M/s. Udayant Malhoutra & Company Private Limited, Begaluru V. The Deputy Commissioner Of Income Tax, Circle- 7(1)(1), Bengaluru

ITA 2527/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4778 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-09-2020
• Assessment Year: 2015-2016
• Appeal Filed On: 13-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Keywords: Opportunity of being heard; Fair market value; Valuation report
• Section: 56; 142(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.2527/BANG/2019 ASSESSMENT YEAR : 2015 16 M/S UDAYANT MALHOUTRA & CO. PVT. LTD., 11, DYNAMIC PARK, PEENYA INDL. AREA, BENGALURU-560 058. PAN AAACU 7163 R VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI V SRIDHAR, C.A RESPONDENT BY : SHRI PRIYADARSHI MISHRA, JCIT (DR) DATE OF HEARING : 14-09-2020 DATE OF PRONOUNCEMENT : 16-10-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAIN ST ORDER DATED 11/10/2019 PASSED BY LD.CIT(A)-7, BANGALORE FOR ASS ESSMENT YEAR 2015-16 ON FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME -TAX (APPEALS) IN ITA NO.386/CIT(A)-712017-181997 DATED 11.10.2019 IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE APPELLANT IS OP POSED TO LAW, WEIGHT OF EVIDENCE, PROBABILITIES AND FACTS AND CIRCUMSTANCES OF THE CASE. PAGE 2 OF 8 ITA NO.2527/BANG/2019 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER WHEREIN HE HAD M ADE ADDITION OF RS.2,04,00,2641- ULS.56(2)(VIIB) AND THE ASSESSEE D ENIES LIABILITY TO PAY TAX ON THE ADDITION MADE. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT NOTICING THAT THE FAIR MARKET VALUE FOR UNQUOTED EQ UITY SHARE HAS BEEN MADE BASED ON NET ASSET VALUE METHOD AS PER SUB-CLA USE (II) OF CLAUSE (A) OF EXPLANATION TO SECTION 56(2)(VIIB). AS PER T HE SAID SECTION THE FAIR MARKET VALUE AS PRESCRIBED UNDER RULE 11 UA OR SUBS TANTIATION METHOD, WHICHEVER IS HIGHER, SHALL BE CONSTRUED AS FAIR MAR KET VALUE OF UNQUOTED EQUITY SHARES. THE FAIR MARKET VALUE AS PE R SUBSTANTIATION METHOD BEING HIGHER THAN THE VALUE AS PER RULE I1UA , THE FAIR MARKET VALUE OF EACH SHARE DETERMINED BY THE APPELLANT IS IN ACCORDANCE WITH LAW. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IGNORED THE FACT THAT THE ASSESSING OFFICER HAS NOT ASSIGNED ANY COG ENT REASON FOR REJECTING THE VALUE ADOPTED BY THE ASSESSEE AS PER NET ASSET VALUE METHOD. IN THE ABSENCE OF SUCH FINDINGS THE SUBSTAN TIATED VALUE OF THE ASSESSEE HAS TO BE ACCEPTED BY THE ASSESSING OFFICE R. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FAILED TO NOTICE THAT THE APPELLANT HAVING VALUED THE SHARES AS PER WELL RECOGNISED STATUTORILY PRESCRIBED NET ASSET VALUE METHOD, WHIC H IT COULD SUBSTANTIATE TO THE HILT, THE ASSESSING OFFICER COU LD NOT HAVE PROCEEDED TO ADOPT THE VALUE AS PER RULE 11 UA (2) IN DEFIANC E OF THE STATUTORY MANDATE. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT POINTING OUT ANY SHORTCOMING IN THE VALUATION DONE BY THE CHARTERED ACCOUNTANT WHOSE REPORT WAS ADOPTED FOR THE PURPOSE OF SUBSTANTIATING THE FAIR MARKET VALUE OF THE SHARES. 7. THE APPELLANT VALUED EACH AND EVERY ASSET SEPARA TELY AND JUSTIFIED ITS VALUATION WITH ADEQUATE PROOF AND TOOK INTO CON SIDERATION EVEN LIABILITIES ALSO ON A VERY CONSERVATIVE BASIS. THE METHODOLOGY ADOPTED BY THE APPELLANT BEING UNASSAILABLE AND AS PRESCRIB ED COULD BE CHALLENGED ONLY BY SUGGESTING NECESSARY MODIFICATIO N OR ALTERATION, PROVIDED THE SAME ARE BASED ON SOUND REASONING AND RATIONALE BASIS. 8. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OVERLOOKED THE FACT THAT THE APPELLANT NOT HAVING DETERMINED THE F AIR MARKET VALUE AS PER RULE 11 UA, THE ASSESSING OFFICER COULD NOT HAV E THRUSTED UPON THE VALUATION AS PER RULE 11 UA ADOPTING THE FORMULA GI VEN THEREIN. 9. THE ASSESSING OFFICER HAVING SPELT OUT THE PURPO SE OF INTRODUCTION OF SECTION 56(2)(VIIB) INTO THE ACT DID NOT ESTABLISH ANY POSSIBILITY OF GENERATION AND USE OF UNACCOUNTED MONEY BY THE APPE LLANT. 10. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN NOT NOTICING THAT THE ASSESSING OFFICER HAS DRAWN INFER ENCE BASED ON NON- EXISTENT IMAGINARY FACTS LIKE, EXAGGERATED CASH FLO W. THE ASSESSING PAGE 3 OF 8 ITA NO.2527/BANG/2019 OFFICER HAS MADE ADDITION ON PRESUMPTIONS AND NOT S UPPORTED BY ANY MATERIAL EVIDENCE ON RECORD. 11. THE RELIANCE PLACED ON VARIOUS CASE LAWS BY AUT HORITIES BELOW HAVE NO RELEVANCE TO THE FACTS OF THE CASE. ON THE CONTR ARY, THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS EITHER IGNORED OR NOT CO NTRADICTED ANY OF THE DECISIONS RELIED UPON BY THE APPELLANT. 12. THE APPELLANT CRAVES LEAVE TO ADD, DELETE, AMEN D OR SUBSTITUTE ANY OR ALL GROUNDS OF THE APPEAL RAISED HEREIN. 13. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, THE APPELLANT PRAYS THAT THIS HON'BLE INCO ME TAX APPELLATE TRIBUNAL MAY BE PLEASED TO ALLOW THE APPEAL BY SETT ING ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND DIR ECTING THE ASSESSING OFFICER TO ACCEPT THE INCOME RETURNED AND GRANT SUCH OTHER CONSEQUENTIAL RELIEFS IN THE CIRCUMSTANCES OF CASE IN THE INTEREST OF JUSTICE. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY AND FILED ITS RETURN OF IN COME ON 25/09/2015 DECLARING TOTAL INCOME AS A LOSS OF RS.4 3,38,813/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) AND 142(1) OF THE ACT WAS ISSUED TO ASSESSEE , IN RESPONSE TO WHICH REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND FILED RELEVANT DETAILS. 3. LD.AO NOTED THAT, ASSESSEE IS ENGAGED IN INVESTM ENT ACTIVITY. LD. AO NOTED THAT, DURING YEAR UNDER CON SIDERATION, ASSESSEE ALLOTTED 2231 SHARES OF FACE VALUE RS.10 AT SHARE PREMIUM OF RS.9851.05/- PER SHARE. IT WAS OBSERVED THAT, ASSESSEE RAISED SHARE CAPITAL OF RS.22310/- AND SEC URITIES PREMIUM OF RS.2,19,77,690/-. LD.AO NOTED THAT, ALL SHARES WERE ALLOTTED TO M/S.WAVELL INVESTMENTS PVT. LTD., ON 27 /03/2015. BEFORE LD.AO, ASSESSEE SUBMITTED THAT, SHARES WERE ISSUED BASED ON SHARE VALUATION REPORT FROM CA DATED 20/03/2015. PAGE 4 OF 8 ITA NO.2527/BANG/2019 4. LD.AO WAS OF THE OPINION THAT, VALUATION REPORT PROVIDED BY ASSESSEE CONSIDERS FACTORS BASED ON MANAGEMENT FEED BACK WITHOUT ANY BASIS, IGNORING PAST PERFORMANCE, GROW TH ASPECTS, EARNING CAPACITY, EXPANSION ETC. LD.AO OPINED THAT, DUE TO EXORBITANT CASH FLOW FURNISHED BY MANAGEMENT, VALUA TION OF SHARES WAS AT RS.9860.05/-PER SHARE. HE OPINED TH AT, THERE IS NO SCIENTIFIC METHOD EMPLOYED AND METHOD ADOPTED BY ASSESSEE FOR VALUATION IS IRRATIONAL AND UNREALISTIC FOR LD .AO THUS REJECTED VALUATION FILED BY ASSESSEE, AS IT WAS NOT IN ACCOR DANCE WITH RULE 11UA. LD. AO THUS COMPUTED VALUE PER SHARE AT RS.70 5.87/- PER SHARE BASED UPON BOOK VALUE OF ASSETS AND LIABILITI ES. 5. AGGRIEVED BY ADDITION, ASSESSEE PREFERRED APPEAL BEFORE LD.CIT(A). 6. LD. CIT (A) OBSERVED AS UNDER: 4.7 THE APPELLANT HAS CITED SEVERAL JUDICIAL DECIS IONS TO SUPPORT ITS ARGUMENT THAT THE AO CANNOT REJECT THE VALUATION ME THOD ADOPTED BY THE ASSESSEE BUT CAN REWORK THE VALUE IF COMPUTATION IS FOUND TO HE NOT SATISFACTORY. BUT IN THE CASE AT HAND. THE ASSESSEE HAS NOT ADOPTED ANY PRESCRIBED METHOD AND THE VALUE WORKED OUT UNDER TH E METHOD ADOPTED AS PER SECOND LIMB OF THE EXPLANATION DOES NOT SUBS TANTIATE TO THE SATISFACTION OF THE AO. 7. AGGRIEVED BY ORDER OF LD.CIT(A), ASSESSEE IS IN APPEAL BEFORE US NOW. 8. LD.AR SUBMITTED THAT, ALL GROUNDS RAISED BEFORE THIS TRIBUNAL ARE REGARDING DISALLOWANCE MADE BY LD.AO UNDER SEC TION 56 (2) (VIIB) OF THE ACT. HE SUBMITTED THAT, LD.AO FAILED TO OBSERVE THAT, ASSESSEE SUBMITTED VALUATION REPORT BASED ON NAV VALUATION AND NOT UNDER DCF VALUATION AS OBSERVED B Y LD.AO IN PARA 4.1 OF ASSESSMENT ORDER. LD.AR SUBMITTED THAT, LD.AO PAGE 5 OF 8 ITA NO.2527/BANG/2019 IGNORED INVESTMENT MADE BY ASSESSEE IN EQUITY SHARE S OF DYNAMITE TECHNOLOGIES LTD., WHICH IS A LISTED COMPA NY. LD.AR SUBMITTED THAT, DIFFERENCE IN VALUATION IS BECAUSE OF VALUE OF SHARES ADOPTED IN RESPECT OF DYNAMITE TECHNOLOGIES LTD., BY ASSESSEE AS AGAINST MARKET VALUE BEING RS. 3313/- PER SHARE. HE SUBMITTED THAT, FOR PURPOSES OF VALUATION, ASSESSEE TOOK 10 MONTHS AVERAGE VALUE OF LAST DAILY QUOTATIONS OF DY NAMITE TECHNOLOGIES LTD., ON NATIONAL STOCK EXCHANGE. LD. AR SUBMITTED THAT, SAID DETAILS ARE PLACED AT PAGE 42-43 OF PA PER BOOK. 9. HE THUS SUBMITTED FOR REMAND OF THIS ISSUE TO LD . AO FOR VERIFYING DETAILS FILED BY ASSESSEE IN RESPECT OF D YNAMITE TECHNOLOGIES LTD., FOR PURPOSES OF DETERMINING IN V ALUE OF SHARES OF ASSESSEE AS PER RULE 11UA. 10. LD.SR.DR ON THE CONTRARY, RELIED ON ORDERS PASS ED BY AUTHORITIES BELOW. HE SUBMITTED THAT, DETAILS WERE NOT SUBMITTED BY ASSESSEE AT THE TIME OF ASSESSMENT STAGE, EVEN A FTER REPEATED REQUEST MADE BY LD.AO. THE PROJECTIONS USED IN VAL UATION REPORT WERE AT HUGE VARIANCE WITH ACTUAL, AND SAME WAS REG ULARLY REJECTED. 11. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 12. VALUATION SHOULD BE CARRIED OUT IN ACCORDANCE W ITH PROVISIONS OF RULE 11UA OF THE RULES R.W.S 56(2)(VI IA) OF THE ACT. BEFORE US, LD.AR HAS NOT FILED AUDITED FINANCIAL AC COUNTS OF ASSESSEE FOR YEAR UNDER CONSIDERATION. IT HAS BEEN SUBMITTED THAT, AUTHORITIES BELOW HAVE WRONGLY COMPUTED NAV ON THE BOOK PAGE 6 OF 8 ITA NO.2527/BANG/2019 VALUE IGNORING, MARKET VALUE OF SHARES INVESTED BY ASSESSEE IN DYNAMITE TECHNOLOGIES LTD. HENCE WE ARE OF THE VIEW THAT ISSUE NEEDS TO BE REMANDED TO LD.AO. ASSESSEE IS DIRECTED TO SUBSTANTIATE VALUE OF SHARES HELD BY IT IN DYNAMIT E TECHNOLOGIES LTD. TO BE RS.1,927/-PER SHARE (CLAIMED TO BE 10 MO NTHS AVERAGE), WITH COGENT MATERIALS/EVIDENCES. LD.AO S HALL VERIFY THE SAME AND ASCERTAIN VALUE OF INVESTMENT MADE BY ASS ESSEE IN DYNAMITE TECHNOLOGIES LTD. FOR PURPOSES OF COMPUTIN G NAV OF SHARES HELD BY ASSESSEE. NEEDLESS TO SAY THAT, PROP ER OPPORTUNITY OF BEING HEARD SHALL BE GRANTED TO ASSESSEE. ACCORDINGLY, GROUNDS RAISED BY ASSESSEE STANDS ALLO WED FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH OCT, 2020 SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 16 TH OCT, 2020. /VMS/ PAGE 7 OF 8 ITA NO.2527/BANG/2019 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE