MADHURIMA INTERNATIONAL P. LTD, MUMBAI V. PR CIT 3, MUMBAI

ITA 421/MUM/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1077 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 19-01-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N P SINGH
• Assessee Lawyers: NIRAJ SHETH SHRI JAY BHANSALI
• Keywords: Revision of order; Depreciation; Opportunity of being heard; Period of limitation; Tangible material; Fair market value; Valuation report; Assessment record
• Section: 143(3); 142(1); 14A; 56; 263

Judgement Text

D B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.421 /MUM/2017 ( / ASSESSMENT YEAR : 2013-14) M/S MADHURIMA INTERNATIONAL PRIVATE LIMITED, 122, MAKER CHAMBER-III, NARIMAN POINT, MUMBAI 400 021. / V. PRINCIPAL COMMISSIONER OF INCOME TAX -3, 612, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAFCM2533E ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI NIRAJ SHETH SHRI JAY BHANSALI REVENUE BY : SHRI N.P. SINGH, CIT DR / DATE OF HEARING : 05-04-2017 / DATE OF PRONOUNCEMENT : 28-04-2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 421/MUM/2017, IS DIRECTED AGAINST THE ORDER DATED 8 TH DECEMBER, 2016 PASSED BY LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX - 3, MUMBAI (H EREINAFTER CALLED THE PR. CIT), FOR THE ASSESSMENT YEAR 2013-14 U/S 263 OF T HE INCOME-TAX ACT,1961 (HEREINAFTER CALLED THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- ITA 421/MUM/2017 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE PRINCIPAL COMMISSIONER INCOME-TAX - 3, MUMBAI ('THE PR.CIT') ERRED IN ASSUMING JURISDICTION UNDER SECTION 263 AN D HOLDING THE ASSESSMENT ORDER, UNDER SECTION 143(3) OF THE INCOM E-TAX ACT, 1961 ('HEREINAFTER REFERRED TO AS 'THE ACT') DATED 23.03.2016 (HEREINAFTER REFERRED TO AS 'THE ASSESSMENT ORDER') , AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO THE FACT S OF THE CASE AND AGAINST THE PROVISIONS OF LAW; 2. THE PR. CIT FAILED TO APPRECIATE THAT, WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER, AFTER CONDUCT O F DUE ENQUIRY, HAS TAKEN ONE VIEW WITH WHICH THE PR. CIT DOES NOT AGREE, THE ASSESSMENT ORDER CANNOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE; 3. THE PR.CIT ERRED IN INVOKING THE PROVISION OF SE CTION 56(2)(VIIB) OF ACT FOR REASONS WHICH ARE WRONG, CON TRARY TO THE FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW ; 4. THE PR.CIT ERRED IN HOLDING THE ISSUE PRICE OF N ON- CUMULATIVE COMPULSORILY CONVERTIBLE PREFERENCE SHAR ES ADOPTED BASIS A VALUATION REPORT OF AN INDEPENDENT VALUER A S EXORBITANT ON REASONS PURELY IN THE REALM OF CONJECTURES / SUR MISES WITHOUT APPRECIATING THAT THE SAME IS IN ACCORDANCE WITH PR OVISIONS OF THE ACT; 5. THE ABOVE GROUNDS/SUB-GROUNDS ARE WITHOUT PREJUD ICE TO EACH OTHER. 3. THIS APPEAL HAS ARISEN OUT OF THE ORDER U/S 263 OF THE ACT DATED 08-12- 2016 PASSED BY THE LEARNED PR. CIT. THE LD. PR. CI T OBSERVED THAT THE ASSESSMENT U/S 143(3) OF THE ACT IN THE INSTANT CAS E WAS COMPLETED ON 23 RD MARCH, 2016, WHEREIN ADDITION OF RS. 3,72,613/- WAS MADE BY THE LEARNED ASSESSING OFFICER(HEREINAFTER CALLED THE AO) ON A CCOUNT OF DISALLOWANCE U/S 14A OF THE 1961 ACT, VIDE ASSESSMENT ORDER DATED 23 -03-2016 PASSED U/S 143(3) OF THE 1961 ACT. THE LD. PR. CIT OBSERVED F ROM THE ASSESSMENT RECORDS THAT THE SAID ASSESSMENT ORDER DATED 23-03-2016 PAS SED BY THE AO U/S ITA 421/MUM/2017 3 143(3) OF 1961 ACT APPEARS TO BE ERRONEOUS IN SO FA R AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE U/S 263 OF THE 1961 ACT, HENCE, SHOW CAUSE NOTICE(SCN) DATED 06-09-2016 U/S 263 OF THE 1961 ACT WAS ISSUED BY LEARNED PR. CIT TO THE ASSESSEE. THE RELEVANT PART OF THE SAID NOTICE IS AS UNDER:- ON VERIFICATION, CERTAIN DISCREPANCIES WERE FOUND IN THE ASSESSMENT ORDER DATED 29.11.2013, WHICH IS AS UNDE R: DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS ISSUED 6 LAKHS PREFERENCE SHARES OF RS. 10 EACH ISS UED AT A PREMIUM OF RS. 240/- PER SHARE. DURING THIS YEAR, T HE PROVISION OF SECTION 56(2)(VIIB) ARE APPLICABLE AS ANY CONSID ERATION FOR ISSUE OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARE S, THE AGGREGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES, THE DIFFERENCE IS TO BE TAXED AS INCOME. THE FAIR MARKET VALUE CAN BE BOOK VALUE OR VALUE AS PER DISCOUNTED CASH FLOW METHOD. BOOK VALUE AS PER BAL ANCE SHEET COMES TO LESS THAN RS. 100/- PER SHARE WHEREAS VALU E AS DCF METHOD WAS WORKED OUT AT RS. 250/- PER SHARE. IN T HIS REGARD, A REPORT OF VALUATION WAS SUBMITTED BY THE ASSESSEE D URING ASSESSMENT PROCEEDINGS. ON GOING THROUGH THIS REPO RT, IT IS SEEN THAT ACCOUNTANT HAS TAKEN FUTURE CASH FLOW AS CERTI FIED BY THE MANAGEMENT. NO VERIFICATION OF PROJECTIONS AND ASSU MPTIONS ADOPTED BY MANAGEMENT WAS MADE CA, THEREBY MAKING THE REPORT AS PER THE REQUIREMENT OF THE MANAGEMENT. IN DCF METHOD, FUTURE FREE CASH FLOW IS THE MOST RELEVANT VARIABLE WHICH CAN CHANGE THE VALUE TO ANY EXTENT. FREE CASH FLOW IN FINANCIAL YEAR ENDING 31.03.2012 WAS NOT EVEN RS. 1 CRORE. BU T IN THE REPORT OF THE CA DATED 25.10.2012 FUTURE CASH FLOWS FOR NEXT 5 YEARS WERE ESTIMATED AT RS. 5.30 CRORES, RS. 43.01 CRORES, RS. 6.67 CRORES, RS.9.41 CRORES AND 223.46 CRORES. SUCH EXORBITANT ESTIMATED FREE CASH FLOW WAS USED IN VALUING SHARES BY DCF METHOD. THEREFORE, IT IS CLEAR THAT VALUATION MADE ON THE BASIS OF UNVERIFIED EXORBITANT FCF GIVEN BY MANAGEMENT HAS G IVEN INFLATED VALUE OF SHARES @ RS. 250/-. THIS IS NOT A S PER RECOGNIZED DCF METHOD BUT AS PER WHIMS & FANCY OF THE MANAGEME NT TO ARRIVE AT HIGHER VALUE TO ISSUE SHARES AT HUGE PREM IUM. CONSIDERING THIS THE VALUATION OF SHARES DONE BY CA AS PER DCF METHOD IS NOT RELIABLE AND SHOULD HAVE BEEN QUESTIO NED BY THE ITA 421/MUM/2017 4 A.O, WHICH WAS NOT DONE. IF DCF METHOD IS REJECTED AND BOOK VALUE METHOD IS TAKEN THEN THERE CAN BE ADDITION OF MORE THAN RS. 9 CRORES U/S 56(2)(VIIB). IN VIEW OF THE ABOVE, THE ASSESSMENT ORDER PASSED U/S.143(3} BY THE ACIT- 3(2)(1), MUMBA I DATED 23- 03-2016 APPEARS TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND IT IS EVIDENT THAT THE ASSESSING OFF ICER HAS COMMITTED THE LAPSE OF NOT APPLYING HIS MIND TO THE ISSUES DISCUSSED ABOVE. I, THEREFORE, PROPOSE TO PASS SUCH ORDER THERE ON AS THE CIRCUMSTANCE OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLIN G THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT UNDER T HE PROVISIONS OF SECTION 263. THE ASSESSEE SUBMITTED ITS REPLY TO SCN VIDE LETTER DATED 21-09-2016 , WHICH IS REPRODUCED HERE-UNDER:- THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INCOM E FOR ASSESSMENT YEAR 2013-14 DECLARING TOTAL COME OF RS. 3,00,35,920/- AS PER NORMAL PROVISIONS OF THE ACT A ND RS. 3,22,19,738/- AS BOOK PROFIT U/ S 115 JB OF THE ACT ON 24-09- 2013. SUBSEQUENTLY THE ASSESSEE REVISED ITS RETURN OF INCOME ON 15-10-2013. DURING THE FINANCIAL YEAR ENDED 31-03-2 013 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASS ESSEE COMPANY HAS ISSUED AND ALLOTTED NON CUMULATIVE COMP ULSORY CONVERTIBLE PREFERENCE SHARES OF RS. 10 EACH FULLY PAID UP AT A PREMIUM OF RS. 240/- PER SHARE AFTER OBTAINING A VA LUATION REPORT FROM AN INDEPENDENT C.A. M/S V. R. JAIN & CO. THE F UNDS WERE TO BE USED FOR THE PURPOSE OF INVESTMENT IN 14870000 P REFERENCE SHARES (RS. 10 EACH) OF ENTERCOM SOLUTIONS PRIVATE LIMITED AMOUNTING TO RS. 148700000/-. THE CASE OF THE ASSES SEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143 {2} DATED 3/9/2014 WAS DULY ISSUED AND SERVED UPON THE ASSESS EE. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER ON PERUSING THE FINANCIALS FOR THE RELEVANT YEAR UNDER CONSIDERATION TOOK NOTE OF THE AFORESAID TRANSACTION AND RAISED S EVERAL QUERIES RELATING TO THE SAME. THE A.O. VIDE NOTICE U/S 142 (1) DT. 1.2.2016 AMONGST OTHER DETAILS AT POINT NO. 12 SPEC IFICALLY ASKED THE ASSESSE TO FURNISH CERTAIN DETAILS AS REGARDS I SSUE OF 600000 PREFERENCE SHARES. AT POINT NO. 13 THE A.O. ASKED THE ASSESSEE TO JUSTIFY THE SHARE PREMIUM RECEIVED ON THE FACE VALU E OF THE SHARES WITH COMPLETE SUPPORTING DOCUMENTS. FURTHER, THE A .O. INFORMED THE ASSESSEE THAT IN THE CASE OF THE ASSESSEE'S INA BILITY TO ITA 421/MUM/2017 5 PROPERLY JUSTIFY THE SHARE PREMIUM OF RS. 14,40,00, 000/- THE SAME WOULD BE TAXED U/S 56(2)(VIIB) AS INCOME FROM OTHER SOURCE. THE ASSESSEE ALSO CLARIFIED IN HIS SUBMISSIONS THAT THE SHARE PREMIUM IS AT PAR WITH THE FAIR MARKET VALUE AND TH EREFORE THE PROVISIONS OF SECTION 56(2)(VIIB) ARE NOT ATTRACTED . THE ASSESSEE VIDE LETTER DT. 26-02-2016 EXPLAINED T HE BASIS OF ESTIMATES/PROJECTIONS ADOPTED IN THE DCF METHOD IN RESPONSE TO A QUERY RAISED BY THE AO. ON THE SAME. THE AO. VIDE ORDER DT. 23-03-2016 U/S 143(3) COMPLE TED ASSESSMENT AFTER MAKING CERTAIN OTHER ADJUSTMENTS. THE ASSESSEE IS NOW IN RECEIPT OF YOUR IMPUGNED NOTICE SEEKING T O EXERCISE JURISDICTION U/S 263 OF THE ACT. THE FINDING OF THE COMMISSIONER SHOULD BE ON FRESH TANGIBLE MATERIAL AND AFTER DUE APPLICATION OF MIND PURSUANT TO WHICH THE COMMISSIONER MUST COME TO A FIRM CONCLUSION. AO HAS CONDUCTED DETAILED ENQUIRY AND SPECIFICALLY APPLIED HIS MIND TO THE ISSUE AT HAND. HAVING PERUSED ALL THE R ELEVANT DETAILS IN CONNECTION WITH ISSUE AT HAND AND HAVING TAKEN A VIEW THAT PREFERENCE SHARES ARE CORRECTLY ISSUE AT THE FAIR M ARKET VALUE, AO COMPLETED THE SCRUTINY ASSESSMENT MAKING NO ADDITIO N ON THAT COUNT. HENCE, THE EXERCISE OF JURISDICTION U/S 263 IS NOT WARRANTED. THE PREFERENCE SHARES HAVE BEEN ISSUED AT RS. 250/ - PER SHARE AFTER OBTAINING A VALUATION REPORT FROM AN INDEPEND ENT VALUER. THE VALUATION HAS BEEN DONE BASED ON THE DCF METHOD SUING REASONABLE ASSUMPTIONS. THE USE OF SUCH METHODOLOGY IS IN LINE WITH RULE 11UA. THE ASSESSEE, IN SUPPORT RELIED UPON THE DECISION O F THE HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT, (2000) 243 ITR 83(SC) TO CHALLENGE THE PROCEEDINGS U/S 263 OF THE 1961 ACT. THE LD. PR. CIT OBSERVED THAT THE AMENDMENT MADE TO SECTION 263 OF THE 1961 ACT W.E.F. 1ST JUNE, 2015 WIDENS THE SCOPE OF SECTION 263 OF THE 1961 AC T TO INCLUDE NON-CONDUCT ITA 421/MUM/2017 6 OF PROPER ENQUIRIES, HENCE, THE DECISION OF THE HON BLE APEX COURT RELIED UPON BY THE ASSESSEE IS NOT APPLICABLE IN THE INSTANT CA SE. THE LD. PR. CIT RELIED UPON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF RAJMANDIR ESTATES (P.) LTD. V. PR. CIT (2016) 386 ITR 162( CA L. HC) AND ALSO DECISION OF THE KOL.-TRIBUNAL IN THE CASE OF SUBHALAKSHMI VANIJ YA (P.) LTD. V. CIT, (2015) 155 ITD 171(KOL-TRIB.) . THE LD. PR. CIT OBSERVED T HAT THE A.O. CONDUCTED EXCEEDINGLY INADEQUATE ENQUIRY WHICH FALLS INTO CAT EGORY OF NO ENQUIRY WHICH RESULTED IN DRAWING INCORRECT ASSUMPTION OF FACTS , MAKES THE ORDERS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF REVENUE. THE LD PR. CIT OBSERVED THAT THERE WAS COMPLETE NON APPLICATION OF MIND BY THE AO AND HENCE PROCEEDINGS U/S 263 OF THE 1961 ACT WAS VALID . THE LD PR. CIT OBSERVED THAT THE ASSESSEE HAD ISSUED SHARES AT A LARGE SHAR E PREMIUM WHICH WAS THE MAIN REASON FOR SELECTION OF THE ASSESSEES CASE UN DER CASS AS THE ASSESSEE HAS ISSUED 6,00,000 PREFERENCE SHARES OF RS. 10/- E ACH ISSUED AT A PREMIUM OF RS. 240/- PER SHARE . THE LD. PR. CIT OBSERVED THAT SECTION 56(2)(VIIB) OF THE 1961 ACT WAS INTRODUCED TO CURB BLACK MONEY. T HE LD. PR. CIT OBSERVED THAT THE ASSESSEE HAD SUBMITTED COPY OF ITR, BALANC E SHEET AND CAPITAL ACCOUNT OF SHAREHOLDERS TO PROVE THE GENUINENESS OF THE SOURCES OF MONEY AND THE ASSESSEE HAD ALSO TRIED TO JUSTIFY THE SHAR E PREMIUM. THE LD. PR. CIT OBSERVED THAT THE PROVISIONS OF SECTION 56(2)(VIIB) OF THE 1961 ACT ARE APPLICABLE AS THE AGGREGATE CONSIDERATION FOR ISSU ANCE OF SHARES WAS MORE THAN FAIR MARKET VALUE OF THE SHARES, HENCE, THE DI FFERENCE IS TO BE TAXED AS INCOME UNDER PROVISIONS OF SECTION 56(2)(VIIB) OF T HE 1961 ACT. IT WAS OBSERVED THAT THE FAIR VALUE CAN BE BOOK VALUE OR VALUE AS P ER DISCOUNTED CASH FLOW(DCF) METHOD. IT WAS FURTHER OBSERVED BY THE L D. PR. CIT THAT THE BOOK VALUE AS PER BALANCE SHEET COMES TO LESS THAN RS. 1 00/- PER SHARE WHEREAS THE VALUE OF SHARES AS PER DCF METHOD WORKED OUT AT RS. 250/- PER SHARE . THE ASSESSEE SUBMITTED REPORT OF VALUATION DATED 15 -10-2012 ISSUED BY V R JAIN & CO., CHARTERED ACCOUNTANTS WHEREIN FAIR VALU E OF THE UNQUOTED NON- ITA 421/MUM/2017 7 CUMULATIVE COMPULSORY CONVERTIBLE PREFERENCE SHARES OF THE ASSESSEE COMPANY WAS COMPUTED WHICH, INTER-ALIA, CONTAINED T HE FOLLOWING DETAILS:- RS. CRORES PARTICULARS % MAR 13 MAR 14 MAR 15 MAR 16 MAR 17 FREE CASH FLOW FOR EQUITY 5.30 4 3 .01 6.67 9.41 223.46 DISCOUNTING FACTOR 15.01 0.93 0.81 0.70 0.61 0.53 DISCOUNTING CASH FLOW 4.93 34.79 4.69 5.75 118.80 AGGREGATE DCF VALUE 168.96 TERMINAL VALUE 100.13 TOTAL VALUE OF COMPANY 269.09 NO. OF SHARES OUTSTANDING 1,07,60,003 VALUE PER SHARE(IN RS.) 250.08 KEY ASSUMPTIONS: A. WE HAVE NOT INDEPENDENTLY VERIFIED THE PROJECTIONS OF THE COMPANY. B. WE HAVE BEEN INFORMED THAT THERE ARE 10,760,003 SHARES OUTSTANDING ON A FULL DILUTED BASIS ON THE VALUATION DATE OUT OF WHICH 60 ,00,000 ARE EQUITY SHARES AND 47,60,003 ARE 10% NON CUMULATIVE COMPULSORILY CONVE RTIBLE PREFERENCE SHARES OF RS. 10/ - EACH. IT WAS OBSERVED BY LD. PR. CIT FROM THE ABOVE REPO RT THAT THE FREE CASH FLOW FOR EQUITY WAS ESTIMATED ARBITRARILY WHEREIN THE CA WHO ISSUED VALUATION REPORT OF SHARES HAS TAKEN FUTURE CASH FLOWS AS CER TIFIED BY MANAGEMENT AND NO VERIFICATION OF PROJECTIONS AND ASSUMPTIONS ADOP TED BY THE MANAGEMENT WERE CONDUCTED BY CA WHO ISSUED THE SAID VALUATION REPORT , THEREBY SIMPLY MAKING THE REPORT AS PER THE REQUIREMENT OF THE MAN AGEMENT. THE LD. PR. CIT OBSERVED THAT NO INDEPENDENT VERIFICATION HAS BEEN DONE BY THE SAID C.A. TO ARRIVE AT FAIR VALUE OF THE UNQUOTED NON-CUMULATIVE COMPULSORY CONVERTIBLE PREFERENCE SHARES OF THE ASSESSEE COMPANY . THE LD PR. CIT REFERRED TO TECHNICAL GUIDE ON SHARES VALUATION PUBLISHED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA(ICAI) WHEREIN THREE KEY FACTOR S VIZ. CASH FLOW PROJECTIONS, DISCOUNT RATE AND TERMINAL VALUE FOR C OMPUTING DCF WERE DISCUSSED , WHEREIN THE LD. PR. CIT OBSERVED THAT N ONE OF THE ABOVE FACTORS AS MANDATED BY ICAI HAS BEEN CONSIDERED BY THE SAID CA ISSUING VALUATION REPORT WHILE COMPUTING FAIR VALUE OF THE UNQUOTED N ON-CUMULATIVE ITA 421/MUM/2017 8 COMPULSORY CONVERTIBLE PREFERENCE SHARES OF THE ASS ESSEE COMPANY. THE LD. PR. CIT REFERRED TO SAID TECHNICAL GUIDE ON SHARES VALUATION ISSUED BY ICAI WHEREIN IT IS STATED THAT THE DCF METHOD IS AS GOOD AS INPUT ASSUMPTIONS USED FOR COMPUTING FUTURE CASH FLOWS. IT WAS OBSERV ED BY LD PR. CIT THAT THE CA ISSUING VALUATION REPORT DATED 15-10-2012 HAS ME RELY ADOPTED THE VALUES PROVIDED BY THE MANAGEMENT CLEARLY IGNORING PAST PE RFORMANCE WHICH IS SELF SERVING AS SEVERAL FACTORS SUCH AS PERFORMANCE, GRO WTH PROSPECTS, EARNINGS CAPACITY , EXPANSION ETC. WERE NOT CONSIDERED BY TH E SAID CA ISSUING THE SAID VALUATION REPORT DATED 15-10-2012. THE LD. PR. CIT OBSERVED THAT THE FUTURE CASH FLOWS FOR NEXT 5 YEARS WERE ESTIMATED IN THE VALUATION REPORT AT RS. 5.30 CRORE S, RS. 43.01 CRORES, RS. 6.67 CRORES, RS. 9.41 CRORES AND RS. 223.46 CRORES , WHEREAS THE FREE CASH FLOW FOR FINANCIAL YEAR 2011-12 WAS NOT EVEN RS. 1 CRORE. IT WAS OBSERVED BY LD. PR. CIT THAT VALUATION HAS BEEN DETERMINED BASE D ON UNVERIFIED EXORBITANT CASH FLOW GIVEN BY MANAGEMENT WHICH RESULTED IN INF LATED VALUE OF SHARES @ RS. 250/- PER SHARE. IT WAS OBSERVED BY LD. PR. CI T THAT NO SCIENTIFIC METHOD HAD BEEN EMPLOYED FOR DETERMINING THE VALUATION OF SHARES WHICH IS BEING DONE BY MANAGEMENT AS PER ITS WHIMS AND FANCIES TO ARRIVE AT HIGHER VALUE TO ISSUE SHARES AT HUGE PREMIUM WHICH IS NOT RELIABLE AND THE AO SHOULD HAVE QUESTIONED THE SAME WHICH WAS NOT DONE BY THE AO WH ILE PASSING ASSESSMENT ORDER DATED 23-03-2016 U/S 143(3) OF THE 1961 ACT. IT WAS OBSERVED THAT THE ASSESSEE HAD TRIED TO JUSTIFY THE DCF METHOD EMPLOY ED BY THE C.A. IN THE SAID VALUATION REPORT DATED 15-10-2012. THE ASSESSEE SUBMITTED THAT IT HAD ISSUED AND ALLOT TED 6,00,000 NON- CUMULATIVE COMPULSORY CONVERTIBLE PREFERENCE SHARES OF RS. 10/- EACH FULLY PAID UP AT A PREMIUM OF RS. 240/- PER SHARE AFTER O BTAINING VALUATION REPORT FROM AN INDEPENDENT C.A. M/S V.R. JAIN & CO . THE FUNDS WERE TO BE USED FOR THE PURPOSE OF INVESTMENT IN 1,48,70,000 PREFER ENCE SHARES OF RS. 10/- ITA 421/MUM/2017 9 EACH OF ENTERCOM SOLUTIONS P. LTD. AMOUNTING TO RS. 14,87,00,000/-. IT WAS SUBMITTED THAT VALUATION OF THE SAID PREFERENCE SHA RES HAS BEEN DONE BASED ON DCF METHOD USING REASONABLE ASSUMPTIONS. THE USE OF SUCH METHODOLOGY IS IN LINE WITH RULE 11UA OF INCOME-TAX RULES, 1962 . IT WAS SUBMITTED THAT REVENUE CANNOT INSIST ON THE USAGE OF THE NET VALUE METHOD WHEN RULE 11 UA OF THE 1962 RULES PROVIDES ASSESSEE AN OPTION TO ADOPT DCF METHOD. IT WAS SUBMITTED THAT NET ASSET VALUE METHOD IS CONSID ERED UNSUITABLE AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE . IT WAS SUBMITTED THAT DCF METHOD IS FAR SUPERIOR METHOD AS COMPARED TO NE T ASSET VALUE METHOD AS THE SAID METHOD REPRESENTS TRUE POTENTIAL OF THE COMPANY. IT WAS SUBMITTED BY THE ASSESSEE THAT TO APPLY NET ASSET V ALUE METHOD IS ERRONEOUS AS IT REFLECT HISTORICAL COST OF ASSETS AND LIABILI TIES OF THE COMPANY ON VALUATION DATE AND DOES NOT REFLECT THE TRUE ECONOM IC VALUE OF SHARES. THE ASSESSEE SUBMITTED BEFORE LD. PR. CIT THAT THE A.O. HAS NOT FOUND ANY FAULT IN THE METHODOLOGY ADOPTED BY THE ASSESSEE TO ARRIVE A T FAIR VALUE OF THE UNQUOTED NON-CUMULATIVE COMPULSORY CONVERTIBLE PREF ERENCE SHARES OF THE ASSESSEE COMPANY USING DCF METHOD. THE ASSESSEE SUB MITTED THAT PREFERENCE SHARES ISSUED WERE COMPULSORILY CONVERTI BLE INTO EQUITY SHARES AND HENCE DERIVE THEIR VALUE FROM THE UNDERLYING EQUITY SHARES. IT WAS SUBMITTED THAT AS PER TERMS OF ISSUE OF THE SAID PREFERENCE S HARES, THE SAME ARE CONVERTIBLE AT A PRICE TO BE DETERMINED BY THE BOAR D OF DIRECTORS AT THE TIME OF CONVERSION AND HENCE AT THIS STAGE IT IS PREMATURE. WITHOUT PREJUDICE, IT WAS SUBMITTED THAT ASSESSEE COMPANY REQUIRED RS 15 CROR ES AND IF THE SHARES WERE TO BE ISSUED AT RS 100 PER SHARES , IT WOULD H AVE LED TO ISSUE OF MORE SHARES AND IN ANY CASE PREFERENCE SHARES WERE ISSUE D TO EXISTING PREFERENCE SHAREHOLDERS IN RATIO OF THEIR SHAREHOLDING AND HEN CE THERE WAS NO DILUTION OF SHAREHOLDING. THE LD. PR. CIT WAS NOT SATISFIED WITH THE REPLY O F THE ASSESSEE. THE LD. PR. CIT OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABLE TO POINT OUT JUSTIFICATION OF ITA 421/MUM/2017 10 APPLICATION OF DCF METHOD WITH THE PERSPECTIVE OF I CAI GUIDELINES ON VALUATION OF SHARES NOR THE ASSESSEE HAS SUBMITTED ANY KIND OF EXPLANATION IN RESPECT OF THE SAME. IT WAS OBSERVED THAT THE ASSES SEE HAS ONLY COMMENTED ON THE SUPERIORITY OF DCF METHOD IN PREFERENCE TO N ET ASSET VALUE METHOD. THE LD. PR. CIT OBSERVED THAT THE ASSESSEE HAS FAIL ED TO JUSTIFY THE FLAWS AND MISTAKES/ERRORS POINTED OUT IN THE SAID VALUATION R EPORT. THE LD. PR. CIT OBSERVED THAT THE ASSESSEE HAS NOT ADDRESSED THE IS SUE OF SHARE AT UNJUSTIFIED LARGE PREMIUM IN THE INSTANT CASE AND THE SAME IS H IT BY PROVISIONS OF SECTION 56(2)(VIIB) OF THE 1961 ACT. THUS, THE LD. PR. CIT SET ASIDE THE ASSESSMENT ORDER DATED 23-03-2016 PASSED BY THE A.O. U/S 143( 3) OF THE 1961 ACT WITH A DIRECTION TO THE A.O. TO MAKE FRESH ASSESSMENT AFTE R CONDUCTING DETAILED ENQUIRIES AND DETAILED VERIFICATIONS OF THE SUBMISS IONS MADE. THE A.O. WAS ALSO DIRECTED TO EXAMINE THE VALUATION REPORT DATED 15-10-2012 ISSUED BY CA M/S V R JAIN & CO SUBMITTED BY THE ASSESSEE IN THE LIGHT OF OBSERVATION AND RECOMMENDATION AS MENTIONED IN THE TECHNICAL GUIDE ON SHARE VALUATION ISSUED BY ICAI. THE AO WAS ALSO DIRECTED BY LEARNED PR. CIT TO EXAMINE THE VALUER W.R.T. VALUATION REPORT PREPARED BY THE SAID VALUER AND THE AO WAS DIRECTED BY LD. PR. CIT TO MAKE FRESH ASSESSMENT AS PER LAW, VIDE ORDER DATED 8 TH DECEMBER, 2016 PASSED BY LEARNED PR. CIT U/S 263 O F THE 1961 ACT. 4. AGGRIEVED BY THE ORDER DATED 8 TH DECEMBER, 2016 PASSED BY LD. PR. CIT U/S 263 OF THE 1961 ACT, THE ASSESSEE FILED APPEAL BEFO RE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENT ION TO THE ORDER DATED 08-12-2016 PASSED BY THE LD. PR. CIT U/S 263 OF TH E 1961 ACT AND SUBMITTED THAT THE COMPLETE DETAILS WERE SUBMITTED BEFORE THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) OF THE 1961 ACT CONDUCTED BY THE AO, AND THE ASSESSMENT ORDER DATED 23-03-20 16 PASSED BY THE A.O. U/S. 143(3) OF THE 1961 ACT CANNOT BE CONSIDERED AS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. COUNSEL DREW OUR ITA 421/MUM/2017 11 ATTENTION TO THE PAPER BOOK / PAGE 62 AND SUBMITTED THAT A WORKING WAS GIVEN WITH RESPECT TO THE VALUATION AS PER DISCOUNT ED CASH FLOW METHOD. HE ALSO DREW OUR ATTENTION TO THE VALUATION REPORT DAT ED 15-10-2012 PREPARED BY CA V R JAIN & CO WHICH IS PLACED AT PAPER BOOK / PA GE 58-64 AND SUBMITTED THAT IN THE YEAR ENDED MARCH, 2014 AND MARCH, 2017 THERE WAS AN INCREASE IN FREE CASH FLOW WHICH IS MAINLY ON ACCOUNT OF DIS INVESTMENT OF HOLDINGS/INVESTMENTS BY ITS SUBSIDIARY COMPANY BASE D IN MAURITIUS . IT WAS SUBMITTED THAT FREE CASH FLOW FOR EQUITY WAS TAKEN FOR THE YEAR ENDED MARCH, 2013- RS. 5.30 CRORES , MARCH 2014- RS.43.01 CRORES , MARCH 2015 RS. 6.67 CRORES, MARCH 2016 RS. 9.41 CRORES AND MARCH 2017 -RS. 223.46 CRORES. OUR ATTENTION WAS ALSO INVITED TO PAPER BOOK / PAGE 30 TO 32 WHEREBY THE COPY OF NOTICE DATED 01-02-2016 ISSUED BY THE AO U/ S 142(1) OF THE ACT IS PLACED. OUR ATTENTION WAS ALSO DRAWN TO QUESTION NO . 12 AND 13 OF THE SAID NOTICE DATED 01-02-2016 U/S 142(1) OF THE 1961 ACT, WHEREBY QUESTIONS WERE ASKED BY THE AO TO FURNISH COMPLETE DETAILS OF THE TRANSACTION ALONG-WITH THE NAME AND ADDRESS OF THE PERSON FROM WHOM THE SHARES APPLICATION MONEY WERE RECEIVED BY THE ASSESSEE FOR SUBSCRIBING PREFE RENCE SHARES ETC. AND THE ASSESSEE WAS ALSO ASKED TO JUSTIFY THE SHARE PREMIU M OF RS 240 PER SHARE RECEIVED OVER AND ABOVE THE FACE VALUE OF THE SHARE OF RS 10 PER SHARE , ALONGWITH COMPLETE SUPPORTING DOCUMENTS. OUR ATTEN TION WAS ALSO DRAWN TO PAPER BOOK /PAGE 39 WHEREBY DETAILS OF ALLOTMENT MO NEY RECEIVED AGAINST ISSUANCE OF PREFERENCE SHARES CAPITAL IS PLACED. O UR ATTENTION WAS ALSO INVITED TO PAPER BOOK / PAGE 40 TO 43 WHEREBY FORM 2 WHICH IS RETURN OF ALLOTMENT OF SHARE FILED WITH MINISTRY OF CORPORATE AFFAIRS(MCA-ROC) HAS BEEN PLACED. OUR ATTENTION WAS ALSO INVITED TO PAPER BO OK/ PAGE 44-45 WHEREBY BANK STATEMENT OF SMT. PADMINI SOMANI WHO WAS SUBSC RIBER TO THE SAID PREFERENCE SHARES IS PLACED AND OUR ATTENTION WAS D RAWN TO CHEQUE OF RS. 7,50,00,000/- DATED 16-10-2012 WHICH IS DEBITED TO THE SAID BANK ACCOUNT IN FAVOUR OF THE ASSESSEE IS PLACED. SIMILARLY, BANK S TATEMENT OF OTHER SUBSCRIBERS TO THE SHARES ARE PLACED ON RECORD AT P AGE 46-51/PAPER BOOK AND ITA 421/MUM/2017 12 IT WAS POINTED OUT THAT PAYMENTS FOR SHARES WERE MA DE THROUGH BANKING CHANNEL. THE LEARNED COUNSEL FOR THE ASSESSEE BROU GHT OUR ATTENTION TO PAPER BOOK / PAGE 52-54, WHEREIN THE BOARD RESOLUTION FOR ALLOTMENT OF SHARES TO THE SAID SHAREHOLDERS IS PLACED. OUR ATTENTION WA S ALSO DRAWN TO PAPER BOOK/ PAGE NO. 55-57 WHEREBY THE ASSESSEES LETTER TO THE AO IS PLACED WHEREIN THE ASSESSEE ENCLOSED SAID VALUATION REPORT DATED 15-10-2012 ISSUED BY CA M/S V R JAIN & CO. AND COPIES OF INCOME-TAX R ETURNS OF THE SUBSCRIBERS OF THE SHARES ARE PLACED. THE SAID LETT ER ALSO EXPLAINED THE BASIS OF VALUATION OF SHARES ADOPTED BY THE ASSESSEE. IT WAS SUBMITTED THAT DCF METHOD IS MOST APPROPRIATE METHOD FOR VALUATION OF SHARES BASED ON FACTS AND CIRCUMSTANCES OF THE CASE. IT WAS SUBMITTED THA T NET ASSET VALUE METHOD IS NOT APPROPRIATE IN THE CASE OF THE ASSESSEE. OUR ATTENTION WAS ALSO DRAWN TO PAPER BOOK/ PAGES 65 TO 85 WHEREBY THE INCOME TA X RETURNS OF VARIOUS SHAREHOLDERS WHO SUBSCRIBED TO PREFERENCE SHARES AR E PLACED. OUR ATTENTION WAS ALSO DRAWN TO PAPER BOOK / PAGE 86-89, WHEREIN THE ASSESSEES EXPLANATION TO THE AO AS TO DISINVESTMENT OF THE SH ARES HELD BY MAURITIUS SUBSIDIARY OF THE ASSESSEE IS PLACED ALONG WITH CAS H FLOW FOR WORKING VALUATION OF SHARES. OUR ATTENTION WAS ALSO DRAWN TO THE COPIES OF BALANCE SHEET OF MADHURIMA HOLDINGS MAURITIUS LIMITED FOR F INANCIAL YEAR ENDED 31- 03-2015 SUBMITTED TO THE A.O. FROM PAGES 90 TO 116/ PAPER BOOK. FURTHER, THE LD. COUNSEL RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GABRIEL INDIA LTD. , (1993) 203 ITR 108(BOM.) , CIT V. JAGADHRI ELECTRIC SUPPLY & INDUSTRIAL CO. ( 1981) 140 ITR 49 0(P&H HC) AND SUBMITTED THAT SPECIFIC QUESTIONS WERE ASKED BY THE AO WHICH WERE DULY REPLIED BY THE ASSESSEE. IT IS SUBMITTED THAT IT IS ONLY AFTER THE CONSIDERATION OF REPLIES OF THE ASSESSEE, THE LEARNED AO ACCEPTED THE CONTENTIONS O F THE ASSESSEE AND NO ADDITIONS WERE MADE BY THE AO U/S 56(2)(VIIB) OF TH E 1961 ACT 6. THE LD. CIT D.R. SUBMITTED THAT THE A.O. HAS COM PLETED ASSESSMENT U/S 143(3) OF THE 1961 ACT ON 23 RD MARCH, 2016. THE CASE WAS SELECTED FOR ITA 421/MUM/2017 13 SCRUTINY ASSESSMENT UNDER CASS SELECTION ON THE GRO UNDS THAT THE ASSESSEE HAS RECEIVED LARGE PREMIUM. IT IS SUBMITTED BY LD CIT DR THAT PROVISIONS OF NEWLY INSERTED SECTION 56(2)(VIIB) OF THE 1961 ACT GET ATTRACTED DUE TO ISSUE OF SHARES AT LARGE SHARE PREMIUM AND HENCE ASSESSEE CA SE WAS SELECTED UNDER CASS FOR FRAMING SCRUTINY ASSESSMENT U/S 143(3) OF THE 1961 ACT , IN ORDER TO SCRUTINIZE WHETHER THE ASSESSEE HAS ISSUED THE SHAR ES ABOVE FAIR MARKET VALUE OF SHARES ON THE DATE OF ISSUE OF SHARES. THE A.O. HAS FAILED TO MAKE ENQUIRIES WHICH WERE NECESSARY FOR THE PURPOSES OF THE ASSESS MENT IN ORDER TO SEE COMPLIANCE OF SECTION 56(2)(VIIB) OF THE 1961 ACT. THE LD CIT DR STATED THAT SECTION 56(2)(VIIB) OF THE 1961 ACT WAS INTRODUCED TO CURB BLACK MONEY AND ONLY 2% CASES ARE SELECTED FOR SCRUTINY. THE LEARN ED CIT DR SUBMITTED THAT THERE IS NO APPLICATION OF MIND BY THE A.O. WHILE A CCEPTING VALUATION ADOPTED BY THE VALUER IN ITS VALUATION REPORT DATED 15-10-2 012, AND THE SAID VALUER MERELY RELIED UPON THE ASSUMPTIONS OF MANAGEMENT OF THE ASSESSEE COMPANY. IT IS SUBMITTED THAT IT WAS A COMPLEX VALUATION OF PREFERENCE SHARES WHICH WAS NOT DONE CORRECTLY BY THE VALUER WHO MERELY REL IED UPON THE MANAGEMENT PROJECTIONS WITHOUT VERIFYING THE SAME. IT IS SUBM ITTED THAT IT WAS THE DUTY OF THE A.O. TO MAKE PROPER ENQUIRIES WHICH AO FAILED T O MAKE. THE ASSESSEE HAD ISSUED 6,00,000 PREFERENCE SHARES OF RS. 10/- E ACH ISSUED AT PREMIUM OF RS. 240/- PER SHARE WHICH IS VERY HIGH. SECTION 26 3 OF THE 1961 ACT WAS RIGHTLY INVOKED BY THE LD. PR. CIT WAS THE CONTENTI ON OF LD. CIT DR. THE A.O. CANNOT PREJUDICE THE INTEREST OF THE REVENUE. IT I S SUBMITTED THAT THE LD. PR. CIT WAS CORRECTLY APPLIED THE PROVISIONS OF SECTION 263 OF THE ACT. IT IS ALSO BROUGHT TO NOTICE THAT EXPLANATION 2 TO SECTION 263 OF THE 1961 ACT WAS INSERTED BY FINANCE ACT, 2015 W.E.F. 01-06-2015. T HE LD. CIT D.R. RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN TH E CASE OF CIT V. ASHOK LOGANI (ITA NO. 553 OF 2010 DATED MAY, 11, 2011). T HE LD. CIT D.R ALSO RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S CROMPTON GREAVES LTD. V. CIT IN ITA NO. 1994/MUM/2013 & ITA NO. 2836/MUM/201 4 FOR A.Y. 2007-08 ITA 421/MUM/2017 14 ORDER DATED 1 ST FEBRUARY, 2016, WHICH WAS AUTHORED BY ONE OF US (A CCOUNTANT MEMBER). 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND ALSO PE RUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING CASE LAWS RELIED UPON BY BOTH THE PARTIES. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING INCL UDING COMMODITIES. THE STOCK OF COMMODITIES IS PERIODICALLY HEDGED BY THE ASSESSEE BY ENTERING INTO DERIVATIVE CONTRACTS. WE HAVE OBSERVED THAT ORIGIN AL ASSESSMENT WAS FRAMED BY REVENUE U/S 143(3) OF THE ACT VIDE ASSESSMENT OR DERS 23 RD MARCH, 2016 WHEREIN ADDITION OF RS. 3,72,613/- WAS MADE TO RET URNED INCOME ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE 1961 ACT. DURING TH E YEAR UNDER CONSIDERATION , THE ASSESSEE HAD ISSUED AND ALLOTTE D 6,00,000 NON CUMULATIVE COMPULSORY CONVERTIBLE PREFERENCE SHARES OF RS. 10/- EACH FULLY PAID UP SHARES ISSUED AT A PREMIUM OF RS. 240/- PE R SHARE TO EXISTING SHAREHOLDERS. IT IS ALSO CLAIMED THAT SHARES WERE I SSUED TO EXISTING SHAREHOLDERS IN THE RATIO OF THEIR EXISTING SHAREHO LDING. THE ASSESSEE HAS OBTAINED A VALUATION REPORT DATED 15-10-2012 ISSUED BY CHARTERED ACCOUNTANTS M/S V R JAIN & CO FOR VALUATION OF THE SHARES , WHO VALUED THE SAID NON CUMULATIVE COMPULSORY CONVERTIBLE PREFEREN CE SHARES OF FACE VALUE RS 10 EACH AT RS 250 PER SHARE( SHARE PREMIUM OF RS 240 PER SHARE) BASED ON DISCOUNTING CASH FLOW(DCF) METHOD. THE SAID VALU ATION REPORT WAS FILED BY THE ASSESSEE BEFORE THE AO DURING THE COURSE OF ASS ESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) OF THE 1961 ACT. THE AO DID M ADE AN ENQUIRY DURING THE COURSE OF ASSESSMENT PROCEEDINGS W.R.T. ISSUE OF N ON CUMULATIVE COMPULSORY CONVERTIBLE PREFERENCE SHARES OF RS. 10/- EACH FULL Y PAID UP ISSUED AT A PREMIUM OF RS. 240/- PER SHARE AND APPLICABILITY O F SECTION 56(2)(VIIB) OF THE 1961 ACT, VIDE NOTICE DATED 01-02-2016 U/S 142(1) O F THE 1961 ACT(PB/30-32). THE ASSESSEE DULY REPLIED VIDE LETTERS DATED 19-02- 2016 ,25-02-2016 AND 26- 02-2016 (PB/33-116) DURING THE ASSESSMENT PROCEEDIN GS BEFORE THE AO ABOUT THE ISSUE OF NON CUMULATIVE COMPULSORY CONVERTIBLE PREFERENCE SHARES OF RS. ITA 421/MUM/2017 15 10/- EACH FULLY PAID UP ISSUED AT A PREMIUM OF RS. 240/- PER SHARE TO EXISTING SHAREHOLDERS AND SUBMITTED COPY OF VALUATI ON REPORT OF THE SAID CA, V R JAIN & CO. AND DETAILS OF SHAREHOLDER ALONG WIT H THEIR PAN, COPY OF BANK STATEMENT FROM WHERE THE SHAREHOLDERS TO WHOM SHARE S WERE ISSUED AND ALLOTTED ISSUED THE CHEQUES IN FAVOUR OF THE ASSES SEE, COPIES OF INCOME TAX RETURNS ALONG WITH BALANCE SHEET OF THE SAID SHAREH OLDERS . THE ASSESSEE ALSO FURNISHED COPY OF FORM NO 2 BEING RETURN OF ALLOTME NT OF SHARES FILED WITH THE OFFICE OF REGISTRAR OF COMPANIES, MCA INTIMATING AB OUT ISSUE AND ALLOTMENT OF 6,00,000 NON CUMULATIVE COMPULSORY CONVERTIBLE PREF ERENCE SHARES OF RS. 10/- EACH FULLY PAID UP ISSUED AT A PREMIUM OF RS. 240/- PER SHARE TO EXISTING SHAREHOLDERS, COPIES OF BOARD RESOLUTION A LLOTTING THE AFORESAID SHARES, LIST OF SHAREHOLDERS TO WHOM SHARES WERE AL LOTTED AT PREMIUM WERE ALSO DULY SUBMITTED BY THE ASSESSEE BEFORE THE AO. THE END USE OF THE PROCEEDS OF THE ISSUE OF THE AFORESAID PREFERENCE SHARES WERE ALSO SUBMITTED BEFORE THE AO AS BEING ISSUED FOR SUBSCRIBING TO 1, 48,70,000/- PREFERENCE SHARES OF RS 10 EACH OF ENTERCOMS SOLUTIONS PRIVATE LIMITED . THE EXPLANATIONS WERE ALSO PROVIDED AS TO THE USE OF DC F METHOD AS SUITABLE METHOD FOR ARRIVING AT VALUATION OF NON CUMULATIVE COMPULSORY CONVERTIBLE PREFERENCE SHARES OF RS. 10/- EACH AT RS 250/- PER SHARE . JUSTIFICATION WAS ALSO GIVEN THAT THE SAID DCF METHOD FOR VALUING SHA RES OF ASSESSEE COMPANY WHICH IS AN UNLISTED COMPANY IS IN DUE COMPLIANCE W ITH RULE 11UA OF INCOME-TAX RULES, 1962 , AND ALSO DCF METHOD IS A B ETTER METHOD AS COMPARED TO NET ASSET VALUE METHOD TO ARRIVE AT FAI R MARKET VALUE OF SHARES. IT WAS SUBMITTED BEFORE THE AO THAT SECTION 56(2)(VII B) OF THE 1961 ACT IS APPLICABLE FOR IMPUGNED ASSESSMENT YEAR BUT IT GETS TRIGGERED WHEN THE FMV OF SHARES OF UNLISTED COMPANY IS LOWER THAN ISSUE P RICE OF SHARES. IT WAS STATED BEFORE THE AO THAT THE FMV OF SHARES IS RS 2 50.06 PER SHARE WHILE THE ISSUE PRICE IS RS. 250/- PER SHARE AND HENCE SECTIO N 56(2)(VIIB) OF THE 1961 ACT DID NOT GET TRIGGERED IN THE INSTANT CASE AND HENCE CANNOT BE APPLIED IN THE INSTANT CASE. VIDE LETTER DATED 26-02-2016 FILE D BEFORE THE AO, THE ITA 421/MUM/2017 16 ASSESSEE MADE AN ATTEMPT TO JUSTIFY THAT DUE TO TUR MOIL IN GLOBAL COMMODITY MARKET SINCE 2012, THE TOTAL REVENUE ACTUALLY ACHIE VED IN THE FINANCIAL YEAR 2013-14 WAS RS. 16.81 CRORES AS AGAINST PROJECTED T OTAL TURNOVER OF RS. 58.28 CRORES AS WAS CONSIDERED AND ADOPTED BY THE VALUER M/S V R JAIN & CO. CHARTERED ACCOUNTANT WHILE VALUING THE SHARES @ RS 250 PER SHARE OF FACE VALUE OF RS. 10 PER SHARE IN HIS VALUATION REPORT D ATED 15-10-2012. IT WAS ALSO EXPLAINED IN THE SAID LETTER DATED 26-02-2016 SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT ASSESSEES SUBSIDIARY COMPANY BA SED IN MAURITIUS COULD NOT DISINVEST ITS HOLDING IN VARIOUS DOWNSTREAM SUB SIDIARY COMPANIES AS WERE TAKEN INTO ACCOUNT BY THE SAID VALUER IN HIS VALUAT ION REPORT FOR VALUING THE SHARES BUT IT WAS CONTENDED THAT MARKET VALUE OF TH E SHARES HELD IN DOWNSTREAM SUBSIDIARY COMPANIES BY ITS MAURITIUS SU BSIDIARY INCREASED AND IS EVEN HIGHER THAN THE VALUE OF SAID SHAREHOLDING AS ADOPTED BY THE VALUER IN HIS VALUATION REPORT DATED 15-10-2012, FOR WHICH TO SUBSTANTIATE THE SAME AUDITED ACCOUNTS OF THE SAID MAURITIUS SUBSIDIARY C OMPANY NAMELY M/S MADHURIMA HOLDINGS MAURITIUS LIMITED FOR THE FINANC IAL YEAR ENDED 31-3- 2015 WAS PRODUCED BEFORE THE AO. THE COPIES OF CASH FLOW PROJECTION USED IN VALUATION OF THE SHARES ALONG-WITH AUDITED FINANCIA LS OF MAURITIUS SUBSIDIARY COMPANY NAMELY M/S MADHURIMA HOLDINGS MAURITIUS LIM ITED FOR THE FINANCIAL YEAR ENDED 31-03-2015 WERE ALSO SUBMITTED BY THE ASSESSEE BEFORE THE AO. THE AO ACCEPTED THESE EXPLANATIONS AND PASS ED THE ASSESSMENT ORDER DATED 23-03-2016 U/S 143(3) OF THE 1961 ACT , WHEREIN NO ADDITIONS WERE MADE BY THE AO U/S 56(2)(VIIB) OF THE 1961 ACT AND ALSO THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER W.R.T. THE ISSUE OF SAID NON CUMULATIVE COMPULSORY CONVERTIBLE PREFERENCE SHARES OF RS. 10/ - EACH FULLY PAID UP ISSUED AT A PREMIUM OF RS. 240/- PER SHARE TO EXIS TING SHAREHOLDERS AND ITS ACCEPTABILITY BY THE AO. IT IS PROFITABLE AT THIS S TAGE TO REPRODUCE RELEVANT PROVISIONS OF 1961 ACT AND 1962 RULES WHICH ARE RE PRODUCED HEREUNDER : ITA 421/MUM/2017 17 F.INCOME FROM OTHER SOURCES INCOME FROM OTHER SOURCES. 56. (1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUD ED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME-TAX UN DER THE HEAD 'INCOME FROM OTHER SOURCES', IF IT IS NOT CHARGEABLE TO INC OME-TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14 , ITEMS A TO E. (2) IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GEN ERALITY OF THE PROVISIONS OF SUB-SECTION (1), THE FOLLOWING INCOMES, SHALL BE CH ARGEABLE TO INCOME-TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES', NAMELY : *** *** *** (VIIB) WHERE A COMPANY, NOT BEING A COMPANY IN WHI CH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON BEING A RESIDENT, ANY CONSIDERATION FOR ISSUE OF SHARES T HAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERATION RECEIVED F OR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES: **** EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (A) THE FAIR MARKET VALUE OF THE SHARES SHALL BE T HE VALUE (I) AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH M ETHOD AS MAY BE PRESCRIBED; OR (II) AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER, BASED ON THE VALUE, ON THE DATE OF ISSUE OF SHARES, OF ITS ASSETS, INCLUDI NG INTANGIBLE ASSETS BEING GOODWILL, KNOW-HOW, PATENTS, COPYRIGHT S, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, ITA 421/MUM/2017 18 WHICHEVER IS HIGHER ; *** *** E.REVISION BY THE [PRINCIPAL COMMISSIONER OR] COMM ISSIONER REVISION OF ORDERS PREJUDICIAL TO REVENUE. 263. (1) THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER MA Y CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE [ASSESSING] OFFICER IS ERRONE OUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE 1 , HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTA NCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSES SMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. [ [EXPLANATION 1.]FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION, (A ) AN ORDER PASSED [ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988] BY TH E ASSESSING OFFICER SHALL INCLUDE (I ) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMIS SIONER [OR DEPUTY COMMISSIONER] OR THE INCOME- TAX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED BY THE [JOINT] COMMISSIONER UNDER SECTION 144A ; (II ) AN ORDER MADE BY THE [JOINT] COMMISSIONER IN EXERCI SE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTIONS OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTI ONS ISSUED BY THE BOARD OR BY THE 7 [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONE R OR 7 [PRINCIPAL DIRECTOR GENERAL OR] DIRECTOR GENERAL OR [PRINCIPAL COMMISSIONER OR] COMMISSIONER AUTHORISED BY THE BOA RD IN THIS BEHALF UNDER SECTION 120 ; (B ) 'RECORD' [SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE INCLUDED] ALL RECORDS RELATING TO ANY PROCEEDING UNDER THIS ACT A VAILABLE AT THE T IME OF EXAMINATION BY THE [PRINCIPAL COMMISSIONER OR] COMM ISSIONER; (C ) WHERE ANY ORDER REFERRED TO IN THIS SUB- SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTER OF ANY APPEAL [ FILED ON OR BEFORE OR AFTER ITA 421/MUM/2017 19 THE 1ST DAY OF JUNE, 1988], THE POWERS OF THE [PRINCIPAL COMMISSIONER OR ] COMMISSIONER UNDER THIS SUB- SECTION SHALL EXTEND [AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED] TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL.] [EXPLANATION 2.FOR THE PURPOSES OF THIS SECTION, IT IS HEREBY DECLARED THAT AN ORDER PASSED BY THE ASSESSING OFFI CER SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICI AL TO THE INTERESTS OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER, (A ) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VER IFICATION WHICH SHOULD HAVE BEEN MADE; (B ) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQ UIRING INTO THE CLAIM; (C ) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119 ; OR (D ) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE WITH ANY DE CISION WHICH IS PREJUDICIAL TO THE ASSESSEE, RENDERED BY THE JURISD ICTIONAL HIGH COURT OR SUPREME COURT IN THE CASE OF THE ASSESSEE OR ANY OT HER PERSON.] [(2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) A FTER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER SO UGHT TO BE REVISED WAS PASSED.] (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY TIME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CONSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING OR DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE TRIBUNAL, [NATIONAL TAX TRIB UNAL,] THE HIGH COURT OR THE SUPREME COURT. EXPLANATION.IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB-SECTION (2), THE TIME TAKEN IN GIVING AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEEDING UNDER T HIS SECTION IS STAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED [ H.DETERMINATION OF FAIR MARKET VALUE OF THE PROPER TY OTHER THAN IMMOVABLE PROPERTY MEANING OF EXPRESSIONS USED IN DETERMINATION OF FAI R MARKET VALUE . 11U . FOR THE PURPOSES OF THIS RULE AND RULE 11UA, [ ( A ) 'ACCOUNTANT', ITA 421/MUM/2017 20 ( I ) FOR THE PURPOSES OF SUB - RULE (2) OF RULE 11UA, 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); AND ( II ) IN ANY OTHER CASE, SHALL HAVE THE SAME MEANING AS A SSIGNED TO IT IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 OF THE ACT; ( B ) 'BALANCE-SHEET', IN RELATION TO ANY COMPANY, MEANS, ( I ) FOR THE PURPOSES OF SUB -RULE (2) OF RULE 11UA, THE BALANCE- SHEET OF SUCH COMPANY (INCLUDING THE NOTES ANNEXED THERETO AND FO RMING PART OF THE ACCOUNTS) AS DRAWN UP ON THE VALUATION DATE WHICH H AS BEEN AUDITED BY THE AUDITOR OF THE COMPANY APPOINTED UNDER SECTI ON 224 OF THE COMPANIES ACT, 1956 (1 OF 1956) AND WHERE THE BALAN CE- SHEET ON THE VALUATION DATE IS NOT DRAWN UP, THE BALANCE- SHEET (INCLUDING THE NOTES ANNEXED THERETO AND FORMING PART OF THE ACCOUNTS) D RAWN UP AS ON A DATE IMMEDIATELY PRECEDING THE VALUATION DATE WHICH HAS BEEN APPROVED AND ADOPTED IN THE ANNUAL GENERAL MEETING OF THE SHAREHOLDERS OF THE COMPANY; AND ( II ) IN ANY OTHER CASE, THE BALANCE- SHEET OF SUCH COMPANY (INCLUDING THE NOTES ANNEXED THERETO AND FORMING PART OF THE ACCOU NTS) AS DRAWN UP ON THE VALUATION DATE WHICH HAS BEEN AUDITED BY THE AUDITOR APPOINTED UNDER SECTION 224 OF THE COMPANIES ACT, 1956 (1 OF 1956); ] ( C ) 'MERCHANT BANKER' MEANS CATEGORY I MERCHANT BANKER REGISTERED WITH SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES A ND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992); ( D ) 'QUOTED SHARES OR SECURITIES' IN RELATION TO SHARE OR SECURITIES MEANS A SHARE OR SECURITY QUOTED ON ANY RECOGNIZED STOCK EXCHANGE WITH REGULARITY FROM TIME TO TIME, WHERE THE QUOTATIONS OF SUCH SHARES OR SECURITIES ARE BASED ON CURRENT TRANSACTION MADE IN THE ORDINARY COURSE OF BUSINESS; ( E ) 'RECOGNIZED STOCK EXCHANGE' SHALL HAVE THE SAME MEA NING AS ASSIGNED TO IT IN CLAUSE ( F ) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULAT ION) ACT, 1956 ( 42 OF 1956); ( F ) 'REGISTERED DEALER' MEANS A DEALER WHO IS REGISTERE D UNDER CENTRAL SALES TAX ACT, 1956 OR GENERAL SALES TAX LAW FOR THE TIME BEI NG IN FORCE IN ANY STATE INCLUDING VALUE ADDED TAX LAWS; ( G ) 'REGISTERED VALUER' SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN SECTION 34AB OF THE WEALTH-TAX ACT, 1957 (27 OF 1957) READ WITH RULE 8A OF WEALTH- TAX RULES, 1957; ( H ) 'SECURITIES' SHALL HAVE THE SAME MEANING AS ASSIGNE D TO IT IN CLAUSE ( H ) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956); ( I ) ' UNQUOTED SHARES AND SECURITIES', IN RELATION TO SHA RES OR SECURITIES, ITA 421/MUM/2017 21 MEANS SHARES AND SECURITIES WHICH IS NOT A QUOTED S HARES OR SECURITIES; [ ( J ) 'VALUATION DATE' MEANS THE DATE ON WHICH THE PROPER TY OR CO NSIDERATION, AS THE CASE MAY BE, IS RECEIVED BY THE ASSESSEE. ] DETERMINATION OF FAIR MARKET VALUE . 11UA . [ (1) ] FOR THE PURPOSES OF SECTION 56 OF THE ACT, THE FAI R MARKET VALUE OF A PROPERTY, OTHER THAN IMMOVABLE PROPERTY, SHALL BE DETERMINED IN THE FOLLOWING MANNER, NAMELY, ( A ) VALUATION OF JEWELLERY, ( I ) THE FAIR MARKET VALUE OF JEWELLERY SHALL BE ESTIMATED TO BE THE PRICE WHICH SUCH JEWELLERY WOULD FETCH IF SOLD IN THE OPE N MARKET ON THE VALUATION DATE; ( II ) IN CASE THE JEWELLERY IS RECEIVED BY THE WAY OF PUR CHASE ON THE VALUATION DATE, FROM A REGISTERED DEALER, THE INVOI CE VALUE OF T HE JEWELLERY SHALL BE THE FAIR MARKET VALUE; ( III ) IN CASE THE JEWELLERY IS RECEIVED BY ANY OTHER MODE AND THE VALUE OF THE JEWELLERY EXCEEDS RUPEES FIFTY THOUSAND, THEN A SSESSEE MAY OBTAIN THE REPORT OF REGISTERED VALUER IN RESPECT O F THE PRICE IT WOU LD FETCH IF SOLD IN THE OPEN MARKET ON THE VALUATION D ATE; ( B ) VALUATION OF ARCHAEOLOGICAL COLLECTIONS, DRAWINGS, PAINTINGS, SCULPTURES OR ANY WORK OF ART, ( I ) THE FAIR MARKET VALUE OF ARCHAEOLOGICAL COLLECTIONS , DRAWINGS, PAINTINGS, SCULPTURES OR ANY WORK OF ART (HEREINAFTER REFERRED AS ARTISTIC WORK) SHALL BE ESTIMATED TO BE PRICE WHICH IT WOULD FETCH IF SOLD IN THE OPEN MARKET ON THE VALUATION DATE; ( II ) IN CASE THE ARTISTIC WORK IS RECEIVED BY THE WAY OF PURCHASE ON THE VALUATION DATE, FROM A REGISTERED DEALER, THE INVOICE VALUE OF THE ARTISTIC WORK SHALL BE THE FAIR MARKET VALUE; ( III ) IN CASE THE ARTISTIC WORK IS RECEIVED BY ANY OTHER MODE AND THE VALUE OF THE ARTISTIC WORK EXCEEDS RUPEES FIFTY THOUSAND, THEN ASSESSEE MAY OBTAIN TH E REPORT OF REGISTERED VALUER IN RESPECT OF THE PRI CE IT WOULD FETCH IF SOLD IN THE OPEN MARKET ON THE VALUATION D ATE; ( C ) VALUATION OF SHARES AND SECURITIES, ( A ) THE FAIR MARKET VALUE OF QUOTED SHARES AND SECURITI ES SHALL BE DETERMINED IN THE FOLLOWING MANNER, NAMELY, ( I ) IF THE QUOTED SHARES AND SECURITIES ARE RECEIVED BY WAY OF TRANSACTION CARRIED OUT THROUGH ANY RECOGNIZED STOC K EXCHANGE, THE FAIR MARKET VALUE OF SUCH SHARES AND SECURITIES ITA 421/MUM/2017 22 SHALL BE THE TRANSACTION VALUE AS RECORDED IN SUCH STOCK EXCHANGE; ( II ) IF SUCH QUOTED SHARES AND SECURITIES ARE RECEIVED B Y WAY OF TRANSACTION CARRIED OUT OTHER THAN THROUGH ANY RECO GNIZED STOCK EXCHANGE, THE FAIR MARKET VALUE OF SUCH SHARE S AND SECURITIES SHALL BE, ( A ) THE LOWEST PRICE OF SUCH SHARES AND SECURITIES QUOTED ON ANY RECOGNIZED STOCK EXCHANGE ON THE VALUATION DATE, AND ( B ) THE LOWEST PRICE OF SUCH SHARES AND SECURITIES ON A NY RECOGNIZED STOCK EXCHANGE ON A DATE IMMEDIATELY PRECEDING THE VALUATION DATE WHEN SUCH SHARES AND SECURITIES WERE TRADED ON SUCH STOCK EXCHANGE, IN CASES WHERE ON THE VALUATION DATE THERE IS NO TRADI NG IN SUCH SHARES AND SECURITIES ON ANY RECOGNIZED STO CK EXCHANGE; [ ( B ) THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES SHA LL BE THE VALUE, ON THE VA LUATION DATE, OF SUCH UNQUOTED EQUITY SHARES AS DET ERMINED IN THE FOLLOWING MANNER, NAMELY: THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES = (AL) (PV), (PE) WHERE, A = BOOK VALUE OF THE ASSETS IN THE BALANCE-SHEET AS RE DUCED BY ANY AMOUNT OF TAX PAID AS DEDUCTION OR COLLECTION AT SO URCE OR AS ADVANCE TAX PAYMENT AS REDUCED BY THE AMOUNT OF TAX CLAIMED AS REFUND UNDER THE INCOME-TAX ACT AND ANY AMOUNT SHOW N IN THE BALANCE-SHEET AS ASSET INCLUDING THE UNAMORTISED AM OUNT OF DEFERRED EXPENDITURE WHICH DOES NOT REPRESENT THE V ALUE OF ANY ASSET; L = BOOK VALUE OF LIABILITIES SHOWN IN THE BALANCE-SHEE T, BUT NOT INCLUDING THE FOLLOWING AMOUNTS, NAMELY: ( I ) THE PAID-UP CAPITAL IN RESPECT OF EQUITY SHARES; ( II ) THE AMOUNT SET APART FOR PAYMENT OF DIVIDENDS ON PREFERENCE SHARES AND EQUITY SHARES WHERE SUCH DIVIDENDS HAVE NOT BEEN DECLARED BEFORE THE DATE OF TRANSFER AT A GENERAL BODY MEETING OF THE COMPANY; ( III ) RESERVES AND SURPLUS, BY WHATEVER NAME CALLED, EVEN IF THE RESULTING FIGURE IS NEGATIVE, OTHER THAN THOSE SET APART TOWARDS DEPRECIATION; ITA 421/MUM/2017 23 ( IV ) ANY AMOUNT REPRESENTING PROVISION FOR TAXATION, OTH ER THAN AMOUNT OF TAX PAID AS DEDUCTION OR COLLECTION AT S OURCE OR AS ADVANCE TAX PAYMENT AS REDUCED BY THE AMOUNT OF TAX CLAIMED AS REFUND UNDER THE INCOME- TAX ACT, TO THE EXTENT OF THE EXCESS OVER THE TAX PAYAB LE WITH REFERENCE TO THE BOOK PROFITS IN ACCORDANCE WITH TH E LAW APPLICABLE THERETO; ( V ) ANY AMOUN T REPRESENTING PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; ( VI ) ANY AMOUNT REPRESENTING CONTINGENT LIABILITIES OTHE R THAN ARREARS OF DIVIDENDS PAYABLE IN RESPECT OF CUMULATIVE PREFERENCE SHARES; PE = TOTAL AMOUNT OF PAID UP EQUITY SHARE CAPITAL AS SHO WN IN THE BALANCE-SHEET; PV = THE PAID UP VALUE OF SUCH EQUITY SHARES; ] ( C ) THE FAIR MARKET VALUE OF UNQUOTED SHARES AND SECURI TIES OTHER THAN EQUITY SHARES IN A COMPANY WHICH ARE NOT LISTE D IN ANY RECOGNIZED STOCK EXCHANGE SHALL BE ESTIMATED TO BE PRICE IT WOULD FETCH IF SOLD IN THE OPEN MARKET ON THE VALUA TION DATE AND THE ASSES SEE MAY OBTAIN A REPORT FROM A MERCHANT BANKER OR A N ACCOUNTANT IN RESPECT OF SUCH VALUATION.] [ (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-CLAUS E ( B ) OF CLAUSE ( C ) OF SUB-RULE (1), THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARE S FOR THE PURPOSES OF SUB-CLAUSE ( I ) OF CLAUSE ( A ) OF EXPLANATION TO CLAUSE ( VIIB ) OF SUB-SECTION (2) OF SECTION 56 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 ASSESSEE, NAMELY: ( A ) THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES = (AL) (PV), (PE) WHERE, A = BOOK VALUE OF THE ASSETS IN THE BALANCE-SHEET AS RE DUCED BY ANY AMOUNT OF TAX PAID AS DEDUCTION OR COLLECTION AT SO URCE OR AS ADVANCE TAX PAYMENT AS REDUCED BY THE AMOUNT OF TAX CLAIMED AS REFUND UNDER THE INCOME-TAX ACT AND ANY AMOUNT SHOWN IN THE BALA NCE-SHEET AS ASSET INCLUDING THE UNAMORTISED AMOUNT OF DEFERRED EXPENDITURE WHICH DOES NOT REPRESENT THE VALUE OF ANY ASSET; L = BOOK VALUE OF LIABILITIES SHOWN IN THE BALANCE-SHEE T, BUT NOT INCLUDING ITA 421/MUM/2017 24 THE FOLLOWING AMOUNTS, NAMELY: ( I ) THE PAID-UP CAPITAL IN RESPECT OF EQUITY SHARES; ( II ) THE AMOUNT SET APART FOR PAYMENT OF DIVIDENDS ON PR EFERENCE SHARES AND EQUITY SHARES WHERE SUCH DIVIDENDS HAVE NOT BEE N DECLARED BEFORE THE DATE OF TRANSFER AT A GENERAL BODY MEETI NG OF THE COMPANY; ( III ) RESERVES AND SURPLUS, BY WHATEVER NAME CALLED, EVEN IF THE RESULTING FIGURE IS NEGATIVE, OTHER THAN THOSE SET APART TOWA RDS DEPRECIATION; ( IV ) ANY AMOUNT REPRESENTING PROVISION FOR TAXATION, OTH ER THAN AMOUNT OF TAX PAID AS DEDUCTION OR COLLECTION AT S OURCE OR AS ADVANCE TAX PAYMENT AS REDUCED BY THE AMOUNT OF TAX CLAIMED AS REFUND UNDER THE INCOME- TAX ACT, TO THE EXTENT OF THE EXCESS OVER THE TAX P AYABLE WITH REFERENCE TO THE BOOK PROFITS IN ACCORDANCE WITH TH E LAW APPLICABLE THERETO; ( V ) ANY AMOUN T REPRESENTING PROVISIONS MADE FOR MEETING LIABILIT IES, OTHER THAN ASCERTAINED LIABILITIES; ( VI ) ANY AMOUNT REPRESENTING CONTINGENT LIABILITIES OTHE R THAN ARREARS OF DIVIDENDS PAYABLE IN RESPECT OF CUMULATIVE PREFEREN CE SHARES; PE = TOTAL AMOUNT OF PAID UP EQUITY SHARE CAPITAL AS SHO WN IN THE BALANCE- SHEET; PV = THE PAID UP VALUE OF SUCH EQUITY SHARES; OR ( B ) THE FAIR MARKET VALUE OF THE UNQUOTED EQUITY SHARES DET ERMINED BY A MERCHANT BANKER OR AN ACCOUNTANT AS PER THE DISCOUNTED FREE CASH FLOW METHOD. ] IT IS PERTINENT TO MENTION HERE THAT CASE OF THE AS SESSEE WAS SELECTED FOR SCRUTINY UNDER CASS BY THE REVENUE DUE TO ISSUE OF SHARES OF FACE VALUE OF RS 10 AT A PREMIUM OF RS 240 PER SHARE. IT IS ALSO PERTINENT TO MENTION THAT THE ASSESSEE ISSUED PREFERENCE SHARES AND NOT EQUIT Y SHARES DURING RELEVANT PREVIOUS YEAR ALBEIT THE PREFERENCE SHARES ARE COMP ULSORILY CONVERTIBLE INTO EQUITY SHARES. THE LD. PR. CIT INVOKED SECTION 263 OF THE 1961 ACT AND HELD THAT THE SAID ASSESSMENT ORDER DATED 23-03-2016 PAS SED BY THE AO U/S 143(3) OF THE 1961 ACT IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AS THE AO HAS FAILED TO MAKE NECESSARY E NQUIRIES AS TO JUSTIFICATION FOR ISSUE OF NON CUMULATIVE COMPULSOR Y CONVERTIBLE PREFERENCE SHARES OF RS. 10/- EACH FULLY PAID UP AT A PREMIUM OF RS. 240/- PER SHARE ITA 421/MUM/2017 25 AND DIRECTIONS WERE ISSUED BY LD. PR. CIT TO AO TO FRAME FRESH ASSESSMENT AS PER LAW AFTER CONDUCTING DETAILED ENQUIRIES AND VER IFICATIONS OF THE SUBMISSIONS OF THE ASSESSEE. THE DIRECTIONS WERE AL SO ISSUED BY LD. PR. CIT TO THE AO TO EXAMINE THE VALUER W.R.T. VALUATION REPOR T DATED 15-10-2012 PREPARED BY THE SAID VALUER. THE LD PR. CIT ALSO IN VOKED NEWLY INSERTED EXPLANATION 2 TO SECTION 263 OF THE 1961 ACT WHICH WAS INSERTED BY FINANCE ACT, 2015 . IT WAS OBSERVED BY THE LEARNED PR. CIT THAT THE VALUER M/S V R JAIN & CO HAS ISSUED VALUATION REPORT DATED 15-10-2 012 WHEREIN HE HAS USED DCF METHOD TO ARRIVE AT VALUATION OF SHARES BUT HE HAS MERELY USED PROJECTIONS AND INFORMATION PROVIDED BY MANAGEMENT AND NO INDEPENDENT ENQUIRIES/VERIFICATIONS AS TO MANAGEMENT CERTIFIED PROJECTIONS WERE MADE BY THE SAID CA , V R JAIN & CO. TO ARRIVE AT VALUATION OF THE SHARES. THE SAID CA IN HIS VALUATION REPORT HAS ISSUED DISCLAIMER THAT NO INDEPENDENT VERIFICATIONS AS TO MANAGEMENT CERTIFIED PROJECTION S WERE MADE BY THE SAID CA BEFORE ISSUING VALUATION REPORT DATED 15-10-2012 , VALUING AFORESAID PREFERENCE SHARE AT RS 250 PER SHARE AS AGAINST FAC E VALUE OF THE SHARE AT RS 10 PER SHARE. THE AO ALSO ACCEPTED THE SAID VALUATI ON REPORT WITHOUT PROBING INTO THE BASIS OF ARRIVING OF THE PROJECTED TURNOVE R AND FREE CASH FLOWS AS PREPARED BY MANAGEMENT AND ACCEPTED BY THE SAID VAL UER. THE LD. PR. CIT OBSERVED THAT THE BOOK VALUE AS PER BALANCE SHEET C OMES TO LESS THAN RS. 100/- PER SHARE WHEREAS THE VALUE OF SHARES AS PER DCF METHOD WAS WORKED OUT AT RS. 250/- PER SHARE AND A REPORT OF VALUATIO N DATED 15-10-2012 CONTAINED THE FOLLOWING DETAILS:- PARTICULARS % MAR 13 MAR 14 MAR 15 MAR 16 MAR 17 FREE CASH FLOW FOR EQUITY 5.30 43.01 6.67 9.41 223. 46 DISCOUNTING FACTOR 15.01 0.93 0.81 0.70 0.61 0.53 DISCOUNTING CASH FLOW 4.93 34.79 4.69 5.75 118.80 AGGREGATE DCF VALUE 168.96 TERMINAL VALUE 100.13 TOTAL VALUE OF COMPANY 269.09 NO. OF SHARES OUTSTANDING 1,07,60,003 VALUE PER SHARE 250.08 ITA 421/MUM/2017 26 KEY ASSUMPTIONS: A. WE HAVE NOT INDEPENDENTLY VERIFIED THE PROJECTION S OF THE COMPANY. B. WE HAVE BEEN INFORMED THAT THERE ARE 1,760,003 SHA RES OUTSTANDING ON A FULL DILUTED BASIS ON THE VALUATION DATE OUT OF WHICH 60,00,000 ARE EQUITY SHARES AND 47,60,003 ARE 10% NON CUMULATIVE COMPULS ORILY CONVERTIBLE PREFERENCE SHARES OF RS. 10/ - EACH. THE A.O. ACCEPTED THE VALUATION REPORT GIVEN BY THE CA BUT THE A.O. HAS NOT GONE IN DETAILS TO PROBE ABOUT THE SUDDEN HUGE SPIK E IN PROJECTED FREE CASH FLOW FROM RS. 5.30 CRORES IN FINANCIAL YEAR 2012-13 TO RS. 43.01 CRORE FOR FINANCIAL YEAR 2013-14 AND ALSO FURTHER PROJECTED F REE CASH FLOW INCREASED TO RS. 223.46 CRORES IN FINANCIAL YEAR 2016-17 FROM ME RELY RS. 9.41 CRORES IN FINANCIAL YEAR 2015-16 , WHICH WERE ADOPTED BY THE SAID VALUER M/S V R JAIN & CO IN HIS REPORT DATED 15-10-2012. THE AO HAS ALS O NOT PROBED ON THE DISCLAIMER ISSUED BY THE SAID CA WHILE ISSUING VALU ATION REPORT THAT HE HAS NOT MADE ANY INDEPENDENT VERIFICATION OF THE PROJEC TIONS MADE BY THE MANAGEMENT. THE ACTUAL FREE CASH FLOW OF THE ASSESS EE WAS LESS THAN RS. 1 CRORE FOR THE FINANCIAL YEAR 2011-12 , WHILE FOR TH E FIRST YEAR OF THE PROJECTIONS I.E. FINANCIAL YEAR 2012-13, THE FREE CASH FLOW ADO PTED WAS RS. 5.30 CRORES I.E. MORE THAN FIVE TIMES. THE SAID VALUER HAS GIVEN A D ISCLAIMER IN HIS VALUATION REPORT DATED 15-10-2012 THAT HE HAS NOT MADE ANY IN DEPENDENT INVESTIGATIONS/VERIFICATION AS TO THE MANAGEMENT CE RTIFIED PROJECTIONS WHICH WERE MERELY ADOPTED BY THE SAID VALUER, WHICH ALSO SHOULD HAVE TRIGGERED A FURTHER PROBE BY THE AO AS TO THE RELIABILITY AND A UTHENTICITY OF THE SAID VALUATION REPORT MORE-SO NEWLY INSERTED SECTION 56( 2)(VIIB) OF 1961 ACT WAS APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR. NO SUC H EFFORTS WERE MADE BY THE AO TO VERIFY THE VALUATION OF PREFERENCE SHARES @ RS 250 PER PREFERENCE SHARE AS AGAINST PAR/FACE VALUE OF THE PREFERENCE S HARE BEING RS 10 PER PREFERENCE SHARE, AND THE VALUATION REPORT WAS MER ELY ACCEPTED AS IT IS BY THE AO. THE MATTER FOR PROBE BY THE AO WAS ALSO FURTHER TRIGGERED WHEN DURING ITA 421/MUM/2017 27 THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) R.W .S. 143(2) OF THE 1961 ACT, IT WAS OBSERVED BY THE AO THAT THERE WERE WIL D DEVIATION IN THE ACTUAL PERFORMANCE OF THE ASSESSEE COMPANY VIS--VIS TO TH E PROJECTIONS IN TURNOVER USED BY VALUER IN HIS REPORT DATED 15-10-2012 . THE PROJECTED TURNOVER FOR FINANCIAL YEAR 2013-14 FOR VALUATION REPORT ADOPTED BY THE SAID VALUER WAS RS. 58.28 CRORES WHILE ACTUAL TURNOVER ACHIEVED WAS MER ELY RS. 16.81 CRORES FOR THE FINANCIAL YEAR 2013-14, WHICH IS MERELY 29% OF THE PROJECTED TURNOVER APPLIED FOR VALUING THE SHARES IN THE PROJECTIONS S O MADE BY THE MANAGEMENT AND ACCEPTED BY THE VALUER. THE VAST AND WILD DEVIA TION IN ACTUAL TURNOVER VIS--VIS WAS BRUSHED ASIDE BY THE ASSESSEE BY BLAM ING THE NON-ACHIEVEMENT OF PROJECTED TURNOVER TO TURMOIL IN COMMODITY MARKE T IN POST 2012 CRISIS. THE PROJECTION AS TO PROCEEDS OF DISINVESTMENT IN DOWNS TREAM SUBSIDIARIES BY ITS SUBSIDIARY COMPANY IN MAURITIUS TAKEN INTO ACCOUNT AND INCLUDED FOR VALUING THE SHARES ALSO DID NOT MATERIALIZE AND COULD NOT B E ACHIEVED WHICH ALSO NEEDED DEEPER PROBE BY THE AO AS TO THE REASONS AN D JUSTIFICATION FOR ITS INCLUSION IN FREE CASH FLOW PROJECTED BY THE SAID V ALUER, WHICH REQUIRED DEEPER PROBE AS TO WHETHER THE SAID INVESTMENT WAS A STRAT EGIC INVESTMENT AND CAN IT AT ALL BE USED TO ACCOUNT FOR IN THE PROJECTED FREE CASH FLOWS AS ADOPTED BY MANAGEMENT/VALUER FOR VALUING THE SHARES OF THE AS SESSEE COMPANY IN THE FIRST INSTANCE ITSELF AND THE BASIS AND RATIONALE F OR ITS VALUATION. THE AO DID NOT MADE ANY EFFORTS TO ENQUIRE, INVESTIGATE OR VER IFY THE AFORE-SAID CRUCIAL ASPECTS IN THE VALUATION REPORT DATED 15-10-2012 IS SUED BY M/S V R JAIN AND CO., CA AND MERELY ACCEPTED THE SAID VALUATION REPO RT, WHICH IN OUR CONSIDERED VIEW HAS MADE AN ASSESSMENT ORDER DATED 26-03-2016 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT , AN ORDER WHICH IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE , KEEPING IN VIEW PROVISIONS OF SECTION 56(2)(VIIB) OF THE 1961 ACT READ WITH EXPLANATION 2 TO SECTION 263 OF THE 1961 ACT. THERE ARE CERTAIN OTHER FLASH POINTS WHICH SHO ULD HAVE TRIGGERED FURTHER PROBE BY THE AO AS TO THE VALUATION REPORT DATED 15 -10-2012 FURNISHED BY THE ASSESSEE AS THE ASSESSEE DID NOT ISSUED EQUITY SHAR ES DURING THE RELEVANT ITA 421/MUM/2017 28 PREVIOUS YEAR BUT INSTEAD ISSUED 10% NON CUMULATIVE COMPULSORY CONVERTIBLE PREFERENCE SHARES OF RS. 10/- EACH FULLY PAID UP IS SUED AT A PREMIUM OF RS. 240/- PER SHARE WHICH ARE CONVERTIBLE INTO 1 EQUITY SHARE FOR EVERY PREFERENCE SHARE HELD BY THE ALLOTTEE OR AT SUCH HIGHER RATIO OF CONVERSION AT THE END OF THE TENURE OF 10 YEARS AS MAY BE DECIDED BY BOARD OF DIRECTORS OF THE ASSESSEE COMPANY. THESE SHARES ARE ALSO CONVERTIBLE AT THE OPTION OF ALLOTTEE AFTER THREE YEARS AT THE CONVERSION RATIO TO BE DEC IDED BY BOARD OF DIRECTORS OF THE ASSESSEE COMPANY AND ASSUMPTION OF THE SAID CA V R JAIN & COMPANY WHO ISSUED VALUATION REPORT DATED 15-10-2012 IN ASS UMING AND PRESUMING THAT EACH NON CUMULATIVE COMPULSORY CONVERTIBLE PRE FERENCE SHARES SHALL BE CONVERTED INTO ONE EQUITY SHARE OF THE ASSESSEE COM PANY NEEDED ENQUIRY BY THE AO VIS--VIS ITS IMPLICATION IN COMPUTING INCOM E AS CONTEMPLATED U/S 56(2)(VIIB) OF 1961 ACT AND ANY DISCOUNTING FACTOR IS TO BE USED IN THIS REGARD. FURTHER, THE SHARES ISSUED BY THE ASSESSEE WERE PRE FERENCE SHARES AND NOT EQUITY SHARES ALBEIT PREFERENCE SHARES ARE COMPULSO RILY CONVERTIBLE INTO EQUITY SHARES. THE AO SHOULD HAVE ALSO LOOKED INTO THIS AS PECT THAT RULE 11UA(1)(C)(C) OF 1962 RULES STIPULATES THAT IN CASE OF ISSUE OF SHARES OTHER THAN EQUITY SHARES , THE RULE MANDATE VALUATION AS PER FOLLOWING METHOD : ( C ) THE FAIR MARKET VALUE OF UNQUOTED SHARES AND SECURI TIES OTHER THAN EQUITY SHARES IN A COMPANY WHICH ARE NOT LISTED IN ANY RECOGNIZED STOCK EXCHANGE SHALL BE ESTIMATED TO BE PRICE IT WOULD FETCH IF SOLD IN THE OPEN MARKET ON THE VALUA TION DATE AND THE ASSESSEE MAY OBTAIN A REPORT FROM A MERCHANT BA NKER OR AN ACCOUNTANT IN RESPECT OF SUCH VALUATION.] THE AO SHOULD HAVE ENQUIRED INTO THIS ASPECT THAT C ONVERTIBLE PREFERENCE SHARES WERE ISSUED WHICH WERE ALTHOUGH CONVERTIBLE INTO EQUITY SHARES AFTER A CERTAIN PERIOD BUT DID THE LAW EQUATE THE SAME TO B E EQUITY SHARES FOR THE PURPOSES OF VALUATION OF SHARES AS MANDATED UNDER T HE PROVISIONS OF STATUTE ITA 421/MUM/2017 29 AND RULES MADE THERE-UNDER. FURTHER , THE AO NEEDED TO LOOK INTO AN EXPLANATION TO SECTION 56(2)(VIIB) OF THE 1961 ACT WHICH PROVIDED AS UNDER : EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (A) THE FAIR MARKET VALUE OF THE SHARES SHALL BE T HE VALUE (I) AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH M ETHOD AS MAY BE PRESCRIBED; OR (II) AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER, BASED ON THE VALUE, ON THE DATE OF ISSUE OF SHARES, OF ITS ASSETS, INCLUDI NG INTANGIBLE ASSETS BEING GOODWILL, KNOW-HOW, PATENTS, COPYRIGHT S, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, WHICHEVER IS HIGHER ; THE AO DID NOT LOOK INTO THIS ASPECT THAT EXPLANATI ON REFERS TO VALUE OF ASSETS ALSO AS PER CLAUSE (II) AS WELL METHOD PRESCRIBED A S PER CLAUSE (I) OF THE SAID EXPLANATION, AS IS CONTAINED IN EXPLANATION TO SECT ION 56(2)(VIIB) OF THE 1961 ACT AS TO THE FACT THAT MANNER OF COMPUTING FAIR VA LUE OF SHARES FOR THE PURPOSES OF SECTION 56(2)(VIIB) OF 1961 ACT IS PROV IDED IN ABOVE EXPLANATION OF BEING HIGHER OF THE TWO SUB-CLAUSES. THE AO MERELY ACCEPTED THE VALUATION REPORT DATED 15-10-2012 OF THE VALUER SUBMITTED BY THE ASSESSEE WITHOUT GOING INTO ALL THESE ASPECTS. IN OUR CONSIDERED VIE W, THE LD. PR. CIT HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT AS THE A.O. FAILED TO MAKE PROPER ENQUIRY AND VERIFICATION AS REQUIRED FOR COM PLETION OF THE ASSESSMENT U/S 143(3) OF 1961 ACT, WHICH MADE THE SAID ASSESSM ENT ORDER DATED 23-03- 2016 AS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE I NTEREST OF REVENUE. WE HAVE ITA 421/MUM/2017 30 DULY CONSIDERED THE CASE LAWS RELIED UPON BY BOTH T HE PARTIES BEFORE ARRIVING AT OUR ABOVE DECISION. THE ASSESSEE HAS RELIED UPON THE DECISION OF HONBL E HIGH COURT IN THE CASE OF CIT V. JAGADHRI ELECTRIC SUPPLY & INDUSTRIAL CO.(19 81) 7 TAXMAN 56(P&H HC), WHEREIN IT WAS HELD IF THE ASSESSEE SATISFY TRIBUNA L THAT GROUNDS FOR DECISION GIVEN IN THE ORDER BY THE COMMISSIONER ARE WRONG ON FACTS OR NOT TENABLE IN LAW, THE TRIBUNAL CAN SET ASIDE THE ORDER OF THE CO MMISSIONER. BUT IN THE INSTANT CASE, THE AO HAS NOT LOOKED INTO THE LAW AS WELL VALUATION REPORT SUBMITTED BY THE ASSESSEE FOR VALUING THE FAIR PRIC E OF THE SHARES IN PROPER PERSPECTIVE AS DETAILED ABOVE IN PRECEDING PARAS O F THIS ORDER AND HENCE THE FACTS IN THE INSTANT CASE ARE DIFFERENT FROM THE RA TIO OF DECISION OF CIT V. JAGADHRI ELECTRIC SUPPLY & INDUSTRIAL CO.(SUPRA) WH ICH IS NOT APPLICABLE. IN THE CASE OF CIT V. GABRIEL INDIA LTD(1993) 71 TA XMAN 585(BOM. HC), THE HONBLE BOMBAY HIGH COURT OBSERVED THAT THE COMMISS IONER CANNOT SUBSTITUTE ITS VIEW IF HE DID NOT AGREE WITH THE VI EW OF THE AO. IN THE INSTANT CASE, THE AO HAS NOT ENQUIRED THE FAIR VALUE ADOPTE D BY THE ASSESSEE IN PROPER PERSPECTIVE AND IN THE MANNER INDICATED UNDE R LAW AS DETAILED ABOVE. MOREOVER , EXPLANATION 2 TO SECTION 263 OF THE 1961 ACT IS INSERTED BY FINANCE ACT, 2015, WHICH DEEMS AN ORDER TO BE ERRON EOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE IF THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MA DE. THUS, IN THE INSTANT CASE , WE HAVE ALREADY HELD THAT PROPER ENQUIRIES W ERE NOT MADE BY THE AO BEFORE PASSING ASSESSMENT ORDER DATED 23-03-2016 U/ S 143(3) OF THE 1961 ACT , AS ARE MANDATED U/S 263 OF THE 1961 ACT. IN OUR CONSIDERED VIEW, THE LD. PR. CIT HAS RIGHTLY INVOKED THE PROVISIONS OF S ECTION 263 OF THE ACT, WHICH WE UPHOLD/SUSTAIN. WE ORDER ACCORDINGLY. ITA 421/MUM/2017 31 7. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 421/MUM/2017 FOR ASSESSMENT YEAR 2013-14 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH APRIL, 2017. # $% &' 28-04-2017 ( ) SD/- SD/- (JOGINDER SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 28-04-2017 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI B BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI