Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH: ‘D’, NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 26/03/2013 of Ld. Commissioner of Income-tax (Appeals)-19, New Delhi, for assessment year 2001-02 raising various grounds. The assessee revised its grounds of appeal vide letter dated 07/09/2015, which were admitted. The revised grounds of appeal are reproduced as under:
“1. That notices dated 24.01.2013 and 13.03.2013 which are alleged to have been issued listing the appeal for hearing on 31.01.2013 and 20.03.2013 not having been served on the appellant, the impugned order passed without giving the appellant adequate opportunity of being heard is bad in law, unsustainable and liable to be set aside.
2(a)That authorities below have failed to appreciate that valuation made by the valuation officer without affording any opportunity of being heard to the appellant and without providing proposed estimate of the value of the asset to the appellant with the opportunity to file objection as laid down in sub section (4) of section 16A of the wealth tax Act, is invalid and liable to be ignored. (b) That in any case, basis of the valuation of the share adopted by the valuation officer is illegal, unsustainable and is liable to be set aside being contrary to the directions of the learned Tribunal as contained in its order dated 20.07.2007 passed in in the case of the appellant. 3(a) That that the learned CIT (A) has failed to appreciate that if the valuation report of the valuation officer is not to be considered by the AO, computation of capital gains will fail inasmuch as the valuation report was the only basis for computing the capital gains by the AO and impugned assessment made on the basis of invalid report is also invalid and is liable to be quashed. (b) That the learned CIT(A) has further erred in law in holding that sale consideration taken by the AO is justified on the basis of face value of shares and such a view being contrary to the direction of the learned Tribunal for valuation of the share on the basis of market rate, is bad in law and liable to be set aside. (c) That there was no justification with the learned CIT (A) in relying on the market rates prevailing in the months of Sep, Nov. 2000 85 Jan 2001 when the transfer of the share had taken place on 31.07.2000 and the approach of the learned CIT (A) in not considering market rate of Rs.4.50/- per share on the date of transfer and prevailing market rates near the date of transfer which were also available in the same public domain, is arbitrary, unreasonable and deserves to be set-aside.
4. That the learned CIT (A) has erred in law and on facts in holding that acquisition of shares by the appellant was at a premium to the market rate and conclusion reached by the learned CIT (A) on mere surmises and conjecture to sustain the adoption of face value of Rs.10/- per share is wholly unwarranted, arbitrary and liable to be set aside.
That the order of the CIT (A) is bad in law and against the fact of the case.” 2. This is the second round of litigation before the Income Tax Appellate Tribunal (in short ‘the Tribunal’). 3. The brief facts giving rise to the present appeal are that during the year under consideration, the assessee company transferred its undertaking to M/s Virtual Soft Systems Ltd. (formerly known as “Suri Capital and Leasing Ltd”) against allotment of 45 lakh equity shares of the face value of Rs. 10 per share. In the assessment completed under section 143(3) of the Income-tax Act (for short “the Act”), the Assessing Officer treated the transaction as slump sale under section 50B of the Act and short-term capital gain was computed taking the sale consideration at Rs.4,50,00 000/-on the basis of book value of Rs. 10 per share and short-term capital gain of Rs.3,14,58,830/-was brought to tax. In the first appeal, the Ld. CIT-A upheld the view of the Assessing Officer and dismissed the appeal. On further appeal, the Tribunal, in order dated 20/07/2007 upheld the transaction as slump sale as defined in section 2 (42C) of the Act and taxable within the meaning of section 50B of the Act. As regard to the computation of capital gain, the Tribunal set aside the findings of the authorities below and restored the matter to the file of the Assessing Officer for computing the short-term capital gain after taking into account the sale consideration to be worked out as per directions of the Tribunal and to adopt the net worth of the business of the assessee as per the provisions of section 50B(3) of the Act. 3.1 Consequent to the direction of the Tribunal, in proceedings before the Assessing Officer, the assessee filed a certificate from Chartered Accountant wherein the net worth of the company was adopted at Rs.1,46,94,768/-. For the purpose of adopting the market value of the share as on the date of the sale, the Assessing Officer made a reference under section 55A of the Act to the valuation officer, who submitted his report vide letter dated 03/12/2008. The valuation officer estimated the value of the share at not less than Rs.10 per share. The Assessing Officer provided a copy of the valuation report to the assessee for his objections if any to the valuation estimated by the valuation officer. The assessee objected that valuation officer did not provide any opportunity to the assessee. The Assessing Officer did not accept the contention of the assessee and computed the short-term capital gain under section 50B of the Act after taking sale consideration of Rs.4,50,00,000/- in view of the sale price of 45 lakhs shares calculated at the rate of Rs. 10 per share. The net worth of the undertaking sold under slump sale was taken at Rs.1,46,94,768/- as per the chartered accountant certificate submitted by the assessee and short-term capital gain of Rs.3,03,05,232/- was accordingly added to the total income of the assessee. 3.2 Aggrieved, the assessee filed appeal before the Ld. CIT-A, who forwarded the submission of the assessee to the Assessing Officer calling for a remand report. In the remand report the Assessing Officer submitted that the valuation report contained market rate as on 31/03/2000 and 31/03/2001. 3.3 The Ld. CIT-A sent a copy of the remand report alongwith notice under section 250 dated 24/01/2013 fixing the appeal for hearing on 31/01/2013. This notice was sent by the speed post, however no compliance was made and even an adjournment application was not filed. Again a one more notice dated 13/03/2013 fixing the appeal for hearing on 20/03/2013 was sent by the speed post, however neither any compliance was made nor application for adjournment was filed before the Ld. CIT-A. 3.4 In view of the non-compliance by the assessee of the notices sent, the Ld. CIT-A, decided the appeal and upheld the market value of the shares at Rs. 10 per share and confirmed the short-term gain computed by the Assessing Officer. 3.5 Aggrieved, the assessee in appeal, before the Tribunal raising the grounds as reproduced above.
In ground No. 1 of the appeal, the assessee has raised the issue that notices dated 24/01/2013 and 13 /03/2013 allegedly sent by speed post to the assessee were not served and thus the order passed by the Ld. CIT-A was without any adequate opportunity to the assessee. In ground No. 2(a), the assessee has raised issue that no opportunity was provided by the valuation officer while estimating the market value of the shares. In ground number 2(b), the assessee has raised the issue that valuation officer has not followed the direction of the Tribunal in its order dated 20/07/2007 passed in ITA No. 835/Del/2005. The grounds No. 3(a), and 3(b) are also related to the validity of the valuation report. In ground No. 3(c), the assessee has challenged the prevalent market rates on the stock exchange for the month of September, November 2000 and January 2001 adopted by the Ld. CIT-A whereas the transfer of shares had taken place on 31/07/2000. In ground No. 4 the assessee has contested the finding of the Ld. CIT-A that acquisition of shares by the assessee was at a premium to the market rate due to purchase in bulk and purchase of controlling stake.
5. Before us, the Ld. counsel of the assessee submitted a paper book containing pages 1 to 59 and referred page No. 47 to 48 of the paper book, which is an affidavit of the director of the company deposing that notices dated 24/01/2013 and 13/03/2013 issued by the Ld. CIT-A were not received. The Ld. counsel also referred to page 49 of the paper book, which is an information downloaded from the website of “Department of post, India”, according to which , consignment details were not available on tracking website. The Ld. counsel also contested that the Assessing Officer as well as the Ld. CIT-A has not followed the direction of the Tribunal to obtain authentic information from the concerned exchange, regarding prevailing rates in the market before and after the date of transfer. The Ld. counsel filed copies of the information downloaded from the website of Bombay Stock Exchange (BSE), indicating the high and low price of the shares of “Virtual Software Systems Ltd.” from page 53 to page 57 of the paper book and requested for admitting these information as additional evidences. An application for admitting these documents as additional evidence has also been filed under rule 29 of the ITAT Rules. The Ld. counsel submitted that according to the information downloaded from the website of the BSE, the market price of the share in question was in the range of Rs. 4/- to Rs. 7/- as against the market price of Rs. 9.45 to Rs. 12.05 between 30/01/2001 and 05/09/2000 on the BSE considered by the Ld. CIT-A. In view of the additional evidences filed, the Ld. counsel requested that the matter may be restored back to the Ld. CIT-A for complying the direction of the Tribunal (supra) as to determination of the market rate of the shares .
On the contrary, Ld. Senior DR relied on the finding of the lower authorities and submitted that the assessee was provided due opportunity for filing objections on the valuation report by the Assessing Officer. He further submitted that the assessee failed to avail the opportunity allowed by the Ld. CIT-A, without any justified reasons. He further submitted that the Ld. CIT-A has followed the direction of the Tribunal and after taking into consideration the market price of the shares as available on the website of the BSE and other factors affecting the market price, has determined the market price of the shares and thus contentions of the learned counsel are not true and accordingly the order of the Ld. CIT-A, might be sustained.
We have heard the rival submissions and perused the relevant material on record including the paper book of the assessee. In the application filed under Rule 29 of the ITAT Rules, the assessee has filed following documents as additional evidences:
1. 1. Stock price of company virtual soft systems Ltd for the month of June 2000, downloaded from the website of the Bombay stock exchange.
2. Stock price of company virtual soft systems Ltd for the month of July, 2000, downloaded from the website of the Bombay stock exchange.
3. Stock price of company virtual soft systems Ltd for the month of August , 2000, downloaded from the website of the Bombay stock exchange.
8. The Ld. counsel has contended that agreement for transfer of undertaking in question was executed on 16/06/2000 and another agreement titled “memorandum of entry” was prepared on 31/07/2000, and therefore as per direction of the Tribunal (supra) the market price of the shares in the month from June 2000 to August 2000 should be considered for determining the market price of shares.
9. In our opinion, the additional evidences filed on behalf of the assessee are relevant to decide the issue in dispute and accordingly, we admit the same.
10. We find that in the case in hand the matter was restored to the file of the Assessing Officer by the Tribunal for complying the specific directions regarding the computation of short-term capital gain on slum sale of the undertaking. The direction of the Tribunal (supra) on the issue in dispute is as under:
8.6. The stand of the assessee regarding determination of the value of shares right from the very beginning was that the consideration determined by the AO at Rs. 4.50 crores is wrong. In this regard before the ITAT also ground nos. 8 & 9 have been taken specifically. The learned counsel pointed out that before the AO as well as before the learned CIT (Appeals) this submission was made but has not been considered by the authorities. 8.7. On going through the assessment order it is found that before the Assessing Officer in the written submissions the assessee took the following plea: “As on 31st July 2000 when the above transaction took place,^ the market value (as per Stock Exchange quotation) of the Equity shares of VSL was hovering between Rs.2/- - Rs. 3/- per share. Thus, what the assessee received for parting with its assets, liabilities, contractual obligations etc. is only the market value as per Stock Exchange quotation) of the equity shares of VSL. In respect of the above transaction of transfer of assets etc. and allotment of equity shares, there is no element of income, whether on revenue account or on capital account.
8.8. However, the AO while determining sale consideration took the value at Rs. 4.50 crores. He has not commented as to why the value as shown by the assessee in the written submission, referred to above, should not be taken into account. On going through the order of the learned CIT(Appeals) also, it is found that the assessee objected to the determination of sale consideration on the basis of face value of shares. It appears that on this issue also a remand report was sought from the AO. Vide his report dated 29-11-04, reproduced on page 7 of the learned CIT(Appeals), the Assessing Officer has again justified the approach adopted in the assessment order. It is clear from the following extract of remand report:
The assessee pleaded before the CIT(A) that the equity share of M/s Suri Capital Leasing Ltd. are listed at Delhi and Mumbai Stock Exchange. The market value of the share is Rs. 4/- per share as per exchange quotation. The AO ahs rightly taken the value of each share at Rs. 10/- in view of acquisition agreement made between these two parties that the transfer share will be made on face value of Rs. 10 each.
8.9. It may also be pointed out that before these authorities the assessee had filed paper book in which the balance sheet and P&L A/c dated 31-7-2004 was also included. The value of shares as quoted in the stock market has been shown as under:
STOCKMARKET QUOTES & COMPANY RESEARCH Virtualsoft Systems Ltd. (surca) SMS Sto Surca to 8888 to get Quote on your Mobile. History Between - 30 Jun 00 and 14 Jul 000 Current quotes Charts Price Historic Quote search Trading volumes ADRs/GDRs Other instruments Competitors Quarterly Results Annual Results P&L Accounts Balance Sheet Ratios Snapshot Comp. History Peer Group Director’s Report News Date Open High Low Close Volume 14 JUL 00 4.05 4.05 4.05 4.05 200 13 Jul 00 5.00 5.00 5.00 5.00 800 12 Jul 00 5.00 5.00 5.00 5.00 400 11 Jul 00 5.00 5.50 5.00 5.50 1000 06 Jul 00 5.60 5.60 4.35 5.00 4700 05 Jul 00 4.05 4.50 4.05 4.50 800 05 Jul 00 5.00 5.00 4.50 4.50 2400 30 Jun 00 4.05 4.05 4.05 4.05 100 Data Source - Asian CERC IT Ltd. 8.10. The above details were submitted before the AO and the learned CIT(Appeals) but they have not commented about the same. On the basis of the quoted price , as per above, the average price per share in any case will be around Rs. 4.70 per share on and near the date of transaction of sale and hence this may be the cost which should normally be taken into account for determining the sale consideration, but in the circumstances of the present case, where the shares of transferee company were acquired in bulk and controlling interest over that company was also acquired by the assessee, the market price of the shares so acquired should be determined after taking into consideration all these relevant aspects including the rates of shares quoted in stock- exchange, wherein too should be considered after obtaining authentic information from concerned exchange, regarding prevailing rates in the market before and after the date of transfer. The AO is, therefore, required to undertake the exercise of determining the market value of .45,00,000 shares of the transferee company on the date of transfer. For this purpose the assistance of expert valuers may be taken. Hence this issue requires to be re-determined on the basis of above points.
From perusal of the above finding of the Tribunal (supra), we observe that the claim of the assessee that average price per share quoted on the stock exchange on the date of transaction was around Rs.4.70 per share was already considered by the Tribunal. The said claim was not accepted and the Tribunal directed the Assessing Officer to consider following relevant aspects for working out the market price of the share:
1. 1. consider the circumstances of: (a) acquiring the shares of transferee company in bulk and (b) acquiring controlling stake in that company by the assessee.
2. Authentic information from concerned exchange regarding prevailing rates in the market before and after the date of transfer.
For determining the market price of the share, the Tribunal allowed the Assessing Officer for taking any assistance of any expert valuers.
On perusal of the impugned order, we find that the Ld. CIT-A has considered the arguments raised by the assessee and decided the issue as under:
“10. Information available on the website of the Bombay Stock Exchange regarding the share price of the appellant company during the asstt. under consideration was seen. It was observed that on the following dates, the shares were quoted at even more than Rs. 10 per share: Date Open High Low Close Price Price Price Price 30-Jan-01 9.45 9.5 9.45 9.5 02-Nov-00 10.25 10.5 9.4 9.4 Ol-Nov-OO 11.8 11.8 10 10.2 25-Sep-00 10 10 9.75 9.75 22-Sep-00 10.15 10.15 10.15 10.15 20-Sep-00 10.55 10.55 10.55 10.55 12-Sep-OO 10.95 10.95 10.95 10.95 ll-Sep-00 11.35 11.45 11.15 11.15 08-Sep-00 12.05 12.05 11.6 11.6 07-Sep-00 12.05 12.05 12.05 12.05 06-Sep-00 11.65 11.65 11.65 11.65 05-Sep-00 10.65 10.8 10.65 10.8
11. The above shows that the share was quoted at Rs. 12.05 on 7.9.2000 and 8.9.000. It was again quoted at Rs. 11.80 on 1.11.2000 and at Rs. 9.45 on 30.1.2001. This information is available in the public domain on the website of the Bombay Stock Exchange and can be easily accessed. It is clear from the above that the appellant’s claim that the shares were quoted at around Rs.4.70 is not correct. The shares quoted at more than the face value of Rs.10 around the time of acquisition and slump sale. In any case, the A.O.'s decision to treat the value of shares at Rs. 10 being the face value is logical. If the appellant wanted to controvert this finding, the burden of proof was on him to show that the value of shares was less than its face value. The appellant has chosen to give the market rate of shares only for the limited period of 30.6.2000 to 14.7.2000. He has not given the share price for the remaining year apparently because as discussed above, the share price was at a much higher rate. The appellant has therefore, failed to discharge his burden of proof to show that the value of shares was much less than the face value.
12. It is also necessary to consider that in a case of acquisition, the price paid is usually much more than the market price. Transfer of a controlling interest usually commands a premium. Therefore, even if the share price has been below the face value for a part of the year, what has also to be considered is that the acquisition would have been at a premium to the market rate. 13. Apart from the above, even in the valuation report, the valuation officer has observed as follows: Based on the above as the NAV of shares of acquiring entity i.e. M/s Virtualsoft Systems Ltd. (Formerly Suri Capital & Leasing Ltd.) has been enhanced to Rs. 12.85 after considering the valuation of business of M/s Virtual Software & Training Ltd. in no case the valuation of Shares of M/s Suri Capital & Leasing Ltd. (Name Changed to M/s Virtualsoft Systems Ltd.) be considered at a price less than Rs. 10 being the allotment price of shares. This also supports the value taken by the A.O. 14. The appellant has argued that the A.O. travelled beyond the directions given by the Hon'ble ITAT by making a reference to the Valuation Officer. This argument is not acceptable because in their order, the Hon'ble ITAT have observed that “we set aside the findings of Assessing Officer and that of the learned CIT (Appeals) on the point of computation of short-term capital gain and direct the Assessing Officer to work out the shortterm capital gain in the case of the present assessee after taking into account the sale consideration, which is to be worked out in the light of our observations made above and to adopt the net worth of the business of the assessee as per the provisions of section 50B(3) as referred to above. This has to be done after providing due opportunity of hearing to the assessee and as per law”. The Hon'ble ITAT have directed the A.O. to work out the capital gain in this case as per law. The A.O. was therefore, within the mandate of directions by the Hon’ble ITAT in making a reference to the Valuation Officer for the purpose of calculation of capital gain. As discussed above, the sale consideration taken by the A.O. is justified on the basis of the face value of shares and the market rates, and the computation of capital gain is justified even if the valuation report is not considered. In view of these facts, the computation of capital gain by the A.O. cannot be said to be erroneous on the ground that he made a reference to the Valuation Officer. This is because this reference is valid in law and also because even if the valuation report is not considered, the sale consideration taken by the A.O. is justified by the face value of shares and the market rates. The appellant’s arguments are therefore, not acceptable.
The appellant has also argued that the value of shares has been determined by the A.O. on the basis of totally irrelevant materials. In the assessment order, the A.O. has given the basis for computing the capital gain and consideration of the valuation report cannot be said to be a total irrelevant material, as contended by the appellant. This argument is therefore, not acceptable.
The appellant has argued that he was not given an opportunity of being heard by the valuation officer. The discussion in the assessment order shows that the appellant did have adequate opportunity during assessment proceedings to rebut the valuation report given by the valuation officer. In appeal, the appellant has filed a copy of the valuation report along with his submissions. The appellant did have adequate opportunity in appeal of being heard in respect to the valuation report therefore, it is incorrect to now contend that the appellant did not have adequate opportunity of being heard in respect to the valuation report. The appellants arguments are therefore, not acceptable.
In view of the above, it is clear that the A.O. was justified in taking the value of shares at Rs. 10 per share which is the face value. As discussed above, the appellant has failed to show that the actual value of shares is less than Rs.10/-. The shares were quoted at even more than Rs. 10 for at least a part of the year. Even if the share price has been below the face value for a part of the year, what has also to be considered is that the acquisition would have been at a premium to the market rate. The A.O.'s decision to treat the value of shares at Rs. 10 being the face value is logical because the face value is the standard value. In appeal, it was for the appellant to show how the value taken by the A.O. is erroneous however, the appellant has failed to do so. In view of these facts, the addition made by the A.O. is justified and is upheld. The Grounds are dismissed.”
As regard to the objections of the assessee that valuation officer has not provided any opportunity to the assessee is concerned, we find that the Assessing Officer has provided due opportunity to the assessee for filing objection on the valuation adopted by the valuer. In our opinion, the Assessing Officer followed the direction of the Tribunal and sent the matter to the expert valuer and thereafter the report of the valuer was sent to the assessee for its objection, wherein the assessee filed its objection. A copy of said letter containing objections has been placed before us from page 42 to 45 of the paper book. In the letter dated 23/12/2008 filed before the Assessing Officer , the assessee objected mainly that approved valuer had not proceeded to determine the market value as directed by the Tribunal and determined the value of the shares on the basis of a report of M/s price water Coopers related to enterprise value of the acquired entity.
In our opinion, the Ld. CIT-A has taken into consideration the directions of the Tribunal and referred to the stock prices available on the website of the Bombay stock exchange and also taken into account the factors of purchase in bulk and acquisition of controlling stake and justified the valuation made by the valuation officer based on the net asset value(NAV) of the shares of the acquired entity. The information obtained from the website of the Bombay stock exchange is certainly authentic and cannot be said in violation of the direction of the Tribunal(supra). 15. In the grounds of appeal
raised before us, the assessee is having grievances as under: 1. the valuation officer has not provided opportunity 2. the Ld. CIT-A has not provided opportunity 3. the Assessing Officer and the Ld. CIT-A has not followed the direction of the Tribunal (supra).
16. In the facts of the case, we observed that the Assessing Officer has provided the opportunity to the assessee for raising objections on the valuation report and the assessee has also raised its objections before the Assessing Officer. In such circumstances, we cannot say that the assessee has been deprived of the natural Justice. Further, the Ld. CIT- A also provided the opportunity to the assessee for raising objections on the finding of the Assessing Officer however as seen from the order of the Ld. CIT-A, we find that the assessee has not complied with the notices issued. The assessee has submitted a copy of the affidavit of the director deposing that those notices issued by the Ld. CIT-A were not received by the assessee company. The information downloaded from the website of the Department of post is also unable to confirm that the letter were not served upon the assessee. We note that the assessee has not filed any application for admitting this affidavit and information downloaded from website of postal Department as additional evidence. We also note that this is the second round of litigation before the Tribunal and the substantial issue in dispute, is whether the Ld. CIT-A has followed the direction of the Tribunal (supra) for determination of market value of shares. Before us the Ld. counsel of assessee has made arguments on this issue also. In the facts and circumstances, we feel it appropriate to decide this substantial issue rather than again restoring the matter to the Ld. CIT-A.
17. The assessee has filed share price on Bombay Stock Exchange for the month of June to August, 2000 as additional evidences, but we find that the Tribunal (supra) in the order dated 20/07/2007 has already considered the market price quoted on the stock exchange for the month of June and July, 2000, and the Tribunal was not convinced and restored the matter to the Assessing Officer for determining the market price of shares keeping in view the acquisition of shares in bulk as well as transfer of controlling stake. The Ld. CIT-A has taken into consideration the price of the shares quoted on the Bombay stock exchange for the month of September and November, 2000, which is the period just after completion of the acquisition of the undertaking. The Ld. CIT-A has taken into consideration both the aspect of acquisition of shares in bulk and transfer of controlling stake to the assessee. The Ld. CIT-A has also justified the reference by the Assessing Officer to the valuation officer in view of the direction of the Tribunal (supra) to take assistance of expert valuer. In our view, the Ld. CIT-A has complied with the direction of the Tribunal(supra) for determining the market value of the shares. Before us, the learned counsel of the assessee failed to bring any material to contradict above finding of the learned CIT(A). On the issue of net worth of the undertaking, there is no dispute between the parties.
In view of above facts and circumstances, in our opinion the order of the Ld. CIT-A on the issue in dispute is comprehensive and well reasoned, which do not require any interference on our part. Accordingly, we uphold the order of the Ld. CIT-A, and all the grounds of appeal
are accordingly dismissed. 19. In the result, appeal of the assessee is dismissed. The decision is pronounced in the open court on 29th May, 2017.