ACIT (TDS -2(2) , MUMBAI vs. M/S. SULA VINEYARDS PVT. LTD, MUMBAI

PER OM PRAKASH KANT, AM This appeal by the Revenue is directed against order dated 28/10/2021 passed by the Ld. Commissioner of Income-tax (Appeals)-53, Mumbai [in short the Ld. CIT(A)] in relation to in order dated 22/03/2019 passed under section 201(1)/201(1A) of the Income-tax Act, 1961 (in short ‘the Act’) by the Assessing Officer

for assessment year 2018 for assessment year 2018-19. The Ld. CIT(A) has passed a 19. The Ld. CIT(A) has passed a consolidated order for assessment year 2012 consolidated order for assessment year 2012-13; 2013 13; 2013-14; 2014-15; 2015-16; 2016-17; 2017 17; 2017-18 and 2018-19. The present appeal 19. The present appeal preferred is against the order for assessment year 2018 preferred is against the order for assessment year 2018 preferred is against the order for assessment year 2018-19. The grounds raised by the sed by the Revenue are reproduced as under: are reproduced as under:

i. Whether on the facts and in the circumstances of the case and Whether on the facts and in the circumstances of the case and Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the in law, the Ld. CIT(A) erred in not appreciating the fact that the in law, the Ld. CIT(A) erred in not appreciating the fact that the Fair Market Value of the shares of the assessee company had Fair Market Value of the shares of the assessee company had Fair Market Value of the shares of the assessee company had been established by mea been established by means of the trade between unrelated ns of the trade between unrelated parties leading to establishment of a definitive value. parties leading to establishment of a definitive value. parties leading to establishment of a definitive value. ii. Whether on the facts and in the circumstances of the case and Whether on the facts and in the circumstances of the case and Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in completely placing reliance on in law, the Ld. CIT(A) erred in completely placing reliance on in law, the Ld. CIT(A) erred in completely placing reliance on the value of per share of the assessee the value of per share of the assessee company determined by company determined by the Merchant Banker and not taking cognizance of a the Merchant Banker and not taking cognizance of a the Merchant Banker and not taking cognizance of a determinative value established by trade between unrelated determinative value established by trade between unrelated determinative value established by trade between unrelated parties during the year under consideration itself. parties during the year under consideration itself. iii. Whether on the facts and in the circumstances of the case and Whether on the facts and in the circumstances of the case and Whether on the facts and in the circumstances of the case and in law, t in law, the Ld. CIT(A) erred in not appreciating that even he Ld. CIT(A) erred in not appreciating that even though the trade between unrelated parties took place after though the trade between unrelated parties took place after though the trade between unrelated parties took place after the exercise of option under ESOP scheme by the employee, the the exercise of option under ESOP scheme by the employee, the the exercise of option under ESOP scheme by the employee, the said trade had taken place during the same financial year said trade had taken place during the same financial year said trade had taken place during the same financial year whereby the value of perqu whereby the value of perquisite based on the fair market value isite based on the fair market value so established could have been added to the salary income of so established could have been added to the salary income of so established could have been added to the salary income of

the employee and appropriate TDS done by the assessee the employee and appropriate TDS done by the assessee the employee and appropriate TDS done by the assessee company. company. iv. Whether on the facts and in the circumstances of the case and Whether on the facts and in the circumstances of the case and Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in re in law, the Ld.CIT(A) erred in rejecting the Fair Market Value jecting the Fair Market Value (FMV) of Rs.850/ (FMV) of Rs.850/- per share adopted by the Assessing Officer per share adopted by the Assessing Officer while upholding the value of Rs.194.15 per share computed by while upholding the value of Rs.194.15 per share computed by while upholding the value of Rs.194.15 per share computed by the Merchant Banker without appreciating that section the Merchant Banker without appreciating that section the Merchant Banker without appreciating that section 17(2)(vi) r.w. Rule 3(8) provides for adopting FMV of the shares 17(2)(vi) r.w. Rule 3(8) provides for adopting FMV 17(2)(vi) r.w. Rule 3(8) provides for adopting FMV which could not have been less than the actual trade @ which could not have been less than the actual trade @ which could not have been less than the actual trade @ Rs.850/ Rs.850/- per share executed between the unrelated parties per share executed between the unrelated parties during the year itself. during the year itself. 2. Briefly stated facts of the case are that the assessee is engaged stated facts of the case are that the assessee is engaged stated facts of the case are that the assessee is engaged in manufacturing and sales of wines in manufacturing and sales of wines in India. A survey action under in India. A survey action under section 133A of the Act Act was carried out in the case of the assessee was carried out in the case of the assessee on 10/10/2018, wherein according to the on 10/10/2018, wherein according to the Assessing Officer Assessing Officer, the assessee violated provisions related to deduction of tax at source assessee violated provisions related to deduction of tax at source assessee violated provisions related to deduction of tax at source including section 192 of including section 192 of the Act. The issue raised in present appeal . The issue raised in present appeal by the Revenue relates to short relates to short-deduction of tax on perquisites to deduction of tax on perquisites to Mr. Rajeev Samant, the then director of the assessee company. Rajeev Samant, the then director of the assessee company. Rajeev Samant, the then director of the assessee company. According to the Assessing Officer Assessing Officer, the assessee company had , the assessee company had allotted 40,000 warran allotted 40,000 warrants to Sh. Rajjeev Samant during the Board of during the Board of

Directors meetings held on 09/02/2010 at the option of conversion Directors meetings held on 09/02/2010 at the option of conversion Directors meetings held on 09/02/2010 at the option of conversion into shares at the rate of into shares at the rate of ₹155 per share. Out of the 40,000 warrants, 155 per share. Out of the 40,000 warrants, 20,000 warrants were converted to shares in the month of June 20,000 warrants were converted to shares in the month of June 20,000 warrants were converted to shares in the month of June 2017 and balance 20,000 warrants were converted into shares in 2017 and balance 20,000 warrants were converted into shares in 2017 and balance 20,000 warrants were converted into shares in the month of February 2018. Mr Rajeev Sawant paid the month of February 2018. Mr Rajeev Sawant paid the month of February 2018. Mr Rajeev Sawant paid ₹ 62 lakh to the company for the 40,00 company for the 40,000 shares.

2.1 As per the section 17(2)(vi) of the As per the section 17(2)(vi) of the Act the value of any the value of any specified security allotted or transferred, directly or indirectly by specified security allotted or transferred, directly or indirectly by specified security allotted or transferred, directly or indirectly by the employer, free of cost or at concessional rate, is to be treated as the employer, free of cost or at concessional rate, is to be treated as the employer, free of cost or at concessional rate, is to be treated as perquisites in the hands of the employee a perquisites in the hands of the employee and the company is nd the company is required to deduct tax at source on the same in terms of section 192 required to deduct tax at source on the same in terms of section 192 required to deduct tax at source on the same in terms of section 192 of the Act. The value of the specified security has been defined in . The value of the specified security has been defined in . The value of the specified security has been defined in section 17(2)(vi) of the section 17(2)(vi) of the Act as the fair market value of the specified as the fair market value of the specified security on the date of which security on the date of which the option is exercised by the the option is exercised by the employee as reduced by the amount actually paid by the employee employee as reduced by the amount actually paid by the employee employee as reduced by the amount actually paid by the employee in respect of security or shares. The in respect of security or shares. The Rule 3(8) of the 3(8) of the Income-tax

Rules, 1962 prescribe for determination of market value of any , 1962 prescribe for determination of market value of any , 1962 prescribe for determination of market value of any equity shares on the date of exe equity shares on the date of exercising option by the employee. The rcising option by the employee. The Rule 3(8)(iii) prescribe determination of fair market value in case of 3(8)(iii) prescribe determination of fair market value in case of 3(8)(iii) prescribe determination of fair market value in case of the shares in the company, which is not listed on recogni the shares in the company, which is not listed on recogni the shares in the company, which is not listed on recognized stock exchange. According to the rule, in such cases fair market value of exchange. According to the rule, in such cases fair market value of exchange. According to the rule, in such cases fair market value of shares in the company shall be as determined by a merchant banker company shall be as determined by a merchant banker company shall be as determined by a merchant banker on the specified date i.e. the date of exercising the option or any date on the specified date i.e. the date of exercising the option or any date on the specified date i.e. the date of exercising the option or any date earlier than the date of exercising this option not being a date which earlier than the date of exercising this option not being a date which earlier than the date of exercising this option not being a date which is more than 180 days earlier than the date of exercising th is more than 180 days earlier than the date of exercising th is more than 180 days earlier than the date of exercising the option.

2.2 As required by the above sections and the As required by the above sections and the Rules Rules, the company got fair market value of shares determined through a merchant got fair market value of shares determined through a merchant got fair market value of shares determined through a merchant banker, who worked out the fair market value of the shares at banker, who worked out the fair market value of the shares at banker, who worked out the fair market value of the shares at ₹194.15 per share. The The assessee company accordingly wor assessee company accordingly worked out the perquisites in the hands of Mr the perquisites in the hands of Mr. Rajeev Samant as under: Rajeev Samant as under:

Particulars Amount ( Amount (₹) a. Fair Market Value of the Shares Fair Market Value of the Shares 194.15 b. Exercise Price of the Shares Exercise Price of the Shares 155.00 c. Perquisite per share [(a) Perquisite per share [(a)-(b)] 39.15

d. Total Shares Issued Total Shares Issued 40,000 e. Total Perquisite [(c)*(d)] Perquisite [(c)*(d)] 15,66,000 2.3 The assessee company accordingly deducted tax at source assessee company accordingly deducted tax at source assessee company accordingly deducted tax at source (TDS) on the perquisite amount of (TDS) on the perquisite amount of ₹15,66,000/- in terms of section in terms of section 192 of the Act and deposited the tax into and deposited the tax into Government Government account.

2.4 But according to the But according to the Assessing Officer, during relevant , during relevant assessment year M/s Reliance capital had sold shares of the assessment year M/s Reliance capital had sold shares of the assessment year M/s Reliance capital had sold shares of the assessee company at the rate of assessee company at the rate of ₹ 850 per share and therefore fair 850 per share and therefore fair market value of the specified security ( alue of the specified security (equity share of assessee quity share of assessee company) should have been computed tak ) should have been computed taking the market value at ing the market value at the rate of ₹850 per share. The 850 per share. The Ld. Assessing Officer Assessing Officer accordingly computed the quantum of perquisite and liability in terms of section computed the quantum of perquisite and liability in terms of section computed the quantum of perquisite and liability in terms of section 201(1) and interest under section 201(1A) of the 201(1) and interest under section 201(1A) of the Act Act as under:

“5.3 After looking into facts of After looking into facts of the case and all the submission the case and all the submission made by the assessee and analyzing the facts of the case the made by the assessee and analyzing the facts of the case the made by the assessee and analyzing the facts of the case the contention of the assessee is not acceptable for the reasons contention of the assessee is not acceptable for the reasons contention of the assessee is not acceptable for the reasons recorded as under: recorded as under: 1. The fact is the assessee The fact is the assessee-company has sold its share to Rajeev company has sold its share to Rajeev Samat @ ₹155 per shar ₹155 per share against the 40000 share warrants e against the 40000 share warrants

issued on 09.02.2010. In computation of tax liability u/s 192 issued on 09.02.2010. In computation of tax liability u/s 192 issued on 09.02.2010. In computation of tax liability u/s 192 for AY 2017 for AY 2017-18, the assessee company added different of 18, the assessee company added different of market value and sale value of the shares i.e. 39.15 per share as market value and sale value of the shares i.e. 39.15 per share as market value and sale value of the shares i.e. 39.15 per share as perquisite and TDS deducted u/s 192 o perquisite and TDS deducted u/s 192 of the Act. 2. It is observed from the sale purchase transactions between It is observed from the sale purchase transactions between It is observed from the sale purchase transactions between Reliance capital who was holding certain shares of assessee Reliance capital who was holding certain shares of assessee Reliance capital who was holding certain shares of assessee company have sold its holding @ 80 per share. In the light of company have sold its holding @ 80 per share. In the light of company have sold its holding @ 80 per share. In the light of these facts, the statement u/s 131 of Mr. Rajeev Samant, the these facts, the statement u/s 131 of Mr. Rajeev Samant, the these facts, the statement u/s 131 of Mr. Rajeev Samant, the Director, recorded during the course of survey action and rector, recorded during the course of survey action and rector, recorded during the course of survey action and sought its explanation on this issue. sought its explanation on this issue. 3. In response to above said query, the assessee has filed its In response to above said query, the assessee has filed its In response to above said query, the assessee has filed its working of valuation of shares and hothing else. It is fact that working of valuation of shares and hothing else. It is fact that working of valuation of shares and hothing else. It is fact that the shares of the company (Sula Vineyards Pvt. Ltd.) were sold the shares of the company (Sula Vineyards Pvt. Ltd.) were sold the shares of the company (Sula Vineyards Pvt. Ltd.) were sold by Reliance Capital to third by Reliance Capital to third party @ 850 per share in FY 2017 party @ 850 per share in FY 2017- 18. Neither director refused/denied the price of share in its ither director refused/denied the price of share in its ither director refused/denied the price of share in its submission nor filed any evidence of sale purchase transactions submission nor filed any evidence of sale purchase transactions submission nor filed any evidence of sale purchase transactions of the said shares. of the said shares. 4. To avoid the tax liability the assessee emphasizing on the To avoid the tax liability the assessee emphasizing on the To avoid the tax liability the assessee emphasizing on the valuation of shares rather adopting its market value of shares. valuation of shares rather adopting its market value of valuation of shares rather adopting its market value of The best market price of share of a company is always be the The best market price of share of a company is always be the The best market price of share of a company is always be the price which it fetched in the market. The Reliance capital sold price which it fetched in the market. The Reliance capital sold price which it fetched in the market. The Reliance capital sold its holding @ 850 per share in the month of March 2018 and it its holding @ 850 per share in the month of March 2018 and it its holding @ 850 per share in the month of March 2018 and it is the best market value of the share of the company which is at is the best market value of the share of the company which is is the best market value of the share of the company which is par with that of value of shares in the stock market. par with that of value of shares in the stock market. 5. What is Fair Market Value? What is Fair Market Value?

Fair market value is an estimate of market value of a property, Fair market value is an estimate of market value of a property, Fair market value is an estimate of market value of a property, based on what knowledgeable, willing and unpressured buyer based on what knowledgeable, willing and unpressured buyer based on what knowledgeable, willing and unpressured buyer

would probably pay in knowledgeable, willing an would probably pay in knowledgeable, willing and unpressured d unpressured seller in the market. seller in the market.

In the light of the above definition the assessee would have to take In the light of the above definition the assessee would have to take In the light of the above definition the assessee would have to take the market value which Reliance capital fetched while selling its the market value which Reliance capital fetched while selling its the market value which Reliance capital fetched while selling its equity holding of assessee company. equity holding of assessee company.

Sr. No. Name of Nature Nature of of Date of Amount paid Amount of Short/non- Interest the Party Transaction Transaction Payment of credited ₹ TDS ₹ deduction u/s or Credit to be 201(1A) whichever charged (months) is earlier u/s 201(1) 1. Rajeev Perquisites Perquisites Various ₹2,62,34,000 Nil ₹78,70,200 ₹8,65,722 Samant in Salary in Salary dates

“60. Ground No. 4 is related to TDS liability of Ground No. 4 is related to TDS liability of ₹78,70,200/ ₹78,70,200/- u/s 192 in respect of perquisites on conversion of warrants into shares 192 in respect of perquisites on conversion of warrants into shares 192 in respect of perquisites on conversion of warrants into shares under ESOP. 60.1 During the co During the course of TDS proceedings, the AO observed urse of TDS proceedings, the AO observed that Mr. Rajeev Samant, an employee of the company was allotted that Mr. Rajeev Samant, an employee of the company was allotted that Mr. Rajeev Samant, an employee of the company was allotted warrants under ESOP scheme on 09.02.2010. He exercised the warrants under ESOP scheme on 09.02.2010. He exercised the warrants under ESOP scheme on 09.02.2010. He exercised the option and was issued 40000 shares into equity shares during option and was issued 40000 shares into equity shares during option and was issued 40000 shares into equity shares during ng the same year shareholders of 2017-18 @ ₹155 per shares. Duri ₹155 per shares. During the same year shareholders of the Appellate company, i.e. Reliance Capital had sold their shares the Appellate company, i.e. Reliance Capital had sold their shares the Appellate company, i.e. Reliance Capital had sold their shares @ 850 per share to a third party. The AO was of the view that the @ 850 per share to a third party. The AO was of the view that the @ 850 per share to a third party. The AO was of the view that the FMV should be considered of FMV should be considered of ₹850 per share and as against FMV of ₹850 per share and as against FMV of the shares determined at the shares determined at ₹194.1 per share by a merchant banker 194.1 per share by a merchant banker under Rule 3(8). Hence, the AO considered the difference of under Rule 3(8). Hence, the AO considered the difference of under Rule 3(8). Hence, the AO considered the difference of ₹39.15 per share as perquisite at per share as perquisite at ₹15,66,000/-. Accordingly, the AO . Accordingly, the AO calculated the short deduction of tax u/s 192 of the Act at calculated the short deduction of tax u/s 192 of the Act at calculated the short deduction of tax u/s 192 of the Act at ₹78,70,200/-.” ” 4. In the above finding above finding, inadvertently, the Ld. CIT(A) has referred , inadvertently, the Ld. CIT(A) has referred quantum in dispute at quantum in dispute at ₹78,70,200/- whereas correct amount in whereas correct amount in dispute in the year under consideration is of dispute in the year under consideration is of ₹2,62,34,000/ 34,000/-.

stock exchange, the fair market value shall be such value of the , the fair market value shall be such value of the , the fair market value shall be such value of the shares in the company has the company has determined by a merchant banker determined by a merchant banker. The assessee adopted the fair market value of assessee adopted the fair market value of ₹194.15 per share 194.15 per share determined by a merchant banker and accordingly worked out determined by a merchant banker and accordingly worked out determined by a merchant banker and accordingly worked out amount of perquisite to Sh amount of perquisite to Sh. Rajeev Samant at ₹15,66,000/ 15,66,000/-. But the contention of the Revenue is that during the year under is that during the year under consideration shares of the assessee company were sold in an consideration shares of the assessee company were sold in an consideration shares of the assessee company were sold in an independent transaction at independent transaction at ₹850 per share and therefore the fair 850 per share and therefore the fair market value should have been taken at market value should have been taken at ₹850 per share and the 850 per share and the perquisite should accordingly be computed at perquisite should accordingly be computed at ₹2,78,00, 2,78,00,000/- and tax should have been deducted on said amount accordingly. The tax should have been deducted on said amount accordingly. The tax should have been deducted on said amount accordingly. The assessee has deducted tax on the perquisite amount of assessee has deducted tax on the perquisite amount of assessee has deducted tax on the perquisite amount of ₹15,66,000/- and therefore in view of the and therefore in view of the Assessing Officer, tax has not been , tax has not been deducted on the balance perquisite amount of deducted on the balance perquisite amount of ₹2,62,34,000/ 2,62,34,000/-, and therefore, same is disallowable in terms of section 40(a)(ia) of the , same is disallowable in terms of section 40(a)(ia) of the , same is disallowable in terms of section 40(a)(ia) of the Act.

6.1 The Ld. CIT(A) in the instant assessment year has followed his The Ld. CIT(A) in the instant assessment year has followed his The Ld. CIT(A) in the instant assessment year has followed his finding in assessment year finding in assessment year 2012-13, The finding of the Ld. CIT(A) in 13, The finding of the Ld. CIT(A) in assessment year 2012 assessment year 2012-13 is reproduced as under:

“6.3 The findings of the AO in the assessment order and the written 6.3 The findings of the AO in the assessment order and the written 6.3 The findings of the AO in the assessment order and the written submission of the appellant has been considered. submission of the appellant has been considered.

The only dispute is regarding what should be th The only dispute is regarding what should be the FMV of shares to e FMV of shares to determine the value of determine the value of perquisites in respect of exercising of perquisites in respect of exercising of option under ESOP granted to the employee of the option under ESOP granted to the employee of the company. company. Mr. Ajoy Shaw, an employee of the company opted for 5,000 shares Mr. Ajoy Shaw, an employee of the company opted for 5,000 shares Mr. Ajoy Shaw, an employee of the company opted for 5,000 shares under ESOP scheme on 12.08.2008. He exercised the o under ESOP scheme on 12.08.2008. He exercised the option and ption and converted 1500 shares into equity shares during 2011 converted 1500 shares into equity shares during 2011-12 @ Rs. 12 @ Rs. 155 per share. The appellant has taken FMV of the shares at Rs. 155 per share. The appellant has taken FMV of the shares at Rs. 155 per share. The appellant has taken FMV of the shares at Rs. 104.54 per share which was determined by a merchant banker 104.54 per share which was determined by a merchant banker 104.54 per share which was determined by a merchant banker under Rule 3(8). According to the AO, under Rule 3(8). According to the AO, the FMV should be Rs. 2 the FMV should be Rs. 260 per share, at which other two shareholders of the Appellant per share, at which other two shareholders of the Appellant per share, at which other two shareholders of the Appellant company had sold the shares to a third party. The AO was of the company had sold the shares to a third party. The AO was of the company had sold the shares to a third party. The AO was of the view that

Perquisite defined under section 17 of the IT Act includes the value Perquisite defined under section 17 of the IT Act includes the value Perquisite defined under section 17 of the IT Act includes the value of any specified security or sweat equity shares a of any specified security or sweat equity shares allotted or llotted or transferred, directly or indirectly, by the employer, or former transferred, directly or indirectly, by the employer, or former transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee. The employer, free of cost or at concessional rate to the assessee. The employer, free of cost or at concessional rate to the assessee. The Value of the perquisite in respect of allotment under ESOP is to be Value of the perquisite in respect of allotment under ESOP is to be Value of the perquisite in respect of allotment under ESOP is to be calculated as per Sub rule (8) of Rule 3 of t calculated as per Sub rule (8) of Rule 3 of the IT Rule. In the case of he IT Rule. In the case of the appellant company the shares of the company are unlisted, the appellant company the shares of the company are unlisted, the appellant company the shares of the company are unlisted,

therefore, the FMV is to be determined as per Sub rule (8) (iii) of therefore, the FMV is to be determined as per Sub rule (8) (iii) of therefore, the FMV is to be determined as per Sub rule (8) (iii) of Rule 3 of the IT Rule. Sub rule (8) (ii) of Rule 3 of the IT Rule Rule 3 of the IT Rule. Sub rule (8) (ii) of Rule 3 of the IT Rule Rule 3 of the IT Rule. Sub rule (8) (ii) of Rule 3 of the IT Rule provides that in a case where, on provides that in a case where, on the date of exercising of the the date of exercising of the option, the share in the company is not listed on a recognized option, the share in the company is not listed on a recognized option, the share in the company is not listed on a recognized stock exchange, the fair market value shall be such value of the stock exchange, the fair market value shall be such value of the stock exchange, the fair market value shall be such value of the share in the company as determined by a merchant banker on the share in the company as determined by a merchant banker on the share in the company as determined by a merchant banker on the specified date. In the case of the In the case of the appellant, as on the date of exercising of option, appellant, as on the date of exercising of option, the shares of the company were not listed on a recognized stock the shares of the company were not listed on a recognized stock the shares of the company were not listed on a recognized stock exchange, therefore, the fair market value should be the value of exchange, therefore, the fair market value should be the value of exchange, therefore, the fair market value should be the value of the share of the company as determined by a merchant banker on the share of the company as determined by a merchant banker on the share of the company as determined by a merchant banker on the specified date. The Merchant banker has determined the FMV ed date. The Merchant banker has determined the FMV ed date. The Merchant banker has determined the FMV of the shares at Rs. 104.54/ of the shares at Rs. 104.54/- as on the date of exercising the as on the date of exercising the option. The shares were issued to the employee @ Rs. 155 per option. The shares were issued to the employee @ Rs. 155 per option. The shares were issued to the employee @ Rs. 155 per share. The issue price is more than the FMV determined under share. The issue price is more than the FMV determined under share. The issue price is more than the FMV determined under Rule 3(8) of the IT Rule 3(8) of the IT Rules, there is no benefit or perquisites given by Rules, there is no benefit or perquisites given by the appellant company to the employee on issuing the shares the appellant company to the employee on issuing the shares the appellant company to the employee on issuing the shares under ESOP. The AO has also not challenged the FM of the shares under ESOP. The AO has also not challenged the FM of the shares under ESOP. The AO has also not challenged the FM of the shares determined by the merchant banker. Therefore, the appellant was determined by the merchant banker. Therefore, the appellant was determined by the merchant banker. Therefore, the appellant was not liable to de not liable to deduct TDS on such grant of shares under ESOP. The duct TDS on such grant of shares under ESOP. The TDS Ifability of Rs. 47 250/ TDS Ifability of Rs. 47 250/- imposed by the AO is deleted.

Accordingly, the ground no.3 of the appeal is allowed. Accordingly, the ground no.3 of the appeal is allowed.”

6.2 Thus, the issue Thus, the issue-in-dispute in the instant case is whether the dispute in the instant case is whether the fair market value of equi fair market value of equity shares of the assessee as on the date of ty shares of the assessee as on the date of exercising of the option by the employee for con exercising of the option by the employee for converting the warrant verting the warrant

into shares, as determined determined by the merchant banker should be by the merchant banker should be adopted or fair market of equity shares should be adopted on the adopted or fair market of equity shares should be adopted on the adopted or fair market of equity shares should be adopted on the basis of a real-time transactions of sale of equity shares of the e transactions of sale of equity shares of the e transactions of sale of equity shares of the company.

6.3 We find that for the purpose of computing fair market value of We find that for the purpose of computing fair market value of We find that for the purpose of computing fair market value of the equity shares allotted to the employee the equity shares allotted to the employee Sh. Rajeev Samant, the Rajeev Samant, the assessee has followed the procedure laid down in assessee has followed the procedure laid down in Rule Rule 3(8) of the Rules. Under the rules, . Under the rules, in case of shares of unlisted company the fair in case of shares of unlisted company the fair market value shall be the value market value shall be the value determined by a merchant banker determined by a merchant banker. The merchant banker has also been defined in the The merchant banker has also been defined in the The merchant banker has also been defined in the Rules. The said rule has been reproduced by the rule has been reproduced by the Ld. Assessing Officer ng Officer in the impugned order. Same is extracted again for ready reference: impugned order. Same is extracted again for ready reference: impugned order. Same is extracted again for ready reference:

“The extract of the said Rule is provided below for ease of The extract of the said Rule is provided below for ease of The extract of the said Rule is provided below for ease of reference. (8)(i) For the purposes of sub (8)(i) For the purposes of sub-clause (vi) of clause (2) of section clause (vi) of clause (2) of section 17, the fair market value of any speci 17, the fair market value of any specified security or sweat equity fied security or sweat equity share, being on equity share in a company, on the date on which share, being on equity share in a company, on the date on which share, being on equity share in a company, on the date on which

the option is exercised by the employee, shall be determined in the option is exercised by the employee, shall be determined in the option is exercised by the employee, shall be determined in accordance with the proinstons of clause (ii) or clause (iii). accordance with the proinstons of clause (ii) or clause (iii). accordance with the proinstons of clause (ii) or clause (iii).

(ii) In a case where, on the date o (ii) In a case where, on the date of the exercising of the option, the f the exercising of the option, the share in the company is listed on a recognized stock exchange, (iii) share in the company is listed on a recognized stock exchange, (iii) share in the company is listed on a recognized stock exchange, (iii) In a case where, on the date of exercising of the option, the share In a case where, on the date of exercising of the option, the share In a case where, on the date of exercising of the option, the share in the company is not listed on a recognised stock exchange, the in the company is not listed on a recognised stock exchange, the in the company is not listed on a recognised stock exchange, the fair market value fair market value shall be such value of the share in the company shall be such value of the share in the company as determined by a merchant banker on the specified date. (iv) For as determined by a merchant banker on the specified date. (iv) For as determined by a merchant banker on the specified date. (iv) For the purpose of this sub the purpose of this sub-rule,

a. "closing price" of a share on a recognised stuck exchange on a "closing price" of a share on a recognised stuck exchange on a "closing price" of a share on a recognised stuck exchange on a date shall be the price of the last settlement on such date on such date shall be the price of the last settlement o n such date on such stock exchange stock exchange

Provided that where the stock exchange quotes both "bay Provided that where the stock exchange quotes both "bay Provided that where the stock exchange quotes both "bay and "sell" prices, the closing price shall be the "sell" price of "sell" prices, the closing price shall be the "sell" price of "sell" prices, the closing price shall be the "sell" price of the last settlement;

b. "merchant banker means category I merchant banker "merchant banker means category I merchant banker registered registered with Securities and Exchange Board of India established under with Securities established under section 3 of the Securities and Exchange Board of India Act, section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); 1992 (15 of 1992);

c. "opening price" of a share on a recognised stock exchame on a "opening price" of a share on a recognised stock exchame on a "opening price" of a share on a recognised stock exchame on a date shall be the price of the first settlement on such dot on such date shall be the price of the first settlement on such dot on such date shall be the price of the first settlement on such dot on such stock exchange: stock exchange:

Provided that where t Provided that where the stock exchange quotes both "buy” he stock exchange quotes both "buy” and "sell" prices, the opening price shall be the "sell" price of "sell" prices, the opening price shall be the "sell" price of "sell" prices, the opening price shall be the "sell" price of the first settlement; d. "recognized stock exchange" shall have the same meaning ed stock exchange" shall have the same meaning ed stock exchange" shall have the same meaning section 2 of the Securities Contracts assigned to it in clause (f) of section 2 of the Securities Contracts assigned to it in clause (f) of (Regulation) Act, 1956 (42 of 1956): (Regulation) Act, 1956 (42 of 1956): e. "specified date" means, "specified date" means, i. the date of exercising of the option; or the date of exercising of the option; or ii. any date earlier than the date of the exercising of the any date earlier than the date of the exercising of the any date earlier than the date of the exercising of the option not being a date which is more than 180 days option not being a date which is more than 180 days option not being a date which is more than 180 days earlier earlier than the date of the exercising.” 6.4 On plain reading of the above plain reading of the above Rules, it is evident that fair , it is evident that fair market value of the specified shares was to be taken as determined market value of the specified shares was to be taken as determined market value of the specified shares was to be taken as determined by the merchant banker. The assessee following above by the merchant banker. The assessee following above by the merchant banker. The assessee following above Rules, has adopted the fair market va adopted the fair market value of ₹194.15 as determined by the 94.15 as determined by the merchant banker. But the contention of the revenue in the grounds merchant banker. But the contention of the revenue in the grounds merchant banker. But the contention of the revenue in the grounds raised is that value as per the actual trade at the rate of raised is that value as per the actual trade at the rate of raised is that value as per the actual trade at the rate of ₹850 per share executed between the unrelated parties should have been share executed between the unrelated parties should have been share executed between the unrelated parties should have been adopted. No decision has been cited by the adopted. No decision has been cited by the Ld. Ld. Department Representative, which could support the case of the , which could support the case of the , which could support the case of the Revenue and therefore we do not find any basis for adopting the fair market therefore we do not find any basis for adopting the fair market therefore we do not find any basis for adopting the fair market value

as suggested by the as suggested by the Ld. Departmental Representative Departmental Representative based on an independent transaction of sale of shares of the assessee company independent transaction of sale of shares of the assessee company independent transaction of sale of shares of the assessee company between unrelated party. Once under the between unrelated party. Once under the Rules it has been clearly it has been clearly specified that fair market value determined by the mer specified that fair market value determined by the mer specified that fair market value determined by the merchant banker has to be taken as the value of the shares and the assessee followed has to be taken as the value of the shares and the assessee followed has to be taken as the value of the shares and the assessee followed those rules and computed quantum of perquisite and consequent those rules and computed quantum of perquisite and consequent those rules and computed quantum of perquisite and consequent liability of TDS. The Ld. CIT(A) has accordingly deleted the liability of TDS. The Ld. CIT(A) has accordingly deleted the liability of TDS. The Ld. CIT(A) has accordingly deleted the disallowance. In the grounds raised before us, the disallowance. In the grounds raised before us, the disallowance. In the grounds raised before us, the Revenue has nowhere challenged correctness of here challenged correctness of fair market value determined fair market value determined by the merchant banker. Further, during the course of hearing the merchant banker. Further, during the course of hearing the merchant banker. Further, during the course of hearing, the Ld. counsel of the assessee filed a copy of the assessment order in the of the assessee filed a copy of the assessment order in the of the assessee filed a copy of the assessment order in the case of Sh. Rajeev Samant i.e. the employe Rajeev Samant i.e. the employee director who received e director who received the said equity shares of the assessee company and submitted that the said equity shares of the assessee company and submitted that the said equity shares of the assessee company and submitted that no addition has been made on the issue of underreporting of value no addition has been made on the issue of underreporting of value no addition has been made on the issue of underreporting of value of perquisite in his hands, and thus department has accepted the of perquisite in his hands, and thus department has accepted the of perquisite in his hands, and thus department has accepted the quantum of perquisite in his hands. quantum of perquisite in his hands. The Ld. DR could not controvert DR could not controvert

this factual aspect pointed out by the this factual aspect pointed out by the Ld. counsel of the assessee, though in our opinion, any omission on the part of the though in our opinion, any omission on the part of the though in our opinion, any omission on the part of the Assessing Officer in the case of the recipient cannot give right to the assessee in the case of the recipient cannot give right to the assessee in the case of the recipient cannot give right to the assessee to take benefit of the said omission. the said omission.

6.5 In view of above In view of above discussion, we do not find any error in the discussion, we do not find any error in the order of the Ld. CIT(A) on the issue of the Ld. CIT(A) on the issue-in-dispute and accordingly, we dispute and accordingly, we uphold the same. The grounds raised by the uphold the same. The grounds raised by the uphold the same. The grounds raised by the Revenue are accordingly dismissed. accordingly dismissed.

Order pronounced in the open Court in unced in the open Court in 16/09 /09/2022. Sd/- Sd/- - (SANDEEP SINGH KARHAIL SANDEEP SINGH KARHAIL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 16/09/2022 Dragon Legal/Rahul Sharma, Sr. P.S.

Copy of the Order forwarded to Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, BY ORDER, //True Copy// (Sr. Private Secretary) (Sr. Private Secretary) ITAT, Mumbai ITAT, Mumbai