S10 Healthcare Solution Pvt Ltd., CHENNAI V. ITO Corporate Ward 6(3), CHENNAI

ITA 728/CHNY/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7410 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 28-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence; Fair market value; Valuation report

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , , $ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.728/CHNY/2018 % % /ASSESSMENT YEAR: 2014-15 M/S.S10 HEALTHCARE SOLUTION- PVT. LTD., NO.102, MAHALINGAPURAM MAIN ROAD, NUNGAMBAKKAM, CHENNAI-600 034. [PAN: AAGCP 7986 H] VS. THE INCOME TAX OFFICER, CORPORATE WARD-6(3), CHENNAI-34. ( ( /APPELLANT) ( )*( /RESPONDENT) ( + / APPELLANT BY : MR.VIKRAM VIJAYARAGHAVAN, ADV. )*( + /RESPONDENT BY : MR.AR.V.SREENIVASAN, JCIT + /DATE OF HEARING : 11.07.2018 + /DATE OF PRONOUNCEMENT : 13.07.2018 / O R D E R PER S. JAYARAMAN , ACCOUNTANT MEMBER : THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI, IN ITA NO.481/ 16-17/CIT(A)-15 DATED 30.11.2017FOR AY 2014-15. 2. M/S.S10 HEALTHCARE SOLUTION PVT. LTD., THE ASSES SEE, IS ENGAGED IN MAINTAINING ELECTRONIC HEALTH RECORDS. WHILE MAKIN G THE ASSESSMENT FOR ITA NO.728 /CHNY/2018 :- 2 -: THE AY 2014-15 ,THE AO NOTICED THAT THE HAS ISSUED 14,832 SHARES TO M/S. S10 TECHNOLOGIES PVT. LTD., AT A PREMIUM OF RS.2552 .13 PER SHARE AND RECEIVED SHARE PREMIUM OF RS.3,78,53,192/-. THE AO SOUGHT A DIRECTION U/S.144A FROM THE ADDL. CIT, CORPORATE RANGE, CHENN AI, ON THIS ISSUE. FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE ADD L. CIT FOUND THAT THE FAIR MARKET VALUE AS ON 31.03.2013 WAS AT RS.40.13 PER SHARE. AS AGAINST THIS, THE ASSESSEE ISSUED SHARES @ RS.2562.13 PER S HARE. THOUGH, THE ASSESSEE VIDE ITS LETTER DATED 26.11.2012 SUBMITTED THAT IT HAS NOT DONE DISCOUNTED CASH FLOW VALUATION OF SHARES BUT FILED A VALUATION REPORT DATED 23.02.2013 USING DISCOUNTED CASH FLOW METHOD, CONTR ADICTING ITS STAND. FOR THE DETAILED ANALYSIS AND THE REASONS MENTIONED IN HIS ORDER, THE ADDL. CIT REJECTED THE VALUATION REPORT FURNISHED BY THE ASSESSEE AND CONCLUDED THAT THERE IS NO SCIENTIFIC PURPOSES FOR THE FIGURE ESTIMATED IN THE VALUATION REPORT, IT IS PURELY ON THE SURMISE O F THE CA, SINCE THERE IS NOT PROPER BASE AND A SKETCHY, THERE IS NO BASIS FO R THE PROJECTED RATE OF GROWTH, IT IS NOT RELIABLE ETC. IN THE FACTS AND C IRCUMSTANCES, THE A O ASSESSED THE SHARE PREMIUM BETWEEN RS.2562.13 AND R S.40.13 PER SHARE AT RS.3,74,06,304/- AS AN INCOME U/S.56(2)(VIIB). 3. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) FOUND, INTER ALIA, THAT THE ASSESSEES V ALUATION REPORT IS NOT SUPPORTED BY THE FOLLOWING FINANCIALS: TECHNICAL REPORT REVENUE AND COST PROJECTION ITA NO.728 /CHNY/2018 :- 3 -: CASH FLOW JUSTIFICATION HISTORICAL DATA MANAGEMENT PLAN ORDERS FROM POTENTIAL CUSTOMERS DESCRIPTION OF INNOVATIVE IDEA OR MODEL, LIKE IN CA SE OF A STARTUP COMPANY TO JUSTIFY SUCH EXORBITANT VALUATION AND ON THE HOST OF OTHER FACTORS SPECIFIED IN HIS ORDER , THE LD. CIT(A) HELD, INTER ALIA, THAT THE ASSESSEES VALUATION REPORT UNDER RULE 11UA BASED ON DISCOUNTED CASH FLOW METHOD IS GROSSLY FLAWED AN D THEREFORE NOT RELIABLE. THE ASSESSEE HAS MERELY STUCK TO ITS STAN D THAT IT HAS THE OPTION OF CHOOSING EITHER OF THE TWO METHODS PRESCRIBED U/ S.11UA BUT HAS NOT POINTED OUT SERIOUS FLAW IN THE AOS METHOD OF VALU ATION. THE AOS ADOPTION OF NET ASSET METHOD, AFTER TAKING INTO CON SIDERATION THE ASSETS AND LIABILITIES FROM THE APPELLANTS BALANCE SHEET, IS REALISTIC, REASONABLE AND RELIABLE AND ACCORDINGLY CONFIRMED THE ADDITION MADE U/S.56(2)(VIIB) AT RS.3.74 CRORES. 4. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL. THE ASSESSEE PLEADED FOR ADMISSION OF ADDITIONAL EVIDENCES ON THE FOLLOW ING GROUNDS: THE APPELLANT IN THE ABOVE APPEAL HAS QUESTIONED T HE ACTION OF ASSESSING OFFICER AND LD CIT (APPEALS) REGARDING REJECTION OF ITS VAL UATION REPORT AND HOLDING THERE WAS AN INCORRECT CONCLUSION OF MARKET VALUE OF SHAR ES. THE APPELLANT SUBMITS THAT IT HAD DISCUSSED AND HIG HLIGHTED THE BACKGROUND OF ITS SHARE TRANSACTIONS DURING THE HEARING WITH CIT (APP EALS) AND IN THE COURSE OF THE SAME REFERRED TO THE SHARE SUBSCRIPTION, MOU AND BU SINESS AGREEMENTS WHICH RELATED TO THE VERY BASIS AND REASONS FOR THE AFORE SAID SHARE TRANSACTIONS. IT IS SUBMITTED HOWEVER THAT THE CIT (APPEALS) HAD NEITHE R ASKED FOR THESE DOCUMENTS/AGREEMENTS TO BE FORMALLY SUBMITTED NOR H AS HE REFERRED TO THEM (OR) TAKEN COGNIZANCE OF THEIR EXISTENCE IN HIS ORDER DA TED 30.11.2017. ITA NO.728 /CHNY/2018 :- 4 -: FURTHERMORE, THE APPELLANT IS SUBMITTING A DOCUMENT SUBSTANTIATING ITS ORIGINAL VALUATION AS THE CIT(APPEALS) REJECTED ITS VALUATIO N REPORT WITHOUT CALLING FOR FURTHER ANALYSIS OR DETAILS. HENCE THE ASSESSEE IS FILING THESE SUPPORTING DOCUM ENTS BY WAY OF A PAPER BOOK IN CONNECTION WITH ABOVE ISSUES AS FRESH EVIDENCE. WE SUBMIT THAT THESE DOCUMENTS ARE IN THE NATURE OF EXPLANATION AND CONFIRMATION OF ASSESSEES EARLIER SUBMISSIONS AND IN THE INTEREST OF JUSTICE IT IS PRAYED THAT THESE ADDITIONAL EVIDENCES WHICH GOES T O THE ROOT OF THE MATTER MAY BE ADMITTED AND THE APPEAL MAY BE DECIDED TAKING IN TO ACCOUNT THE ABOVE DOCUMENT/ EVIDENCE. 4.1 WE HEARD THE RIVAL SUBMISSIONS ON THE ADMISSION OF ADDITIONAL EVIDENCE AND ADMIT THEM IN THE INTERESTS OF JUSTICE WHICH GOES TO THE ROOT OF THE MATTER. 5. THE LD.AR INVITED OUR ATTENTION TO THE COPIES OF THE FOLLOWING DOCUMENTS, FILED AS AN ADDITIONAL EVIDENCE: 1. AGREEMENT BETWEEN DR AFTER SHARIFF AND APPELLANT 2. MEMORANDUM OF UNDERSTANDING (MOU) BETWEEN SHRIRAM S YSTEMS SOLUTION PVT. LTD. (NOW S10 TECHNOLOGIES PVT. LTD.) AND APPELLANT 3. ADDITIONAL DOCUMENT SUBSTANTIATING THE ORIGINAL VAL UATION REPORT 4. SHARE SUBSCRIPTION AGREEMENT ENTERED BETWEEN APPELL ANT AND SHRIRAM SYSTEMS SOLUTION LTD (NOW S10 TECHNOLOGIES PVT. LTD .) AND SUBMITTED THAT CERTAIN EVENTS THAT TOOK PLACE I N CONNECTION WITH IMPUGNED TRANSACTION HAS NOT BEEN APPRECIATED BY TH E LOWER AUTHORITIES AND HENCE, THE FACTS AND ITS ASSOCIATED CIRCUMSTANC ES IN CONNECTION WITH VALUATION OF SHARES REQUIRE RE-CONSIDERATION. HENCE , THE LD.AR PLEADED THAT ON REMISSION OF THIS CASE TO THE AO, THE ASSES SEE WOULD PLACE RELEVANT MATERIAL BEFORE THE AO AND SATISFY THAT IT S TRANSACTION IS NOT FALLING WITHIN THE SCOPE OF SEC.56(2)(VIIB). HOWEV ER, THE LD.DR SUPPORTED THE ORDER OF THE LD.CIT(A). ITA NO.728 /CHNY/2018 :- 5 -: 6. WE HEARD THE RIVAL SUBMISSIONS. THE FACTS ARE TH AT THE ASSESSEE ISSUED 14,832 SHARES WITH FACE VALUE OF RS.10/- PER SHARE TO M/S.S10 TECHNOLOGIES PVT. LTD., AT A PREMIUM OF RS.2,552/- PER SHARE. IT HAS JUSTIFIED ITS EXORBITANT VALUATION THROUGH A CHARTE RED ACCOUNTANTS VALUATION REPORT AND CLAIMED THAT IT HAS AN OPTIO N UNDER RULE 11UA TO CHOOSE EITHER OF THE TWO METHODS I.E., ASSETS & LIA BILITY METHOD OR DISCOUNTED CASH FLOW (DCF) METHOD. OUT OF WHICH, IT HAS CHOSEN DCF METHOD FOR ITS VALUATION OF PREMIUM SHARES. THE AO HAS REJECTED THE APPELLANTS VALUATION BASED ON DCF METHOD AND HAS A DOPTED ASSETS & LIABILITIES METHOD AND ARRIVED AT A VALUATION RS.40 .13 PER SHARE AND HAS ADDED THE DIFFERENCE OF RS.3.74 CRORE U/S.56(2)(VII ) TREATING THE SAME AS EXCESS PREMIUM AND ASSESSED IT UNDER THE HEAD INCO ME FROM OTHER SOURCES U/S 56(2)(VIIB). ON APPEAL, THE LD.CIT(A) PERUSED BOTH THE VALUATIONS ADOPTED BY THE AO AS WELL AS BY THE ASSE SSEE AND FOUND THAT THE VALUATION REPORT OF THE ASSESSEES CHARTERED AC COUNTANT BASED ON DISCOUNTED CASH FLOW METHOD UNDER RULE 11UA IS UNAC CEPTABLE FOR THE REASONS MENTIONED IN HIS ORDER. BEFORE US, THE ASSE SSEE PLEADED THAT THOUGH IT HAD DISCUSSED AND HIGHLIGHTED THE BACKGRO UND OF ITS SHARE TRANSACTIONS ETC., WITH THE LOWER AUTHORITIES, THEY HAD NEITHER ASKED FOR CERTAIN DOCUMENTS/AGREEMENTS FORMALLY NOR THEY HA VE REFERRED TO THEM (OR) TAKEN COGNIZANCE OF THEIR EXISTENCE. ON PRODUC TION OF COPIES OF CERTAIN DOCUMENTS ETC., THE ASSESSEE PLEADED THAT THE IMPUG NED ISSUE REQUIRES RE-CONSIDERATION ON THE FACTS AND CIRCUMSTANCES ASS OCIATED WITH THIS TRANSACTIONS WHICH GOES TO THE ROOT OF THE MATTER A ND IN THE INTERESTS OF ITA NO.728 /CHNY/2018 :- 6 -: JUSTICE, THIS MATTER BE REMITTED BACK TO THE AO FOR A FRESH CONSIDERATION. SINCE THE FACTS AND CIRCUMSTANCES OF THE CASE HAS N OT BEEN PROPERLY EXAMINED, THIS ISSUE REQUIRES RE-CONSIDERATION AND HENCE WE DEEM IT FIT TO REMIT THIS ISSUE BACK TO THE AO FOR A FRESH CONSIDE RATION. THE ASSESSEE SHALL FURNISH ALL THE MATERIALS IN SUPPORT OF ITS C LAIM BEFORE THE AO AND COMPLY TO THE AOS REQUIREMENT AS PER LAW. THE AO IS FREE TO CONDUCT APPROPRIATE ENQUIRY ETC., AS DEEMED FIT, BUT HE SHA LL FURNISH ADEQUATE OPPORTUNITY TO THE ASSESSEE ON THE MATERIAL ETC., T O BE USED AGAINST IT AND DECIDE THESE ISSUES IN ACCORDANCE WITH LAW. THE CO RRESPONDING GROUNDS OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON JULY 13, 2018, IN CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ) ( S. JAYARAMAN ) /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: JULY 13, 2018. TLN + )23 43 /COPY TO: 1. ( /APPELLANT 4. 5 /CIT 2. )*( /RESPONDENT 5. 3 ) /DR 3. 5 ( ) /CIT(A) 6. % /GF