DCIT CIRCLE-15 (3), MUMBAI vs. M/S RANKIN INFRASTRUCTURE PVT LTD. , MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 7288/MUM/2019 (A.Y: 2015-16) DCIT – Circle – 15(3)(1) v. M/s. Rankin Infrastructure Pvt. Ltd., Room No. 451, 4th Floor Next to Classic Marble Aayakar Bhavan, M.K. Road Subash Nagar Road, Bhandup (E) Mumbai - 400020 Mumbai -400078 PAN: AAFCS5275B (Appellant) (Respondent) Assessee by : Shri Rajiv Khandelwal Department by : Shri T. Shankar

Date of Hearing : 31.03.2022 Date of Pronouncement : 22.04.2022

O R D E R PER S. RIFAUR RAHMAN (AM)

2 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the section 56(2)(viib) is applicable in the year of receipt of consideration and not in the year of issuance of shares. 2. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in admitting additional evidence in the form of valuation report from Chartered Accountant when none of the exception clauses mentioned in Rule 46A is applicable in the case.” 3. “Without prejudice to ground (i) and (ii), on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in holding that valuation of the shares is at fair market value when the discrepancies have been pointed out in the valuation reports submitted by the assessee-company.” 4. “The appellant prays that the order of the Ld.CIT(A) on the above grounds be set aside and that of the Assessing officer be restored.” 5. “The applicant craves leave to add, amend or alter any grounds or add new ground, which may be necessary.”

3 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., Date of allotment of No. of OFCDs Issue price [Rs 1000 per OFCDs issued OFCDs] 04-04-2011 1,50,000 15,00,00,000 21-07-2011 1,00,000 10,00,00,000 21-03-2012 37,500 3,75,00,000 Total 2,87,500 28,75,00,000

Financial year Amount received (Rs) Upto March 2010 15,00,00,000 2010-11 5,50,00,000 2011-12 8,25,00,000 Total 28,75,00,000

4 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., valuation. However, the appellant has obtained report from an “Architect”. d) The estimated value as determined by the Architect is based on parameters which were different from that as valued earlier by the appellant itself. e) The project seems to be yet under nascent stage and the appellant may take 5-6 years for realizing the entire revenue, which was also not factored in the Valuation report of the Architect. f) The funds received on issue of the OFCDs were not completely utilized by the appellant and the said details is annexed to the order as Annexure C. g) The estimated valuation did not consider reducing the negative Net Assets Value (NAV) of the company at that point in time and without discounting the Net Present Value (NPV) of the future profit, which is the basic norm of valuation. The appellant had negative net worth of Rs 1,75,51,942/- before the conversion of OFCD into preference shares. h) On a without prejudice basis, the learned AO stated that if the contention of the Revenue is not accepted by the appellate Authorities and valuation report of the Architect is considered, then the fair market value should be determined in the manner stated in para 4.1.11 of the assessment order.”

5 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., of the said assessment order for AY 2013 14 is enclosed herewith at pages 113 to 116 of the pb for your kind perusal. 2.08) We draw your honours kind attention to the fact that even AY 2011-12 and AY 2013-14 of the subscriber company ie M/s Ranon Infrastructure Pvt Ltd (erstwhile known as Rubaina Properties Private Limited) was also under scrutiny assessment u/s 143(3). Copy of the assessment orders passed u/s 1433) for the Said years is enclosed herewith at pages 117 to 122 of the pb for your kind perusal. 2.09) In each of the scrutiny assessments stated above for both the companies, the learned AO has accepted the receipt / payment of the OFCDs. 2.10) Terms of issue of OFCDs; The OFCDs were Issued at Rs 1000 per debenture with, inter alia, @ term granting (o a debenture holder an option to convert the same into optionally convertible redeemable preference shares (OCRPS) of Rs 100 each with premium of Rs 900 al any lime after the expiry of 18 months from the date of allotment of issue of debentures. Thus the debenture holder will have a right to exercise this option depending on the assessment of the expected project revenue. The terms of issue are on record. Please refer to pages 16 to 21 of the pb. 2.11) Terms of issue of optionally convertible redeemable preference shares’ It interalia provided right to the shareholder to convert each of its preference shares into equivalent equity shares of Rs 100 each. This right has to be exercised at any time after 12 months. The terms of issue are on record. Please refer to pages 43 to 48 of the pb. 2.12) Detailed submissions in respect of each of the grounds of appeal of the appellant is being submitted below. In the succeeding paras, we also hereby give our rebuttal to the reasoning given by the learned AO for making additions u/s 56(2)(viib). SECTION 56 (2)NOT APPLICABLE TO CONVERSION OF OFCDS INTO OCRPS. 2.13) At the outset, it is submitted that the provisions of section 56(2)(viib) are not attracted in the case of the appellant in the ensuing AY 2015-16 as in this year, the appellant has merely converted its OFCDs into OCRPS. 2 14) In this regard, 47(x) which is reproduced below for your kind perusal. It inter-alia gives list of non taxable transfers.

6 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., “any transfer by way of conversion of bonds or] debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company.” [Emphasis supplied] 2.15) Your Honour’s further attention is invited to the provisions of section 49(2A) which reads as under: “Where the capital asset, being a share or debenture of a company, became the property of the assessee in consideration of a transfer referred to in clause (x) or clause (xa) of section 47, the cost of acquisition of the asset to the assessee shall be deemed to be that part of the cost of debenture, debenture-stock, bond or deposit certificate in relation to which such asset is acquired by the assessee.” [Emphasis supplied] 2.16) Thus your honour will appreciate that conversion of debentures into shares is not considered as taxable transfer and the cost of OCRPS relates back to the cost of OFCDs. Accordingly it is submitted that the said conversion should not attract the provisions of section 56(2)(viib). 2.17) In this regard it is pertinent to refer to para 4.1.3 of the order passed u/s 143(3), wherein the learned AO has relied on the decision of the jurisdictional Mumbai ITAT in the case of Sudhir Menon HUF vs ACIT (2014) 45 Taxmann.com 176. The learned AO has stated that in the said decision, it is held that the right issue of shares are also covered u/s 56(2)(vii), and applying the said analogy, the learned AO has stated that the terms of issue of shares in section 56(2)(viib) includes issue of shares by way of conversion or issue of preference shares. REBUTTAL: a) The question in the said case was whether the provisions of section 56(2)(vii)(c) would be attracted in case of issue of bonus shares / rights shares which are were allotted pro rata to shareholders including assessee based on their existing’ shareholding. Here the rights issue price is lower than the then prevailing fair market price per share, thereby leading to receipt of property (ie rights shares) for inadequate consideration as compared to the fair market value. b) The Hon'ble Mumbai ITAT held at para 4.3 of the said decision that the section, as construed, would apply uniformly for all capital

7 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., assets, i.e., drawing no exception for any particular class or category of the specified assets, as the ‘right’ shares. It held that 'Receipt' is a word or term of wide import, and would include acquisition of the subject matter of receipt - defined capital assets in the present context, by modes other than by way of transfer as well. Thus your honour will note that the learned AO has taken this portion of the decision to conclude that a corollary can be taken by applying the same to the acquisition of OCRPS by way of conversion of OFCDs into OCRPS. c) In this regard, it is humbly submitted that the learned AO has not considered the more important aspect of the decision in the aforesaid case which is enumerate below. d) in the decision, the Hon'ble [TAT then held at para 4.3 that “……..In other words, there is no receipt of any property by the shareholder, and what stands received by him is the split shares out of his own holding. It would be akin to somebody exchanging a one thousand rupee note for two five hundred or ten hundred rupee notes. There is, accordingly, no question of any gift of or accretion to property; the shareholder getting only the value of his existing shares, which stands reduced to the same extent. The same has the effect of reducing the value per share, increasing its mobility and, thus, liquidity, in the sense that the shares become more accessible for transactions and thus trading, i.e., considered from the holders' point of view ……: e) In the decision, the Hon'ble ITAT then held at para 4.3 that “..As long as, therefore, there is no disproportionate allotment, i.e., shares are allotted pro rata to the shareholders, based on their existing holdings, there is no scope for any property being received by them on the said allotment of shares; there being only an apportionment of the value of their existing holding over a larger number of shares. There is, accordingly, no question of section 56(2)(vii)(c), though per sé applicable to the transaction, i.e., of this genre, getting attracted in such a case. ...” [Emphasis supplied] f) In the decision, the Hon'ble ITAT then held at para 4.5 that “...... A transaction could be either with or without consideration. Consideration signifies a price, so that it is a case of transfer, which the impugned transaction is not, while if considered as without consideration, the transaction is void in law, being not gift in-as- much as the company is not the owner of its shares. The argument

8 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., seeks to support the contention that the transaction in order to qualify as valid in law has to be e case of transfer in as much as the consideration implies price, so that the word ‘receipt’ occurring in section 56(2)(vii) has to be read as a synonym for with ‘purchase’ or ‘transfer’. The shares under question being pot acquired through transfer, the transactions falls outside the ambit of section 56(2)(vii). [Emphasis supplied]. g) Thus in fact the said decision is in favour of the appellant for the twin reasons viz; “Firstly there is no disproportionate receipt received by the appellant on “account of conversion of OFCDs in A.Y. 2015-16. This is because as per the terms of the allotment of OCRPS, for each OFCD the appellant shall issue on OCRPS and the premium collected on issue of OFCDs will be appropriated equally towards issue of OCRPS, thus entailing no release of any property / asset by the appellant. This is pursuant to the applying of the decision in the said case given at para 4.2 and 4.3 narrated above. Secondly due to para 4.5 of the said decision pursuant to which, the word “Receipt” envisages “purchase” for a consideration. It does not include conversion of already existing OFCDs into OCRPS as it is not on account of purchase but an already existing security converted into another security. h) Thus your honour will appreciate that the learned AO in the case of the appellant did not considered the entire decision in the said case law but only relied on a certain portion of the said decision. Accordingly the inference made by the learned AO has no locus standi. SECTION 56(2)(viib) ATTRACTED ONLY IN THE YEAR OF ISSUE OF RECEIPT OF CONSIDERATION. 2.18) As stated above, the consideration of Rs 28.75 crores was received till AY 201213 for issue of OFCDs. The OFCDs were also issued till AY 2012-13. 2.19 The learned AO has applied the provisions of section 56(2)(viib) in AY 2015-16 for issue of OCRPS. 2.20) In this regard, your honour will note that the moot point to consider is whether the provisions of section 56(2)(vilb) can be considered as attracted in the year in which the said consideration is received or in the year in which the shares are issued. For better understanding of the same, the provisions of section 56(2)(viib) is reproduced below.

9 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., “where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any - consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received—....... 2.21) Thus it can be noticed that the said clause is applicable on receipt of consideration for issue of shares. Accordingly it is submitted that if it is stated that the provisions of section 56(2)(viilb) is applicable to the facts of the case of the appellant, then it will be applicable only in the year in which the consideration is received. Your honour will note that similar language is also used in other clauses of section 56(2) such as clause (v), (vi), (vii), (viia) which are also on taxability of similar receipts 2.22) Further it also pertinent to refer to Explanation (a) to section 56(2)(viib) which refers to Rule 11U and Rule 11UA for determining the fair market value of shares. These rules are the computational machinery of the charging section 56(2)(viib). On perusal of Rule 11UA(1)(c)(b), 11UA(1)(c)(c) and 11UA(2) which are relevant to the appellant; all states that the fair market value should be determined as on the valuation date. The valuation date is defined under Rule 11U(j) which states as follows: “valuation date" means the date on which the property or consideration, as the case may be, is received by the assessee. 2.23) Thus your honour will appreciate that even the computational machinery states that valuation should be made on the date on which the consideration / property is received. For the sake brevity it is also submitted that the said Rule is relevant for various provisions of section 56 and not just for section 56(2)(viib). Thus it outlines the intention behind the basis of the valuation. 2.24) Thus both the charging section 56(2)(viib) and the computational Rule 11U / 11UA both refers to the “receipt” dates / year in which the consideration / property is received as the relevant date. 2.25) Further reference is also being made to the relevant extracts of the Budget Speech of the Hon’ble Finance Minister while presenting the Finance Bill' 2012 wherein the said section 56(2)(viib) was proposed to be inserted.

10 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., Relevant extract of the Budget Speech is reproduced below for our kind perusal. “Para 155. I propose a series of measures to deter the generation and use of unaccounted money. To this end, I propose: (i) ….. (ii) …... (iii) Increasing the onus of proof on closely held companies for funds received from shareholders as well as taxing share premium in excess of fair market value.” In this regard, it is submitted that no tax planning can be said to be undertaken by the issue of OFCDs at premium and its subsequent conversion of OFCDs into OCRPS. Relevant extracts of Budget Speech while moving in amendments to Finance Bill. 2012 “It has been proposed in the Finance Bill, 2012 that any consideration received by closely held company in excess of fair market value would be taxable. Exemption is provided to angel investors who invest in start-up company” Supplementary Circular explaining the amendments to provisions of Finance Bill, 2012 “Company which receives any consideration for issue of shares and the consideration for issue of such shares exceed the fair market value of the share then the aggregate consideration received for such shares as exceeds the fair market value of the share shall be chargeable to tax” Notes on Clauses to Finance Bill 2012 “....Company receiving the consideration for issue of shares shall be provided an opportunity to substantiate its claim regarding the fair market value of shares” 2.26) After having discussed that the provisions of section 56(2)(viib) is attracted only in the year in of receipt, it is important to ascertain whether the provisions of séction 56(2)(viib) was in the statue books in the year of receipt. 2.27) As submitted above, the entire receipts were received till AY 2012-13 i.e in the year in which OFCDs are issued. Your honour will note that section 56(2)(viib) is incorporated wef 1.4.2013 i.e from

11 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., AY 2013-14 and onwards. Thus it must be appreciated that the impugned section 56(2)(viib) is not applicable to the appellant and thus no additions can be made under the said section. 2 28) Rule 11U(j) being the rule which defines the ‘valuation date” is applicable wef 29-11-2012. Thus it must be noted that since the entire consideration is received prior to the date of determining the “valuation date” for the purposes of section 56(2)(viib), therefore the valuation rules envisaged in Explanation to the said section would not apply to the facts of the case of the assessee. Accordingly the computational machinery also fails and to this effect, no addition can be made u/s 56(2)(viib). 2.29) In this regard, it is also pertinent to refer to the arguments made by the learned AO at para 4.1.3 of the order passed u/s 143(3). Here the learned AO has argued that the taxability of income on receipt basis is provided in section 68 as against section 56(2)(viib) which deals with issue of shares. It is hereby submitted that the learned AO has failed to refer to the legal provisions (both charging and computational machinery provisions) envisaged in the written submissions above. 2 30) On perusal of the allotment letters of OCRPS (enclosed at pages 43 to 48 of the pb), i can be noticed that the allotment took place in fact on 1.4.2015 i.e. in AY 2016-17. The learned AO has opined that the provisions of section 56(2)(viib) is attracted in the year of the issue of OCRPS. Kindly refer to para 4.1.3 of the AO order. Thus on a without prejudice and without admitting basis, it is submitted that even if one accepts the said argument of the learned AO, then also the provisions of section 56(2)(viib) will not be attracted in AY 2015-16 as the OCRPS is issued in AY 2016-17. 2.31) Accordingly, the entire addition made by the learned AO is bad-in-law and must be deleted, SUBMISSIONS ON WITHOUT PREJUDICE AND WITHOUT ADMITTING BASIS 2.32) Without prejudice to the above and without admitting, even if the argument of the learned AO that the date of issue of shares being relevant for the purpose of section 56(2)(viib) is accepted, then it is submitted as under. 2.33) A careful reading of sec. 56(2)(viib) shows that the happening of the two events (viz. the receipt of the consideration and the allotment of the shares) both must happen in the same year or at least, it can be later year where the shares have already been allotted (and that too on the date of allotment only) when the amount of the

12 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., consideration can be compared with the FMV of the shares (on the date of the allotment) for the simple reason that unless there are shares in the existence there cannot be any valuation thereof. 2.34) Moreover the FMV can also be different if the year of the receipt of consideration and the year of the allotment are different. In the case of the appellant there was receipt of the consideration till AY 2012-13 but there was no allotment in those years (which was allotted in AY. 2016-17 only). In such facts, how the learned AO can apply the provisions in the year of receipt. For these reasons the said provision is evidently not workable on the peculiar facts of the case of the appellant. In the case of CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC), it was held that unless. the machinery section is found workable, the substantive provision of the law even can't be applied. 2.35) Thus the entire addition made by the learned AO is bad-in- law and must be deleted.”

13 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., d) Thus both the charging section ie section 56(2)(viib) and the computational machinery laid down in Rule 11UA refers to the year in which the consideration is received. e) This interpretation is also guided from the relevant extracts of Budget Speech while moving in amendments to Finance Bill, 2012 and Supplementary Circular explaining the amendments to the provisions of Finance Bill, 2012 and Notes on Clauses to Finance Bill, 2012. These are reproduced by the AR in his written submissions and are also reproduced above. f) I also find support in the recent decision in the case of ACIT vs M/s. Diach Chemicals & Pigments Pvt Ltd. ITA No.546/Kol/2017 dated 19-06-2019. The relevant portion is reproduced below. “3. …..According to AO, the assessee issued and allotted 10,60,000/equity shares of Rs.10/ face value and a premium of Rs.90/ during the relevant previous year i.e. F.Y. 2012-13..... the assessee issued shares in FY 2011-12 (AY 2012-13) and received the consideration for such shares in FY 2011-12 (AY 2012-13). Further, it was contended the shares were actually allotted in FY2012-13 (AY 2013-14 present year) and applicability of provision u/s 56(2)(viib) does not arise as it was came into force in AY 2013-14 only..... 4. In the first appellate proceedings, the assessee reiterated the same submissions as made in the assessment proceedings. The CIT(A) considering the same held that provision u/s 56(2)(viib) is not applicable to the present AY under consideration and deleted the addition made by the AO by giving reasons as under. 4.2 “I have considered the issue with reference to the assessment order as well as the written submissions made by the AR of the appellant. | find that the moot question to be decided here is whether provisions of section 56(2)(viib) are applicable in the instant case or not. From the plain reading of section 56(2)(viib), I find that clause (viib) of sub section (2) of section 56 was inserted vide Finance Act, 2013 w.e.f 01.04.2013 i.e. from AY 2014-15 to the effect that where a closely held company issues its shares at a price which is more than the FMV, then the amount received in excess of the FMV would be chargeable to tax in the hands of the recipient company as its income from other sources. | find from the facts of the case that the shares were indeed allotted in FY 2013-14 but the share application monies were received in the FY 2012-13 pertaining to AY 2013-14. According to my considered opinion, the connotation of the meaning ‘received in any previous year’ used in section 56(viib) of the Act would be in respect of the year of receipt and not the year of allotment. In the instant case as rightly pointed out by the AR based on materials on record, share application monies were received

14 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., during the year under - consideration. Thus, | find that the provisions of section 56(2)(viib) aré to be construed with respect to the year in which considerations were received and not the year in which the allotment of shares were made..... 13. Keeping in view the submissions of both the sides, we find since shares were applied in AY 2012-13 as per the terms and conditions settled in AY 2012-13, the provision u/s 56(2)(viib) of the Act introduced from AY 2013-14 which is year under consideration in the present case and, therefore, cannot be applied merely on the basis that shares were allotted in AY 2013-14. Thus, we find the reasons recorded by the CIT(A) in the impugned order specifically at para 4.2 is justified in terms of applicability of provision u/s 56(2)(viib) of the Act. Therefore, we find no infirmity in the order of CIT(A) and it is justified. Thus, Ground No.1 raised by the Revenue is dismissed. g) It is found that the years of receipt of the consideration being AY 2010-11 and AY 2011-12 were both under scrutiny assessment u/s 143(3) in the case of the appellant. Further AY 2013-14 was also under scrutiny assessment u/s 143(3), wherein the learned AO has mentioned the details of the said Tapovan project as well in the body of the assessment order. Further it is seen that even AY 2011-12 and AY 2013-14 of the subscriber company ie M/s Ranon Infrastructure Infrastructure Pvt. Ltd., (erstwhile known as Rubaina Properties Private Limited) was also under scrutiny assessment u/s 143(3). In each of the scrutiny assessments stated above for both the companies, the learned AO has accepted the receipt / payment of the OFCDs. 5.14. The learned AO has relied on the jurisdictional Mumbai ITAT in the case decision in the case of Sudhir Menon HUF vs ACIT (2014) 45 Taxmann.com 176. For the reasons explained by the Ld AR in his written submissions and reproduced above, it is seen that the facts of the case of that decision are not the same as of the appellant. Thus the reliance placed by the learned AO on the said decision is misplaced. 5.15 Further the learned AO has observed that the taxability of income on receipt basis is provided in section 68 as against section 56(2)(viib) which deals with issue of shares. In this regard, in view of the reasons given above, I find that the said implication made by the learned AO is merely based on presumptions and does not lay down the’ clear provisions of section 56(2)(viib) and Rule 11UA. The learned AO has not brought anything on record contrary so as to rebut the submissions on this very. aspect made by the Learned AR.

15 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., 6. On without prejudice basis, the allotment of OFCDs is the relevant event and not allotment of OCRPS on conversion of OFCD into OCRPS. This is because the event of conversion of debentures into shares is not considered as taxable transfer u/s 47(x) and the cost of OCRPS also relates back to the cost of OFCDs u/s 49(2A). This pre-supposes that the relevant event is the receipt of consideration of OFCDs (OR) at the most allotment of OFCDs and not allotment of OCRPS. I do not find any rebuttal of this submission of the AR as well. 7. Thus in view of the above reasoning’s, I hold that learned AO has wrongly applied the provisions of section 56(2)(viib) to the facts of the case of the appellant. Accordingly the addition made by the learned AO u/s 56(2)(viib) is not made on strong footing and cannot stand the test of law and the AO is therefore directed to delete the same. Accordingly, the grounds of appeal relevant to the applicability of the provisions of section 56(2)(viib) are considered as ALLOWED.”

16 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., 10. Considered the rival submissions and material placed on record, we observe that originally assessee has issued Optionally Fully Convertible Debentures to M/s. Ranon Infrastructure Pvt. Ltd., and allotted OFCDs on 04.04.2011, 21.07.2011 and 21.03.2012. The above issue prices of the OFCDs includes share premium. During this assessment year assessee has only converted OFCDs into non-cumulative preference shares at the same price of OFCD. Therefore, since assessee has converted the OFCDs into non-cumulative preference share during this assessment year the Assessing Officer has invoked the provisions of section 56(2)(viib) of the Act by interpreting that, section 56(2)(viib) of the Act does not contemplate receipts of funds but it deals only with issues of shares. Further, we observe that the Ld.CIT(A) has addressed this issue in detail in his order in Para No 5.13 of the order and he held, the section 56(2)(viib)of the Act is clear that the words used in the section are “where a company, not being a company in which the public are substantially interested, receives in any previous year…….”. Therefore, the words used are receives. He decided the issue in favour of the assessee. In our view, the “receives” means not only issue of shares but also receipts of share consideration during the same assessment year. One cannot interpret the law merely on the basis of issue of shares or from receipt of

17 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., consideration, it has to be issue of shares and receipt of consideration during the same assessment year. It is needless to say that issue of shares includes allotment of shares. In our considered view, Ld.CIT(A) has discussed this issue elaborately in his order and we do not find any reason to interfere with the findings of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed.

Reasoning given by the learned AO to Sr. NO. object the Our rebuttal admissibility of the additional evidence 1. Non submission of the (a) As regards the various letters referred to by Valuation report of the learned AO in terms of different opportunities Merchant Banker' or accorded, we hereby submit as follows. Chartered Accountant as required by section 56(2) Letter dated 08.02.2017 [Copy enclosed]: (viib) rw Rule 11UA during the assessment  This is notice issued u/s 142(1) which proceedings asked for basic details such as computation of income, return of income, financials, details of assessments of

18 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., Reasoning given by the learned AO to Sr. NO. object the Our rebuttal admissibility of the additional evidence previous three AYs, and including justification of the large share premium received with valuation report. "........Assessee has  The said basic details were duly submitted been granted ample to the learned AO vide letter filed on opportunity vide letter 07.03.2017. dated 08.02.2017,  It was informed to the learned AO that 28.07.2017 & details asked in para 6 of the said notice 14.09.2017 in which it dealing with share premium issue will be specifically mentioned complied with in due course of time. that the assessee has to Subsequently, the justification of the large submit valuation report share premium received with valuation for the above report was submitted vide letters dated mentioned transaction 05.10.2017 and 16.10.2017. but assessee chose not to submit further....." Letter dated 28.07.2017 [Copy enclosed]:  This is same as letter dated 08.02.2017. No additional details is added by the learned AO. [last para of the page  Notice dt 28.07.2017 has been issued 1 of the Remand without taking note of compliance made report] vide our earlier letter dt 7.03.2017. In both the above notices, the learned AO merely asked for generic information about share premium received by the appellant. The reference to the learned AO's calling for valuation report was routine requirement without even the learned AG applied his mind to the issue. Letter dated 14.09.2017 [Copy enclosed]:  This is notice issued u/s 142(1) which asked for details relating to transaction of issuance of shares at premium. The details asked were such as name and status of the person to whom shares have been issued, PAN, Nature of shares, No. of shares consideration received, FMV as per Rule 11UA(1)(c), Face value of shares, valuation report, transfer deed / share certificates, copy of ITR, financials, ledger and bank statement of the company who has subscribed the share capital.  In his response, the appellant submitted on 05.10.2017 basic details of transaction together with evidences. These included following

19 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., Reasoning given by the learned AO to Sr. NO. object the Our rebuttal admissibility of the additional evidence  Copy of the letters of allotment of OFCDs which inter-alia also stated the terms of issue,  Copy of the Letters of allotment of OCRPS which inter-alia also stated the terms of issue,  Copy of the audited financials along with audit report and return of income of the subscriber  Copy of letter -dated 15.03.2011 issued by the appellant in respect of the proposed issue of OFCDs wherein the appellant had justified the said share premium by giving estimated profit expected to be earned from the said Tapovan project. The appellant estimated expected profit at Rs 29.98 crores and also provided the basis of the said calculation. [Page 13 of the pbj The learned AO then vide order sheet of 05.10.2017 asked the appellant to justify as to why the provisions' of section 56(2)(viib) rw Rule 11UA be not attracted in the case of the appellant. In response to the said requirement, the appellant on 16.10.2017 inter-alia submitted as under. (i) Note providing justification of share premium received. The note also carried detailed submission of the appellant that the provision of s.56(2)(viib) of ITA not applicable to the facts of the case of the appellant. Briefly, the said provision was stated to be not applicable for the following brief reasons: (a) Since the present case is that of conversion of OFCDs into OCRPS (and, there is no issuance of shares for cash consideration at premium, provisions of section 56(2) per se are not applicable to facts of the case (b) That the provisions of section 56(2)(viib) v/ould apply only in the year of the receipt of the consideration and not in the year of conversion of OFCDs into OCRPS. Since the said consideration was received till AY 2012-13. section 56(2)(viib) which is incorporated wef 1.4.2013 did not have any applicability to the appellant.

20 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., Reasoning given by the learned AO to Sr. NO. object the Our rebuttal admissibility of the additional evidence (c) Even if it is argued that the said provisions apply in the year of issue of shares ie in the year of conversion of OFCDs into OCRPS in AY 2015- 16; then for the reasons stated in para 2.32 to 2.34 of the written submissions already made, the computational machinery is not workable. This is mainly due to the requirement of section 56(2) (viib) which requires that the happening of the two events (viz. the receipt of the consideration and the allotment of the shares) both must happen in the same year or at least, it can be later year where the shares have already been allotted (and that too on the date of allotment only) when the amount of the consideration can be compared with the FMV of the shares (on the date of the allotment) for the simple reason that unless there are shares in the existence there cannot be any valuation thereof. In view of the above submissions, the appellant reasonably believed that since in its view, provision of s.56(2)(viib) do not triqqer, issue of submission of valuation report did not arise. Still, with a view to address the learned AO's concern about valuation, the appellant submitted to the learned Assessing Officer that OFCDs as also shares were issued at fair price having regard to value of its project potential. To buttress this, the appellant had suo-moto carried out valuation of the Tapovan project twice i.e. first on 15-03-2011 at we time of the proposed issue of the OFCDs in order to justify the share premium. Here the net revenue expected to be generated pursuant to the project potential was estimated to be Rs 29.98 crores as against the share premium of Rs 25.87cr. Subsequently, another working was carried out by an independent Architect Mr Avinash Pendse dated 27-01-2015 at the time of the proposed conversion of the OFCDs into OCRPS. Here the net revenue expected to be generated pursuant to the project potential was estimated to be Rs 32.29 crores as against the share premium of Rs 25,870. These workings/valuation report were duly submitted to the learned AO on 05.10.2017 and 16.10.2017 5respectively in response to the aforesaid notices / Letter (a) In this regard it is pertinent to mention that AT NO POINT OF TIME during the course of the assessment proceedings until 03.11.2017 (when

21 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., Reasoning given by the learned AO to Sr. NO. object the Our rebuttal admissibility of the additional evidence the learned AO for the first time spoke out his mind to submit valuation report of CA or Merchant banker), that the learned AO ever rebutted any of appellant's submissions. All along, the appellant carried a bonafide belief that its submissions are acceptable to the learned AO. Without prejudice to the same, the requirements called for in the notices specified by the learned AO herein are of generic nature and without any specific query or issue. It would not be correct to have too much weightage of the same to be treated as grant of specific opportunity by the learned AO to the appellant to comply with the requirement of j submitting valuation report. Thus your honour will appreciate that the primary allegation of the learned AO of ample opportunity being accorded to the appellant wherein the appellant did not submit the valuation report and other details to justify the share premium is devoid of any merits. 2. Architect report submitted (f) Lastly on without prejudice and without which is not the admitting basis, it is submitted that even requirement of section the said Rule 11UA(1)(c)(c) does not mandate 56(2) (viih): the aforesaid report by "Merchant Banker or an "Accountant" as it uses the words "may obtain report ........" and not "shall"'. "...... as a final opportunity vide order sheet dated 03.11.2017 it was again Thus this technical reasoning given by the show caused "to explain learned AO for rejecting the aforesaid reports are why provisions of section legally not tenable. Kindly refer para 2.46 to para 56(2)(viib) rw Rule 11UA 2.48 of the written submissions already made not be attracted as the during the course of previous hearing to your premium charged..... is honour wherein the said reasons are explained in greater details. purely based on the valuation report of the architect for Tapovan project and not merchant Banker or accountant as prescribed under Rule 11UA(1)(c)(c) [Last para of the page 1 of the Remand report] 3. The Valuation report now (a) At the outset as submitted above, in the facts submitted is a new of the case, the valuation report of CA could not evidence and not be submitted earlier due to the paucity of time as additional evidence: time given by AO vide the order sheet noting dated 03.11.2017 was very short. "Though there was no situation, present which

22 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., Reasoning given by the learned AO to Sr. NO. object the Our rebuttal admissibility of the additional evidence restrict the assessee to submit the valuation (b) The appellant submits that valuation report report, thus this valuation has been submitted as an additional evidence as report of valuation of learned AO did not accept appellant's primary Optionally Convertible / submission that, in its facts of the case, provision Redeemable 6% Non- of s.56(2)(viib) did not trigger and the learned AO insisted for the valuation report of CA. cumulative Preference shares prepared by M/s G.K.Choksi & Co., CA (c) The appellant strongly objects to the learned vide dated 27.03.2018, AO's allegation that valuation report now obtained appear to be a result of and submitted is an after-thought and/or that it was with a view to delaying the proceeding from an afterthouaht event with the sole purpose of attaining finality. The allegations are baseless and devoid of any merits. delaying the proceedings from attaining any finality in assessee's case " (d) Valuation report of CA is dt 27 March 2018 which provides valuation of shares as on 24.03.2015. ....the assessee only Kindly refer to page 73 of the submissions already furnished the valuation made. Circumstances under which the valuation report vide letter dated report is obtained have already been narrated 24.09.2018 after the above. Admittedly, valuation report is obtained post valuation was carried out date of assessment in response to posture that the on 27.03.2018 which is a learned AO took in the assessment of the appellant. afterthought action and Even if it may be treated as new evidence, it is in connection with and related to issue involved in the hence the evidences . assessment and is in furtherance of submission of produced before the the appellant that the share premium received by learned CIT(A) which was appellant is at fair value. Since valuation report goes not produced before the AO at the time of the to root of the controversy, it is an important assessment proceedings is evidence, which it is prayed, needs to be admitted.. nothing but a new evidence and not the (e) Without prejudice to the above, we draw your additional evidences and honour's kind attention the written submissions does not fall within the made on 21.08.2018 for admissibility of the ambit of Rule 46A of the additional evidence. More specifically, we reiterate I.T.Rule." that under sub-section (4) of section 250, the CIT(A) is empowered to make such further inquiry as he [first para of the page 2 thinks fit or to direct the /TO to make further inquiry and to report the result of the same to him. Thus, of the Remand report] the powers of the CIT(A) are much wider than the powers of an ordinary court of appeal. The "Since the assessee was scope of his powers is co-terminous with that given ample opportunity of the Assessing Officer. The power conferred on to produce the valuation report and assessee never the CIT(A) under sub-section (4) of section 250 is produced the valuation quasi-judicial power. report as producing now (f)Accordingly, on a without prejudice and without i before the Ld. CIT(a) is not the additional evidence but admitting basis, we hereby submit that, even if the the new document which case of the Appellant does not fall within the ambit was never produced of sub-rule (1) of Rule 46A, we humbly request your before the AO and hence, Honour to consider the powers bestowed under

23 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., Reasoning given by the learned AO to Sr. NO. object the Our rebuttal admissibility of the additional evidence undersigned has strong section 250(4) read with Rule 46A(4) and admit the additional evidence in the interest of natural justice. objection against the admissibility of additional evidence on this ground. [second last para of the page 2 of the Remand report]

24 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., Observations of the learned AO to Sr. object the valuation Our submission No. (on without prejudice basis)

(c) Further your honour will note that it is not the case of solely relying on the information provided by the appellant alone. In this regard your kind attention is provided to "The Land Valuation report" enclosed at Annexure '3' of the aforesaid valuation report is of Khandekar Architects & Surveyors which are Government Registered Valuers and not in any way related to the appellant or his directors. (d) he said report forms the basis of valuation for the purposes of Section 56 (2)(vii)(b) of the Income Tax Act. Further various assertions in the valuation report are backed by proper basis. This is summarized in "Annexure" attached to this submission. (e) As stated above, the business plans are provided 'by the management of the appellant to the Chartered Accountants. The discounted cash flows are worked out on this basis. The assumptions are clearly mentioned at Annexure 1 to the Valuation Report and the ready reckoner rates form the base data for calculating the inflows. (f) Thus your honour will appreciate that the appellant has arrived at the value per share (more than Rs 1,000 per share) in accordance with the normal practice and principles adopted for Valuation. (g) We also draw your honour's kind attention to the fact that during the course of the assessment proceedings, the following reports also drew similar estimations vshich was not opposed by the learned AO. Net Revenue as Net revenue as per per Appellant’s the architects valuation done in valuation done in 2011 at the time 2015 at the time of of proposed issue conversion of of OFCDs OFCDs into OCRPS Rs.29.98 Crores ₹.32.29 crores [Page 13 of the [page 42 of the pb] pb] 2. OBJECTION OF THE NAV METHOD: (a) To recollect, the appellant has obtained valuation report dt 27.03.2018 from the Chartered Accountants, Further, valuation of Rs M/s G.K.Choksi & Co. Refer, pages 72 to 107 of paper 1.074/-under the NAV book. This report values shares of the appellant

25 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., Observations of the learned AO to Sr. object the valuation Our submission No. (on without prejudice basis) method, the assessee company as on 31.03.2015 at Rs 1,007/- per share has valued the under DCF method. Inventory (Land and Building at Rs b) The appellant also obtained valuation report dt 21,19,49,4537-) at 05.01.2018 from Khandekar Architects & Surveyors market value as on who provides valuation of project as on 31.03.2015. 31.03.2015 against the Tapovan land and under construction building. The book value of Rs 9.44 value of the project land building worked out at crores which is not in ₹.16,98,60,243/-. Refer pages 89 to 99 of paper book. accordance with Rule Since the appellant company during the relevant period 11UA... Rule 11UA was predominantly involved in project Tapovan, value of its shares could be determined based on the value requires to derive the NAV on the basis of the of project viz comprises of land and under construction book value of. the building. Basis value of land and building, the value per assets..... share of the appellant company is worked out to Rs 1,074/- per share, [Page 3 of the Remand report] (c)Two alternative valuation reports are submitted to show that the value of shares of the appellant is more "Further, as per the than Rs 1,000 per share by adopting two different Inventory Valuation method of valuation. specified u/s 145 of the Act, it is to be valued at (d) It may be noted that valuation report of Khandekar cost or market value is based on the valuation of Land and building. It values whichever is lower and Land, building being the prime asset of the company hence the upward which commands the value of shares. The appellant revision in valuation of thus substantiates the value of shares on the basis of values of its assets. This is permissible method in terms inventory for the purposes of valuation of Explanation (a)(ii) to s.56(2)(viib). In such case, of equity shares is Rule 11UA has no applicability. The learned AO erred nothing but a in erroneously, equating this valuation to NAV method. dishonest effort of the AH allegations and comments of the learned AO in the assesses to increase Remand report concerning basis of valuation of asset the NAV of the equity are under this misconception and misdirection of the shares of the assessee learned AO. company so as to bring the issue price below (e) Thus the allegation of the learned AO that the the issue price and valuation of equity shares is nothing but a dishonest avoid the provisions of effort or we assessee to increase me NAV or the equity section 56(2)(viib)of shares of the assessee company so as to bring the issue price below the issue price and avoid the the Act of the Act “ provisions of section 56(2)(viib) of the Act is baseless [Page 4 of the remand and should be rejected. report]

26 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., methods being stated in Rule 11UA(1) / 11UA(2), then the valuation has to be made in accordance with the same. It has also been held in these decisions that the learned AO cannot outright reject the valuation done by the appellant on discrepancies in estimations / other parameters without mentioning the same to the appellant and giving opportunity to the appellant to revert on the same. Further it is also held in the following decisions including the jurisdictional Mumbai IT AT that since the methods are based on estimations, therefore it cannot be compared with actual if the method of valuation is correctly applied with assumptions and as per the prescribed principles of valuation enumerated in general parlance. It is also submitted that the assumption are realistic.  Rameshwaram Strong Glass (P.) Ltd. vs [TO [2018] 96 taxmann.com 542 (Jaipur - Trib.).  DCIT vs M/s Ozoneland Agro Pvt Ltd. ITA No. 4854/Mum/2016 dated 02-05-2018  Medplus Health Services (P) Ltd. vs ITO (2016) 68 Taxmann.com 29 (Hyd ITAT)  ACIT vs Safe Décor P Ltd. (2018) 90 Taxmann.com 161 (Jaipur ITAT) 12. Thus the aforesaid reasoning’s given by the learned AO in the Remand report to object the assertions in the “Valuation report” is devoid of any merits. Accordingly, we request your honour to admit the aforesaid Valuation Report as “Additional evidence” and accept the valuation provided thereunder. 4.5. Apart from the above written submissions, the appellant further submitted copy of the following documents in addition to the paper book filed with written submissions. a. Copy of assessment order passed u/s 143(3) for AY 2010-11 in the case of appellant. b. Copy of assessment order passed u/s 143(3) for AY 2011-12 in the case of appellant. c. Copy of assessment order passed u/s 143(3) for AY 2013-14 in the case of appellant.

27 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., d. Copy of the assessment order passed u/s 143(3) in the case of M/s Ranon Infrastructure Pvt. Ltd (erstwhile known as Rubaina Properties Private Limited) for AY 2011-12, e. Copy of the assessment order passed u/s 143(3) in the case of M/s Ranon Infrastructure Pvt. Ltd (erstwhile known as Rubaina Properties Private Limited) for AY 2013-14 4.6. Lastly the AR of the appellant further submitted copy of the following decisions in addition to the decisions already relied on in the written submissions. a. Cinestaan Entertainment (P.) Ltd. Vs ITO [2019] 106 taxmann.com 300 (Delhi — Trib). b. ACIT vs M/s. Diach Chemicals & Pigments Pvt. Ltd. ITA No.546/Kol/2017 dated 19-06-2019.”

28 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., “5.6 I find that the valuation report filed by the appellant would be considered as “Additional evidence”. This is borne out by the clear provisions of section 250. Further the said report was asked by the learned AO during the course of the assessment proceedings at different occasions as stated by the learned AO in the Remand Report. However, the same was not provided by the appellant to the AO. Thus the submission of the AR that it is not new evidence is devoid of merits. 5.7 However I agree with the Learned AR that the said valuation report filed now with this office constitute the very root cause of the additions made by the learned AO. It goes to the root of the assessment. As rightly pointed out by the Ld AR, the provisions of section 250(4) empowers the CIT(A) to call for any such information / document; and in fact it rather cast a duty on the CIT(A) to admit the said additional evidence in order to ensure that principles of natural justice are followed. This is because the powers of the CIT(A) are coterminous with that of the Assessing Officer. The power conferred on the CIT(A) under sub-section (4) of section 250 is quasi-judicial power.”

29 ITA NO. 7288/MUM/2019 (A.Y: 2015-16) M/s. Rankin Infrastructure Pvt. Ltd., 14. With regard to Ground No. 4 and 5 are general, Accordingly, the same are dismissed.

Order pronounced in the open court on 22.04.2022.

Sd/- Sd/- (AMARJIT SINGH) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 22.04.2022 Giridhar, Sr.PS

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

(Asstt. Registrar) ITAT, Mum