M/S. DOIT CREATIONS (INDIA) PVT. LTD, MUMBAI V. PR. COMM OF INCOME TAX , CENTRAL CIRCLE-3, MUMBAI

ITA 1354/MUM/2022

AI Insights

The case involves Doit Creations (India) Pvt. Ltd., which appealed against the order of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The PCIT had set aside the reassessment order made under Section 143(3) r.w.s 147, claiming it was erroneous and prejudicial to the interests of the revenue due to inadequate examination of the valuation of shares issued at a premium. The Tribunal examined whether the AO had adequately scrutinized the valuation and the issuance of shares at a premium, which was a significant issue during the reassessment. The Tribunal concluded that the AO had indeed conducted a thorough examination during both the original and reassessment proceedings, leading to the setting aside of the PCIT's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130129 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 26-07-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 25-05-2022
• Other Referred Cases: Anil Shah vs. CIT [2007] 162 Taxman 39 (Mum), Malabar Industrial Co. Ltd. vs. CIT [2000] 109 Taxman 69 (SC), Anita Jain vs. CIT [2002] 122 Taxman 116 (Delhi)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Revision of order; Fair market value; Difference of opinion; Valuation report; Change of opinion; Reassessment proceedings
• Section: 148; 263; 143(3); 142(1); 56(2); 44AB; 13

Judgement Text

P a g e | 1 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No.1354/Mum/2022 (A.Y. 2015-16) Doit Creations (India) Private Limited 307 & 308, 3 rd Floor,, Midas, Sahar Plaza, Andheri (East) Mumbai – 400 069 Vs. Principal Commissioner of Income Tax, Central Circle 3, Room No. 1901, 19 th Floor, Air India Building, Nariman Point, Mumbai – 400 021 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AABCD8695A Appellant .. Respondent [ Appellant by : Dharan Gandhi Respondent by : Neena Jeph Date of Hearing 27.07.2023 Date of Pronouncement 23.07.2023 आदेश / O R D E R Per Amarjit Singh (AM): This appeal filed by the assesse is directed against the order passed by the ld. PCIT(Central), Mumbai -3, dated 31.03.2022 for A.Y. 2015-16. The assessee has raised the following grounds before us: “1. On the facts and circumstances of the case and in law, the Hon'ble Pr.CIT Central - 3 (herein after referred as 'PCIT) erred in invoking provisions of Section 263 of the Income Tax Act, 1961 (hereinafter referred as 'the Act') by issuing the notice inspite of the fact that assessment u/s. 143(3) and u/s 143(3) r.ws 147 of the Act has been completed after due examination and application of mind while framing the assessment order u/s 143(3) and u/s 143(3) rws 147 of the Act. Further Order u/s 263 is also passed merely setting aside the assessment to the file of the learned assessing officer to conduct proper inquiry which is unjustified. It is therefore submitted that the order passed u/s 263 should be cancelled. P a g e | 2 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 2. On the facts and circumstances of the case and in law, the PCIT has erred in passing the order u/s 263 of the Income Tax Act, 1961 without jurisdiction as the order passed was not erroneous and prejudicial to the interest of revenue. It is therefore submitted that the order passed u/s 263 should be quashed as the same is illegal, void and bad in law. 3. On the facts and circumstances of the case and in law, the PCIT has erred in passing the order u/s 263 of the Income Tax Act, 1961 on the basis of change of opinion which is barred by the law. 4. Your appellant craves to add, alter, or amend any of the grounds of appeal on or before the date of hearing of appeal.” Additional Ground of appeal: “1. The reassessment proceeding initiated vide notice u/s 148 of the Act dated 26.03.2019 is null and void and bad in law. Consequently, the order u/s 263 dated 31.03.2022 is bad in law. 2. The assessment order passed u/s 143(3) r.w.s. 147 dated 18.12.2019 is null and void. Consequently, the order u/s 263 dated 31.03.2022 is bad in law.” 2. Fact in brief is that assessment u/s 143(3) of the Act was finalized in the case of the assesse on 29.12.2017 accepting the total loss of Rs.587,23,419/- as per the return of income filed. Thereafter, case was reopened by issuing of notice u/s 148 of the Act on 26.03.2019 on the reason that assesse company had issued Rs.72,27,587/- equity shares of Rs.10/- at a premium of Rs.50 per shares. As per the valuation report fair value was calculated on Discounted Cash Flow (DCF method) and fair value of each equity shares as face value of Rs.10 was arrived at Rs. 60 per equity shares. It is also mentioned in the reason recorded that valuer completely relied on the financial projection provided by the assessee company. The AO also mentioned that past performance of the company is relevant factor while using the DCF. The A.O after referring the financial past performance of the company stated that face value of shares should have been taken at the fair market value and the excess share premium of Rs.36,13,79,350/- received from the domestic investor should have been brought to tax as per the provisions of Sec. P a g e | 3 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 56(2)(viib) of the Act. Therefore, the AO stated in the reason that there is an escapement of income of Rs.30,26,55,931/- within the meaning of Sec. 147 of the Act. Accordingly, the case was reopened and assessment u/s 143(3) r.w.s 147 of the Act was finalized on 18.12.2019 after considering the various submission filed by the assessee in response to the notices and queries raised by the AO without making any disallowance at total loss of Rs.587,23,419/- as shown in the return of income and as assessed vide original assessment u/s 143(3) order dated 29.12.2017. 3. However, subsequently, the ld. Pr.CIT on examination of the record observed that reassessment order passed u/s 143(3) r.w.s 147 of the Act on 18.12.2019 is erroneous insofar as it is prejudicial to the interest of revenue. Therefore, a show cause notice was issued to the assessee company on 29.03.2022. The relevant part of the show cause notice is reproduced as under: “(i) As per the provisions of the section 56(2)(viib) of the IT Act applicable with effect from Assessment year 2013-14, where a company, not being a company in which the public are substantially interested, receives in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares then the amount received in excess of fair market value of shares will be charged to tax in the hand of the company as income from other sources. This section applies to a closely held company (e a company in which the public are NOT substantially interested) receiving any consideration for issue of shares from any resident. These shares received shall include equity shares or preference shares. Fair Market Value of the shares shall be determined in accordance with: 1. such method as prescribed under Rule 11U and Rule 11UA, or 1. as may be substantiated by the company to the satisfaction of the Assessing Officer. Further as per rule 11UA(2) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessed, namely. 1. the fair market value as per Net Asset Value P a g e | 4 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 2. the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method. (iii) Furthermore as per rule 11U "accountant", means a fellow of the Institute of Chartered Accountants of India within the meaning of the Chartered Accountants Act, 1949 (38 of 1949) who is not appointed by the company as an auditor under section 44AB of the Act or under section 224 of the Companies Act, 1956 (1 of 1956). (iv) In this case, the assessee had filed return for AY 2015-16 on 30.09.2015 declaring total loss of Rs.5,87,23,419/- The case was selected under limited scrutiny to verify among other issues the applicability of section 56(2)(viib) on receipt of large share premium during the year. The assessment was finalized after the scrutiny u/s 143(3) of IT Act on 29.12.2017 accepting the loss as declared by the assessee. Thereafter, assessment u/s 143(3) rws 147 was completed on 18.12.2019 determining total income at (-) Rs.5,87,23.419/- The assessee company is claimed to be engaged in the business of providing information and advisory, research and media consultancy services etc. On going through the record, it is observed that during the year the assessee company had issued 72,27,587 equity shares of Rs.10 each at a premium of Rs.50 per share as detailed below. Name No. of shares issued Premium paid for shares Premium per share Morgan Credits Private Ltd. 40,72,587 equity shares of Rs.10 each 20,36,29,350 50 Ms. Radha Kapoor 31,55,000 equity shares of Rs.10 each 15,77,50,000 50 Total 72,27,587 equity shares of Rs.10 each 36,13,79,350 (v) The above investment was made at fair value as determined by valuation report dated 10 October 2014 @premium of Rs.50/- per share, issued by chartered accountant Shri Manoj Aggarwal of the Firm M/s Raj K Aggarwal & Associates As per the this report, fair value was calculated by Discounted Cash Flow(DCF) method and fair value of each equity shares of face value of Rs.10 was arrived at Rs.60.00 per equity share. On going through the valuation report, it is revealed that the valuation was based upon information provided by management. It was seen from the report that the valuer completely relied on financial projections provided by the assessee company. The projections were made till FY 2019-20 at consolidated level as the assessee company was holding company for eight subsidiary companies. (vi) The assessee is loss making company and it has negative net worth DCF method is suitable for business whose cash flows are currently positive and future cash flow can be forecasted with some reliability. The Technical guide on share valuation published by the ICAI, the DCF method is discussed from page 5 to page 11 wherein the three key pre requisites (viz. cash flow projections, discount rate and terminal value) are discussed. It is stated that the cash flow P a g e | 5 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 projections should reasonably capture the growth prospects and earning capability of a company. The earning margins should be determined based on its past performance it is clear that past performance of a company is relevant factor while using the DCF. However, it seems that these factors were not considered by the valuer. The cash flow in the instant case is negative and there is no basis to make reliable forecast. This is evident when the actual earnings of the assessee Company are compared for next three years with projected earnings as shown below: F.Y. 2013-14 (Rs. In Lakh) F.Y. 2014-15 (Rs. In Lakh) F.Y. 2015-16 (Rs. In Lakh) F.Y. 2016- 17 (Rs. In Lakh) Net Profit/(Loss) before tax (Projected) (1297.53) (678.19) (639.29) 117.63 Net Profit/(Loss) before tax (Actual) (1297.53) (3395.30) (5364.96) (4713.16) (vii) It can be seen that the projected earnings and actuals are on the opposite direction. Instead of reducing as projected the actual loss has actually increased by four times. Therefore, the valuation was made on the information given by the assessee rather than the independent assessment made by the valuer Further, it was noticed that the valuer Shri Manoj Aggarwal, CA is also an auditor of the assessee company under section 44AB of the IT Act. The same CA attended hearings during assessment proceedings of the assessee company. As per rule 11U an auditor appointed by the company under section 44AB of the Act cannot be an independent valuer. Thus, this is a clear case of conflict of interest and fair value determined by him is non-genuine and non- bonafide (viii) In view of the above, the face value of shares should have been taken as the fair market value and the excess share premium of Rs.36,13,79,350/- received from domestic investor should have been brought to tax as per the provisions of section 56(2)(viib) of the IT Act. The AO has failed to examine these facts. Failure of the assessing officer to examine the same has rendered the assessment order dated 18.12.2019 as erroneous in so far as it is prejudicial to the interests of the revenue. 4. In view of the aforesaid reasons, it is proposed to revise the assessment order dt. 18.12.2019 under section 263 of the Income-tax Act, 1961, being erroneous in so far as it is prejudicial to the interest of revenue. 5. You are hereby given an opportunity to represent your case as to why the proposed action u's 263 be not pursued and necessary order be not passed on the issues discussed above. You or any duly authorized person can appear on 30.03.2022 at 04:30 PM in Room No. 1901, 19th Floor, Air India Building, Nariman Point, Mumbai- 400021 with written submissions. You are requested to make submissions online or on email id [e-mail] on or before the due date. It may kindly be noted that this proceedings us 263 is getting barred by limitation on 31.03.2022 and hence no adjournment shall P a g e | 6 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 be granted. Failure to comply will lead to the conclusion that you have nothing to offer and you are agreeable to the proposed action as deemed fit on the materials available on record or gathered during this proceeding.” The assessee has made detailed submission as under: “1. Proceedings U/s 143(3) of the Act In this regards we would like to state that Original assessment has been completed U/s 143(3) of the Act vide order 30.09.2015 (copy enclosed) accepting the return loss claimed by your assessee for the year under consideration. It is submitted that your assessoo has submitted all the relevant details as called by the Learned Assessing Officer (herein after referred as Ld. AO) The Ld. AO has made the relevant inquiries and verifications relating to the transactions entered by the assessee company for the. year under consideration. It is submitted that the Ld AO has duly applied mind on this present issue as well and only after his satisfaction, he has accepted the returned loss and passed the assessment order. The assessment was completed by Asst. Commissioner of Income Tax, Circle-6(2)(2), Mumbai. 1. 1. Proceedings U/s 143(3) r.w.s. 147 of the Act Further Assessment was reopened by Asst. Commissioner of Income Tax, Circle 6(2)(2), Mumbai issuing the notice (copy enclosed) dated 26.03.2019 U/s 148 of the Act after sooking necessary satisfaction of Range 6(2), Mumbai. The record reasons were provided on 23.04.2019 and the same are reproduced herebelow. 2. During the year the company had issued 72,27,587 equity shares of Rs.10 each at a premium of Rs.50 per share. The above investment was made at fair value determined by valuation report dated 10th October 2014 issued by chartered accountant Shri Manoj Aggarwal of the Firm M/s Raj K Aggarwal & Associates. As per the report, fair value was calculated by Discounted Cash Flow (DCF) method and fair value of each equity shares of face value of Rs.10 was arrived at Rs.60.00 per equity share. Audit scrutiny of valuation report revealed that the valuation was based upon information provided by management. It was seen from the report that the valuer completely retied on financial projections provided by the assessee company. The projections were made till FY 2019-20 at consolidated level as the assessee company was holding company for eight subsidiary companies. The assessee is loss making company and it has negative net worth, DCF method is suitable for business whose cash flows are currently positive and future cash flow can be forecasted with some reliability. The Technical guide on share valuation" published by the ICAI, the DCF method is discussed from page 5 to page 11 wherein the three key pre- requisites (viz cash flow projections, discount rate and terminal value) are discussed It was stated that the cash flow projections should reasonably capture the growth prospects and earning capability of a company. The earning margins should be determined based on its past performance. It is clear that past performance of a company is relevant factor while using the DCF. However, it seems that these factors were not considered by the valuer The case flow in the instant cash is negative and there is no basis to make reliable forecast. It can be seen that the projected earnings and actuals are on the opposite direction. Instead of reducing as projected the actual loss has actually increased P a g e | 7 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 by four times. Therefore, the valuation was made on the information given by the assessee rather than the independent assessment made by the valuer. In view of the above the face value of shares should have been taken as the fair market value and the excess share premium of Rs.36,13,79,350 received from domestic investor should have been brought to tax as per the provisions of section 56(2)(viib). 3.In view of the above, I have reasons to believe that income chargeable to tax of Rs.30,26,55,931 has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. 4. I am satisfied that this is a fit case for issue of notice u/s 148 of the Income Tax Act, 1961. Accordingly, the case may be re-opened u/s 147. Notice u/s.148 may be issued accordingly to bring to tax the income so escaped for the AY. 2015-16. 1.1.1. It is submitted that your assessee has submitted all the relevant details as called during the course of reassessment proceedings and after due inquiries, verification and satisfaction the Ld. AO has passed the order U/s 143 r.w.s. 147 of the Act accepting the returned income filed your assessee in response to the notice issued u/s 148 of the Act 1.1 It is pertinent to note that the issue in the 148 proceedings is the same issue your honour has considered in the present 263 proceedings relating to the valuation of shares issued by the assessee company during the year under consideration. 5.5 It is submitted that your assessee has issued shares during the year under consideration and the details of the same are as under: Name No. of Shares issued Premium paid for shares Premium per share Morgan Credits Private Ltd. 40,72,587 equity shares of Rs.10 each 20,36,29,350 50 Ms. Pradhe Kapoor 31,55,000 equity shares of Rs.10 each 15,77,50,000 50 Total 72,27,587 equity shares of Rs.10 each 35,13,79,350 5.5.1 It is submitted that your honour has referred to the provisions of section 56(2) (viib) of the Act and has discussed Rule 11UA(2) of the Act in the 263 notice. In this regard we state that valuation has been done considering the valuation rules of the Act and the same is also accepted by the Assessing officer at the respective assessment proceedings. 5.5.2 Further your honour at para (vi) erred is stating the wrong facts as under: Wrong data produced in the 263 notices: F.Y. 2013-14 (Rs. In lakh) F.Y. 2014-15 (Rs. In lakh) F.Y. 2015-16 (Rs. In lakh) F.Y. 2016-17 (Rs. In lakh) P a g e | 8 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 Net Profit/(loss) before tax (projected) (1297.53) (678.19) (639.29) 117.63 Net Profit/(loss) before tax (actual) (1297.53) (3395.30) (5364.96) (4713.16) The correct data as per the audited Accounts is as under: F.Y. 2013-14 (Rs. In lakh) F.Y. 2014-15 (Rs. In lakh) F.Y.2015-16 (Rs. In lakh) F.Y.2016-17 (Rs. In lakh) Net Profit/(loss) before tax (Projected) (1297.53) (678.19) (639.39) 117.63 Net Profit/(Loss) before tax as per 263 notice (1297.53) (3395.30) (5364.96) (4713.16) Net profit/(loss) actual as per Financials (316.13) (1,005.39) (1,803.36) (770.28) It is submitted that your honour has drawn wrong conclusions in the notice issued U/s 263 based on above wrong details which has resulted into wrong inferences. 5.53 It is further submitted that notice issued by your honour u/s 263 of the Income Tax Act, 1961 is not correct as Assessing Officer has passed an order u/s 143(3) and 143(3) r.w.s 147 of the Income Tax Act, 1961 after making necessary inquiries and verification of records which were made available to him during the said assessment proceedings 5.5.4 Further, no addition was made by the Ld. AO in original as well as reassessment proceedings in respect of the above mentioned issue relating to issue of shares during assessment proceedings. Hence details submitted to the Ld. AO during the respective proceedings were examined by him and found to be correct and in order. COME TAX DEPARTMEN 5.5.5 Hence your honour is requested to not to initiate assessment proceedings u/s 263 of the Income Tax Act, 1961 as same is already processed u/s 143(3) and 143(3) r.w.s 147 of the Income Tax Act, 1961. 5.6 Further held in the case of Anil Shah vs. CIT [2007] 162 Taxman 39 (Mum) that one should keep in view the normal practices is that whenever any claim of the assessee is accepted, the Assessing Officer may not give any discussion in his order and discussion confined only to the disallowance made by him. If all the relevant details have been filed by the Assessee and the Assessing P a g e | 9 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 Officer allows the claim, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make any elaborate discussion in that regard. 5.7 An order cannot be termed as 'erroneous' unless it is not in accordance with the law-Anita Jain vs. CIT [2002] 122 Taxman 116 (Delhi). 1. Further we would like to submit that if the order us not erroneous but is prejudicial to the revenue, the Commissioner cannot take action u/s 263(1) of the Income Tax Act, 1961, as held in case of Malabar Industrial Co. Ltd. vs. CIT [2000] 109 Taxman 69 (SC).” 4. However, the ld. Pr.CIT has not agreed with the submission he stated that valuation was based upon information provided by the management. The ld. Pr.CIT also stated that valuer was also auditor of the assessee company u/s 44AB of the Act and the same CA attended hearing during assessment proceedings of the assessee company. As per Rule 10U an auditor appointed by the company u/s 44AB of the Act cannot be an independent valuer. The ld. Pr.CIT further stated that there was unrealistic growth projection which misleaded the profitability projected therefore, the share price have been issued at more than the fair market value. He observed that earning margin should be determined based on its past performance and the past performance of a company is relevant factor while using DCF method. The case flow in the case of the assessee was negative and there was no basis to make reliable forecast. The ld. Pr.CIT also observed that AO has not examined these aspect and not made enquiry and verification on the issue. He stated that face value of the share should have been taken at the fair market value and the excess premium of Rs.36,13,79,350/- received from domestic investor should have been brought to tax as per the provision of Sec. 56(2) (viib) of the Act. Accordingly, the assessment order dated 18.12.2019 passed by the assssing officer u/s 143(3) r.w.s 147 of the Act was set aside by the ld. Pr.CIT and directed the AO to conduct proper enquiry to arrive at the correct conclusion as per law and frame the order of assessment afresh. P a g e | 10 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 5. During the course of appellate proceeding before us the ld. Counsel submitted that in the original assessment order passed u/s 143(3) assessing officer has made the detailed verification and referred notice issued u/s 142(1) of the Act dated 8.08.2017 and submission of the assessee made on 27.09.2017 and other various submission placed in the paper book. The ld. Counsel further stated that the case was reopend on 26.03.2019 and AO has made further detailed verification as evident from the copy of various notices and detail filed by the assesse placed in the paper book. He submitted that assessee has given all the reason and explanation to different queries raised by the assessing officer during the course of reassessment proceedings. Regarding the objection of the ld. Pr. CIT that the auditor has carried out valuation under DCF Method was also audier of the assessee company. In this regard the ld. Counsel submitted that at the time of valuation the said valuer was not appointed as auditor of the assesse company. The ld. Counsel further submitted that assessee has not brought any non genuine funds in the form of share premium from outside but it has converted existing outstanding loan taken by the assessee from the existing shareholder to equityshare issued on premium under the DCF method. The ld. Counsel further submitted that during the reassessment proceedings the assessee has specifically brought to the notice of the assessing officer vide letter dated 26.12.2017 that the reason for difference in the revenue projected for F.Y. 2014-15 and 2015-16 with the actual figure was on account of acquiring the new subsidiary namely BWM P. Ltd. projection of which could not be made while estimating the projected income of the company on consolidated level. Similarly, it was also explained to the assessing officer along with relevant supporting detail that reason for difference in the total expenses projected and actual figure was on account of total expenses of BWM P. Ltd. which was not considered at P a g e | 11 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 the time of making projection. The ld. Counsel submitted that after taking into consideration all these detail and explanation given by the assessee the assessing officer has come to the conclusion and not made any addition, therefore, the ld. Pr.CIT is unjustified to point out that AO has not made any verification. On the other hand, ld. D.R supported the order of Pr.CIT and submitted that the valuation was made on the basis of financial provided by the assessee company and there is no basis for projection. 6. Heard both the sides and perused the material on record. Without reiterating the facts as elaborated above in this roder, the ld. Pr. CIT held that order passed u/s 143(3) r.w.s. 147 of the Act dated 18.12.2019 is erroneous in so far as it is prejudicial to the interest of revenue under Explanation 2 to Section 263 of the Act since the AO had not made enquiry into the issue of valuation of shares. We find the case of the assesse has already been scrutinized twice time, first u/s 143(3) of the Act as per order dated 29.12.2017 thereafter, the assessment was reopened particularly evident from the reason recorded placed at page no. 104-105 filed by the assessee for the purpose of taxing the share premium as escaped income which is again alleged in the order u/s 263 that the same should have been brought to tax as per the provisions of Sec. 56(2)(viib) of the Act. We find during the course of original assessment u/s 143(3) of the Act, the assesssee in response to notice u/s 142(1) of the Act has made submission vide letter dated 27.09.2017 as placed at page no. 34 of the paper book filed by the assessee explaining that existing loan obtained from the subsidiary company was converted to share capital. Thereafter again vide submission dated 20.11.2017, the assesse explained such investment as per copy of submission placed ta page 45 of the paper book. Further in response to the query raised by the AO P a g e | 12 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 the assessee vide submission dated 18.02.2017 placed at page no. 58 of the paper book explained the increase in equity share capital by way of conversion of loans. Vide the similar submission dated 14.12.2017 placed at page no. 66 of the paper book the assessee explained valuation of shares as per the valuation report filed placed at page 67 to 88 of the paper book to the AO at the time of original assessment u/s 143(3) of the Act. The AO made further enquiry regarding the projections made and the differences for F.Y. 2014-15 & 2015-16 in the valuation report at the time of assessment made u/s 143(3). In response the assesse had made detailed submission with explanation for reasons for difference for F.Y. 2014-15 & 2015-16 for total expenses and profit and also submitted comparison of projections made for the F.Y. 2014-15 & 2015- 16 in the valuation report dated 10 th October 2014. On further enquiry made by the AO the assessee also made detailed submission dated 26.12.2017 on comparison of projections made for the F.Y. 2016-17 in the valuation report along with reasons for differences. After the detailed enquiry/examination made by the AO as briefly discussed above, the AO has finalized the assessment u/s 143(3) of the Act. Thereafter the case of the assesse was reopened by issuing of notice u/s 148 of the Act on 26.03.2019. The extract of reason recorded on 23.04.2019 as placed on page 104 of the paper book is as under: “2. During the year the company had issued 72.27,587 equity shares of Rs.10 each at a premium of Rs.50 per share. The above investment was made at fair value determined by valuation report dated 10th October 2014 issued by chartered accountant Shri Manoj Aggarwal of the Firm M's Raj K Aggarwal & Associates. As per the this report, fair value was calculated by Discounted Cash Flow(DCF) method and fair value of each equity shares of face value of Rs.10 was arrived at Rs.60.00 per equity share. Audit scrutiny of valuation report revealed that the valuation was based upon information provided by management. It was seen from the report that the valuer completely relied on financial projections provided by the assessee company. The projections were made till F.Y. 2019-20 at consolidated level as the assessee company was holding company for eight subsidiary companies. The assessee is loss making company and it has negative net worth. DCF method is suitable for business whose cash flows are currently positive and future cash flow can be forecasted with some reliability. The "Technical guide on share valuation" published by the ICA, the DCF method is discussed from page 5 to page 11 wherein the three key pre-requisites (viz. cash flow projections, discount rate and terminal value) are discussed. It was stated that the cash flow projections P a g e | 13 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 should reasonably capture the growth prospects and earning capability of a company. The earning margins should be determined based on its past performance. It is clear that past performance of a company is relevant factor while using the DCF. However, it seems that these factors were not considered by the valuer. The case flow in the instant cash is negative and there is no basis to make reliable forecast. It can be seen that the projected earnings and actuals are on the opposite direction. Instead of reducing as projected the actual loss has actually increased by four times. Therefore, the valuation was made on the information given by the assessee rather than the independent assessment made by the valuer. In view of the above the face value of shares should have been taken as the fair market value and the excess share premium of Rs.36,13,79,350 received from domestic investor should have been brought to tax as per the provisions of section 56(2)(viib). 3. In view of them above, I have reasons to believe that income chargeable to tax of Rs.30,26,55,931 has escaped assessment within the meaning of section 147 of the Income Tax Act. 1961.” The assessee has objected the reopening of assessment vide letter dated 23.08.2019 that the whole issue was examined vide assessment made u/s 143(3) of the Act. During the course reassessment the assessee has again made submission dated 30.11.2019 in response to the enquiry made by the AO regarding the shareholders and their investment. Thereafter the AO has finalized the assessment u/s 143(3) r.w.s 147 of the Act on 18.12.2019. It is demonstrated from the facts and circumstances as briefly discussed supra in this order that in the original assessment as well as in the reopened assessment the AO has examined the same issue of issuing of 7227587 equity shares at premium calculated by Discounted Cash Flow (DCF) method against conversion of loan granted into investment in equity shares. The ld. PCIT has passed the order u/s 263 on the same reasons on the basis of which the assessment was reopened vide issuing of notice u/s 148 of the Act. It is evident from the material placed on record that the AO has duly examined the issue of issuing equity shares at premium while passing the assessment order u/s 143(3) as well as reassessment made u/s 143(3) r.w.s 147 of the Act. P a g e | 14 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 Looking to the above facts and material placed on record we find that the AO has made detailed enquiry twicely at the time of original assessment and reassessment. The ld. Pr.CIT has not substantiated in his findings what form of further proper enquiry is required to be made again by the AO. In view of the above facts/findings we consider that order passed u/s 263 of the Act is unjustified, therefore, we set side the impugned order and allow the appeal of the assesse. Additional Ground of Appeal: “ 5. The reassessment proceedings initiated vide notice u/s 148 of the Act dated 26.03.2019 is null and void and bad and law. Consequently, the order u/s 263 dated 31.03.2022 is bad in law. 6. The assessment order passed u/s 143(3) r.w.s. 147 dated 18.12.2019 is null and void. Consequently, the order u/s 263 dated 31.03.2022 is bad in law.” 7. During the course of appellate proceedings before us the ld. Counsel has neither discussed nor brought any material on record in support of appositness of additional ground of appeal on issuing of notice u/s 148 of the Act on 26.03.2019 as the assessee has not filed any appeal against order passed u/s 143(3) r.w.s 147 of the Act. Therefore the additional grounds of appeal filed are dismissed. 8. In the result, the appeal of the assessee is partly allowed and additional ground of appeal filed by the assessee is dismissed. Order pronounced in the open court on 23.08.2023 Sd/- Sd/- (Amit Shukla) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 23.08.2023 Rohit: PS P a g e | 15 ITA No.1354/Mum/2022 Doit Creations (India) Pvt.ltd. Vs. Pr.CIT,CC-3 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.