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Facts
The assessee company issued shares at a premium. The Assessing Officer (AO) rejected the assessee's detailed valuation report, which was prepared by a Chartered Accountant, and adopted his own method, resulting in a lower fair market value for the shares. The AO's addition was deleted by the CIT(A).
Held
The Tribunal held that the AO failed to point out any defect in the assessee's detailed valuation report and arbitrarily substituted his own valuation. The Tribunal upheld the valuation done by the assessee and dismissed the Revenue's appeal.
Key Issues
Whether the Assessing Officer was justified in rejecting a detailed valuation report from a Chartered Accountant and determining the fair market value of shares based on his own method without substantiating any defects in the original report.
Sections Cited
56(2)(viib), 143(2), 148A, 250, 11UA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH” KOLKATA
Appearances by: Assessee represented by : Sunil Surana, A.R. Department represented by : Sailen Samadder, Addl. CIT, Sr. DR Date of concluding the hearing : 10.02.2025 Date of pronouncing the order : 17.02.2025
ORDER PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
CO No. 14/Kol/2024 Soudamini Investments Pvt. Ltd. 1. The ITAT Registry has pointed that the present appeal ( 75 days. The Revenue has filed a petition of condonation of said delay as under:
Dates Events/Reasons 07.08.2023 Order passed by the CIT(A), NFAC, Delhi. 07.08.2023 Order of the CIT(A) was received in the O/o Pr. CIT-2, Kolkata through ITBA. 06.10.2023 Due date for filing of 2nd Appeal. 31.10.2023 ASR is submitted to the O/o PCIT-2, Kolkata through proper channel. 22.11.2023 Certificate of filing 2nd appeal was received from the O/o Pr. CIT-2, Kolkata 19.12.2023 Necessary hardcopies of documents/paper/details required for filing 2nd Appeal before Hon’ble ITAT, Kolkata were collected and prepared. 20.12.2023 2nd Appeal was e-filed It is submitted that the appeal could not be filed on or before due date due to substantial workload in relation to considerable number of writ petitions filed by the various assessees in the Calcutta High Court against the order u/s 148A(d) and notice u/s 148 and in some cases the Hon'ble High Court, Calcutta has ordered to complete the proceedings afresh u/s 148A within the given timeframe. Therefore, it is requested to kindly condone the delay of 74 days in filing appeal before the Hon'ble ITAT, Kolkata for the sake of substantial justice. Verification I, the undersigned do hereby verify on solemn affirmation in Kolkata that the contents of this affidavit are true to the best of my knowledge and nothing material has been concealed.” 1.1 Considering the reasons mentioned in the said petition, the delay is hereby condoned and the appeal is admitted for adjudication.
2. This appeal has been preferred by the Revenue and Cross Objections have been preferred by the assessee, both emanating from the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (in short 'the Ld. CIT(A)], dated 07.08.2023, passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as the "Act")
CO No. 14/Kol/2024 Soudamini Investments Pvt. Ltd. for Assessment Year 2016-17. The quantum appeal filed by the Department ( Cross Objections have been filed by the assessee (CO No. 14/Kol/2024). For the sake of convenience, the Department’s appeal will be taken as the lead case. These two appeals are being disposed of through a single order.
2.1 In this case, the Revenue’s appeal has been filed against the order of Ld. AO, through which an addition amounting to Rs. 5,61,75,000/- was deleted. The facts in brief may be mentioned. During the year under consideration, the assessee issued shares at a premium of Rs. 10,510/- (face value of Rs. 100/-). The assessee was holding shares in two unlisted companies and for determining fair market value of such shares, the assessee engaged the services of a Chartered accountant, who valued the shares at Rs. 10,610/-, following Rule 11UA(1)(c) of the Rules. Admittedly, the detailed valuation report was submitted before the Ld. AO, who rejected the same and adopted a different method, whereby all the assets of the assessee were taken at book value and the fair market price was determined at Rs. 2,445/-.
2.2 Aggrieved with this action of the Ld. AO, the assessee approached, the Ld. CIT(A), who is seen to have recorded the following findings:
“I have gone through the order, in the light of the submission of the appellant. It is not known as why the AO has chosen to ignore the valuation report prepared by the valuer (which is as per prescribed norms), and gone on to make his own valuation of the shares. He is of the view that since the value of an unlisted share cannot be found in any public portal, the revaluation of assets pertains to only shares of listed companies. I do not agree with the stand taken by the AO. A study of the relevant section makes it very clear that all assets are included, and hence unlisted shares also find a place. In view of this, I have no hesitation in directing the AO to delete the addition on this account.”
CO No. 14/Kol/2024 Soudamini Investments Pvt. Ltd. 2.3 Aggrieved with the action of the Ld. CIT(A), the Department is in appeal before the ITAT through the following grounds: ( )
“1. Whether on the facts and circumstances of the case and in law, the Ld CIT(A), was erred in allowing the appeal of the assessee by deleting the addition of Rs 5,61.75,200/-made u/s 56(2)(viib) of the Act by rejecting the valuation of the shares determined by the Assessing Officer as per rule 11UA of the IT Rule, 1962 and accepting the valuation of shares adopted by the assessee without any verification? 2. That the appellant craves leave to add any new ground or alter or amend any of the grounds and put up necessary arguments to substantiate the above noted grounds.” Grounds of Cross Objection (CO No. 14/Kol/2024)
“1. For that the assessment is bad in law since notice u/s 143(2) issued was without jurisdiction.
For that the addition made is liable to be deleted since the same was not the subject matter of limited scrutiny and no approval was taken from the Principal Commissioner of Income Tax before making any such addition.”
Before us, the Ld. DR read out from various portions of the Ld. AO’s order and pointed out that the Ld. AO has used the method prescribed under Rule 11UA of the IT Rules and has correctly determined the fair valuation. The Ld. DR further assailed the action of Ld. CIT(A) and said that the Ld. CIT(A) has not given any reason as to why he was differing with the detailed finding of the Ld. AO.
3.1 The Ld. AR, on the other hand read out the provision of section 56(2) of the Act and stated that the Ld. AO had misdirected himself in relying too much on part (ii) to Explanation 2 to section 56(2)(viib) of the Act in stating that the valuation method adopted by the assessee was not to his satisfaction. The Ld. AR stated that the Ld. AO has not pointed out a single defect in the valuation done by the Chartered Accountant. The Ld. AR also relied on several orders of Co-ordinate Benches of ITAT.
We have carefully considered the rival submissions and also gone through the records. It is seen that the assessee had filed a detailed 4 CO No. 14/Kol/2024 Soudamini Investments Pvt. Ltd. valuation report executed by a Chartered Accountant with respect to valuation of equity shares. The Ld. AO has not pointed out any defect whatsoever in the said valuation and has simply substituted his on method on the ground that he is not “satisfied” with the valuation done by the said Chartered Accountant. On facts alone the detailed valuation report placed at pages 12 to 14 of the paper book filed by the Ld. AR has considerable persuasive value and accordingly there is no hesitation in holding that on the one hand, the Ld. AO has not countered the said valuation in any way and on the other hand, has simply substituted his own valuation to adversely effect the valuation and its consequential impact on income of the assessee. Accordingly, we find merit in the valuation done by the assessee, and uphold the same. With this, the appeal of the Revenue is dismissed by upholding the action of Ld. CIT(A).
The Ld. AR has chosen not to press the Cross Objection and hence, the same are dismissed, as not pressed.
Order pronounced in the court on 17.02.2025