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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI. A.K. GARODIA & SMT. BEENA PILLAI
ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 09/01/2018 passed by Ld.CIT(A)-3, Bangalore for assessment year 2014-15 on following grounds of appeal:
1. That the order passed by the learned Commissioner of Income-Tax (Appeals) in so far it is prejudicial to the interests of the appellant is bad and erroneous in law and against the facts and circumstances of the case.
2. That the learned Commissioner of Income Tax (Appeals) ought to have held that the assessing officer has no jurisdiction to go beyond the valuation report issued by chartered accountant.
3. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in holding that the DCF method adopted by the appellant for valuation of shares is irrational and does not have relevance to the factual financial results of the assessee company. 4. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in holding that the valuation report cannot be relied upon because the Chartered Accountant did not verify the projections provided by the appellant.”
Brief facts of the case are as under:
During the financial year 2013-14 relevant to assessment year 2014-15, the appellant issued preference shares and equity shares. The details are as follows;
The appellant arrived at value of shares based on valuation report of a Chartered Accountant. The method of valuation adopted was based on Discounted Cash Flow method (DCF).
The Ld.AO held that value of shares arrived by the Chartered Accountant cannot be acceptable for following reasons; a. The DCF method is from the view point of shareholder however, this aspect is completely loll missing in the valuation report. b. Projections considered for valuation are irrational and do not match with the actual financial results. c. No evidences for estimates and projections adopted in the valuation report. d. The projections and estimations are provided by assessee and no verifications were made by the Chartered Accountant before adopting the same. Therefore, the Ld.AO adopted Net Asset Value Method (NAV) and arrived at Rs. -11.17 as fair market value per share. 5. Based on the above findings, the Ld.AO held that, value of share computed by assessee exceed the fair market value and added the excess over face value of the shares issued to the residents as income u/s. 56(2)(viib) of the Act. 6. Aggrieved by the aforesaid order, preferred appeal before Ld.CIT(A) who dismissed the appeal of on the same findings of Ld.AO in the assessment order. 7. Aggrieved by order of Ld.CIT(A) assessee is in appeal before us now. 8. At the outset Ld.AR drew our attention to following Additional Ground raised vide application dated 10/03/2018: “That the addition made u/s 56(2)(viib) is not justified in view of Circular # dated 06.02.2018 issued by CBDT as the appellant is a start-up as per Department of Industrial Policy and Promotion notification issued by Department of Industrial
Policy and Promotion, Ministry of Commerce and Industry, in GSR 501(E) dated 23.05.2017.”
Ld.AR submitted that, Ministry of Commerce and Industry vide notification dated 23/05/2017 in GSR.501(E) has announced start-up India initiative for creating a conducive environment for start-ups in India. It has been submitted that, Government of India had directed various ministries to identify and recognising a start-up. Ld.AR submitted that, in view of said notification, CBDT Vide F.No.173/147/2019-ITA-I, intimated that, provisions of section 56(2)(viib) shall not apply to assessee on amounts received as consideration for issue of shares, subject to fulfilment of conditions specified in notification No.GSR.127(E) dated 19/02/2019 of DPIIT and subsequent amendments if any, more particularly placed at page 2-3 of paper book.
Ld.AR submitted that, said notification was not available with assessee at the time of proceedings before Ld.CIT(A). He also placed reliance at page 36-37 which is a consolidated Circular for assessment of start-ups dated 30/08/2019, being Circular No.22/2019 issued by CBDT. Ld.AR submitted that, assessee has filed Form 2 which has not been verified by authorities below in light of the circulars referred and relied by Ld.AR herein above. 11. On the contrary, Ld.Sr.DR placed reliance on orders passed by authorities below, however could not controvert applicability of said circular referred to by Ld.AR placed at page 2 of paper book in case of assessee.
We have perused submissions advanced by both sides in light of records placed before us.
This is a subsequent development in regards to issue that could go to the root cause for consideration. It is also noted that, these documents was not have placed before authorities below at the time of hearing. However, we are of opinion that these Circular would be helpful in considering the issues on merits. 14. Accordingly, we are inclined to admit the additional ground raised
by assessee for considering the claim.
15. For sake of convenience we reproduce here with the relevant circulars relied by Ld.AR. -------- Space left intentionally ------------ F.No.173/147/2019-ITA-I, dated 16/05/2019 Circular No.22 dated 30/08/2019
In view of the above, we are of opinion that the issue deserves to be remanded to Ld.CIT(A) to verify the issue in light of above circular. Ld.CIT(A) shall verify fulfilment of necessary criterias as required by the said circulars for its applicability to its fullest. Ld.CIT(A) is directed to grant proper opportunity of being heard to assessee in accordance with law. LdCIT(A) is also directed to pass reasoned order after carrying out necessary verification/investigations. Assessee is directed to file all requisite details/information is as called for by Ld.CIT(A) to consider the issue in light of the circulars. Accordingly, grounds and additional grounds raised by assessee stands allowed for statistical purposes. In the result, appeal filed by assessee stands allowed for statistical purposes. Order pronounced in the open court on 19th Oct, 2020