THE ASISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 2, JALANDHAR V. M/S ENTERPRISES BUSINESS SOLUTIONS (P) LTD , JALANDHAR

ITA 666/ASR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3335 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 20-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 16-01-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 16-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT MOHAN JINDAL
• Assessee Lawyers: Y K SUD
• Keywords: Fair market value; Corroborative evidences
• Section: 143(3); 143(1); 56

Judgement Text

P A G E | 1 ITA NO. 666/ASR/2017 AY 2013-14 M/S ENTERPRISES BUSINESS SOLUTIONS. VS. ACIT, CENTR AL CIRCLE-2 IN THE INCOME TAX APPELLATE TRIBUNAL CAMP BENCH AT JALANDHAR BEFORE SHRI. N.K. SAINI, VICE PRESIDENT AND SHRI. RAVISH SOOD, JUDICIAL MEMBER ITA NO. 666/ASR/2017 (ASSESSMENT YEAR: 2013-14) THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-2, JALANDHAR VS. M/S ENTERPRISES BUSINESS SOLUTIONS PVT. LTD., 49, GREEN PARK, JALANDHAR PAN AACCE6427C (APPELLANT) (RESPONDENT) REVENUE BY : SH. LALIT MOHAN JINDAL, DR ASSESSEE BY: SH. Y.K. SUD, CA DATE OF HEARING: 16.01.2019 DATE OF PRONOUNCEMENT: 11.03.2019 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(APPEALS)-2, JALANDHAR, DATE D 18.07.2017, WHICH IN TURN ARISES FROM THE ASSESSMENT ORDER PASS ED BY THE A.O UNDER SEC. 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT IT ACT), DATED 18.03.2016 FOR A.Y. 2013-14. THE REVENUE ASSA ILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US THE FOLLOWING GROUN DS OF APPEAL:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS. 2,80,0 0,000/- MADE BY THE AO UNDER SECTION 53(2)(VIIB)(A)(I) OF THE INCOME TAX A CT, 1961. 2. THE LD. CIT(A) HAS ERRED IN IGNORING THE AOS FINDI NG THAT THE ASSESSEE FAILED TO PRODUCE SUPPORTING EVIDENCE TO SUBSTANTIA TE THE METHOD OF VALUATION ADOPTED BY HIM. 3. THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT THAT THE AO HAD SPECIFICALLY ASKED THE ASSESSEE TO FILE SUPPORTING EVIDENCE WITH REGARD TO DISCOUNTED CASH FLOW METHOD ADOPTED TO VALUE SHARES, VIDE ORD ER SHEET ENTRY DATED 17.03.16, WHICH IS A SPECIFIC SHOW CAUSE IN THIS RE SPECT, TO WHICH THE ASSESSEE FILE NO EXPLANATION. 4. THE LD. CIT(A) HAS ERRED IN ACCEPTING THE DISCOUNT ED CASH FLOW METHOD FOR VALUATION OF SHARE, WITHOUT ANY EMPIRICAL BASIS TO SUPPORT THE SAME. P A G E | 2 ITA NO. 666/ASR/2017 AY 2013-14 M/S ENTERPRISES BUSINESS SOLUTIONS. VS. ACIT, CENTR AL CIRCLE-2 5. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SE T-ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 6. THAT THE APPELLANTS REQUEST FOR LEAVE TO ADD OR AME ND OR ALTER THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DISPOSED O FF. 2. BRIEFLY STATED, THE ASSESSEE COMPANY HAD FILED I TS RETURN OF INCOME DECLARING LOSS OF RS. 1,25,63,385/- ON 30.09 .2013. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE IT ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SECTION 143(2). 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT W AS OBSERVED BY THE A.O THAT A PERUSAL OF THE BALANCE SHEET OF TH E ASSESSEE COMPANY REVEALED THAT IT HAD RECEIVED SHARE PREMIUM OF RS. 2,80,00,000/- DURING THE YEAR UNDER CONSIDERATION. THE A.O OBSERV ED THAT THE ASSESSEE DESPITE HAVING BEEN AFFORDED SUFFICIENT OP PORTUNITIES COULD NOT FURNISH ANY EXPLANATION TO SUPPORT THE METHOD O F VALUATION OF SHARES ADOPTED BY IT. ACCORDINGLY, THE AO NOT BEING SATISFIED WITH THE COMPUTATION OF THE FAIR MARKET VALUE (FOR SHORT FMV) OF THE SHARES AS SHOWN BY THE ASSESSEE COMPANY, REJECTED THE SAME IN VIEW OF SUB- CLAUSE (II) OF THE CLAUSE (A) OF EXPLANATION TO CLAUSE (VIIB) OF SUB-SECTION (2) OF SECTION 56 OF THE IT ACT. AS NO SEPARATE BAL ANCE SHEET ON THE DATE OF ISSUE OF SHARES WAS MADE AVAILABLE BY THE A SSESSEE, THEREFORE, THE A.O DUE TO LACK OF INFORMATION CALCULATED THE F MV OF THE SHARES, AS UNDER:- CLOSING (31.03.2013) (WITHOUT CONSIDERING NEW ISSUE) OPENING (01.04.2012 CAPITAL 2100000.00 100000.00 R&S 19648303.00 (76359.00 TOTAL 21748303.00 23,641.00 LESS NEW CAPITAL (2000000.00) SEC. PREMIUM (28000000.00) (-)(8251697.00 NO. OF SHARES (EXISTING) 10000 10000 P A G E | 3 ITA NO. 666/ASR/2017 AY 2013-14 M/S ENTERPRISES BUSINESS SOLUTIONS. VS. ACIT, CENTR AL CIRCLE-2 VALUE PER SHARE RS. NIL RS.2.36 AS OBSERVED HEREINABOVE, THE VALUE OF THE SHARES OF THE ASSESSEE COMPANY WAS WORKED OUT BY THE A.O AS PER RULE 11UA R.W.S. 56(2)(VIIB) AS ON 01.04.2012 AND 31.03.2013 AT RS. 2.36 AND NIL, RESPECTIVELY, WHICH WAS EVEN LESS THAN THE FACE VAL UE OF THE SHARES I.E. RS. 10/-. ON THE BASIS OF HIS AFORESAID OBSERVATION S THE A.O CONCLUDED THAT THE FULL SHARE PREMIUM OF RS. 2,80,00,000/- RE CEIVED BY THE ASSESSEE COMPANY WAS TAXABLE IN ITS HANDS. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A). THE CIT(A) IN THE COURSE OF THE PROCEEDINGS BEFORE HIM OBSERVED THAT RULE 11UA PROVIDED FOR DETERMINATION OF THE FAIR MARKET VALUE OF UNQUOTED SHARES BASED ON THE BOOK VALUE OR THE VALUE DETERMINED BY A MERCHANT BANKER OR AN ACCOUNTANT AS PER THE DISCOUNTED CASH FLOW METHOD, AT THE OPTION OF THE A SSESSEE. IT WAS OBSERVED BY THE CIT(A) THAT THE A.O HAD APPLIED THE BOOK VALUE METHOD WHEREAS THE ASSESSEE COMPANY HAD EXERCISED T HE OPTION OF VALUING THE SHARES BASED ON DISCOUNTED CASH FLOW M ETHOD, WHICH WAS SUPPORTED WITH A REPORT FROM AN ACCOUNTANT. INTERES TINGLY, IT WAS OBSERVED BY THE CIT(A) THAT THE ISSUE WAS ALSO EXAM INED IN THE COURSE OF THE ASSESSMENT PROCEEDINGS IN THE CASE OF THE AS SESSEE FOR THE IMMEDIATELY SUCCEEDING YEAR I.E. A.Y 2014-15, WHERE IN TOO THE SHARES WERE ISSUED BY THE ASSESSEE AT A PREMIUM OF RS. 140 /- PER SHARE, WHICH ALONGWITH THE METHOD OF VALUATION OF THE SHAR ES AS PER DISCOUNTED CASH FLOW METHOD WAS ACCEPTED BY THE A .O. IT WAS OBSERVED BY THE CIT(A) THAT AN OPTION WAS AVAILABLE TO THE ASSESSEE UNDER RULE 11UA OF THE I.T. RULES TO ISSUE SHARES A T A PREMIUM WHICH WAS TO BE WORKED OUT ON THE BASIS OF EITHER OF THE TWO METHODS THEREIN PRESCRIBED VIZ. (I) THE BOOK VALUE METHOD; OR (II) DISCOUNTED CASH FLOW METHOD. APART THERE FROM, IT WAS OBSERVED BY THE CI T(A) THAT NOW P A G E | 4 ITA NO. 666/ASR/2017 AY 2013-14 M/S ENTERPRISES BUSINESS SOLUTIONS. VS. ACIT, CENTR AL CIRCLE-2 WHEN THE METHOD ADOPTED BY THE ASSESSEE WAS ACCEPTE D BY THE A.O IN THE IMMEDIATELY SUCCEEDING YEAR I.E. A.Y 2014-15, T HEREFORE, THERE WAS NO JUSTIFICATION ON HIS PART IN ADOPTING AN INCONSI STENT VIEW AND TREATING THE SHARE PREMIUM OF RS. 2,80,00,000/- AS THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. ON THE B ASIS OF HIS AFORESAID DELIBERATIONS THE CIT(A) FINDING MERIT IN THE APPEAL OF THE ASSESSEE DELETED THE ADDITION OF RS. 2,80,00,000/- MADE BY THE A.O. 5. THE REVENUE BEING AGGRIEVED WITH THE ORDER OF TH E CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LEARNED DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) SUBMITTED THAT DES PITE THE FACT THAT SUFFICIENT OPPORTUNITIES WERE AFFORDED TO THE ASSES SEE IN THE COURSE OF THE ASSESSMENT PROCEEDINGS TO SUBSTANTIATE THE SHAR E PREMIUM OF RS. 2,80,00,000/-, IT HAD HOWEVER FAILED TO PLACE ON RE CORD THE REQUISITE INFORMATION. ON SPECIFIC QUERY BY THE BENCH THAT NO W WHEN THE DISCOUNTED CASH FLOW METHOD ADOPTED BY THE ASSESS EE WAS ACCEPTED BY THE A.O IN THE ASSESSMENT FRAMED UNDER SECTION 1 43(3) ON 24.11.2016 IN THE CASE OF THE ASSESSEE FOR THE IMME DIATELY SUCCEEDING YEAR I.E. AY 2014-15, THEN ON WHAT BASIS THE SAME H AD BEEN REJECTED DURING THE YEAR UNDER CONSIDERATION I.E A.Y 2013-14 , NO REPLY WAS FURNISHED BY THE LEARNED D.R. 6. PER CONTRA, THE LD. AUTHORISED REPRESENTATIVE (F OR SHORT A.R) RELIED ON THE ORDER OF THE CIT(A). IT WAS VEHEMENTL Y SUBMITTED BY THE LD. A.R THAT NOW WHEN THE REVENUE HAD ACCEPTED THE DISCOUNTED CASH FLOW METHOD FOR DETERMINING THE FMV OF THE SHARES OF THE ASSESSEE COMPANY AND ISSUANCE OF THE SAME AT A PREMIUM OF RS . 140/- PER SHARE IN THE IMMEDIATELY SUCCEEDING YEAR I.E A.Y 20 14-15, THUS IT WAS INCORRECT ON THE PART OF THE A.O TO HAVE ADOPTED AN INCONSISTENT APPROACH DURING THE YEAR UNDER CONSIDERATION. P A G E | 5 ITA NO. 666/ASR/2017 AY 2013-14 M/S ENTERPRISES BUSINESS SOLUTIONS. VS. ACIT, CENTR AL CIRCLE-2 7. WE HAVE DELIBERATED AT LENGTH AND HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE BEFORE US. AS PER SECTIO N 56(2)(VIIB) OF THE IT ACT, 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 SHA RES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERAT ION RECEIVED FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES SHALL BE CHARGEABLE TO INCOME TAX UNDER HEAD INCOME FROM OT HER SOURCES. AS PER THE EXPLANATION TO SECTION 56(2)(VIIB) OF THE IT ACT, THE FMV OF T HE SHARES SHALL BE THE VALUE AS MAY BE DETERMINED IN A CCORDANCE WITH THE METHOD ENVISAGED IN RULE 11UA OF THE INCOME TAX RULES, 1962 OR AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATIS FACTION OF THE AO, BASED ON THE VALUE ON THE DATE OF ISSUE OF SHARES O F ITS ASSETS, INCLUDING INTANGIBLE ASSETS BEING GOODWILL, KNOW HO W, PATENTS, COPYRIGHTS, TRADEMARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, WHICHEVER IS H IGHER. IN THE CASE BEFORE US THE SHARES HAD BEEN ISSUED BY THE ASSESSE E AT A PREMIUM OF RS. 140/- PER SHARE. ADMITTEDLY, THE VALUE OF THE S HARES WAS DETERMINED BY THE ASSESSEE AS PER THE DISCOUNTED C ASH FLOW METHOD. IN SO FAR THE ADOPTION OF THE DISCOUNTED CASH FLOW METHOD FOR VALUATION OF SHARES BY THE ASSESSEE IS CONCERNED, W E FIND THAT THE SAME HAS BEEN ACCEPTED BY THE A.O WHILE FRAMING THE ASSESSMENT UNDER SEC. 143(3) IN THE CASE OF THE ASSESSEE FOR T HE IMMEDIATELY SUCCEEDING YEAR I.E. A.Y 2014-15, WHEREIN TOO THE S HARES HAD BEEN ISSUED AT A PREMIUM OF RS. 140/- PER SHARE. 8. IN OUR CONSIDERED VIEW, NO INFIRMITY DOES EMERGE FROM THE DETERMINING OF THE FMV OF THE SHARES BY THE ASSESSE E COMPANY AS PER THE RECOGNIZED METHOD OF VALUATION I.E DISCOUNTED CASH FLOW METHOD ENVISAGED IN SEC. 56(2)(VIIB) OF THE IT ACT R.W RUL E 11UA OF THE INCOME TAX RULES, 1962. APART THEREFROM, WE ARE UNABLE TO COMPREHEND THAT P A G E | 6 ITA NO. 666/ASR/2017 AY 2013-14 M/S ENTERPRISES BUSINESS SOLUTIONS. VS. ACIT, CENTR AL CIRCLE-2 NOW WHEN THE REVENUE ITSELF HAS ACCEPTED THE SAID M ETHOD OF VALUATION OF SHARES AND THE ISSUANCE OF THE SAME AT A PREMIUM OF RS. 140/- PER SHARE IN THE ASSESSMENT FRAMED IN THE CASE OF THE A SSESSEE FOR THE IMMEDIATELY SUCCEEDING YEAR VIZ. A.Y 2014-15, THEN HOW IN THE ABSENCE OF ANY DISTINGUISHING FACTS IT COULD HAVE W HIMSICALLY DECLINED TO ACCEPT THE SAME FOR THE YEAR UNDER CONSIDERATION . WE THUS ARE OF THE CONSIDERED VIEW THAT NO INFIRMITY EMERGES FROM THE WELL REASONED ORDER OF THE CIT(A), WHO HAD RIGHTLY DELETED THE AD DITION OF RS. 2,80,00,000/- MADE BY THE A.O UNDER SEC. 56(2)(VIIB ) DURING THE YEAR UNDER CONSIDERATION. WE THUS FINDING OURSELVES TO B E IN AGREEMENT WITH THE VIEW AND THE REASONING ADOPTED BY THE CIT( A) WHILE DELETING THE ADDITION OF RS. 2,80,00,000/- MADE BY THE A.O, UPHOLD HIS ORDER 9. THE APPEAL OF THE REVENUE BEING DEVOID OF ANY ME RIT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/03/ 2019 SD/- SD/- ( N.K. SAINI) (RAVISH SOOD) VICE PRESIDENT JUDICIAL ME MBER PLACE : CHANDIGARH; DATED 11.03.2019 PS ROHIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. DR, ITAT, JALANDHAR 6. / GUARD FILE. //TRUE COPY// ! / BY ORDER, ' / # $% (DY./ASSTT. REGISTRAR) & '() / ITAT, JALANDHAR P A G E | 7 ITA NO. 666/ASR/2017 AY 2013-14 M/S ENTERPRISES BUSINESS SOLUTIONS. VS. ACIT, CENTR AL CIRCLE-2 SR. NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DISPATCH OF ORDER