DREAMS DWELLERS LLP(AS LEGAL REPRESENTATIVE OF MEGACORP DEVELOPERS PVT LTD,MUMBAI vs. ACIT -24(1) (EARLIER ACIT CIR 10(1)(1), MUMBAI), MUMBAI

PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated
27.07.2024 passed by the Ld. Commissioner of Income-tax
(Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld.CIT(A)’]
for assessment year
2014-15, raising grounds challenging addition premium being more
2. Briefly stated, limited liability part
27.01.2016. Prior to Megacorp Developer construction of reside
Dwellers Pvt. Ltd. vid
10.10.2014 with app
27/01/2016, M/s Dr present assessee i.e under consideration relevant time M/s D on 28.09.2014 decla return of income filed the Income-tax Act, return of income filed statutory notices und assessment was com
30.12.2016 wherein from other sources’ in share premium amou
3. On further appe was sustained by the ITA n for alleged sum received than fair market value.
facts of the case are that the tnership firm, which came int that its predecessor, a compa rs Pvt. Ltd., which was in th ential complexes, got merged w de Hon’ble High Court of Bomb pointed date as 31.03.2014. S reamz Dwellers Pvt. Ltd. got con e. limited liability partnership i.e. assessment year 2014-15, t reamz Dwellers Pvt. Ltd.) filed r aring total income at Rs.1,08
d by the assessee was processe
1961 (in short ‘the Act’). Su d by the assessee was selected f der the Act were issued and com mpleted by way of order u/
addition was made under th nvoking section 56(2)(viib) of th unt received in excess of fair ma eal, the addition made by the A e Ld. CIT(A). Aggrieved the asses
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against share e assessee is a to existence on any namely M/s he business of ith M/s Dreamz bay order dated
Subsequently on nverted into the p. For the year the assessee ( at return of income
8,28,783/-. The ed u/s 143(1) of ubsequently, the for scrutiny and mplied with. The s 143(3) dated e head ‘income e Act for alleged arket value.
Assessing Officer ssee is in appeal before the Income-ta raising the grounds a 4. Before us, the L
Book containing page
5. The grounds rai of the share premium lower authorities. Th that the assessee is (CPS) of Rs. 10 each of Rs.990/- per shar activities in the com
Before the AO, the a preference shares, d transfer description a section 56(2)(viib) o company receives th the fair market value the assessee. It was that share price was derived as specified
Sub-Rule (1) of Rule the said Rule, the securities other than listed on the recogni
ITA ax Appellate Tribunal (in short as reproduced above.
Ld. counsel for the assessee ha es 1 to 192. ised by the assessee are in relat m received on preference share he facts in brief qua the issue ssued 1,23,000 redeemable pr to M/s Altus Developers Pvt. Ltd re for the purpose of carrying o mpany or through various gro assessee filed terms and condit dividend on such shares, pa and terms of redemptions etc. T of the Act gets attracted wh e consideration for issue of sha of the shares, which is deemed submitted on behalf of the ass s determined on the basis of fa section 56(2)(viib) of the Act r.
e 11UA of the Income-tax Rule fair market value of unquot n the equity shares of a compan ized stock exchange, shall be Dreams Dwellers LLP
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t ‘the Tribunal’) as filed a Paper tion to valuation rejected by the e in dispute are eference shares d. at a premium out construction oup companies.
tions of issue of ayment method,
The provisions of hen a unlisted are in excess of d to be income of sessee company air market value
.w. clause (c) of es, 1962. Under ted shares and ny, which is not estimated to be price it would fetch if and the assessee ma accountant in respe derived price per sh valuation report obta such report is placed report has laid dow conditions of redeem obtained specified div fair market value of t of the future cash applied on this mod
Coupon rate) in the 11.5% per annum. T fair market value as u
“Further wit by the valu redeemable adopted the investment, redeemable appropriate future cash discounting international
It is subm valuation rep
Rs 10268.89
preference company ha
ITA f sold in the open market on the ay obtain a report of merchan ect of such valuation. The ass hare of preference share on ained from a chartered account d on paper book page 41-45. Th wn the methodology as well mable preference shares. The v vidend discounting the model fo the preference share based on th inflow. It is submitted that d del is 12% per annum (on th expired term is 1 years with The assessee explained the jus under:
th regards to the rationale for the va uer, in order to determine the fair preference shares, the assesse co e method to value the cash flows in dividend and redemption proce preference shares which are disco discount rate to arrive at the pres inflows. Such model is akin to t model or discounting cash model lly accepted valuation methodology.
itted that applying the above tec port has derived the the present value
9/-. Hence on the basis of the fair valu shares in the valuation report t as issued preference shares at Rs.1
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e valuation date nt banker or an sessee company the basis of a tant. A copy of e said valuation as terms and valuation report or arriving at the he present value discounted rate he basis of the coupon rate of stification of the aluation done value of the ompany has n the form of eds of the ounted at an sent value of the dividend which is an chnique, the e per share of ue of the said the assesse
0000/- each

(Rs 10 Face it is submit shares at a the said p redemption been merged whom the sh assesse com of Rs.9990/
cannot be ta during the y that additio unjustified a and without prayed to yo assessing of shall be give
5.1 Further, the preference share cap ld AO has not invoke the nature and sourc however was not agre fair market value of t valuer. According to issue of share premi has rejected the re valuation by the ass secondly, the asses preference share, th basis to determine th rationale investors w
ITA

Value and Rs 9990/- Share premium tted that the assesse company has price which is not above the fair ma reference shares. Further before it is submitted that the assessee c d with M/s. Keystone Realtors Pvt.
hares were issued. Hence it is submi mpany has justified in issuing shares a /- per share and therefore the sha axed u/s. 56(2)(vii) of The Income Ta year under consideration. It is therefo on made by the Learned Assessin and on the basis of assumptions &
understanding the facts of the case. I our honour that such addition made by fficer should be deleted and necessa en in this regard.”
assessee explained that en pital was received from group en ed section 68 of the Act as he h ce of money received. The Ld. A eed with the methodology of com the share premium received by t o him net worth of company d ium. On the issue of valuation eport mainly on the basis th sessee is not as per rule 11UA ssee has not submitted intenti irdly, the valuation report is n he fair market value, lastly, va would not be more than the ne
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m). Therefore, s issued the arket value of the date of ompany has . Ltd. i.e. to itted that the at a premium are premium ax Act, 1961
ore submitted ng Officer is presumption
It is therefore y the learned ary guidance tire money of ntities only. The has not doubted
Assessing Officer mputation of the the independent does not justify n, the Ld. CIT(A) hat firstly, the A of the Rules, ion for issue of not a conclusive alue as per any et asset value of the shares. The relev under:
“6.26 In vie that the va accordance w not submitte preference s can not be with anticipa shares of th the appellan investor wo preference s fetched such fair market only face va unjustified in 5.2 On perusal of fa not appreciated the 11UA of Rules presc than equity share i.e.
“Determination of fa
11UA. 30[(1)] For the pu other than immovable p
(a) valuation of jeweller
(i) ……
(ii) …….
(iii) …….
(b) valuation of archaeo art,—
(i) ……………
(ii) …………..
(iii) ………………
(c) valuation of shares
…………………………
ITA vant finding of the Ld. CIT(A) is w of the above, I am of the conside aluation adopted by the appellan with Rule 11UA r.w.r. 11U. The appel ed intention/ end use of funds. After shares, it got merged with group comp contended that security premium w ation of further benefits. The net asset he appellant are negative and after k nt company would not survive for long uld invest such whopping premium shares issued by the appellant wou h high premium in open market. Acc value of preference shares may be alue and the premium so received is n the underlined case.”
acts of instant case, we find tha facts of the case properly. F cribe for valuation of unquoted
. preference shares as under:
air market value.
urposes of section 56 of the Act, the fair mark property, shall be determined in the following ry,—
ological collections, drawings, paintings, scu
…
and securities,—
……….
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s reproduced as erate opinion nt is not in lant has also r issuance of pany, thus it was received t value of the knowing that g, no rational m. Thus, the uld have not cordingly, the restricted to found to be at ld CIT(A)’s has Firstly, the rule shares of other ket value of a property, g manner, namely,—
lptures or any work of (c) the fair m equity sha stock exch the open m report from valuation.]
5.3 The assessee valuation report from our opinion, is as pe the assessee explaine development of real e group, which expres purpose of section 5
Trib.), the Co-ordina violation of preferenc the Rules. The ITAT preference share are mandates that fair m shares be determined
ITA market value of unquoted shares and s ares in a company which are not listed hange shall be estimated to be price it w market on the valuation date and the as m a merchant banker or an accountan
]”
following the above rule ha m an independent chartered acc er the rule 11UA(1)©© of the R ed that it was engaged in the co estate projects and is part of a ses intention of use of fund. T
56(2)(viib) of the Act, requireme share premium has to be det uirement is to determine a valu arket and for that purpose rule report from an independent va ned. No mistake has been poin d by the valuer either by the he case of Deputy Commission ymers (P.) L. 163 taxmann.com ate Bench of the Tribunal add ce u/s 56(2)(viib) of the Act und ruled that correct provision of e under Rule 11UA(1)(c) of th market value of unquoted redeem d with the assistance of a repor
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securities other than d in any recognized would fetch if sold in ssessee may obtain a nt in respect of such as submitted a count, which in Rules. Secondly, onstruction and large real estate
Thirdly, for the nt is not that a ermined by the e which a share e has prescribed aluer , which the nted out in the e AO or the ld ner of Income- m 773 (Delhi –
dressed issue of er Rule 11UA of the valuation of he Rules which mable preference rt prepared by a merchant banker or report prepared by t under the law unles the necessary techn such valuations. Fur limited authority to employed by such fundamental errors o
To challenge the ex demonstrate that sa instant case also, th basis for questioni valuation method. Th of the opinion that it merely express dissa
The Assessing Office and credible alternati
The Chartered Accou discounting cash flow the case of DQ Ent assessment year 20
should be left to be estimate cash flow o actual down the line view that future pro
ITA an accountant. The Bench held he qualified experts is presume ss proven otherwise, as those nical knowledge and experienc rther, it is held that the Assess alter or challenge the valuatio experts unless there is a cle or apparent mistakes in the val xpert valuation, the Assessin aid valuation had fundamental he AO or ld CIT(A) has not pr ng the expert’s dividend dis herefore, relying on the above d t was not sufficient for the Asse atisfaction on expert methodo er has not provided any subst ives while challenging expert va untant has applied proper met w method. Further, we note that tertainment in ITA No. 151/
010-11 has observed that mat the wi om of expert and meth f the future years cannot be re
. In that case, the Assessing Of ojected revenue was estimated
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d that valuation ed to be correct experts possess ce to undertake sing Officer has on methodology ear evidence of luation process.
ng Officer must l error. In the rovided a sound scount rate of decision, we are essing Officer to logy or results.
tantial evidence aluation process.
hod of dividend t the Tribunal in /Hyd/2015 for tter of valuation hod adopted for eplaced with the fficer was of the d at higher side whereas there were Tribunal in the said future projections wi in the case of CIT V
Hon’ble Supreme Co
(330 ITR 239) held t opinion from indepen
ITA no actual revenues in subsequ case has held that Revenue can ith the actual. The Hon’ble High
29 taxmann.com 250 /190 IT of shares adopted by the ass
AO only if it was not a recogn le 11UA(2) of Rules. The Bang
Flutura Business Solutions nn.com 567 held that the AO c himself or by calling a determi to confront to the assessee of valuation which has been crutinizing valuation report , f valuation has to be conside nnot be a basis to deicide abo on’ble Bombay High Court i
Ltd Vs PCIT reported in 92 ta rtment should not interfere in y the assessee. The relevant fin uced as under:
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the method of nding of Hon’ble

ITA onsidered view that, in the insta are premium invoking Net Ass the dividend discounting met uer. No fundamental flaw or defi uation report of independent va its rejection. The report canno nds that the assessee has r gly, and in respectful agreem ble Courts/Tribunal cited abov he Learned CIT(A) on the issue of the addition made by the As peal raised by the assessee he appeal of the assessee is allow ced in the open Court on 30/0
-
S
AR SINGH)
(OM PRAK
MEMBER
ACCOUNTA
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ant case, the AO set Value (NAV) thod applied by ciency has been aluer by the AO ot be dismissed received a high ment with the ve, we set aside in dispute and ssessing Officer.
are accordingly wed.
01/2025. KASH KANT)
ANT MEMBER

Copy of the Order forward
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.

////

ITA ded to :

BY ORDER

(Assistant Re

ITAT, Mu

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R, gistrar) umbai