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TMI Blog2022 (5) TMI 1646X X X X Extracts X X X X X X X X Extracts X X X X ..... e case as reflected in the joint ventures agreement between the resident and non-resident entity. This agreement holds the key for reasons why there was difference in valuation of the shares for each one of them. Clause 4.2.1 of the joint ventures agreement provided that initial share capital of the assessee company shall be by contribution of 5 lac shares from each and Clause 4.2.2 which is reproduced below for convenience, indicated how the project costs was to be funded in the ratio of non-resident, entity paying 40% of the project cost and the resident entity paying 60% of the project cost. Joint ventures agreement there was difference in the share price as issued to the resident company and that to the non-resident company. The discounted factor has occurred due to difference in the shares of capital contribution to the project cost. In the case in hand AO without considering the relevant clauses of joint ventures agreement presumed that as there was difference in the valuation of share for resident and non-resident entity, so, the valuation given by prescribed expert is liable to be rejected. Hon ble Supreme Court of India in Duncans Industries Ltd. vs. State of UP [ 1999 (12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O). Assessee has preferred Cross-Objections. 2. The facts in brief are the assessee company was incorporated on 01.03.2012 on the basis of joint venture agreement between a resident company namely M/s. Sysmech Industries LLP and the other non-resident company M/s. Demas Company for Trading and Contracting. Both the joint venture partners agreed to contribute project cost in the ratio of 60 and 40 while keeping share holding ratio 50 : 50. On the basis of valuation of equity shares at Rs. 59.99 per share following the DCF method assessee issued shares Rs 60 per share to non-resident share holder after necessary compliances under FEMA etc. While shares to resident company were issued at Rs. 40 per share. The assessee filed return of income declaring loss of Rs. 2,97,79,141/- and the case was picked up for limited scrutiny to furnish the various details including the share valuation as computed under Rule 11UA of the Income Tax Rules, 1962. The ld. AO rejected the valuation of share and made addition in the hands of assessee for allotment of shares to the Indian entity Sysmech Industries LLP u/s 56(2)(viib) of the Act, while giving the following finding : Therefore, as discussed above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and challenging the assumptions in the DCF Model. (iii) That the appellant craves for the permission to add, delete or amend grounds of appeal before or at the time of hearing of appeal. 4.1 Assessee in Cross objections has raised following grounds of:- 1. That Ld. AO and subsequently Ld. CIT(A) have erred in law and on facts and circumstances of the case in not appreciating the fact that the valuation of the shares of the assessee is based on the prescribed method (DCF Method) under Rule 11UA (2)(b) by a prescribed expert, i.e., Chartered Accountant, and the same can neither be varied nor disregarded by the Ld. AO for determination of fair market value for the purposes of section 56(2)(viib). 5. Heard and perused the record. The grounds of appeal and the cross objections arise from same set of facts and law so are taken up together for determination. 5.1 On behalf of the Revenue it was submitted that Ld. CIT(A) has failed to appreciate the reasons which formed the basis of assessment order as at the time of valuation of the share the assessee company was under loss and the fair market value was rightly calculated by Ld. AO, at Rs. 3.60 per share. It was submitted that the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all pay for 10% of the Project cost through subscription of Equity Shares and Demas shall pay for 60% of the Project through subscription of Equity Shares including payment of any share premium amount which shall be mutually decided by the Parties. It is further agreed that after subscription of Equity Shares under this clause, equity shareholding of Demas and SysMech in the JV Company shall remain 50:50. 8. Thus, in furtherance of these clauses of joint ventures agreement there was difference in the share price as issued to the resident company and that to the non-resident company. The discounted factor has occurred due to difference in the shares of capital contribution to the project cost. However, in the case in hand Ld. AO without considering the relevant clauses of joint ventures agreement presumed that as there was difference in the valuation of share for resident and non-resident entity, so, the valuation given by prescribed expert is liable to be rejected. 9. Then Hon ble Supreme Court of India in Duncans Industries Ltd. vs. State of UP, 2000 ECR 19 (SC) which is relied in ITAT Delhi Bench s order in Cinestaan Entertainment Pvt. Ltd. vs. ITO, New Delhi (2019) 106 taxman.co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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