M/s. IStar Skill Development Pvt Ltd, Bengaluru V. Income Tax Officer, Ward-3(2)(1), Bengaluru

ITA 762/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4808 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-09-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 12-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Assessee Lawyers: C SUNDEEP
• Keywords: Opportunity of being heard; Fair market value; Valuation report

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. A.K. GARODIA, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.762/BANG/2018 ASSESSMENT YEAR : 2014 15 M/S ISTAR SKILL DEVELOPMENT PVT. LTD., NO.63/1, 2 ND FLOOR, MAKAM PLAZA, 3 RD MAIN ROAD, 18 TH CROSS, MALLESHWARAM, BENGALURU-560 055. PAN AACCI 2649 L VS. THE INCOME TAX OFFICER, WARD-3(2)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI C SUNDEEP, C.A RESPONDENT BY : SHRI PRIYADARSHI MISHRA, JCIT (DR) DATE OF HEARING : 30-09-2020 DATE OF PRONOUNCEMENT : -10-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AG AINST ORDER DATED 09/01/2018 PASSED BY LD.CIT(A)-3, BANGALORE F OR ASSESSMENT YEAR 2014-15 ON FOLLOWING GROUNDS OF APP EAL: 1. THAT THE ORDER PASSED BY THE LEARNED COMMISSION ER OF INCOME-TAX (APPEALS) IN SO FAR IT IS PREJUDICIAL TO THE INTERE STS OF THE APPELLANT IS BAD AND ERRONEOUS IN LAW AND AGAINST THE FACTS AND CIRC UMSTANCES OF THE CASE. PAGE 2 OF 11 ITA NO.762/BANG/2018 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) OUGHT TO HAVE HELD THAT THE ASSESSING OFFICER HAS NO JURISDI CTION TO GO BEYOND THE VALUATION REPORT ISSUED BY CHARTERED ACCOUNTANT. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE DCF METHOD ADOPTED BY THE APPELLANT FOR VALUATION OF SHARES IS IRRATIONAL AND DOES NOT HAVE RELEVANCE TO THE FACTUAL FINANCIAL RESULTS OF THE ASSESSEE COMPANY. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE VALUATION REPORT C ANNOT BE RELIED UPON BECAUSE THE CHARTERED ACCOUNTANT DID NOT VERIFY THE PROJECTIONS PROVIDED BY THE APPELLANT. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. DURING THE FINANCIAL YEAR 2013-14 RELEVANT TO AS SESSMENT YEAR 2014-15, THE APPELLANT ISSUED PREFERENCE SHARES AND EQUITY SHARES. THE DETAILS ARE AS FOLLOWS; 3. THE APPELLANT ARRIVED AT VALUE OF SHARES BASED O N VALUATION REPORT OF A CHARTERED ACCOUNTANT. THE METHOD OF VAL UATION ADOPTED WAS BASED ON DISCOUNTED CASH FLOW METHOD (D CF). 4. THE LD.AO HELD THAT VALUE OF SHARES ARRIVED BY THE CHARTERED ACCOUNTANT CANNOT BE ACCEPTABLE FOR FOLL OWING REASONS; PAGE 3 OF 11 ITA NO.762/BANG/2018 A. THE DCF METHOD IS FROM THE VIEW POINT OF SHAREH OLDER HOWEVER, THIS ASPECT IS COMPLETELY LOLL MISSING IN THE VALUATION REPORT. B. PROJECTIONS CONSIDERED FOR VALUATION ARE IRRATI ONAL AND DO NOT MATCH WITH THE ACTUAL FINANCIAL RESULTS. C. NO EVIDENCES FOR ESTIMATES AND PROJECTIONS ADOPT ED IN THE VALUATION REPORT. D. THE PROJECTIONS AND ESTIMATIONS ARE PROVIDED BY ASSESSEE AND NO VERIFICATIONS WERE MADE BY THE CHARTERED ACC OUNTANT BEFORE ADOPTING THE SAME. THEREFORE, THE LD.AO ADOPTED NET ASSET VALUE METHO D (NAV) AND ARRIVED AT RS. -11.17 AS FAIR MARKET VALUE PER SHAR E. 5. BASED ON THE ABOVE FINDINGS, THE LD.AO HELD THAT , VALUE OF SHARE COMPUTED BY ASSESSEE EXCEED THE FAIR MARKET V ALUE AND ADDED THE EXCESS OVER FACE VALUE OF THE SHARES ISSU ED TO THE RESIDENTS AS INCOME U/S. 56(2)(VIIB) OF THE ACT. 6. AGGRIEVED BY THE AFORESAID ORDER, PREFERRED APPE AL BEFORE LD.CIT(A) WHO DISMISSED THE APPEAL OF ON THE SAM E FINDINGS OF LD.AO IN THE ASSESSMENT ORDER. 7. AGGRIEVED BY ORDER OF LD.CIT(A) ASSESSEE IS IN A PPEAL BEFORE US NOW. 8. AT THE OUTSET LD.AR DREW OUR ATTENTION TO FOLLOW ING ADDITIONAL GROUND RAISED VIDE APPLICATION DATED 10/ 03/2018: THAT THE ADDITION MADE U/S 56(2)(VIIB) IS NOT JUST IFIED IN VIEW OF CIRCULAR # DATED 06.02.2018 ISSUED BY CBDT AS TH E APPELLANT IS A START-UP AS PER DEPARTMENT OF INDUST RIAL POLICY AND PROMOTION NOTIFICATION ISSUED BY DEPARTMENT OF INDUSTRIAL PAGE 4 OF 11 ITA NO.762/BANG/2018 POLICY AND PROMOTION, MINISTRY OF COMMERCE AND INDU STRY, IN GSR 501(E) DATED 23.05.2017. 9. LD.AR SUBMITTED THAT, MINISTRY OF COMMERCE AND I NDUSTRY VIDE NOTIFICATION DATED 23/05/2017 IN GSR.501(E) HA S ANNOUNCED START-UP INDIA INITIATIVE FOR CREATING A CONDUCIVE ENVIRONMENT FOR START-UPS IN INDIA. IT HAS BEEN SUB MITTED THAT, GOVERNMENT OF INDIA HAD DIRECTED VARIOUS MINISTRIES TO IDENTIFY AND RECOGNISING A START-UP. LD.AR SUBMITTED THAT, I N VIEW OF SAID NOTIFICATION, CBDT VIDE F.NO.173/147/2019-ITA-I, IN TIMATED THAT, PROVISIONS OF SECTION 56(2)(VIIB) SHALL NOT A PPLY TO ASSESSEE ON AMOUNTS RECEIVED AS CONSIDERATION FOR ISSUE OF S HARES, SUBJECT TO FULFILMENT OF CONDITIONS SPECIFIED IN NOTIFICAT ION NO.GSR.127(E) DATED 19/02/2019 OF DPIIT AND SUBSEQUENT AMENDMENTS IF ANY, MORE PARTICULARLY PLACED AT PAGE 2-3 OF PAPER BOOK. 10. LD.AR SUBMITTED THAT, SAID NOTIFICATION WAS NOT AVAILABLE WITH ASSESSEE AT THE TIME OF PROCEEDINGS BEFORE LD. CIT(A). HE ALSO PLACED RELIANCE AT PAGE 36-37 WHICH IS A CONSOLIDAT ED CIRCULAR FOR ASSESSMENT OF START-UPS DATED 30/08/2019, BEING CIR CULAR NO.22/2019 ISSUED BY CBDT. LD.AR SUBMITTED THAT, AS SESSEE HAS FILED FORM 2 WHICH HAS NOT BEEN VERIFIED BY AUT HORITIES BELOW IN LIGHT OF THE CIRCULARS REFERRED AND RELIED BY L D.AR HEREIN ABOVE. 11. ON THE CONTRARY, LD.SR.DR PLACED RELIANCE ON OR DERS PASSED BY AUTHORITIES BELOW, HOWEVER COULD NOT CONTROVERT APPLICABILITY OF SAID CIRCULAR REFERRED TO BY LD.AR PLACED AT PAG E 2 OF PAPER BOOK IN CASE OF ASSESSEE. PAGE 5 OF 11 ITA NO.762/BANG/2018 12. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 13. THIS IS A SUBSEQUENT DEVELOPMENT IN REGARDS TO ISSUE THAT COULD GO TO THE ROOT CAUSE FOR CONSIDERATION. IT IS ALSO NOTED THAT, THESE DOCUMENTS WAS NOT HAVE PLACED BEFORE AUTHORI TIES BELOW AT THE TIME OF HEARING. HOWEVER, WE ARE OF OPINION THA T THESE CIRCULAR WOULD BE HELPFUL IN CONSIDERING THE ISSUES ON MERITS. 14. ACCORDINGLY, WE ARE INCLINED TO ADMIT THE ADDIT IONAL GROUND RAISED BY ASSESSEE FOR CONSIDERING THE CLAIM. 15. FOR SAKE OF CONVENIENCE WE REPRODUCE HERE WITH THE RELEVANT CIRCULARS RELIED BY LD.AR. -------- SPACE LEFT INTENTIONALLY ------------ PAGE 6 OF 11 ITA NO.762/BANG/2018 F.NO.173/147/2019-ITA-I, DATED 16/05/2019 PAGE 7 OF 11 ITA NO.762/BANG/2018 CIRCULAR NO.22 DATED 30/08/2019 PAGE 8 OF 11 ITA NO.762/BANG/2018 PAGE 9 OF 11 ITA NO.762/BANG/2018 PAGE 10 OF 11 ITA NO.762/BANG/2018 16. IN VIEW OF THE ABOVE, WE ARE OF OPINION THAT TH E ISSUE DESERVES TO BE REMANDED TO LD.CIT(A) TO VERIFY THE ISSUE IN LIGHT OF ABOVE CIRCULAR. LD.CIT(A) SHALL VERIFY FULFILMENT O F NECESSARY CRITERIAS AS REQUIRED BY THE SAID CIRCULARS FOR IT S APPLICABILITY TO ITS FULLEST. LD.CIT(A) IS DIRECTED TO GRANT PROPER OPPORTUNITY OF BEING HEARD TO ASSESSEE IN ACCORDANCE WITH LAW. LDC IT(A) IS ALSO DIRECTED TO PASS REASONED ORDER AFTER CARRYING OUT NECESSARY VERIFICATION/INVESTIGATIONS. ASSESSEE IS DIRECTED T O FILE ALL REQUISITE DETAILS/INFORMATION IS AS CALLED FOR BY LD.CIT(A) T O CONSIDER THE ISSUE IN LIGHT OF THE CIRCULARS. ACCORDINGLY, GROUNDS AND ADDITIONAL GROUNDS RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT, APPEAL FILED BY ASSESSEE STANDS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH OCT, 2020 SD/- SD/- (A.K GARODIA) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 19 TH OCT, 2020. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 11 OF 11 ITA NO.762/BANG/2018 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -10-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -10-2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -10-2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -10-2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -10-2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -10-2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -10-2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS