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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश / O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-15, Chennai, in dated 30.11.2017for ay 2014-15.
M/s.S10 Healthcare Solution Pvt. Ltd., the assessee, is engaged in maintaining electronic health records. While making the assessment for the AY 2014-15 ,the AO noticed that the has issued 14,832 shares to M/s.
S10 Technologies Pvt. Ltd., at a premium of Rs.2552.13 per share and received share premium of Rs.3,78,53,192/-. The AO sought a direction u/s.144A from the Addl. CIT, Corporate Range, Chennai, on this issue.
From the details furnished by the assessee, the Addl. CIT found that the fair market value as on 31.03.2013 was at Rs.40.13 per share. As against this, the assessee issued shares @ Rs.2562.13 per share. Though, the assessee vide its letter dated 26.11.2012 submitted that it has not done discounted cash flow valuation of shares but filed a valuation report dated 23.02.2013 using discounted cash flow method, contradicting its stand.
For the detailed analysis and the reasons mentioned in his order, the Addl.
CIT rejected the Valuation Report furnished by the assessee and concluded that there is no scientific purposes for the figure estimated in the valuation report, it is purely on the surmise of the CA, since there is not proper base and a sketchy, there is no basis for the projected rate of growth, it is not reliable etc. In the facts and circumstances, the A O assessed the share premium between Rs.2562.13 and Rs.40.13 per share at Rs.3,74,06,304/- as an income u/s.56(2)(viib).
Aggrieved, the assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) found, inter alia, that the assessee’s Valuation Report is not supported by the following financials: • Technical report • Revenue and cost projection
• Cash flow justification • Historical data • Management Plan • Orders from potential customers • Description of innovative idea or model, like in case of a startup company to justify such exorbitant valuation and on the host of other factors specified in his order, the Ld. CIT(A) held, inter alia, that the assessee’s Valuation Report under Rule 11UA based on discounted cash flow method is grossly flawed and therefore not reliable. The assessee has merely stuck to its stand that it has the option of choosing either of the two methods prescribed u/s.11UA but has not pointed out serious flaw in the AO’s method of valuation. The AO’s adoption of Net Asset Method, after taking into consideration the assets and liabilities from the appellant’s Balance Sheet, is realistic, reasonable and reliable and accordingly confirmed the addition made u/s.56(2)(viib) at Rs.3.74 crores.
Aggrieved, the assessee filed this appeal. The assessee pleaded for admission of additional evidences on the following grounds:
“The Appellant in the above appeal has questioned the action of Assessing Officer and Ld CIT (Appeals) regarding rejection of its Valuation Report and holding there was an incorrect conclusion of market value of shares.
The Appellant submits that it had discussed and highlighted the background of its share transactions during the hearing with CIT (Appeals) and in the course of the same referred to the Share Subscription, MOU and Business Agreements which related to the very basis and reasons for the aforesaid share transactions. It is submitted however that the CIT (Appeals) had neither asked for these documents/agreements to be formally submitted nor has he referred to them (or) taken cognizance of their existence in his Order dated 30.11.2017.
Furthermore, the Appellant is submitting a document substantiating its original Valuation as the CIT(Appeals) rejected its Valuation Report without calling for further analysis or details.
Hence the Assessee is filing these supporting documents by way of a Paper Book in connection with above issues as fresh evidence.
We submit that these documents are in the nature of explanation and confirmation of assessee’s earlier submissions and in the interest of justice it is prayed that these additional evidences which goes to the root of the matter may be admitted and the appeal may be decided taking into account the above document/ evidence.”
4.1 We heard the rival submissions on the admission of additional evidence and admit them in the interests of justice which goes to the root of the matter.
The Ld.AR invited our attention to the copies of the following documents, filed as an additional evidence:
Agreement between Dr After Shariff and Appellant 2. Memorandum of Understanding (MoU) between Shriram Systems Solution Pvt. Ltd. (now S10 Technologies Pvt. Ltd.) and Appellant 3. Additional Document substantiating the Original Valuation Report 4. Share Subscription Agreement entered between Appellant and Shriram Systems Solution Ltd (now S10 Technologies Pvt. Ltd.)
and submitted that certain events that took place in connection with impugned transaction has not been appreciated by the lower authorities and hence, the facts and its associated circumstances in connection with valuation of shares require re-consideration. Hence, the Ld.AR pleaded that on remission of this case to the AO, the assessee would place relevant material before the AO and satisfy that its transaction is not falling within the scope of Sec.56(2)(viib). However, the Ld.DR supported the order of the Ld.CIT(A).
We heard the rival submissions. The facts are that the assessee issued 14,832 shares with face value of Rs.10/- per share to M/s.S10 Technologies Pvt. Ltd., at a premium of Rs.2,552/- per share. It has justified its exorbitant valuation through a Chartered Accountant’s valuation report and claimed that it has an option under Rule 11UA to choose either of the two methods i.e., Assets & Liability Method or Discounted Cash Flow (DCF) Method. Out of which, it has chosen DCF method for its valuation of premium shares. The AO has rejected the appellant’s valuation based on DCF Method and has adopted Assets & Liabilities Method and arrived at a valuation Rs.40.13 per share and has added the difference of Rs.3.74 crore u/s.56(2)(vii) treating the same as excess premium and assessed it under the head “Income from Other Sources” u/s 56(2’)(viib). On appeal, the Ld.CIT(A) perused both the valuations adopted by the AO as well as by the assessee and found that the valuation report of the assessee’s Chartered Accountant based on Discounted Cash Flow Method under Rule 11UA is unacceptable for the reasons mentioned in his order. Before us, the assessee pleaded that though it had discussed and highlighted the background of its share transactions etc., with the lower authorities, they had neither asked for certain documents/agreements formally nor they have referred to them (or) taken cognizance of their existence. On production of copies of certain documents etc., the assessee pleaded that the impugned issue requires re-consideration on the facts and circumstances associated with this transactions which goes to the root of the matter and in the interests of justice, this matter be remitted back to the AO for a fresh consideration.
Since the facts and circumstances of the case has not been properly examined, this issue requires re-consideration and hence we deem it fit to remit this issue back to the AO for a fresh consideration. The assessee shall furnish all the materials in support of its claim before the AO and comply to the AO’s requirement as per law. The AO is free to conduct appropriate enquiry etc., as deemed fit, but he shall furnish adequate opportunity to the assessee on the material etc., to be used against it and decide these issues in accordance with law. The corresponding grounds of the assessee are treated as allowed for statistical purposes.
In the result, the appeal filed by the assessee is treated as allowed for statistical purpose.
Order pronounced on July 13, 2018, in Chennai.