PASCHIMI SEAPORT PVT LTD,CHENNAI vs. ITO CORPORATE CIRCLE-5(1), CHENNAI

For that the order of the Comm. of Income-tax (Appeals) 3 [CIT-A (3)] is contrary to law, facts and circumstances of the case and is opposed to the principles of natural justice.

For that the corrigendum passed by the CIT-A (3) relying on the AOs remand report observations without serving a copy as well according an opportunity to the Appellant is erroneous as the Value adopted by the AO is without taking into consideration of the intangible assets / valuation of investments held by the Appellant Company. 3. For that the Ld AO had adopted the financials without appreciating the investment by the Appellant company was made into a Port Company which had already commenced the construction of the Port in Western Coast of country, which is a vital information for the valuation and thus invoking the provisions of section 56(2) (viib) is contrary and against the provisions contained therein. 4. For that the on the facts and in the circumstances of the case, CIT-A(3), Chennai erred in confirming the additions by relying on the decisions which are actually in favour of the appellant company regarding the valuation of equity shares and its consequent allotment, despite Hon'ble ITATs of same jurisdiction as well coordinate jurisdiction held in favour of the Appellant Company. 5. The A.O having been provided with the information about the equity subscriber being the majority share holder with 99.99% holding, cannot make profit with herself by allotting the equity at a premium, which was considered only based on the factual details of the project involved in, had been completely ignored even at the time of assessment as well during the remand proceedings, renders the assessment a biased one without appreciating the intention of the legislature. As evident, the assessee is aggrieved by confirmation of certain addition u/s 56(2)(viib). 2. The Ld. AR assailed the additions made by Ld. AO whereas Ld. Sr. DR submitted that share valuation was based on financial statements of the other entity and the assessee could not justify the valuation of shares. Having heard rival submissions and after considering orders of lower authorities, our adjudication would be as given in succeeding paragraphs. Assessment Proceedings 3. The material facts are that the assessee being resident corporate assessee is stated to be engaged in the business of infrastructure development of seaports. During assessment proceedings, it transpired 3 - that the assessee allotted 1,16,000 equity shares of Rs.10/- each at a premium of Rs.115/- per share to one Mrs. Ritu Saini. The investment so received by the assessee was stated to be invested in M/s Malabar Port Private Ltd. which was stated to be pilot project Development Company through its Special purpose vehicle (SPV) M/s Ponnani Port Private Ltd. The investor Mrs. Ritu Saini stated to have acquired 99.99% equity including the above share subscription. The assessee supported the valuation of the shares on the basis of Discounted Cash flow (DCF) that was expected to be generated from the Ponnani Port Project. The assessee submitted cash flow statement of M/s Ponnani Port. The assessee also produced share valuation as certified by Chartered Accountant which was rejected by Ld. AO since the report failed to consider the three key factors i.e., cash flow projections, discount rate and terminal value as required by ICAI guidelines. Though the assessee defended the valuation, Ld. AO rejected the same and noted that the shares were allotted in this year and therefore, the provisions of Sec. 56(2)(viib) were applicable to the case of the assessee. Accordingly, the valuation was arrived at by Ld. AO on the basis of intrinsic value in terms of Rule 11UA(2) as applicable to valuation of unquoted equity shares. Since the value thus arrived was (-) Rs.2.36 per share, entire premium of Rs.133.40 Lacs was added to the income of the assessee u/s 56(2)(viib). Appellate Proceedings 4. During appellate proceedings, the assessee, inter-alia, submitted that the subscription money was received during financial year 2011-12 and therefore, the provisions of Sec. 56(2)(viib) would not apply. The assessee also submitted that DCF method was one of the prescribed methods to arrive at valuation of the share.

The appeal stand allowed for statistical purposes in terms of our above order.