M/S ACCORD MEDIPLUS PVT LTD,PUNE vs. INCOME TAX OFFICER, WARD-1(1), PUNE, PUNE

3. On the facts and in the circumstances of the case, Ld. CIT- Appeal has erred in law and on facts, in sustaining the addition of Rs 8,96,41,183/- as excess "Share Premium" under Section 56(2) (viib) of the ITA, 1961 r.w. Rule 11UA of the I-T Rules 1962 and therefore, the said addition may please be deleted.

4. On the facts and in the circumstances of the case, Ld. CIT- Appeal has erred in law and on facts, in passing the non-speaking cryptic order without appreciating the submissions and evidences submitted by the Appellant and hence, such action of confirming the additions made by the Ld.AO is invalid, unsustainable, and therefore, is bad-in-law.

5. On the facts and in the circumstances of the case, the appellate order passed by Ld. CIT-Appeal is without affording the opportunity of being heard through video conferencing despite specifically sought by the Appellant and hence, the appellate order passed by Ld. CIT- Appeal is bad-in-law.

6. On the facts and in the circumstances of the case, Ld. CIT- Appeal has erred in not quashing the invalid reassessment order passed by Ld. AO and thereby has further erred in sustaining additions made by Ld. AO in the said reassessment order and thus, the said reassessment order as well as additions made therein may please be quashed. to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd.

7. On the facts and in the circumstances of the case, Ld. CIT- Appeal as well as Ld. AO have erred in law and on facts, in sustaining/making the addition of Rs. 8,96,41,183/- without appreciating the real intent behind introduction of section 56(2) (viib) of ITA, 1961 was as an anti-abusive provision and therefore, when all investors are found to be genuine and bonafide investors, having proper trail of funds, and ensuring all tax compliances, etc., Ld. AO should not have made said addition.

8. On the facts and in the circumstances of the case, Ld. CIT- Appeal has erred in law and on facts, in not adjudicating and considering the additional evidences submitted by the Appellant during the course of appellate proceedings and thereby has erred in sustaining the addition made by Ld. AO and hence, the said orders deserve to be quashed.

9. On the facts and in the circumstances of the case, Ld. CIT- Appeal has erred in law and on facts, in upholding the illegal actions of Ld. AO in disregarding DCF method and thrusting NAV method, to compute the FMV of shares issued by the Appellant from time to time; and thereby, working out extra share premium and holding the same as taxable u/s 56(2) (viib) of the ITA, 1961.

11. On the facts and in the circumstances of the case, Ld. CIT- Appeal has erred in law and on facts, in not referring the matter of valuation of shares of the Appellant Company through the office of Departmental Valuation Officer u/s 55A of ITA, 1961 and has further erred in assigning cryptic and incorrect reasoning while dismissing this ground which incorrect and hence, bad-in-law.

12. On the facts and in the circumstances of the case, Ld. CIT- Appeal/ AO has erred in law and on facts, in rejecting the valuation report given by M/s Ray & Ray (Chartered Accountants) mainly on the ground of he being a statutory auditor. In that case, Ld. AO/CIT- Appeal ought to have considered the Appellant's case under Explanation (a)(ii) of Section 56(2) (viib) and should have decided the matter accordingly instead of rejecting the said valuation report on technical ground.

13. The Appellant craves leave to add, alter, vary, omit, amend or delete all or any of grounds of appeal, in the interest of justice.

1. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in sustaining the addition of Rs 18,04,78,120 as excess Share Premium" under Section 56(2) (viib) of the ITA, 1961 r.w. Rule 11UA of the I-T Rules 1962 and therefore, the said addition may please be deleted.

2. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in passing the non-speaking cryptic order without appreciating the submissions and evidences submitted by the Appellant and hence, such action of confirming the additions made by the Ld.AO is invalid, unsustainable, and therefore, is bad-in- law.

3. On the facts and in the circumstances of the case, the appellate order passed by Ld. CIT-Appeal is without affording the opportunity of being heard through video conferencing despite specifically sought by the Appellant and hence, the appellate order passed by Ld. CIT- Appeal is bad-in-law.

4. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in not quashing the invalid assessment order passed by Ld. AO and thereby has further erred in sustaining additions made by Ld. AO in the said assessment order and thus, the said assessment order as well as additions made therein may please be quashed.

5. On the facts and in the circumstances of the case, Ld. CIT-Appeal as well as Ld. AO have erred in law and on facts, in sustaining/making the addition of Rs. 18,04,78,120/- without appreciating the real intent behind introduction of section 56(2)(viib) of ITA, 1961 was as an anti-abusive provision and therefore, when all investors are found to be genuine and bonafide investors, having proper trail of funds, and ensuring all tax compliances, etc., Ld. AO should not have made said addition.

6. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in not adjudicating and considering the additional evidences submitted by the Appellant during the course of appellate proceedings and thereby has erred in sustaining the addition made by Ld. AO and hence, the said addition as well as orders deserve to be quashed.

7. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in upholding the illegal actions of Ld. AO in disregarding DCF method and thrusting NAV method, to compute the FMV of shares issued by the Appellant from time to time; and thereby, working out extra share premium and holding the same as taxable u/s 56(2) (viib) of the ITA, 1961. to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd.

8. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in upholding the action of Ld. AO in not appreciating that choice of a valuation method, as per Rule 11UA(2) rests with the Appellant Company and not with the AO and hence, Ld. AO as well as Ld. CIT-Appeal has erred in computing the FMV by applying the NAV method.

9. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in not referring the matter of valuation of shares on the basis of tangible / intangible assets of the Appellant Company through the office of Departmental Valuation Officer u/s 55A of ITA, 1961 and has further erred in assigning incorrect reasoning while dismissing this ground which incorrect and hence, bad-in-law.

10. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in law and on facts, in impliedly sustaining the action of Ld. AO of rejecting the valuation report given by M/s Ray & Ray (Chartered Accountants) being a statutory auditor with respect to valuation of preference shares; thereby overlooking the fact that the said stipulation of the CA being some professional other than the statutory auditor of the company applies only under Rule 11UA(2) to issue of equity shares and not under Rule 11UA(1) to the issue Preference Shares. 11. The Appellant craves leave to add, alter, vary, omit, amend or delete all or any of grounds of appeal, in the interest of justice.”

5. From perusal of the grounds of appeal raised in for A.Y. 2014-15, we find that the assessee has raised the legal issue challenging the validity of re- assessment proceedings. For the remaining years, common issue has been raised on merits challenging the finding of ld.CIT(A) sustaining the addition on account of excess share premium charged by the assessee u/s.56(2)(viib) of the Act r.w. Rule 11UA of the Income-tax Rules, 1962. for the A.Y. 2014-15 as the lead case.

7. Facts in brief are that the assessee is a Private Limited Company engaged in the business of running and managing Hospitals. Assessee company was formed in year 2013 by Mr.

to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. Vidyadhar Sarfare. Aim of the assessee company was to construct and develop, Multi-Speciality Hospital. Assessee company availed services of KPMG and MITCON to explore market potentials and technical viability of the Multi-Speciality Hospital in Baner, Pune. Assessee company was to raise funding from various banks and investors. Assessee company started the project, but unfortunately, failed to complete the project. Eventually, lenders, being disturbed, resorted to harsh actions including AUCTION of the project property. For the year under consideration, i.e. 2014-15, assessee company declared nil income in the return of income filed on 29.09.2014. Case processed u/s.143(1) of the Act and subsequently after being selected for scrutiny, order u/s.143(3) of the Act was passed on 21.06.2016. Since the assessee did not submit relevant details as called for during the regular assessment proceedings inspite of giving several opportunities and assessment proceedings getting time barred, ld. AO had reason to believe that income of the assessee has escaped assessment within the meaning of section 147 and initiated the re- assessment proceedings after taking prior approval from the concerned authority. The main reason for reopening was that the assessee issued the shares at a share premium of Rs.85.057 whereas the value of each share as per NAV method was Rs.19/-. Ld. AO accordingly after issuing proper reasons to believe reopened the assessment and validly issued the notices required for carrying out the re-assessment proceedings. During the course of re-assessment proceedings, ld. AO only focussed to the issue of Fair Market Value (FMV) of the shares issued by the assessee company and the application of section 56(2)(viib) of the Act. Ld. AO observed that the assessee has opted for Discounted Cash Flow (DCF) method for to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. calculating the share premium with regard to the construction of Hospital. In the DCF method certain projections were made about the future Revenue and profits. Ld. AO also observed that on the basis of the projections the shares have been issued at a huge share premium but actually the project did not turn out in line with the projections made in the DCF method and therefore ld. AO came to conclusion that projections have been exaggerated. Ld. AO also noticed that the Valuation Report as per DCF method which needs to be issued by a Merchant Banker but in the case of assessee company the Valuation Report as per DCF method was prepared by a Chartered Accountant (Auditor of the company) which was not in accordance with law and cannot be relied upon. Ld. AO accordingly calculated the FMV of the shares applying NAV method which is one the option provided under Rule 11UA of the I.T. Rules and made addition of Rs.8,96,41,183/- as the excess share premium charged by the assessee u/s.56(2)(viib) of the Act. The observation of the AO reads as under :

“4.1 Discussion and findings of the AO on the submission of the assessee: Assessing officer after going through the explanation & documents submitted by the assessee, has issued a detailed showcause notice on 08.12.2018. In response to the same, submissions have been received from the assessee, which has been discussed above and has been dealt with as per the provisions of IT Act 1961. While introducing section 56(2)(viib) of the Act, to the parliament, special mention was made by the Honorable FM in respect of closely held companies as well as taxing share premium in excess of FMV. The FMV in instant case which is being projected is highly doubtful, in view of the facts below: (i) Assessee does not own any land as on 31.03.2014. (ii) Assessee does not own hospital and it is not clear whether it owns the same even today. (iii) Permission for starting hospital or expansion of 119 beds is not taken in the name of assessce. Such permission is in the name of a group concerns namely Accord Multy-Speciality Clinics and Medi-infra Pvt. Ltd to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. (iv) The assessee does not own funds for this exercise. The funds have been received from group concerns and either transferred out back to them or invested in other non-current investments. Thus neither the funds nor assets are owned by assessee.

(v) The assessee has not submitted as to how by any stretch of imagination, inspite of various hurdles as discussed and explained by the assessee as above, it was possible to complete and construct a 75 bed hospital or later 119 bed hospital (Which naturally requires considerable construction time and time for machinery and equipments installation) complete with all permission and approval by F.Y. 2013-14, so as to generate the revenue as per DCF valuation. Even the ITR filed by the assessee does not show any revenue till A.Y. 2018-19. While it is true that projection need not meet actual but projection should be logical and possibility should exits at the time of making them. The assessee has cursorily just stated that the construction work is in progress at the time of assessment proceedings ongoing u/s 143(3) of IT Act earlier. In this context, the landmark judgment of the Honorable Supreme Court in the case of Sumati Dayal Vs CIT (SC) 214 ITR 801 wherein it is observed that "the apparent must be considered as real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities"

(vi) Corporate veil and intra group transactions have been used to camouflage receipt of shares at premium. Relied on Mc-dowell Ltd 154 ITR 148 (SC).

4.2. Hence, the entire transaction has been created and presented to misrepresent certain crucial facts and the entire projections on which DCF valuation has been done without any basis and not possible to achieve by any stretch of imagination as mentioned in detail as above. Thus, valuation of share as per DCF method is not reliable. Moreover, it has not been substantiated by the company to the satisfaction of the AO as per explanation (a)(ii) to the provisions of Sec. 56(2)(viib) of the Act, based on the value, on the date of issue of shares of its assets, including intangible assets being goodwill, know- how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature. Again summarizing the various issues as under: i. The valuation report by CA Arvind Yenemadi cannot be relied upon as it is not by an independent auditor as per the requirement of the law. ii. The assessee has relied upon the valuation report of CA Arvind Yennemadi dated 10.01.2014 under DCF method to justify the receipt of share premium. On verification of such valuation report and facts and details on record, it is observed as under: to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. a. In the valuation report dated 10.01.2014, the valuer has estimated future projections as per the projections of the revenue given by the management. The valuation report placed on record is not conclusive as regards the value of the shares determined as per DCF method. The valuer has not arrived at the value per share in its report to justify the share premium of Rs.85 to Rs. 104, b. It is seen that the share premium has been accepted at varying rates viz. Rs.85/- to Rs. 104/ during the financial year itself when there is no revenue and the assessee has not placed on record any reasoning and explanation in this regard for such varying receipt of share premium during the year itself. c. On verification of the valuation report submitted under DCF method, it is seen that the valuer has relied upon the future projections of the revenue and profit given by the management and has not conducted any independent enquires. More revenue and profit as projected by management, has been adopted as such by the valuer CA so as to show more free cash flow to arrive at a pre-determined price of share and, for that matter such price per share was not even determined in the valuation report of the CA as per DCF method submitted during the course of the assessment proceedings: iii. It is further seen from the verification of the valuation report that huge projection of the revenue and profit were made to create free cash flow even though, as a matter of fact assessee did neither own any land and, it was taken on lease from group company only on 02-03-2015 vide registered agreement. Thus, the construction of Hospital did not commence at least till 02.03.2015 and thus, projections of revenue done were not correct. iv. In the valuation report dated 10.01.2014, the revenue for FY 15-16 has been projected at Rs.6.98 Crs whereas, in another valuation report dated 21.01.2015 (filed during the course of assessment proceedings for AY 15-16). the revenue for FY 15-16 has been shown at Rs.15.50 ers. The valuer kept on changing the valuation report and revenue projections at the behest of the management only to generate more free cash flow for justifying the premium on shares ranging from Rs.93 to Rs.378 in the previous year relevant to AY 2015-16 even though the valuer CA was very much aware that the construction of the hospital had not commenced and there was no chance at all that it may start getting the revenue to that extent in the FY 15-16. Thus, more revenue has been projected in the FY 15-16 in the valuation report dated 21.01.2015 as against the same projected in the valuation report dated 10.01.2014 without any substance and basis. Thus, the CA valuer has merely accommodated the assessee and thus, valuation report submitted by the assessee dated 10.01.2014 for the FY 2013-14 (AY 2014-15) is not acceptable.

The face value of each share was at Rs. 10/-. The value of each share as per NAV method comes to Rs. 19. The computation of the same is as under.

Particulars Rs. Rs. Book value of the assets in the balance sheet 145557797 145557797 Less : Advance tax/TDS/TCS Net Asset(A) 145557797 Book Value of Liabilities shown in the balance 145557797 sheet 65244895 Less : Paid up capital in respect of Equity Shares Reserve and Surplus 55120615 Net Liabilities (B) 25192287 Total paid up Equity share capitals shown in the 65244895 balance sheet (PE) Paid up value of equity shares (PV) 10 Fair market value of unquoted Equity Shares [(A- 19 (18.45) L)xPV]/PE

6. Hence, the valuation as per NAV method which comes to Rs. 19/- per share is taken as value of shares on which it should be issued. Taking the NAV Rs. 19 per share, the value of 2018458 shares is worked out at Rs.38350702/- (2018458 Rs.19) on which the shares should be issued as against the face value of Rs.20184580/; (2018458 Rs.10). Therefore the excess share premium over and above the NAV @Rs.19 per share at Rs.89641183/- (Rs.107807305-(Rs.38350702-Rs.20184580)) is added u/s 56(2)(viib) of IT Act and taxed accordingly. Penalty proceedings u/s 271(1)(C) of the IT Act are also initiated for furnishing inaccurate particulars of income.

1 Total income as per computation of income 0 2 Add: As discussed in Para 3,4,5 above 189641183 3 Total Income assessed 189641183 Rounded off : 189641180

8. Aggrieved assessee preferred appeal before the ld.CIT(A) challenging the validity of the reopening proceedings and also to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. challenged the addition made u/s.56(2)(viib) of the Act but failed to succeed. Now the assessee is in appeal before this Tribunal.

10. So far as the merits of the case are concerned, Ld. Counsel for the assessee fairly submitted that for the purpose of infusion of share capital, Equity shares were issued at premium and such premium was charged on the basis of Report prepared by the Chartered Accountant as per the Discounted Cash Flow (DCF) method. He fairly admitted that as per Rule 11UA(2)(b) the Valuation Report as per DCF method is to be procured from a Merchant Banker but the assessee had inadvertently procured the Valuation Report from a Chartered Accountant (Auditor of the company) which is not correct. He further submitted that on realising the mistake assessee procured it from M/s.Pantomath, a Category-I Merchant banker on 23.04.2019 and was submitted before the ld.CIT(A) on 24.04.2019 about the valuation of shares as on 31.03.2015. However, the ld.CIT(A) has ignored the said report and passed the impugned order without passing a speaking order on merits of the case. He however submitted that for the FMV of the Equity Shares, Rule 11UA gives the option to the assessee to to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. opt either NAV or DCF method and the Revenue authorities cannot impose their method on the assessee. He therefore prayed that the assessee should be given an opportunity to procure the new Valuation Report from Merchant Banker for the FMV of the Equity Shares as per DCF method for each of the years and could be placed before ld.CIT(A)/Ld. AO and then the matter can be decided in accordance with law.

“1. Vodafone M-Pesa Ltd. Vs. PCIT (2018) 92 Taxmann.c0m 73 (Bombay) 2. Akash Ceramics P. Ltd-168 taxmann.com 407 [2024]-`Gujarat HC (para 13 & 14)

3. PCIT vs. Abhirvey Projects P Ltd - ITA 618/2023 [2024]-order dated 05-04-2024-Delhi HC (para 2 to 4) and referred Cinestan Entertainment P Ltd -2021:DHC:780-DB [2021] - Delhi HC (para 13 to 15) 4. Agra Portfolio P. Ltd-464 ITR 348 [2024] - Delhi HC (para 16 to 17 & 22 to 23) 5. PCIT vs. I.A. Hydro Energy P. Ltd-163 taxmann.com 408 [2024]- (para 19 &20) 6. Shah Finlease Pvt Ltd v. DCIT-TS-927-ITAT-2024-Mum-dt. 17.12.24 7. Patel Minerals Pvt. Ltd [TS-01-ITAT-2025(JODH)] - dt. 02.01.25

“1. Facts of the case:

1.1 The assessee is a private limited company Incorporated on 16/08/2013 in the business of the assessee had not started commercial operation and it had been stated that the work of the hospital was in the construction stage. This contention of the assessee was repeatedly submitted again and again. The assessee company had received premium on shares and the computation of the said premium was not accepted by the AO and the excess premium was added back to the total income. This issue of excess premium and its computation is under challenge before the Hon'ble ITAT. The said issue is present in all the AYs mentioned above and therefore a common written submission is made in this regard.

2.1 The AO in the course of the assessment found that the share premium jumped within a short span of 2 months and are found that the report of the valuer as per the DCF method was not conclusive about the value of the shares and accordingly issued notice u/s 142 (1) seeking clarifications. One of the main contentions of the AO was that the valuation report that was prepared was based on projected financial statements prepared by the management. Accordingly, the details and facts given by the management on which the said to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. valuation was done was sought by the AO. Further, the valuer had also qualified as report by stating that key assumptions on the company's financial projections were derived from the management and that the estimate of the value did not constitute a fairness opinion or solvency opinion and should not be relied as such. Among other things, the AO sought the following details:

(i) the intrinsic value of the share as per NAV (ii) to furnish the DCF computation by incorporating actual figures for financial years 2014-15, 2015-16, 2016-17 and 2017-18 (as on date) for which the values were known. Reasons for divergences if any with projections were to be explained with supporting details.

(iii) to clarify whether hospital was sold and the status of the construction/renovation of the proposed hospital as on date.

(iv) that, there was a huge variation in the premium of shares though there was not much difference in the period of issue of shares and therefore the assessee was asked to furnish the basis of quantification of share premium in each case and supporting details as to how the premium was justifiable as per the DCF method.

(v) As regards the valuation reports relied upon by the assessee, the AO asked with respect to the report from Ray and Ray as to why the same should be accepted as there was no conclusion in the report as to the value of each share as per the DCF method. That the shares were issued to related concerns on a huge premium at different times at different rates and therefore why it should not be considered as a self-serving document. As regards the report from MITCON, how could the same be held to be legally tenable as it was not obtained from the authority prescribed under the Rule.

2.2 In reply to the show cause issued by the AO, the assessee replied: (i) That the application of any particular method of valuation depends on the purpose for which the valuation is done. That, in respect of the company, the purpose was very clear, to get as much funds for completion of the project as much as possible.

(ii) that, the share premium can be a discretion of the directors and the investors acceptance and that there could be variance in prices. (iii) that, MITCON consultancy and engineering services Ltd was listed on the SME platform of the National Stock Exchange, Mumbai and as such a reliable organisation for submitting the valuation report on the computation of premium. to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd.

3.1 The assessee was asked to substitute the actual figures that were available instead of the un-substantiated projections and use the same DCF method to submit the valuation of the premium. The same was never furnished by the assessee till date.

3.2 It needs to be appreciated that the right of the assessee to opt for the DCF method of valuation of unquoted shares is not being challenged by the Department but at the same time there is no provision in the Income-tax Act, 1961 or the Income-tax Rules, 1962 to prohibit the AO from examining the claim of projections being made on which the valuation of shares depend as per the DCF method. Further, the assessee was appraised of the rationale behind rejecting the unsubstantiated projections and was given ample opportunity to substantiate the same and therefore it cannot be said that the AO had not followed the law of natural justice. The CIT (A) has also given a finding that the assessee was given ample opportunity to make necessary compliance to the satisfaction of the AO when a remand report was sought on the additional evidence filed by the assessee before the CIT (A). The failure was on the part of the assessee in substantiating the projections that were used in the valuation of shares as per the DCF method vis-à-vis the actual figures available on record.

3.3 The assesee submitted a valuation report by CA Arvind Yenemadi but the same cannot be relied upon as it not by an independent auditor as per the requirement of the law. The law at that point in time required that the report should be from a merchant banker or accountant but the accountant should not be the tax auditor of the company. Therefore, the assessee failed to fulfil the requirements of law of the issue of valuation of the said shares.

3.4 It needs to be appreciated that opportunity was given to the assessee to use the actual figures of revenue instead of the unsubstantiated projections and compute the valuation of shares as per the DCF method. As the assessee failed to do so, the AO was left with no option and go by the NAV method to determine the fair market value of the shares issued at an abnormal premium. to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. 3.5 As the assessee has till date not submitted the valuation of the said shares by using the actual figures of revenue available on record instead of the unsubstantiated projections even though it was given ample opportunities to do so, the AO was constrained to use the NAV method. The case laws on the issue do not cater to this fact of non- submission of the assessee in submitting the valuation report using the actual figures despite being given ample opportunity of doing so by the AO after duly providing the rationale for rejection of the projections earlier used by the assessee.

4. In view of the above, it is prayed that the order of the AO and the CIT (A) be upheld and the appeal of the assessee be dismissed.”

“Appellant's Contentions and Submissions regarding ground for erroneous initiation of 147 proceedings: As per statement of facts and grounds of appeal as above. to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. Decision: In course of appeal proceeding it was clearly stated by the appellant in his statement of facts that during scrutiny assessment the appellant voluntarily disclosed all materials before the then AO. Hence it is also placed by the A,R of the appellant nothing new had come to the knowledge of the Ld. AO. The same record what was available on record to him at the time of making the original assessment, the same record was used for recording the satisfaction by changing the opinion on the same evidence.

I find from the case records (assessment order dated 24-12-2018) that scrutiny assessment in this case was first made by the A.O u/s 143(3) on 21-06-2016 accepting the returned income shown by the appellant. Thereafter scrutiny order u/s 143930 r.w.s 147 of the l.t act has been passed on 24-12-2018. It is also observed that before initiation of proceeding the AO has recorded a satisfaction note forming reason to believe for reopening the cases vide page 1 to page 9 of the assessment order dated 24-12-2018. Furthermore it is also observed that one order disposing the objections raised by the appellant against issuance of notice u/s 148 of the I.T Act, 1961 has been passed as per law by the AO on 14-11-2018 vide page no 12 to 14 of assessment order.

In view of above discussion Considering the entire conspectus I find all the preconditions before initiation of proceeding u/s 147 of the I.T Act has been fulfilled by the AO. Therefore I am of the opinion that the AO 's initiation of proceedings u/s 147 of the I.T Act was as per Law applying necessary jurisprudence.

In Ideal Associates v. Assistant Commissioner of Income tax K.R. SHRIRAM AND N.R. BORKAR, JJ. WRIT PETITION NO. 879 OF 2022 APRIL 7, 2022 of HIGH COURT OF BOMBAY, [2023] 146 taxmann.com 225 (Bombay) it is observed and decision delivered by Hon'ble Judges -- Whether at stage when Assessing Officer reopens assessment, it is not necessary that material before Court should conclusively prove or establish that income has escaped assessment - Held, yes - Whether at this stage, test to be applied is only whether there was reason to believe that income had escaped assessment and whether Assessing Officer had tangible material before him for formation of that belief - Held, yes - Whether since in instant, case, there had been application of mind while granting approval under section 151, reopening of assessment was justified -Held, yes [Paras 2 and 3] In the case Export Credit Guarantee Corporation of India Ltd. v Additional Commissioner of Income-tax* DR. D.Y. CHANDRACHUD AND A.A. SAYED, JJ. WRIT PETITION NO. 502 OF 2012 JANUARY 10/11, 2013, HIGH COURT OF BOMBAY, [2013] 30 taxmann.com 211 (Bombay), it is observed and decision delivered by Hon'ble Judges- Section 147 of the Income-tax Act, 1961-Income escaping assessment - Non-disclosure of primary facts - Change of to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. opinion - Assessment year 2006-07-Whether, even in absence of assessee's, failure to disclose material facts, where there is complete failure on part of Assessing Officer to apply his mind, during original assessment proceedings, to points on which assessment is sought to be reopened, it can be said that there is tangible material and reason to believe that income has escaped assessment - Held, yes Keeping in view of the above decisions the relevant ground of the appellant is dismissed.”

15. Now coming to the merits of the case where the only issue is regarding the addition made u/s.56(2)(viib) of the Act for the excess share premium charged by the assessee. Admittedly the assessee was planning to construct a Multi Speciality Hospital and also to increase the capacity and for carrying out this project work it needed funds, therefore, issued share capital. But for issuing such Equity Shares on premium, assessee had to calculate the Fair Market Value of the Equity Shares. Calculation of FMV of the unquoted Equity Shares is referred in Rule 11UA of the Income Tax Rules, 1962 which read as follows:

“*(2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (1) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. 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, namely:-

(a) the fair market value of unquoted equity shares = (A-L) x (PV),

(a) the fair market value of unquoted equity shares = (A-L)/(PE) X (PV), where,

A = book value of the assets in the balance sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset;

L = book value of liabilities shown in the balance sheet, but not including the following amounts, namely:-

(i) the paid-up capital in respect of equity shares;

(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company,

(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;

(iv) any amount representing provision for taxation, other than amount of tar paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;

(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;

PE= total amount of paid-up equity share capital as shown in the balance sheet; PV = the paid-up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method." to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd.

Date Particulars Paper book Reference 16-08-2013 Company formed 23-04-2014 Work order given to MITCON for techno Economic PB-341 feasibility (made for Appellant company) 01-05-2016 Report on Market Assessment of Multi-Speciality in PB-738 Pune region made by KPMG (for the Appellant company) to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd. Jun-14 Report of MITCON PB-297 09-12-2015 Term loan of Rs. 48 CR sanctioned by Andhra PB-205 Bank (MITCON feasibility report submitted as basis) 12-02-2015 Term loan of Rs. 25 CR sanctioned by Corporation PB-241 Bank (MITCON feasibility report submitted) 14-10-2015 Police complaint for stopping the work PB-703 Year 2015- NGT proceedings and final order PB-676 17 11-07-2016 Term Loan-2 of Rs. 18 CR (app) sanctioned by PB-207 Andhra Bank (after specifically referring to MITCON report) 08-11-2016 Term loan 2 sanctioned of Rs. 10 CR by PB-228 Corporation Bank FY 13-14 Despite sanction of Rs. 101 CR, bank consortium FY 14-15 released funds of Rs. 87 CR only. Further, due to FY 15-16 delay in raising the building and other handicaps, FY 16-17 severe funds crunch was experienced. FY 17-18 Hence, key promoters resorted to raising funds deom Investors. Following was overall position of sources of funds -

Capital from core-promoters – App Rs.32 CR Capital from non-core promoters (Investors – App Rs.40 CR Bank fundings – App Rs.87 CR 01-01-2019 Demand & NPA Notice received from Andhra bank u/s.13(2) of Act 54 of 2002 for enforcement of security interest. Notice received to - Borrower, Mortgagor and by all guarantors 05-01-2019 NPA Notice from Andhra Bank 25-01-2019 Demand & NPA Notice (Symbolic Possession Notice) received from Andhra bank u/s.13(2) of Act 54 of 2002 for enforcement of security interest 1-06-2019 Symbolic possession taken by Andhra Bank 09-07-2019 Notice From Andhra Bank informing about sale of Property (30days Notice) (Rule 6(2) /8(6) of Security Interest (Enforcement) Rule 2002) 31-07-2019 Letter from Andhra bank for transfer of account to specialised Asset recovery branch, Mumbai 25-09-2019 OTS request from Accord Mediplus Pvt.Ltd. to Andhra bank, Mumbai 01-10-2019 Letter from Andhra Bank for rejection of OTS request Dt.25.09.19 07-11-2019 2nd OTS request from Accord Mediplus Pvt.Ltd. to Andhra bank, Mumbai 16-11-2019 Recovery Notice from Advocate Nitin R. Shaha on behalf of Andhra Bank 27-11-2019 Letter from Andhra Bank for rejection of 2nd OTS request Dt.07.11.2019 01-04-2020 Andhra Bank and Corporation Bank Merged into Union Bank April 2020 No communication due to lockdown as COVID-19 to Aug-2020 13-09-2022 OTS accepted by Union Bank asking to pay Rs.73 CR as full and final settlement to 17/PUN/2024 M/s. Accord Mediplus Pvt. Ltd.

20-02-2023 Union Bank cancelled OTS offer 24-02-2023 Auction notice given by Union Bank 10-03-2023 E-auction by Union Bank for Rs.55 CR 02-05-2023 One Investor approached DRT objecting to Auction and seeking intervention 23-05-2023 WRIT petition filed by M/s. Genuine Seeds P Ltd. PB 819- (one of the Investors in Appellant Company) before 848 Honorable bombay High Court, challenging the AUCTION 28-06-2023 Actual Auction of project property for Rs.55 CR 28-07-2023 Despite Auction, Union Bank asked Rs.78 CR + PB 849- Interest for settlement fresh OTS 852 21-08-2023 Union Bank information Appellant about Auction (and sell) of project property to M/s. TIRTH SPACES 26-09-2024 Another OTS proposal for settlement at Rs.3.60 CR PB 853- 854

“5. Now the impugned order dated 23rd February, 2018 has been passed by Commissioner of Income Tax. The fundamental basis of the petitioners application for stay before the Commissioner of Income Tax was that the Assessment order dated 21st December, 2017 of the Assessing Officer raising the demand of Rs. 62.38 crores was without jurisdiction. This demand was raised on account of the fair market value of the shares which had been issued at a premium to its holding Company for purposes of Section 56(2)(viib) of the Act. This for the reason that the Assessing Officer had for purposes of determining the fair market value of the shares issued to its holding Company substituted the Discounted Cash Flow (DLF) method by the Net Asset Value (NAV) method. This was contrary to Rule. 11UA of the Income Tax Rules, 1902 (Rules) as it provides an option to the Assessee to arrive at a fair market value of the shares either by the method as prescribed in Rule 11UA(2) (a) of the Rules i.e. NAV Method or in terms of Rule 11(2) (b) of the Rules i.e. DCF Method.

9. We note that, the Commissioner of Income-Tax in the impugned order dated 23rd February, 2018 does not deal with the primary grievance of the petitioner. This, even after he concedes with the method of valuation namely, NAV Method or the DCF Method to determine the fair market value of shares has to be done/adopted at the Assessee's option. Nevertheless, he does not deal with the change in the method of valuation by the Assessing Officer which has resulted in the demand. There is certainly no immunity from scrutiny of the valuation report submitted by the Assessee. Therefore, the Assessing Officer is undoubtedly entitled to scrutinise the valuation report and determine a fresh valuation either by himself or by calling for a final determination from an independent valuer to confront the petitioner. However, the basis has to be the DCF Method and it is not open to him to change the method of valuation which has been opted for by the Assessee. If Mr. Mohanty is correct in his submission that a part of demand arising out of the assessment order dated ed 21st December, 2017 would on adoption of DCF Method will be sustained in part, the same is without working out the figures. This was an exercise which ought to have been done by the Assessing Officer and that has not been done by him. Infact, he has completely disregarded the DCF Method for arriving at the fair market value. Therefore, the demand in the facts need to be stayed.”

“Decision: I have considered the above submission of the appellant and gone through the AO's observation & decision in assessment order. I do not find force in the appellant's contention and interpretation in as much as it states The conscious use of word MAY postulates that, the CA valuation is not compulsory." or from a reading of the above, it is apparent that the mandatory requirement that that the ACCOUNTANT should not be an auditor of the company applies only to the issuance of equity shares and not to preference shares as per Rule 11UA of the Rules" or " there is no any bar on the Statutory Auditor, for giving Valuation report, if the shares issued are non equity shares" Therefore these interpretation are unacceptable being illogical and unjustified. Accordingly, I fully agree with the observation and decision narrated in the assessment order of the AO in as much as the same is justified and logical and as per law. Therefore the addition Rs.18,04,78,120/-made by the AO invoking provision of section 56(2)(viib) of the I.T Act stand confirmed. Accordingly the said ground is dismissed.”

Order pronounced on this 07th day of April, 2025.