays that it be allowed depreciation (o;60% on computer software instead of depreciation @ 25%. 3. Without Prejudice to the above, the Appellant prays that the software purchased be allowed as business expenditure u/s 3 7( 1) of the Act. GROUND NO. IV: DISALLOWANCE OF SALES PROMOTION EXPENSES AMOUNTING TO Rs. 94,98,268/- 1. On the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the AO in disallowing the advertisement and business promotion (sales promotion) expenses a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case are that the assessee is a developer and developing the project in Mulund and assessee is as wholly owned subsidiary of Piramal Realty Pvt Ltd (in short, PRPL ). The assessee managed a project in Mulund named, Revanta . The assessee is recognizing the revenue in project completion method. During the impugned assessment year, the revenue has added back the excess claim of depreciation, sale promotion expenses amounting to Rs. 94,98,268/- and addition of share premium under section 56(2)(viib) of the Act r.w.s. 11UA of the Rule amounting to Rs. 1,85,00,600/-. Aggrieved assessee filed an appeal before the ld. CIT(A) and challenged the additions made by the Ld. AO. But Ld.CIT(A) upheld the assessment order. Being aggrieved, the assessee filed an appeal before us. 3. The Ld.AR in argument, first placed that grounds 1 2 are not pressed. The ground-wise argument is placed before the Bench, which is as follows: - Ground III: Disallowance of claim of depreciation on computer software 4. The Ld.AR argued and placed the issue that assessee purchased two software and charged depreciation at 60%. Ld.AO has reduced the claim of depreciation from @60% to @25% and claimed that the 60% de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on computer software @, 60%. We thus set-aside the order of the CIT(A) in context of the issue under consideration and vacate the disallowance of Rs. 17,63,425/- made by the A.O on the said count. The Ground of appeal No. Ill is allowed. 5. The Ld.DR argued vehemently and mentioned that the 60% depreciation is only applicable to computer with software i.e. the software is guiding the computer or is an integral part of the related hardware is treated as a fixed asset and applicable for the depreciation @60%. But the assessee has taken only the application software where the assessee has got the right to use that software. The Ld.DR invited our attention in para 6.7 to 6.11 of the appeal order, which are reproduced as below: - 6.7 Further the appellant has purchased computer software separately and independently from the computer purchases. The software purchased by the appellant is not system software' but 'application software by which the appellant has got the right to use that software. The appellant has acquired only intangible asset. Hence, the appellant is eligible for depreciation at 25% as per Part B of depreciation schedule as shown in Appendix 1 of the IT. Rules. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction project at Mulund named Revanta . In impugned assessment year, the assessee had incurred expenses on sale amounting to Rs. 94,98,268/- which is debited in the P L Account in terms of guidance note on accounting of real estate transaction for revised 2012 (in short, GN ) issued by the Institute of Chartered Accountants of India and accordingly, claimed as revenue expenditure. The Ld.AR placed that the entire amount is related to profit bearing system and the disallowance made by the ld. AO on the basis of AS-7 is purely related to contractor and not to developer. The Ld.AR respectfully relied on the order of the Co-ordinate bench of ITAT-Mumbai in the case of ACIT, CC-21, Mumbai vs Layer Exports P. Ltd (2017) 88 taxmann.com 620 (Mumbai Tribunal). The relevant part of the order is as follows: - 46. We have rival contentions and gone through the facts and circumstances of the case. We have gone , through AS-7 issued by the ICAI and find that the same is applicable only to accounting for construction contracts in the financial statements of contractors. The text of AS-7 (Construction Contracts) issued by ICAI was filed before us (Copy enclosed at pages 403-414 of assessee's P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low the position to be changed in a subsequent year. On these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter and, if there was no change, it was in support of the assessee we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. CIT v. Somnath Buildtech (P.) Ltd. [2023] 146 taxmann.com 472 (Del. HC) [Refer PageNo. 197 to 202 of LPB-I]: The Hon'ble HC held that the expenses incurred by the assessee were in the nature of general administration and selling cost as classified by the GN issued by the ICAI and since the said expenses were incurred for the purposes of business, the same qualified for deduction as revenue expenditure DCIT v. Macrotech Developer Ltd. [2022] 192 ITD 438 (Mum. Trib) [Refer Page No. 203 to 207 of LPB-I]: The Hon'ble Tribunal has in Para No. 8 of its order, observed as under: 5... Admittedly, the assessee had incurred the sales promotion expenses of Rs. 2,02,86,452/-and advertisement expenses of Rs. 6,68,13,114/-for launching of its p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was submitted before the ld. Assessing Officer during the course of assessment proceedings and as well as before the Ld.CIT(A). Copy of the report is duly enclosed in APB 55-57. The Ld.AR further argued that the ld. AO had not accepted the valuation report and assessee is continuing the method of valuation in NAV which was duly calculated by the assessee in NAV and the Ld.AO rejected the method of valuation and calculated in DCF method determining the FMV of equity shares as net asset value method @Rs.4.38 per share and thereby made an addition balance amount of Rs. 1,85,00,600/-. The Ld.AR further claimed that the assessee had, for the purpose of compliance with FEMA also obtained valuation report with merchant banker which valued the share @69.41 per share. The grievance of the Ld.AR is that in arbitrary way, the Revenue changed the method of valuation and addition was made without considering the valuation report prepared by the merchant banker considering Rule 11UA of the Income Tax Rule, 1962. The reliance was placed in following orders of the co-ordinate bench of Mumbai and Delhi: - The Valuation adopted by the Appellant is in accordance with Rule 11UA and done by prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for a final determination from an independent valuer to confront the petitioner. However, the basis has to be the DCF Method and it is not open to him to change the method of valuation which has been opted for by the assessee. In the case of JCIT v. Om Sons Marketing (P.) Ltd. [2024] 158 taxmann.com 175 (Amr. Trib.),it is noted that: Since the law has prescribed the specific method for valuation i.e DCF so the assessee was free (and rather entitled) to choose this method. The method of valuation could be challenged by the AO only if it was not a recognized method of valuation as per Rule IWA (2) of the Rule. The very purpose of certification of DCF valuation by a merchant banker or chartered accountant is to ensure that the valuation is fair and reasonable. Such valuation is to be done by an expert of the subject only, which an assessing officer is not expected to be. The said rule provides that such valuation shall be the fair market value for the purpose of this section based on DCF Method. The Rule nowhere permits the AO to make any adjustment therein. The ld. AR placed that no addition can be made u/s 56(2)(viib) of the Act in case of genuine commercial transaction in absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project due to changes in Development Control Promotion Regulation 2034 Rules ( DCPR Rules ), delay in receiving various approvals from the regulatory authorities, increase in cost of raw materials such as cement and steel, unexpected increase in approvals and liasoning costs, etc. 15. The ld. AR specifically invited our attention to the decisions of Hon'ble Delhi High Court in the case of M/s. Cinestaan Entertainment Pvt. Ltd. [ITA 1007/2019 CM APPL. 54134/2019] and decision of Hon'ble Mumbai Tribunal in the case of Vodafone M-Pesa Ltd. v. DCIT ITA No.1073/Mum/2019 wherein it respectfully relied on the decision of Hon'ble Bombay High Court in the case of Securities Exchange Board of India Ors. [2015 ABR 291]. 16. The ld. AR also submitted that DCF method is recognized method of valuation wherein projection are relied on under valuation principles, valuation report cannot be rejected merely based on actuals are not comparable to projection figures. For this the ld. AR respectfully relied on the decision of M/s. Cinestaan Entertainment Pvt. Ltd (supra)where the Hon'ble Delhi HC considered the observation of Hon'ble Delhi Tribunal which include the observation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been judicially appreciated in various judgements some of which have been relied upon by the Id. Counsel, for instance: i) Securities Exchange Board of India Ors [2015 ABR 291 (Bombay HC)] 48.6 Thirdly, it is a well settled position of law with regard to valuation that valuation is not and exact science and can ever be done with arithmetic precision. The attempt on the part of SEBI to challenge the valuation which is by its very nature based on projections by applying what is essentially a hindsight view that the performance did not match the projection is unknown to the law on valuations. Valuation being an exercise required to be conducted at a particular point of time has of necessity to be carried out on the basis of whatever information is available on the date of the valuation and a projection of future revenue that valuer may fairly make on the basis of such information. 17. The Ld.DR argued and placed that the assessee at a higher rate allotted the share. The Ld.Assessing Officer determined the share at Rs. 4.38 per share whereas the valuer made the valuation made at Rs. 69.41 per share. The Ld.DR further claimed that the valuation report was not furnished to the Ld.Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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