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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI. B. R. BASKARAN & SMT. BEENA PILLAI
ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 11/10/2019 passed by Ld.CIT(A)-7, Bangalore for assessment year 2015-16 on following grounds of appeal:
“1. The order of the learned Commissioner of Income-tax (Appeals) in dated 11.10.2019 in so far as it is prejudicial to the interests of the appellant is opposed to law, weight of evidence, probabilities and facts and circumstances of the case.
The learned Commissioner of Income-tax (Appeals) erred in upholding the order of the Assessing Officer wherein he had made addition of Rs.2,04,00,2641- uls.56(2)(viib) and the assessee denies liability to pay tax on the addition made.
3. The learned Commissioner of Income-tax (Appeals) erred in not noticing that the fair market value for unquoted equity share has been made based on Net Asset Value Method as per sub-clause (ii) of clause (a) of Explanation to Section 56(2)(viib). As per the said section the fair market value as prescribed under Rule 11 UA or substantiation method, whichever is higher, shall be construed as fair market value of unquoted equity shares. The fair market value as per Substantiation Method being higher than the value as per Rule I1UA, the fair market value of each share determined by the appellant is in accordance with law. 4. The learned Commissioner of Income-tax (Appeals) ignored the fact that the Assessing Officer has not assigned any cogent reason for rejecting the value adopted by the assessee as per Net Asset Value Method. In the absence of such findings the substantiated value of the assessee has to be accepted by the Assessing Officer. 5. The learned Commissioner of Income-tax (Appeals) failed to notice that the Appellant having valued the shares as per well recognised statutorily prescribed Net Asset Value Method, which it could substantiate to the hilt, the Assessing Officer could not have proceeded to adopt the value as per Rule 11 UA (2) in defiance of the statutory mandate. 6. The learned Commissioner of Income-tax (Appeals) erred in not pointing out any shortcoming in the valuation done by the Chartered Accountant whose report was adopted for the purpose of substantiating the fair market value of the shares. 7. The appellant valued each and every asset separately and justified its valuation with adequate proof and took into consideration even liabilities also on a very conservative basis. The methodology adopted by the appellant being unassailable and as prescribed could be challenged only by suggesting necessary modification or alteration, provided the same are based on sound reasoning and rationale basis. 8. The learned Commissioner of Income-tax (Appeals) overlooked the fact that the appellant not having determined the fair market value as per Rule 11 UA, the Assessing Officer could not have thrusted upon the valuation as per Rule 11 UA adopting the formula given therein. 9. The Assessing Officer having spelt out the purpose of introduction of Section 56(2)(viib) into the Act did not establish any possibility of generation and use of unaccounted money by the appellant. 10. The learned Commissioner of Income-tax (Appeals) erred in not noticing that the Assessing Officer has drawn inference based on non- existent imaginary facts like, exaggerated cash flow. The Assessing Officer has made addition on presumptions and not supported by any material evidence on record.
11. The reliance placed on various case laws by authorities below have no relevance to the facts of the case. On the contrary, the Commissioner of Income-tax(Appeals) has either ignored or not contradicted any of the decisions relied upon by the appellant.
12. The appellant craves leave to add, delete, amend or substitute any or all grounds of the appeal raised herein.
For these and other grounds that may be urged at the time of hearing, the appellant prays that this Hon'ble Income Tax Appellate Tribunal may be pleased to allow the appeal by setting aside the order of the Commissioner of Income-tax (Appeals) and directing the Assessing Officer to accept the income returned and grant such other consequential reliefs in the circumstances of case in the interest of justice.”
Brief facts of the case are as under: 2. Assessee is a company and filed its return of income on 25/09/2015 declaring total income as a loss of Rs.43,38,813/-. The case was selected for scrutiny and notice under section 143(2) and 142(1) of the Act was issued to assessee, in response to which representative of assessee appeared before Ld.AO and filed relevant details.
Ld.AO noted that, assessee is engaged in investment activity. Ld. AO noted that, during year under consideration, assessee allotted 2231 shares of face value Rs.10 at share premium of Rs.9851.05/- per share. It was observed that, assessee raised share capital of Rs.22310/- and securities premium of Rs.2,19,77,690/-. Ld.AO noted that, all shares were allotted to M/s.Wavell Investments Pvt. Ltd., on 27/03/2015. Before Ld.AO, assessee submitted that, shares were issued based on share valuation report from CA dated 20/03/2015.
Ld.AO was of the opinion that, valuation report provided by assessee considers factors based on management feedback without any basis, ignoring past performance, growth aspects, earning capacity, expansion etc. Ld.AO opined that, due to exorbitant cash flow furnished by management, valuation of shares was at Rs.9860.05/-per share. He opined that, there is no scientific method employed and method adopted by assessee for valuation is irrational and unrealistic for Ld.AO thus rejected valuation filed by assessee, as it was not in accordance with Rule 11UA. Ld. AO thus computed value per share at Rs.705.87/- per share based upon book value of assets and liabilities.
Aggrieved by addition, assessee preferred appeal before Ld.CIT(A). 6. Ld. CIT (A) observed as under: “4.7 The appellant has cited several judicial decisions to support its argument that the AO cannot reject the valuation method adopted by the assessee but can rework the value if computation is found to he not satisfactory. But in the case at hand. the assessee has not adopted any prescribed method and the value worked out under the method adopted as per second limb of the explanation does not substantiate to the satisfaction of the AO.” 7. Aggrieved by order of Ld.CIT(A), assessee is in appeal before us now. 8. Ld.AR submitted that, all grounds raised
before this Tribunal are regarding disallowance made by Ld.AO under section 56. (2) (viib) of the Act. He submitted that, Ld.AO failed to observe that, assessee submitted valuation report based on NAV valuation and not under DCF valuation as observed by Ld.AO in para 4.1 of assessment order. Ld.AR submitted that, Ld.AO ignored investment made by assessee in equity shares of Dynamite Technologies Ltd., which is a listed company. Ld.AR submitted that, difference in valuation is because of value of shares adopted in respect of Dynamite Technologies Ltd., by assessee as against market value being Rs. 3313/- per share. He submitted that, for purposes of valuation, assessee took 10 months average value of last daily quotations of Dynamite Technologies Ltd., on National stock exchange. Ld.AR submitted that, said details are placed at page 42-43 of paper book.
He thus submitted for remand of this issue to Ld. AO for verifying details filed by assessee in respect of Dynamite Technologies Ltd., for purposes of determining in value of shares of assessee as per Rule 11UA.
Ld.Sr.DR on the contrary, relied on orders passed by authorities below. He submitted that, details were not submitted by assessee at the time of assessment stage, even after repeated request made by Ld.AO. The projections used in valuation report were at huge variance with actual, and same was regularly rejected.
We have perused submissions advanced by both sides in light of records placed before us.
Valuation should be carried out in accordance with provisions of Rule 11UA of the Rules r.w.s 56(2)(viia) of the Act. Before us, Ld.AR has not filed audited financial accounts of assessee for year under consideration. It has been submitted that, authorities below have wrongly computed NAV on the book value ignoring, market value of shares invested by assessee in Dynamite Technologies Ltd. Hence we are of the view that issue needs to be remanded to Ld.AO. Assessee is directed to substantiate value of shares held by it in Dynamite Technologies Ltd. to be Rs.1,927/-per share (claimed to be 10 months average), with cogent materials/evidences. Ld.AO shall verify the same and ascertain value of investment made by assessee in Dynamite Technologies Ltd. for purposes of computing NAV of shares held by assessee. Needless to say that, proper opportunity of being heard shall be granted to assessee. Accordingly, 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 16th Oct, 2020 Sd/- Sd/- (B. R. BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 16th Oct, 2020.