M/s Suventure Services Pvt Ltd , Bangalore V. The Income Tax Officer Ward-6(1)(4), Bangalore

ITA 1932/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4212 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 04-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K N DHANDA
• Assessee Lawyers: H N KHINCHA
• Keywords: Fair market value; Valuation report

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO. 1932/BANG/2018 ASSESSMENT YEAR : 2014 - 15 SUVENTURE SERVICES PVT. LTD., NO.576 10 TH CROSS, 2 ND STAGE, WEST OF CHORD ROAD, BENGALURU 560 086. PAN: AASCS 3836K VS. THE INCOME TAX OFFICER, WARD 6(1)(4), BANGALORE. APP ELLANT RESPONDENT APP ELLANT BY : SHRI H.N. KHINCHA, CA RESPONDENT BY : SHRI K.N. DHANDAPANI, JT.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 19.07 .2018 DATE OF PRONOUNCEMENT : 17 .08. 2018 O R D E R THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 09.03.2018 OF THE CIT(APPEALS). BENGALURU-6, BENGAL URU RELATING TO ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. THE ASSESSEE WAS INCORPORATED ON 4 TH DECEMBER, 2012. THE ASSESSEE IS A SOFTWARE COMPANY ENGAGED IN THE BUSINESS OF TECHNOLOGY SERVICE AND P LATFORM ORGANIZATION. THE ASSESSEE PROVIDES SERVICES IN APPLICATION DEVEL OPMENT AND MAINTENANCE MOBILITY AND ENTERPRISE OF MOBILITY AND INTERNET OF THINGS. THE ASSESSEE HAS DEVELOPED SEVERAL SOFTWARE APPLICATION AND INTELLECTUAL PROPERTY PLATFORM IN VARIOUS FIELDS. ITA NO. 1932/BANG/2018 PAGE 2 OF 5 3. THE ORIGINAL AUTHORIZED CAPITAL WAS RS. 10,00,00 0 I.E. 1,00,000 SHARES OF RS. 10/-EACH OF WHICH 10,000 SHARES OF RS .10/- EACH WERE ISSUED EARLIER. DURING THE PREVIOUS YEAR RELEVANT TO YEAR UNDER APPEAL, THE EQUITY SHARE CAPITAL WAS RECONSTITUTED AT RE. 1/- EACH AND THE AUTHORIZED CAPITAL OF THE COMPANY WAS INCREASED TO RS.1,50,00,000/- I.E. 1.50,00,000 SHARES OF RE. 1/- EACH. 4. DURING THE PREVIOUS YEAR RELEVANT TO YEAR UNDER APPEAL, THE ASSESSEE ALLOTTED 84,00,000 SHARES OF RE. 1/- EACH TO 3 PROMOTER DIRECTORS ON PAR BASIS. THIS ALLOTMENT WAS DONE ON PAR BASIS. 5. DURING THE YEAR, THE COMPANY ALSO ALLOTTED 35,64 ,516 SHARES OF RS. 1/- EACH TO ONE M/S. NATURE ECO VENTURES AT RS. 2.8 1 PER SHARE INCLUDING PREMIUM OF RS. 1.81/- PER SHARE. FROM THIS ALLOTMEN T, THE ASSESSEE RECEIVED PREMIUM OF RS. 64,35,484/-. THE ALLOTTEE IS A TOTALLY INDEPENDENT ENTITY. THIS ALLOTMENT WAS BASED ON A VALUATION REP ORT GIVEN BY AN INDEPENDENT VALUER. AS PER THE VALUATION REPORT, TH E VALUE OF THE SHARE WAS RS. 2.81 PER SHARE AND ON THIS BASIS THE SHARES WER E ALLOTTED TO M/S. NATURE ECO VENTURES PRIVATE LIMITED. THIS VALUATION WAS BASED ON DISCOUNTED CASH FLOW METHOD (DCF METHOD) WHICH IS A N APPROVED SCIENTIFIC EVALUATION METHOD. HOWEVER, THE ASSESSING OFFICER R EJECTED THE DISCOUNTED CASH FLOW METHOD AND ARRIVED AT THE VALUE OF SHARE BY NET ASSET VALUE (NAV) METHOD AND ARRIVED AT THE VALUE OF 1.17 PER S HARE AND THE DIFFERENCE OF RS. 1.64 (2.81 1.17) PER SHARE AMOUNTING TO RS . 58,45,806/- IS ADDED BY APPLYING SECTION 56(2)(VIIB) OF THE INCOME TAX A CT, 1961 [THE ACT]. 6. THE DISCOUNTED CASH FLOW METHOD WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT THE; (A) VALUATION IS NOT CREDIBLE: (B) THE FIGURES GIVEN IN THE REPORT DO NOT TALLY WI TH ACTUALS; (C) NO BASIS IS GIVEN FOR THE PROJECTED FIGURES; (D) GROWTH RATE IS TAKEN AS 5.17% HAVE NO FACTUAL B ASIS: ITA NO. 1932/BANG/2018 PAGE 3 OF 5 (E) THE REPORT IS JUSTIFIED BASED ON THE DETAILS GI VEN BY THE MANAGEMENT. 7. AGGRIEVED BY THE ABOVE, THE ASSESSEE FILED APPEA L BEFORE THE CIT(APPEALS). 8. BEFORE THE CIT(APPEALS), THE ASSESSEE FILED WRI TTEN SUBMISSIONS ON 06.03.2018. IN THE SAID WRITTEN SUBMISSIONS, THE A SSESSEE HAS EXPLAINED IN PARAS 12 TO 23 AS TO HOW THE DCF METHOD WAS THE BES T METHOD OF VALUATION OF UNQUOTED EQUITY SHARES OF A COMPANY WH ICH IS ENGAGED IN RENDERING SERVICES. RELIANCE WAS ALSO PLACED ON CE RTAIN JUDICIAL PRONOUNCEMENTS IN THE AFORESAID PARAS. THE CIT(APP EALS), THOUGH HAS MADE A REFERENCE TO THE FACT THAT THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS, BUT HE HAS NOT ADVERTED TO ANY OF THE SUBMISSIONS MADE THEREIN. HE CONFIRMED THE ORDER OF AO OBSERVING AS FOLLOWS:- IN RESPECT OF THE ADDITION OF RS.58,45,806/- MADE U/S 56 (2) (VIIB) OF THE ACT., IT IS TO BE NOTED THAT APPELLAN T HAS NOT BEEN DEMONSTRATE THAT VALUATION AS PER DCF METHOD IS APP ROPRIATE AND GIVES A CORRECT AND FAIR VALUE OF SHARES. AS OBSERV ED & STATED BY AO, THE VALUATION IS BASED ON SELF SERVING DATA PRO VIDED BY THE MANAGEMENT TO ENSURE A HIGHER MARKET VALUE AND NOT A FAIR MARKET VALUE. THE SUBSEQUENT FINANCIAL RESULTS OF T HE APPELLANT ONLY CONFIRM THE OBSERVATIONS OF THE AO. THEREFORE ADDITION MADE IS SUSTAINED. 9. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS FILED ANOTHER SUBMISSION SUBSTANTIATING AS TO HOW T HE DCF METHOD WAS THE MOST APPROPRIATE METHOD FOR VALUATION OF EQUITY SHA RES IN THE CASE OF ASSESSEE. HIS SUBMISSION WAS THAT SINCE THE SUBMIS SIONS HAVE NOT BEEN CONSIDERED, IT WOULD BE JUST AND APPROPRIATE TO SET ASIDE THE ORDER OF CIT(APPEALS) AND DIRECT THE CIT(A) TO CONSIDER THOS E SUBMISSIONS. 10. THE LD.DR WHILE RELYING ON THE ORDER OF CIT(APP EALS), FILED BEFORE ME A COPY OF THE ITAT DELHI BENCH DECISION IN THE CASE OF AGRO PORTFOLIO (P) ITA NO. 1932/BANG/2018 PAGE 4 OF 5 LTD. V. ITO, [2018] 94 TAXMANN.COM 112 (DELHI-TRIB. ) WHEREIN THE TRIBUNAL TOOK THE VIEW THAT NAV METHOD IS A BETTER METHOD OF VALUATION OF UNQUOTED SHARES. 11. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND I A M OF THE VIEW THAT THE ORDER OF CIT(APPEALS) SHOULD BE SET ASIDE AND CIT(A PPEALS) SHOULD BE DIRECTED TO EXAMINE THE REASONS GIVEN BY THE ASSESS EE AS TO WHY DCF METHOD WAS THE MOST APPROPRIATE METHOD OF VALUATION OF SHARES OF THE ASSESSEE IN THE FACTS & CIRCUMSTANCES AND THE NATUR E OF INDUSTRY IN WHICH THE ASSESSEE OPERATED. ACCORDINGLY, THE ORDER OF C IT(APPEALS) IS SET ASIDE AND THE ISSUE IS RESTORED TO THE FILE OF CIT(APPEAL S), WHO WILL DECIDE THE ISSUE AFRESH. THE CIT(APPEALS) WILL AFFORD OPPORTU NITY OF BEING HEARD TO THE ASSESSEE AND ALSO LIBERTY TO THE ASSESSEE TO FURNIS H FURTHER WRITTEN SUBMISSIONS, IF SO DESIRED. 12. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF AUGUST, 2018. SD/- ( N. V. VASUDEVAN ) JUDICIAL MEMBER BANGALORE, DATED, THE 17 TH AUGUST, 2018. / D ESAI S MURTHY / ITA NO. 1932/BANG/2018 PAGE 5 OF 5 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.