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Facts
The assessee filed a return of income declaring 'Nil' income. The case was selected for scrutiny, and during the assessment, it was found that the company received share premium. The AO treated this share premium as income under Section 56(2)(viib) of the Act. The assessee challenged the assessment order on grounds of limitation and merits.
Held
The Tribunal held that the assessment order was passed within the prescribed time limit, as the relevant date is the date of passing the order, not its dispatch or receipt. On merits, the Tribunal found that the assessee correctly adopted the Discounted Cash Flow (DCF) method for valuation as per Rule 11UA(2), and the AO was not justified in rejecting it and adopting the Net Asset Value (NAV) method. Therefore, the addition made by the AO was deleted.
Key Issues
1. Whether the assessment order was passed within the limitation period. 2. Whether the AO was justified in rejecting the DCF method of valuation and adopting NAV for calculating share premium income under Section 56(2)(viib).
Sections Cited
143(3), 153, 56(2)(viib), 115JB, 234B, 234C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. KESHAV DUBEY
Per Laxmi Prasad Sahu, Accountant Member :
This appeal filed by the assessee against the Order passed bythe CIT(A) vide DIN and Order No.ITBA/NFAC/S/250/2024-25/106567093(1) dated 10.07.2024, on the following grounds of appeal :
1. The order of the learned authorities below in so far as it is against the appellant is opposed to law, equity, facts, weight of evidence, probabilities and circumstances of the case.
2. The order passed by the learned authorities below is without jurisdiction on the facts and circumstances of the case.
3. The assessment order passed by the learned Assessing Officer (AO) u/s 143(3) of the Act, is barred by limitation and consequently the Page 2 of 24 assessment order is liable to be annulled on the facts and circumstances of the case.
The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (CIT Appeals), is not justified in upholding the order u/s 143(3) of the Income Tax Act, 1961 by the learned Assessing Officer (AO) determining the income at Rs. 3,18,38,360/- as against the returned Income of Rs. NIL on the facts and circumstances of the case.
5. The appellant denies itself to be assessed to the income at Rs. 3,18,38,360/- as against the returned Income of Rs. NIL on the facts and circumstances of the case under the regular provisions of the Act on the facts and circumstances of the case.
6. The appellant denies itself to be assessed on total income of Rs. 3,18,38,358/- as against the returned income filed by the appellant of Rs. 1,63,04,605/- u/s 115JB of the Act on the facts and circumstances of the case.
7. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal centre failed to appreciate that the order is passed beyond the time limit prescribed u/s 153 of the Act. Hence, the entire order is bad in law and deserves to be annulled on facts and circumstances of the case. We wish to rely on the judgment in the case of M/s Maharaja Shopping Complex V/s DCIT in dated 14.10.2014
8. The learned CIT Appeals erred in passing the appellate order hastily without adjudicating and dealing with the other grounds raised
for reasons well known to him. The learned CIT Appeals has only adjudicated on few issues without disposing on the factual and legal grounds raised in the appeal involved in the appeal and without any discussion, appreciation, reasoning and categorical findings on the issues.
9. Grounds on additions made under the head income from other sources a sum of Rs. 3,18,38,358/-: i. The learned Authorities below are not justified in law in making the addition of Rs. 3,18,38,358/- under the head income from other sources in respect of share premium amount received by the appellant on the facts and circumstances of the case.
Page 3 of 24 ii. The learned authorities below are not justified in law in holding and calculating the excess share premium amount received under Net Worth method for the purpose of Section 56(2)(viib) of the Act on the facts and circumstances of the case. iii. The learned authorities below failed to appreciate that as per the Explanation to Section 56(2)(viib) of the Act, the fair market value of the shares shall be as maybe determined in accordance with such method as maybe prescribed and the appellant has correctly opted the discounted cash flow method on the facts and circumstances of the case. iv. The learned authorities below failed to appreciate that the option to adopt any one of the methods stated in Rule 11UA is on the appellant and the change of method made by the assessing officer is unsustainable in law on the facts and circumstances of the case. The learned AO cannot, with lame reasons, change the method of valuation when the Income Tax Rules clearly allow DCF method of valuation at the option of the appellant. v. The learned authorities below erred in adopting a different method from the one chosen by the appellant. The learned authorities below failed to appreciate that Rule 11UA(2), employs the expression “at the option of the assessee” and hence the choice of a valuation method shall be placed in the hands of the appellant alone. vi. The learned Authorities below erred in adopting Net Asset Method for arriving at valuation of shares as against the DCF value adopted by the appellant, holding that the CA report was just an arithmetical computation without even considering the entire report. The learned Authorities below failed to appreciate that when the law and rules permit usage of certain method of valuation, the learned AO cannot question the santity of what is allowed in law. Hence the very basis of addition is bad in law and deserves to be deleted. vii. The learned authorities below erred in stating that there is a long disclaimer in the report which shows that the CA has not done anything in reflecting their expertise without appreciating the fact that a CA while certifying any report, involving projections, always states a disclaimer clause. The guidance note on SAE 3400, The Examination of Prospective Financial Information, also mentions to state such clause in the report, which proves beyond doubt that it is a valid clause to be stated in the report.
Page 4 of 24 viii. The learned authorities below erred in inferring that the DCF valuation carried out by the CA is merely an arithmetical computation and have not applied its mind in verifying the sanctity, reasonableness and sustainability of the projections, without appreciating the fact that to arrive at the DCF valuation, the WACC had to be obtained, by considering various factors such as Beta, Rf, Rm, etc, for the cost of equity, which are not just mere arithmetical calculations, but which also involves statistics and logics, which has been clearly illustrated in the valuation report. ix. Without prejudice, assuming for argument sake without conceding, even if the learned authorities below were to compare the projections in the valuation report with the actual performance of the company it can be noticed that the company has outperformed the projections for 3 years and is short by less than 10% in one of the years. This proves beyond any reasonable ground that the projections were realistic and more scientific in nature and not exaggerated. Hence, the learned AO cannot find any fault in the projections or the estimates made by the appellant. x. The learned authorities below placed reliance on the judgement of Hon’ble Court in the case of Agra Portfolio Pvt Ltd Vs ITO Ward 1(4), New Delhi in dated 16.05.2018, however, the learned authorities below failed to appreciate the fact that the Hon’ble High Court of Delhi has recently passed a judgement, in the same case, in favour of Agra Portfolio Pvt Ltd on 4th April, 2024, setting aside the order of the lower courts and accepting the DCF method of valuation adopted by the company, we wish to rely on the said judgment on the facts and circumstances of the case. We further wish to place reliance on the various judgements stated in the order passed by the Hon’ble High Court of Delhi. xi. As per the Amendment to Section 56(2)(viib) of the Act by the Finance Bill, 2024, the government has decided to sun-set the provisions w.e.f. AY 2025-26, considering that the government itself has decided to remove the provision, the addition be kindly deleted given the fact that the premium collected by the appellant is justified and as per the prescribed rules.
10. Without prejudice, Grounds on set off against unabsorbed depreciation of Rs. 64,40,765/-: i. Without prejudice, the learned authorities below ought to have set off the unabsorbed depreciation computed at Rs. 64,40,765/- against income from other sources of Rs. 3,18,38,358/- as determined by the learned AO on the facts and circumstances of the case. ii. Without prejudice, the learned authorities below are not justified in law in not setting off of unabsorbed depreciation of Rs. 64,40,765/- while computing the total income of the appellant on the facts and circumstances of the case.
11. The learned authorities below are not justified in law in considering a sum of Rs. 92,795/- being the excess amount while considering the disallowance as per computation in the computation of income under normal provisions of the Act on the facts and circumstances of the case.
12. Grounds on calculation of tax liability under MAT provisions u/s 115JB of the Act: i. The learned authorities below are not justified in adopting the assessed income as Book profit while computing the income u/s 115JB of the Act. ii. The learned authorities below failed to appreciate that the assessing officer has no power to tinker with Book profits other than stated in the explanation to the section and considering the assessed income as Book profit is totally contrary to law and without jurisdiction on the facts and circumstance of the case. iii. Without prejudice, the learned authorities below erred in determination of tax liability under MAT at Rs. 1,14,32,469/- which is contrary to the express percentage specified u/s 115JB of the Act. iv. The learned authorities below failed to appreciate that the appellant has correctly calculated the tax liability under the MAT provisions u/s 115JB of the Act, a sum of Rs. 32,62,186/- on the facts and circumstances of the case.
Grounds on levy of interest: i. Without prejudice to waiver of interest under these provisions, the appellant denies itself liable to be charged to such interest on the facts and circumstances of the case. ii. The appellant denies itself to be charged to interest u/s 234B a sum of Rs. 25,58,568/- and 234C a sum of Rs. 94,027/- while computing the income under MAT provisions on the facts and circumstances of the case. iii. The appellant denies itself to be charged to interest u/s 234B a sum of Rs. 34,96,340/- and 234C a sum of Rs. 5,83,410/- while computing the Page 6 of 24 income under MAT provisions on the facts and circumstances of the case. iv. The learned authorities below are not justified in levying interest u/s 234C of the Act on the facts and circumstances of the case as the appellant had returned NIL income. The levy of interest u/s 234C is on the returned income and as the returned income was NIL, there is no question of levy on the facts and circumstances of the case. v. The levy is further bad in law as the period, quantum and rate are not discernable from the amount levied and as such the interest levied required to be deleted on the facts and circumstances of the case.
14. The appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal
15. For the above and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeals may be allowed and justice rendered.
Briefly stated, the facts of the case are that the assessee filed return of income on 26.09.2014 declaring total income as Rs.Nil. The case was selected for scrutiny under CASS and statutory notice under section 143(2) of the Act, dated 28.08.2015 was issued and served to the assessee. Later on, other statutory notices were issued to the assessee. The assessee filed documents and from the documents submitted it was noticed that in the impugned Financial Year the company has received Rs.3,74,02,544/- by allotment of 19,562 equity shares at a premium of Rs.1,912/- per share based on valuation under Discounted Cash Flow (DCF) method. The assessee accepted such share application money with a premium from two residents, Indians, other than venture capital company. The AO further scrutinized the case and the assessee was asked to justify the valuation of shares. The assessee submitted details as required by the AO. After examination of the documents furnished with regard to the valuation of shares why the share premium received should not be taxed as an income from other sources in view of provisions of section 56(2)(viib) of the Act.
Page 7 of 24 “This share valuation report is being furnished on the request of the management of Writemen Media Private Limited (WMPL), TTMC, BMTC Building, 4th Floor, Yeshwanthpur Circle, Yeshwanthpur, Bangalore KA 560 022, IN.. The management of the WMPL, has appointed Ishwar & copal, Chartered Accountants, Bangalore. to ascertain the fair value of the Company. Thefair value has been arrived using the discounted cash flow method. Valuation is a highly subjective exercise and may differ from valuer to valuer depending upon the individual perception of the attendant circumstances. At best it is an expression of opinion or a recommendation based on certain assumptions, We have relied upon the documents/information (including provided/published by the management) without further verification of the same except for checking the mathematical accuracy. We also do not vouch for the accuracy of the forecasts as is provided to us by the management.”
In this regard, the assessee furnished details of allotment and copy of the valuation report which was examined. The valuer has made disclaimer in the valuation report which was noticed by the AO. Further, on verification of the balance sheet of the assessee company as on 31.03.2014 it was seen that the actual value per share works out to Rs.28,44,38,484/- under the Net Asset Value ( NAV) method. The same had been valued at a premium of Rs.1,912/-. Per share by the assessee Resultantly, the asssessee company received excess premium of Rs.162,75,61,516/- and working was given by the AO as under:
4. The AO applied Net Asset Value Method (NAV) and observed that there is huge gap between the value adopted by the valuer of the assessee company and real value of the assessee company and he observed that the DCF method is largely based on certain presumptions or estimations. There will be difference between value as per DCF method and value as per NAV. But the huge difference does not justify the adoption of DCF method. Accordingly, the AO was satisfied that value calculated as per DCF method is exaggerated value of the assessee company and value as per NAV is very close to real value. Therefore, the DCF method adopted by the assessee company was rejected and value adopted as per NAV was applied by himself was accepted. Therefore, the excess premium received from 2 shareholders were treated as income under section 56(2)(viib) of the Act. Accordingly, he added excess premium of Rs.3,18,38,359/- as income from other sources and passed Order on 30.12.2016 Page 9 of 24 5. Aggrieved from the above order the assessee filed appeal before the learned CIT(A) and raised a legal issue challenging the validity of the Order raising an issue that the Order passed under section 143(3) of the Act is barred by limitation and he raised issue on merits also. This issue was dealt by the learned CIT(A) at para No.5.2, he called remand report also and after considering the detail submissions and remand report he dismissed the appeal.
Aggrieved from the above Order, assessee filed appeal before the Tribunal.
The learned Counsel reiterated the submissions made before the lower authorities and submitted that the Assessment Order passed by the AO under section 143(3) of the Act is barred by limitation. The Order was served to the assessee on 04.01.2017 and referred to Page No.35 wherein the postal stamp is there for having delivered the envelope and he also referred to page No.36 which is a track consignment which is evidencing that actual envelope was delivered to the assessee on 04.01.2017. The learned Counsel further referred to Paper Book Page No.76 and stated that on 31.12.2016 only 2 letters were received by the post authorities and Sl. No. 3 is in the name of the assessee where the writing is different but there is no postal stamp of the postal department which can prove that the letter was not dispatched on 31.12.2016 which is a xerox copy of the BNPL booking journal and correspondingly he referred to Paper Book Page No.75 which is a copy of the remand report in which it has been stated that the Assessment Order was completed assessment order on 30.12.2016 and it was dispatched on 31.12.2016 but from the BNPL booking journal on 31.12.2016 it has not been received by the postal authorities and there is no stamp. On 31.12.2016, only 2 SPAS letters were received on 31.12.2016 by the postal department which is clear from the handwriting in the BNPL booking journal. As per track consignment it was dispatched on 03.01.2017. The AO had not passed the assessment order within the specified date as per section 153 of the Page 10 of 24 Act but it was passed after31.12.2016. what was the need to keep the order for two days with him. Therefore, the order passed by the AO are beyond the limitation period which is non- est. In support of his arguments, he relied on the judgment of the Hon’ble High Court of Karnataka in the case of Maharaja Shopping Complex Vs. DCIT in dated 14/10/2014 and he submitted that the issue is squarely covered in favour of the assessee in which it has been held as under:
He further submitted that in the above case a similar question of law was framed before the Hon’ble High Court. The Hon’ble High Court has answered the issue in favour of the assessee and held that the order passed by the AO is beyond the limitation period. He further relied on the decision of the Co-ordinate Bench of the Tribunal in the case of M/s. Globe Transport Corporation Vs. ACIT to 631/Bang/2014 and DCIT Vs. M/s. Globe Transport Corporation to 645/Bang/2014, Order dated 04.01.2019; and B. J. Shelat Vs. State of Gujarat and Others reported in Civil Appeal No.923 of 1977, dated 28.03.1978. The Order has been dispatched by the AO only on the night of 03.01.2017 at 7:44:28 Hrs which is evident from the speed post tracking number EK365748830IN from the GPO, Bangalore, and it was served on the assessee by post on 04.01.2017 at 18:44:00 Hrs. It can be clearly seen from the above Order of the Assessment that it has apparently been passed by the AO after 31.12.2016 against the requirement of the Act. The Order has to be passed on or before 31.12.2016. The learned Counsel further submitted that the Order of any authority should not be said to be passed unless it was in some way pronounced or published. It was not enough if the Order was made, signed and kept in the file. To make the Order complete and effective, it should be issued, so as to be beyond the control of the authority concerned for any possible changes or modifications. In support of his arguments, he relied on the judgment in the case of Maharaja Shopping Complex Vs. DCIT (supra) and he also relied on the following judicial pronouncements:
CIT V BJN Hotels Ltd [2016] 382 ITR 110 (Karn). CIT Vs. Purshottamdas T Patel (1994) 209 ITR 52 (Guj) Baba Ji Rice Mills Vs. State of Punjab (2012) 41 PHT 197 (PVT) K.Joseph Jacob Vs. Agricultural Income-tax Officer 190 ITR 464 (Ker). Commissioner of Agricultural Income-tax Vs. Kappumalai Estate 234 ITR 187 (Ker).
He further submitted that similar question of law was framed by the Hon’ble High Court in the case of Maharaja Shopping Complex Vs. DCIT (supra). He further submitted that the Order of Assessment ought to have been left the Office of the AO on or before 31.12.2016 but in the instant case, the Order has left the Office of the AO only after the specified date i.e., 31.12.2106, on Page 15 of 24 03.01.2016. Thus, the Order is passed in violation of section 153 of the Act and cannot stand the test of law. Therefore, it was requested that the Order passed under section 143(3) of the Act may be set aside and non-est in the interest of justice and equity. Further, on merits of the case, he further submitted that the AO has wrongly added the share premium received by the assessee under income from other sources under section 57(2)(vii)(b) of the Act for the Financial Year 2013-14. The assessee followed the DCF method for valuation of shares and obtained report. The valuation has forecasted the turnover for the future years and actual turnover is very close to the projected figures. Therefore, the assumptions made by the AO that the DCF method adopted by the assessee is wrong is not close to the actual results. The actual results obtained by the assessee is as under:
(In Rs.Lacs) FY ending 31/3/14 31/3/15 31/3/16 31/3/17 AY 2014-15 2015-16 2016-17 2017-18 Estimated revenue 9,90 19,00 31,00 41,00 Achieved Revenue 16,96 23,70 31,23 38,43
He further submitted that in response to the notice issued by the AO, the assessee filed documents before the AO regarding exercising of valuation for shares was undertaken and the value as arrived at by the valuer was adopted for the purpose of shares at premium. From the turnover achieved by the assessee, it is clear that the estimate made by the valuer was very accurate and scientific projections of the revenue earned for the future years based on which the price of the shares was arrived at for the purpose of computation of premium. He further submitted that the calculation of premium adopting the DCF method was more beneficial method for the assessee as the new shareholders would be participating in the strength of the company as it will be in the future years rather than at the present rates as the AO has adopted NAV as the appellant plateau awaiting in Page 16 of 24 spurt in growth. The DCF method is a far superior method of valuation compared to the NAV as the NAV reflects the historical cots on the valuation date, whereas the DCF method reflects the true potential of the company and the true economical value of the shares and he referred to Rule 11UA(2) of the Income Tax Rules, 1962. Therefore, the addition made by the AO towards share premium is erroneous and the selection of method of valuation is at the option of the assessee. The AO cannot change the valuation which is clear from the Rule 11UA(2) of the Rules. If the AO was not satisfied from the valuation done by the valuer, he can do a fresh valuation following the DCF method.
On the other hand, the learned DR relied on the Order of the lower authorities and submitted that the Assessment Order passed by the AO is within the time framed under section 153 of the Act. He referred to the Paper Book Page No.77 which is a screen shot of the movement of the Assessment Order in which it is clear that the date of Order passed is 31.12.2016 which cannot be changed by any of the income tax employees. This is computer generated document. He further submitted that the demand notice was also issued under section 156 of the Act on 30.12.2016 which is placed on the record and he referred to section 292B of the Act. Further, he relied on the judgment of the Hon’ble Apex Court in the case of Kalyankumar Ray vs. CIT reported in (1991) 191 ITR 634 (SC) and submitted that the issue is squarely covered by the judgment of Hon’ble Apex Court and he further referred to section 143(3) of the Act which is as under:
“Sri S. Padmanabhan, learned counsel for the petitioner, invited attention to the language of section 143(3) of the Act which mandates that the Income-tax Officer "shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him on the basis of such assessment". The Department, pointing to the placement of a comma after the word "assessee", suggested before the Tribunal that an order in writing is required only for the assessment of the income or loss and that the determination of the sum payable can be an independent process, not necessarily in writing. The suggestion seems Page 17 of 24 plausible but is not really tenable. As pointed out for the petitioner, judicial decisions under the 1922 Act as well as the present Act have read both clauses together. "Assessment" is one integrated process involving not only the assessment of the total income but also the determination of the tax. The latter is as crucial for the assessee as the former. Section 144, which also describes the same process, makes no distinction as suggested. It will not, therefore, be correct to read the provision as leaving undefined the process of determination of the net sum payable by the assessee. In our opinion, therefore, learned counsel for the petitioner is right in his submission that the Income-tax Officer has to determine, by an order in writing, not only the total income but also the net sum which will be payable by the assessee for the assessment year in question and that the demand notice under section 156 has to be issued in consequence of such an order. The statute does not, however, require that both the computations (i.e. , of the total income as well as of the sum payable) should be done on the same sheet of paper, the sheet that is superscribed "assessment order". It does not prescribe any form for the purpose. It will be appreciated that once the assessment of the total income is complete with indications of the deductions, rebates, reliefs and adjustments available to the assessee, the calculation of the net tax payable is a process which is mostly arithmetical but generally time-consuming. If, therefore, the Income-tax Officer first draws up an order assessing the total income and indicating the adjustments to be made, directs the office to compute the tax payable on that basis and then approves of it, either immediately or some time later, no fault can be found with the process, though it is only when both the computation sheets are signed or initialled by the Income-tax Officer that the process described in section 143(3) will be complete. In this context, one may take notice of the fact that, initially, rule 15(2) of the Income-tax Rules prescribed Form No. 8, a sheet containing the computation of the tax, though there was no form prescribed for the assessment of the income. This sub-rule was dropped in 1964. Thereafter, the matter has been governed by departmental instructions. Under these, two forms are in vogue. One is the form of what is described as the "assessment order" (I.T. 30 or I.T.N.S. 65). The other is what is described as the "Income-tax Computation Form" or "Form for Assessment of Tax/Refund" (I.T.N.S. 150). The practice is that, after the "assessment order" is made by the Income-tax Officer, the tax is calculated and the necessary columns of I.T.N.S. 150 are filled up showing the net amount payable in respect of the assessment year. This form is generally prepared by the staff but it is checked and signed or initialled by the Income-tax Page 18 of 24 Officer and the notice of demand follows thereafter. The statute does not, in terms, require the service of the assessment order or the other form on the assessee and contemplates only the service of a notice of demand. It seems that while the "assessment order" used to be generally sent to the assessee, the other form was retained on file and a copy occasionally sent to the assessee. I.T.N.S. 150 is also a form for determination of tax payable and when it is signed or initialled by the Income-tax Officer, it is certainly an order in writing by the Income-tax Officer, determining the tax payable, within the meaning of section 143(3). It may be, as stated in CIT v. Himalaya Drug Co. [1982] 135 ITR 368 (All), only a tax calculation form for departmental purposes as it also contains columns and code numbers to facilitate computerisation of the particulars contained therein for statistical purposes but this does not detract from its being considered as an order in writing determining the sum payable by the assessee. We are unable to see why this document, which is also in writing and which has received the imprimatur of the Income-tax Officer, should not be treated as part of the assessment order in the wider sense in which the expression has to be understood in the context of section 143(3). There is no dispute in the present case that the Income-tax Officer has signed the Form I.T.N.S.
We, therefore, think that the statutory provision has been duly complied with and that the assessment order was not, in any manner, vitiated. A brief reference may be made to the decisions on the issue. In Sushil Chandra Ghose v. ITO [1959] 35 ITR 379 (Cal), the assessee was served, apart from the assessment order, with a copy of the form known as I.T.N.S. 150 which was not signed by the Income-tax Officer but the court upheld the assessment because the original thereof had been duly signed. In S. Mubarik Shah Naqshbandi v. CIT [1977] 110 ITR 217 (J & K), the "assessment order" did not determine the tax payable and there was no other paper or form containing the computation except the notice of demand. In R. Gopal Ramnarayan v. Third ITO [1980] 126 ITR 369 (Kar), the Tribunal had annulled an assessment because the tax calculations had been made on a separate sheet of paper but the Department could not raise this issue before the High Court because it had not challenged the Tribunal's order in appropriate proceedings. The Karnataka High Court, however, did have occasion later to consider the question directly and upheld an assessment made in similar circumstances in CIT v. R. Giridhar [1984] 145 ITR 246 (Kar), even though the separate sheet containing the tax computations had not been signed by the Income-tax Officer. The Punjab and Haryana High Court has also taken the same view Karuna Rani Jain v. CIT [1989] 178 ITR 321. In CIT v. Krishwanti Page 19 of 24 Punjabi [1983] 139 ITR 703 (Cal), Form No. I.T. 30 served on the assessee was not signed and the court remitted the matter back to find out if any determination of tax had been made before the expiry of the period of limitation prescribed under the Act for the completion of an assessment. All these decisions emphasise that all that is needed is that there must be some writing initialled or signed by the Income-tax Officer before the period of limitation prescribed for completion of the assessment has expired in which the tax payable is determined and not that the form usually styled as the "assessment order" should itself contain the computation of tax as well. For these reasons, we see no reason to grant leave in these petitions which are, consequently, dismissed. We should, however, like to observe that, to avoid unnecessary controversies like this, the Department should, in future, adopt the salutary and useful practice of incorporating the entire tax calculations in I.T.N.S. 65 Form itself or, in the alternative, make the I. T.N.S. 150 an annexure to form part of the assessment order, have it signed by the Income-tax Officer and have it served on the assessee along with I.T.N.S.
That will enable the assessee to have the full details necessary to enable him to file a proper appeal, if needed, against the order and demand. If these safeguards are not taken, there is a danger of the tax calculations being left entirely to the subordinate staff, the Income-tax Officer contenting himself with a cursory glance thereat. Though, largely, the tax calculations are only matters of detail and arithmetic, there do arise sometimes difficult questions of interpretation of the provisions relating to tax rates, additional tax, interest and so on and the assessee should, in all fairness, have full details regarding the computation to enable him to take further steps in the matter. We should indeed like to add that the petitioner, Shri Ray, has indeed done a great service to the public by bringing this issue up to this court. We hope that the observations made by us would ensure, at least in future, that the Income-tax Officers do not allow themselves to be indifferent to this part of the process of assessment or shirk the responsibility of verifying and authenticating the correctness of the tax computations resulting in demands being raised against assessees..”
The tax payable was determined on 30.12.2016 and further submitted that the judgment relied on by the learned AR is not applicable to the present facts of the case. Further, on merits of the case, he relied on the Order of the lower authorities.
Page 20 of 24 13. Considering the rival submissions and perusing the entire material on record and Order of the authorities below, we noted that the Assessment Order was passed on 30.12.2016 and as per the postal track consignment, it was received by the postal department on 03.01.2017 which was delivered to the assessee on 04.01.2017. The issue raised by the assessee is that the Assessment Order passed by the AO is beyond the period of limitation. Therefore, the Order is non-est in the eyes of law and has relied on the judgment noted supra. We have gone through the provisions of section 143(3) of the Act noted supra and judgments relied on by both the parties. We found substance on the case law relied on by the learned DR in the case of Kalyankumar Ray vs. CIT (supra). In the case on hand the demand notice (ITNS 150) was generated on the date of Assessment Order and as per the screen shot referred to by the learned DR at page No.77, the date of Order is 30.12.2016 which cannot be changed by anybody. The AO has completed the assessment on the basis of the documents submitted before him as required by the AO on the specified points and the AO has considered all those materials as produced by the assessee and he assessed the total income of the assessee and determined the sum payable by him on the basis of the documentary evidence / examinations / observations on the 30.12.2016. On going through section 153 of the Act, we noted that the words used “assessment under section 143 or 144 may be made at any time before the expiry of 12 months from the end of the Financial Year in which such return was furnished” as amended. It is noted that nowhere mentioned in the section 153 of the Act that Order must be received as per the provisions of section 153 of the Act by the assessee and during the course of hearing, it was brought to the notice of both the parties that the Hon’ble Apex Court had interpreted the issue regarding “made” in the case of CIT, Chennai Vs. Mohammed Meeran Shahul Hameed reported in [20121] 131 taxmann.com 94 (SC) in which it has been held as under:- “4. We have heard the learned counsel appearing on behalf of the respective parties at length. Though it is the case on behalf of the respondent - assessee that by now the issue involved in the present appeal Page 21 of 24 has become academic, considering the fact that the question of law raised in the present appeal is the pure question of law and therefore we are inclined to decide the said question of law. 4.1 The short question of law which is posed for consideration before this court is, whether in the facts and circumstances of the case, the High Court and the learned ITAT are right in holding that the order passed by the learned Commissioner passed under section 263 was barred by period of limitation provided under section 263 (2) of the Act? Whether the High Court is right in holding that the relevant date for the purpose of considering the period of limitation under section 263(2) of the IT Act would be the date on which the order passed under section 263 by the learned Commissioner is received by the assessee? 4.2 While deciding the aforesaid issues and question of law, section 263 (2) of the Income Tax Act, which is relevant for our consideration is required to be referred to, which reads as under:— "(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed." 4.3 On a fair reading of sub-section (2) of section 263 it can be seen that as mandated by sub-section (2) of section 263 no order under section 263 of the Act shall be "made" after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. Therefore the word used is "made" and not the order "received" by the assessee. Even the word "dispatch" is not mentioned in section 263(2). Therefore, once it is established that the order under section 263 was made/passed within the period of two years from the end of the financial year in which the order sought to be revised was passed, such an order cannot be said to be beyond the period of limitation prescribed under section 263 (2) of the Act. Receipt of the order passed under section 263 by the assessee has no relevance for the purpose of counting the period of limitation provided under section 263 of the Income Tax Act. In the present case, the order was made/passed by the learned Commissioner on 26-3-2012 and according to the department it was dispatched on 28-3-2012. The relevant last date for the purpose of passing the order under section 263 considering the fact that the assessment was for the financial year 2008-09 would be 31-3-2012 and the order might have been received as per the case of the assessee - respondent herein on 29-11-2012. However as observed hereinabove, the date on which the order under section 263 has been received by the assessee is not relevant for the purpose of calculating/considering the period of limitation provided under section 263 (2) of the Act. Therefore the High Court as such has misconstrued and has misinterpreted the provision of sub-section (2) of section 263 of the Act. If the interpretation made by the High Court and the Page 22 of 24 learned ITAT is accepted in that case it will be violating the provision of section 263 (2) of the Act and to add something which is not there in the section. As observed hereinabove, the word used is "made" and not the "receipt of the order". As per the cardinal principle of law the provision of the statue/act is to be read as it is and nothing is to be added or taken away from the provision of the statue. Therefore, the High Court has erred in holding that the order under section 263 of the Act passed by the learned Commissioner was barred by period of limitation, as provided under sub- section (2) of section 263 of the Act.
In view of the above and for the reasons stated above the question of law framed is answered in favour of the revenue - appellant and against the assessee - respondent herein and it is held that the order passed by the learned Commissioner under section 263 of the Income Tax Act was within the period of limitation prescribed under sub-section (2) of section 263 of the Act. The present appeal is allowed accordingly. No costs.
This case is in respect of section 263 but the issue is similar and apply for the purpose of passing of Order under section 143(3) of the Act in which there was a question raised by the Revenue that where the date of passing of Order under section 263 of the Act and not date of receipt of said Order by assessee whatever relevance for the purpose of counting period of limitation and it was decided in favour of the Revenue holding that the date of Order is relevant but not the date of dispatch/receipt of Order by the assessee. Therefore, relying on the above judgments of the Hon’ble Apex Court, we dismiss the legal issue raised by the assessee with regard to period of limitation for passing of Order. In our support of decision, we have relied on the judgements of the Apex Court, therefore, the case law relied by the ld. AR will not be applicable. Further, we note that the assessee also argued on merits of the case. The assessee has allotted 19,562 shares at a premium of Rs.1,912/- per share based on the valuation made under the discounted cash flow method to two Indian residents. The AO has not accepted the DCF method at value arrived by the assessee and observed that the DCF method is largely based on certain presumptions are estimates, there will be differences between value as per DCF method and as per NAV. But the huge difference, between two values does not justify the adoption of DCF Method. The Page 23 of 24 AO has applied NAV (Net asset value) method. Accordingly, he has added Rs.3,18,38,359/- under section 56(2)(viib) of the Act. We noted from the financial statement submitted by the assesee that the projected turnover as considered by the valuer of shares are achieved by the assessee which is clear from the details noted supra. Therefore, the view tken by the AO is not correct. The Rule 11UA has been prescribed for determination of the value of unquoted equity shares. Rule 11UA(2) of the Rule is for determining the fair market vlue of the unquoted equity shares following the DCF method. As per Rule 11UA(2) of the Rules, assessee has the option to adopt any method for evaluation of the value of unquoted equity shares. Assessee can either adopt NAV or DCF method.
The Rule 11UA(2) is as under:- Notwithstanding anything containedin sub-clause(b)of clause( c) of sub-rule(1) the fair market value of unquoted equity shares for the purpose of sub-clause(i) of clause (a) of Explanation to clause(viib) of sub-section (2) of section 56 shall be the value on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b) at the option of the assessee (a) The fair market value of unquoted equity shares = (A-L) X(PV) (PE) . . . . .. . . (b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method.
From the above Rule it is clear that assessee has opted DCf method and got valuation report from an accountant. it is also clear that the which method has to be adopted is as per the choice of the assessee and assessee has also achieved the target of turnover as set by the valuer for future years. Therefore, the method adopted by the assessee under DCF cannot be questioned. There are plethora of judgments. In support of our findings, we rely on the judgment of the jurisdictional High Court reported in [2025] 172 taxmann.com 820 (Karnataka) in the case of Principal Commissioner of Income-tax, Central vs Waterline Hotels (P.) Ltd. If the AO was not satisfied from the valuation report submitted by the assessee he could have valued independently under the DCF method. Accordingly, the addition made by the AO under section 56(2)(viib) of the Act is deleted.
In the result, appeal filed by the assessee is allowed for statistical purposes.
Pronounced in the court on the date mentioned on the caption page.