TEX- KARE CLEANERS PVT. LTD.,MUMBAI vs. ITO 8 (3)(1), MUMBAI

This is an appeal filed by assessee recalled by an order of MA No.118/Mum/2022, dated 11th January, 2024, filed against the appellate order passed by Commissioner of Income-tax (Appeals)- 14, Mumbai [the learned CIT (A)], for A.Y. 2013-14 on 20th July, 2018, dismissing the appeal of the assessee against the assessment order passed under Section 143(3) of the Income-tax Act, 1961 (the The assessee has raised following grounds of appeal:- 02.

On the facts, and in circumstances of the case, and in law, without prejudice to grounds of appeal considered elsewhere, addition u/s 56 of the Income Tax Act, 1961, ought to be restricted to the amount received by the appellant on or after November 29, 2012, and not for amounts received in earlier years and also for amounts received prior to November 29, 2012, during the previous year 2012-13.

Your Appellant craves leave to add to, amend, alter, modify, and / or delete any of the above grounds of appeal at or before final disposal of appeal.”

The brief fact of the case shows that assessee is a company engaged in the business of laundry service, filed its return of income on 18thSeptember 2023, at ₹ nil. The return was selected for scrutiny by issuing notice under Section 143(2) of the Act on 4thSeptember2014.

The learned Authorized Representative referred to 2 paper books filed before us of 65 pages and 53 pages respectively and also detailed submission of additional information as required by the co- ordinate bench as per letter dated 21stMarch 2022. Her claim was that Assessee Company is a private limited company, which is owned by shareholders belonging to two different families. The assessee issued12600 shares at a premium of ₹900 per share. The assessee company is primarily an investment company by making an investment of ₹1.25 croers in equity shares of Spotless Laundry Services Private Limited, which is an operating company formed with another entity Lavasa Corporation Limited. Therefore, the value derived by the shareholders of Assessee Company is linked to the valuation of operating company. It was further stated that Spotless Laundry Services Private limited is a subsidiary of Lavasa Corporation Limited where the assessee is a minority shareholder. She referred to the submission made dated 21stMarch 2022, at the request of the Bench. She submitted that in Spotless Laundry Services Private Limited 76% is held by Lavasa Corporation Limited and 23.98 % is held by the assessee. she submitted that the total assets base of Spotless Laundry Services Private Limited as on 31st

The learned Departmental Representative vehemently supported the order of the lower authorities. He submitted that the assessee has failed to show what is the correct valuation i.e., fair market value of the shares issued. Assessee has not followed any of the methods for valuation of shares. Assessee also failed to substantiate the valuation based on its asset. Assessee has also wrongly calculated the net asset value of the shares issued by not considering share application money as current liability, even if the valuation of the shares post

The learned authorized representative submitted that assessee is an investment company, which has made investment in a spotless laundry private limited, which is an operating company;therefore, the value of the shares of this company derives valuation of shares of operating company. She submitted that though the assessee has stated that the net asset value is the method adopted for issue of shares, in fact in an investment company, the shares should be valued based on underlying investment.

We have carefully considered the rival contentions and perused the orders of the lower authorities. We find that during the year assessee has issued 12600 shares to the existing shareholders of the assessee company on 5th February, 2013 of the face value of ₹100 at a premium of ₹900 per share. The assessee has derived the valuation of shares by computing the net asset at ₹1.26 crores wherein the major asset is investment in shares of another company namely Spotless Laundry Services Private Limited. Undoubtedly the working provided by the assessee for the purpose of valuation of its shares was considered after receipt of the share application money and did not consider the said application money as a current liability. Therefore, naturally the amount of share application money stands invested in the balance sheet of the company, the net asset of the assessee company will go up but if, said application money is not considered by the assessee as current liability, the amount deployed is considered an asset but the source of such amount is not

In the result, appeal of the assessee is allowed for statistical purposes.