ITO WARD - 14(1), New Delhi V. KV Global Pvt Ltd, New Delhi

ITA 8689/DEL/2019

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9558 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-12-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 05-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Fair market value
• Section: 143(3); 56(2); 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C” DELHI BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI YOGESH KUMAR US, JUDICIAL MEMBER I.T.A. No.8689/DEL/2019 Assessment Year 2016-17 ITO Ward-14(1), New Delhi. Vs. M/s. K V Global Pvt. Ltd., 82-83, 2 nd Floor, Vijay Block, Vikas Marg, Shakarpur, Delhi. TAN/PAN: AAFCK4200Q (Appellant) (Respondent) Appellant by: Shri Rahul Khare, CA Respondent by: Ms. Kranti E. Khobragade, Sr.DR Shri Sandeep Kumar Mishra, Sr.DR Date of hearing: 05 09 2023 & 11.12.2023 Date of pronouncement: 13 12 2023 O R D E R PER PRADIP KUMAR KEDIA-A.M. : T he c apti oned a ppeal has be en filed by t he R evenue a gainst the orde r of the C ommi ss ione r of Income Tax (Ap pea ls)-V , N ew D elhi (‘ C IT (A )’ in s h ort ) da ted 29. 08.2 019 aris ing from the assess me nt orde r dat ed 17. 12. 20 18 pass ed by th e Assessing O fficer (A O) unde r Sect ion 143(3) of t he Inc ome T ax A ct, 19 61 (t he Act ) co ncerning AY 2016-1 7. 2. T he grou nds of appea l ra ised b y the Revenue re ad as unde r: “ 1 . W h e t h e r i n t h e c i r c u m s t a n c e s o f t h e c a se a n d l aw , t h e l d . C I T ( A ) i s c o r r e c t i n d e l e t i n g t h e a d d i t i o n o f R s . 2 ,6 3 , 0 0 ,0 0 0 / - m a d e b y t h e l d . A O u n d e r S e c t i o n 5 6 ( 2 ) ( v i i b ) o n a c c o u n t o f e x c e s s s h a r e p r e m i u m r e c o rd e d b y t h e a s s e s se e . 2 . W h e t h e r i n t h e c i r c u m s t a n c e s o f t h e c a s e a n d l aw , t h e l d . C I T ( A ) I.T.A. No.8689/Del/2019 2 i s c o r r e c t i n d e l e t i n g t h e a d d i t i o n o f R s . 7 7 , 2 0 , 7 00 / - m a d e b y t h e l d . A O u n d e r S e c t i o n 6 8 o n a c c o u n t o f u n e x p l a i n e d c a sh c r e d i t i n t e r m s o f u n s e c u r e d l o a n s . ” 3. Br ie fl y s ta ted, th e assessee -comp any is e ngaged i n im port and t ra de of cr ude pa lm oi l an d c oa l b usi ness. T he ass essee filed re tu rn of incom e decla ri ng tota l i ncome at a loss of Rs. 1, 61, 70, 427/- f or t he A ssess ment Y ear 2016-17 i n quest i on. The re tu rn fi led by the assessee w as subjecte d to sc rut in y assess me nt unde r Sect ion 143 (3) o f t he A ct. 3. 1 In the c ourse of t he assess me nt proceed ings, t he Assessing O fficer inter ali a obs erve d t ha t t he assesse e has iss ued 52, 60,0 00 equi ty sh ar es at a pre mi um of Rs. 5/ - per shar e to one of the subs cri be r K . V . Aromat ics Pvt. L td. in J anua r y, 2016. The e qui t y sha res w ere a lso issued to othe r th ree s ubscribers at about th e same pe ri od w itho ut a ny pr emium. T he A ssessin g O ffice r reco mputed the F air Mar ket V al ue (F MV ) of the eq uity sha res at a negat ive figu re of Rs. 1. 11 crore. The A O accordingly invoked th e pro visions of Se ct ion 56(2) (vi i b) and hel d t ha t t he s ha re pr emiu m char ged on issue of equit y shar es t o K V A roma tic s is in excess of FMV and a s um of Rs. 2, 63, 00,0 00/ - col lec ted b y wa y o f shar e pre mi um fr om ‘K V A romatics’ is s usceptible to ta x. A cco rdi ngl y, the a for esa id sum w as adde d to t he t ota l i nc ome of the assessee. 4. A gg rieve d, t he as s essee prefe rred appeal b efo re the C IT (A ). It w as p oin ted o ut before t he C IT (A ) t ha t the afores aid compa ny K V A romatics Pvt. Ltd. is a hol di ng compan y, h olding 51% s hare of t he assessee- compan y. Bes id es, t he net w ort h o f the assess ee - co mpan y is not ne gati ve f or A ssess ment Year 2 016-17 in qu est ion w hich is corr oborate d b y t he va l uat i on report. The premiu m char ged is meager and c ollected from i ts ow n h olding compa n y. I.T.A. No.8689/Del/2019 3 There fo re, i n eff ect, the e xisting s ha re holder has be en iss ue d addi ti onal shares at a s mal l pre mi um of Rs. 5 per s hare i n consona nce w i th val ua ti on repo rt. T he C IT (A ) took not e of va ri ous fac t ual s ubmiss ions and j udi cia l pro noun ce me nts a nd als o cal le d f or re ma nd report fr om the A O. O n consi de ra ti on of submiss ions a nd mate rial pl ace d, the C IT (A ) adj udicate d the is sue in favour of the as sessee. T he re leva nt operat ive pa ragraph of the order o f the CI T(A ) is reproduced her eunde r for read y reference : “ 6 . I n g r o u n d n o . 2 t h e a p p e l l a n t d i s p u t e d a d d i t i o n o f R s . 2 , 6 3 , 0 0 , 0 0 0 / o n a c c o u n t o f s h a r e p r e m i u m u / s . 5 6 ( 2 ) (v i i b ) o f t h e A c t . 6 . 1 D u r i n g t h e y e a r u n d e r c o n s i d e r a t i o n , t h e a p p e l la n t h a s i s s u e d 5 2 , 6 0 , 0 0 0 e q u i t y s h a r e s t o M / s K . V . A r o m a t i c s P v t . L t d . h a v i n g f a c e v a l u e o f R s . 1 0 / - e a c h w i t h a p r e m i u m o f R s . 5 / - o n e a c h s h a r e , t h e r e b y a t o t a l p r e m i u m h a s b e e n r e c e i v e d f o r R s . 2, 6 3 , 0 0 , 0 0 0 / - . O t h e r s h a r e s w e r e a l s o i s s u e d h o w e v e r , n o p r e m i u m ha s b e e n t a k e n . F u r t h e r , t h e K . V A r o m a t i c s P v t . L t d . i s i t s h o l d i n g c o m p a n y a n d o t h e r s h a r e h o l d e r s a r e a l s o t h e s h a r e h o l d e r o f a pp e l l a n t c o m p a n y . 6 . 2 D u r i n g a s s e s s m e n t p r o c e e d i n g s , i t w a s o b s e r v e d b y t h e A O t h a t t h i s s h a r e p r e m i u m i s e x c e s s i v e c o n s i d e r i n g t h e f i na n c i a l s o f t h e a p p e l l a n t a n d N A V o f a p p e l l a n t ' s s h a r e s i s n e g a t i v e t h e r e f o r e , s h a r e p r e m i u m v a l u e o f R s . 5 / - p e r s h a r e i s n o t s u bs t a n t i a t e d . I n a b s e n c e o f a n y s a t i s f a c t o r y r e p l y , t h e e n t i r e a d d i ti o n h a s b e e n m a d e , i n v o k i n g p r o v i s i o n s o f s e c t i o n 5 6 ( 2 ) ( v i i b ) o f t h e A c t . 6 . 3 I t h a s b e e n v e h e m e n t l y a r g u e d , a s r e p r o d u c e d e ar l i e r t h a t t h e p r o v i s i o n s o f s e c t i o n 5 6 ( 2 ) ( v i i b ) a r e n o t a p p l i c a b le i n t h e c a s e o f a p p e l l a n t . I t i s c o n t e n d e d t h a t t h e v a l u a t i o n r e p o rt h a s b e e n p r e p a r e d b y t h e e x p e r t v a l u e r / a u d i t o r a n d i n a c c o r da n c e w i t h t h e p r o v i s i o n s o f s e c t i o n 5 6 ( 2 ) ( v i i b ) , w h e r e a s p e r R u l e 1 1 U A ( 2 ) , t h e a p p e l l a n t i s e n t i t l e d f o r t h e v a l u a t i o n o f f a r e m a rk e t v a l u e ( F M V ) a s p e r t h e D C F m e t h o d . I t i s a r g u e d t h a t t h e i n t e n t o f l e g i s l a t u r e i s t o c u r b t h e b l a c k m o n e y a n d t h e r e c a n n o t b e i n v o l v em e n t o f a n y s u c h u n a c c o u n t e d m o n e y a s t h e f u n d s h a v e b e e n s o u r ce d t h r o u g h i t s h o l d i n g c o m p a n y . 6 . 4 I t i s f u r t h e r a r g u e d t h a t t h e v a l u a t i o n h a s b e en d o n e a s p e r D C F m e t h o d w h i c h i s d u l y a c c e p t a b l e a s p e r t h e p r e sc r i b e d R u l e s . I t i s f u r t h e r s t a t e d t h a t a s p e r e x p l a n a t i o n ( a ) ( i ) o f t h e s e c t i o n 5 6 ( 2 ) ( v i i b ) , t h e f a i r m a r k e t v a l u e o f t h e s h a r e s h al l b e t h e v a l u e , a s m a y b e d e t e r m i n e d i n a c c o r d a n c e w i t h t h e p r e s c r i b e d m e t h o d . I n t h e p r e s e n t c a s e , t h e a p p e l l a n t h a s g o n e b y t h e p r e s c r ib e d m e t h o d i . e . D C F m e t h o d w h i c h i s s u p p o r t e d b y t h e r e p o r t o f i n d ep e n d e n t I.T.A. No.8689/Del/2019 4 a u d i t o r a n d i s i n a c c o r d a n c e w i t h l a w . T h e r e f o r e , it i s n o t o p e n t o t h e A O t o c h a n g e t h e m e t h o d , a d o p t e d b y t h e a p p e l l an t . F u r t h e r , n o c o g e n t r e a s o n i n g h a s b e e n s u b m i t t e d w h i l e r e j e c t i n g t h e v a l u a t i o n a d o p t e d b y t h e a p p e l l a n t . T h e a p p e l l a n t p r o v i d e d v al u a t i o n r e p o r t , w h i c h i s a s p e r t h e D C F m e t h o d . 6 . 5 T h e c o n t e n t i o n o f t h e a p p e l l a n t h a s b e e n e x a m i ne d . T h e f a i r m a r k e t v a l u e a s g i v e n b y t h e a p p e l l a n t h a s b e e n r e je c t e d w h i c h w a s b a s e d o n t h e D C F m e t h o d o f v a l u a t i o n w i t h o u t a n y c og e n t m a t e r i a l o n r e c o r d e x c e p t o n t h e b a s i s t h a t t h e r e i s a n e g a ti v e b o o k v a l u e o f s h a r e s . 6 . 6 O n g o i n g t h r o u g h t h e c o n t e n t i o n s o f t h e a p p e l l an t , i t i s s e e n t h a t t h e w o r k i n g h a s b e e n m a d e b y a n i n d e p e n d e n t v al u e r , s u b m i t t i n g t h e v a l u a t i o n o f s h a r e a s p e r d i s c o u n t ca s h f l o w m e t h o d . F u r t h e r , a s p e r t h e p r o v i s i o n s o f l a w , t h e a p p e l l a nt c a n t a k e h i g h e r o f t h e a m o u n t b e t w e e n t h e w o r k i n g a s p e r R u l e 1 1 U A ( D C F m e t h o d ) o r o n t h e b a s i s o f t h e v a l u e o f s h a r e s c o n s i d e r i n g t h e m a r k e t v a l u e o f a s s e t s , i n t a n g i b l e a s s e t s a n d p r o j e c t e d p r o f i t (N A V m e t h o d ) . 6 . 7 I n t h e p r e s e n t c a s e , t h e w o r k i n g g i v e n b y t h e ap p e l l a n t h a s b e e n b a s e d o n t h e v a l u e o f t h e s h a r e s , t a k i n g i n t o a c c o un t t h e p r o j e c t e d b u s i n e s s a n d o t h e r p a r a m e t e r s a s p e r a u d i t o r ' s r e p or t . 6 . 8 T h e w o r k i n g p r o v i d e d a s p e r R u l e 1 1 U A ( 2 ) h a s 2 l i m b s e i t h e r a t F M V o f u n q u o t e d e q u i t y s h a r e a s p e r f o r m u l a ( A - L ) * (P V ) / ( P E ) o r a s p e r t h e F M V w o r k e d o u t f o r t h e u n q u o t e d s h a r e s d e t er m i n e d b y a v a l u e r / C A / m e r c h a n t b a n k e r e t c . a s p e r d i s c o u n t f r e e c a s h f l o w m e t h o d . I t i s a t t h e o p t i o n o f a s s e s s e e t o c h o o s e be t w e e n t w o w h i c h e v e r i s h i g h e r . I n t h e p r e s e n t c a s e , t h e a p p e ll a n t h a s o p t e d f o r t h e s e c o n d o p t i o n f o r w o r k i n g o u t t h e f a i r m a r k e t va l u e o f s h a r e s d u l y s u p p o r t e d b y r e p o r t o f a C h a r t e r e d A c c o u n t a n t . 6 . 9 O n t h e o t h e r h a n d , A O h a s n o t p r o v i d e d a n y s o u nd r e a s o n i n g o r n o t b r o u g h t o n r e c o r d a n y m a t e r i a l t o c o u n t e r t h e ar g u m e n t o r t o n e g a t e t h e s u b m i s s i o n s o f t h e a p p e l l a n t . H e h a s r e je c t e d t h e p r o j e c t i o n w i t h t h e c o n t e n t i o n t h a t t h e p r e s e n t N A V i s n e g a t i v e , w i t h o u t c o m m e n t i n g u p o n t h e D C F m e t h o d f o r t h e p r o je c t i o n s m a d e . I t i s p e r t i n e n t t o n o t e t h a t p r o j e c t i o n s o f f u t u r e p r o f i t s a r e o n l y t h e e s t i m a t e s a n d n o t t h e e x a c t w o r k i n g o f f u t u r e p r o f it s . T h i s h a s a l s o b e e n h e l d b y H o n ' b l e I T A T D e l h i B e n c h i n t h e c a s e of I n d i a T o d a y O n l i n e P v t . L t d . ( S u p r a ) t h a t D C F m e t h o d i s a r e c o gn i z e d m e t h o d w h e r e f u t u r e p r o j e c t i o n s o f v a r i o u s f a c t o r s b y a p p ly i n g h i n d s i g h t v i e w a n d i t c a n n o t b e m a t c h e d w i t h t h e a c t u a l p e r f or m a n c e . 6 . 1 0 T h e r e f o r e i t i s c l e a r t h a t a s p e r t h e p r o v i s i on s o f l a w , t h e a p p e l l a n t h a s w o r k e d o u t t h e F M V , t a k i n g i n t o c o n s id e r a t i o n t h e f u t u r e p r o j e c t i o n s , u s i n g D C F m e t h o d a n d a c c o m p a n i ed b y t h e r e p o r t o f C A , w h i c h i s h i g h e r t h a n t h e n e g a t i v e N A V, w o r k e d o u t b y t h e A s s e s s i n g O f f i c e r . T h e r e f o r e , t h e a p p e l l a n t i s e n t i t l e d t o t a k e h i g h e r a m o u n t , a s p r o v i d e d i n t h e l a w . I.T.A. No.8689/Del/2019 5 6 . 1 1 S e c t i o n 5 6 ( 2 ) ( v i i ) ( b ) r e a d w i t h E x p l a n a t i o n a nd a p p l i c a b l e R u l e s h a s s p e c i f i c a l l y p r o v i d e d t h a t t h e f a i r m a r k et v a l u e o f t h e u n q u o t e d s h a r e s s h a l l b e d e t e r m i n e d a s p e r t h e p r e sc r i b e d m e t h o d s a n d s h a l l b e t a k e n w h i c h e v e r i s h i g h e r . 6 . 1 2 I n t h e f o l l o w i n g c a s e , t h e H o n ' b l e I T A T , J a i p ur h a s h e l d t h a t A O c a n n o t f o r c e t h e a p p e l l a n t t o s e l e c t a d i f f e r e n t m e t h o d , e s p e c i a l l y w h e n c o n d i t i o n s a r e f u l f i l l e d f o r m e t h o d o f v a l u a t i o n . M / s . R a m e s h w a r a m S t r o n g G l a s s P v t L t d V s I T O ; 2 0 1 8 -T I O L - 1 3 5 8 - I T A T - J A I P U R " W h e t h e r w h e n i n t e r m s o f R u l e 1 1 U A ( 2 ) ( b ) , i f t h e as s e s s e e i s e n t i t l e d t o c h o o s e a p a r t i c u l a r m e t h o d o f v a l u a t i o n o f h i s u n q u o t e d e q u i t y s h a r e s , t h e A O c a n s t i l l f o r c e t h e a s s e s s e e t o s e l e c t a d i f f e r e n t o n e - N O : I T A T . 6 . 1 3 T h e a p p e l l a n t h a s h e a v i l y r e l i e d u p o n t h e c a s e o f M / s C i n e s t a a n E n t e r t a i n m e n t P v t . L t d . ( S u p r a ) , w h e r e t he H o n ' b l e I T A T , D e l h i i n t h e r e c e n t j u d g m e n t h e l d t h a t : - 3 1 . . . . . . . . . . . . . A n y b u s i n e s s m a n o r e n t r e p r e n e u r , v i su a l i s e t h e b u s i n e s s b a s e d o n c e r t a i n f u t u r e p r o j e c t i o n a n d u n d e r t a k e s al l k i n d o f r i s k s . I t i s t h e r i s k f a c t o r a l o n e w h i c h g i v e s a h i g h e r r et u r n t o a b u s i n e s s m a n a n d t h e i n c o m e t a x d e p a r t m e n t o r r e v e n ue o f f i c i a l c a n n o t g u i d e a b u s i n e s s m a n i n w h i c h m a n n e r r i s k h a s t o b e u n d e r t a k e n . S u c h a n a p p r o a c h o f t h e r e v e n u e h a s b e en j u d i c i a l l y f r o w n e d b y t h e H o n ' b l e A p e x C o u r t o n s e v e r a l o c c a s io n s . C o m m e r c i a l e x p e d i e n c y h a s t o b e s e e n f r o m t h e p o i n t o f v i e w o f b u s i n e s s m a n . H e r e i n t h i s c a s e i f t h e i n v e s t m e n t h as m a d e k e e p i n g a s s e s s e e ' s o w n b u s i n e s s o b j e c t i v e o f p r o j e c t i o n o f f i l m s a n d m e d i a e n t e r t a i n m e n t , t h e n s u c h c o m m e r c i a l w i s d o m c a n n o t be q u e s t i o n e d . E v e n t h e p r e s c r i b e d R u l e 1 1 U A ( 2 ) d o e s n o t g i v e a n y p o w e r t o t h e A s s e s s i n g O f f i c e r t o e x a m i n e o r s u b s t i t u t e h i s o w n v a l u e i n p l a c e o f t h e v a l u e d e t e r m i n e d o r r e q u i r e s a n y s a t i s f a c t i o n on t h e p a r t o f t h e A s s e s s i n g O f f i c e r t o t i n k e r w i t h s u c h v a l u a t i o n . . . . 3 2 . S e c t i o n 5 6 ( 2 ) ( v i i b ) i s a d e e m i n g p r o v i s i o n a n d o n e c a n n o t e x p a n d t h e m e a n i n g o f s c o p e o f a n y w o r d w h i l e i n t e rp r e t i n g s u c h d e e m i n g p r o v i s i o n . I f t h e s t a t u t e p r o v i d e s t h a t t h e v a l u a t i o n h a s t o b e d o n e a s p e r t h e p r e s c r i b e d m e t h o d a n d i f o n e o f t h e p r e s c r i b e d m e t h o d s h a s b e e n a d o p t e d b y t h e a s s e s s e e , t h e n A s s es s i n g O f f i c e r h a s t o a c c e p t t h e s a m e a n d i n c a s e h e i s n o t s a t i s fi e d , t h e n w e d o n o t w e f i n d a n y e x p r e s s p r o v i s i o n u n d e r t h e A c t o r r u l e s , w h e r e A s s e s s i n g O f f i c e r c a n a d o p t h i s o w n v a l u a t i o n i n D CF m e t h o d o r g e t i t v a l u e d b y s o m e d i f f e r e n t V a l u e r . T h e r e h a s to b e s o m e e n a b l i n g p r o v i s i o n u n d e r t h e R u l e o r t h e A c t w h e r e A s s e s s i n g O f f i c e r h a s b e e n g i v e n a p o w e r t o t i n k e r w i t h t h e va l u a t i o n r e p o r t o b t a i n e d b y a n i n d e p e n d e n t v a l u e r a s p e r t h e q u a l i fi c a t i o n g i v e n i n t h e R u l e 1 1 U . H e r e , i n t h i s c a s e , A s s e s s i n g O f f i c e r h a s t i n k e r e d w i t h D C F m e t h o d o l o g y a n d r e j e c t e d b y c o m p a r i n g t h e p r o j e c t i o n s w i t h a c t u a l f i g u r e s . T h e R u l e s p r o v i d e f o r t w o v a l ua t i o n I.T.A. No.8689/Del/2019 6 m e t h o d o l o g i e s , o n e i s a s s e t s - b a s e d N A V m e t h o d w h i c h i s b a s e d o n a c t u a l n u m b e r s a s p e r l a t e s t a u d i t e d f i n a n c i a l s o f t h e a s s e s s e e c o m p a n y . T h e s e p r o j e c t i o n s a r e b a s e d o n v a r i o u s f a c t o r s a n d p r o j e c t i o n s m a d e b y t h e m a n a g e m e n t a n d t h e V a l u e r , l i k e g r o w t h o f t h e c o m p a n y , e c o n o m i c / m a r k e t c o n d i t i o n s , b u s i n e s s c o n d it i o n s , e x p e c t e d d e m a n d a n d s u p p l y , c o s t o f c a p i t a l a n d h o st o f o t h e r f a c t o r s . T h e s e f a c t o r s a r e c o n s i d e r e d b a s e d o n s o m e r e a s o n a b l e a p p r o a c h a n d t h e y c a n n o t b e e v a l u a t e d p u r e l y b a s e d o n a r i t h m e t i c a l p r e c i s i o n a s v a l u e i s a l w a y s w o r k e d o ut b a s e d o n a p p r o x i m a t i o n a n d c a t e n a o f u n d e r l i n e f a c t s a n d a s su m p t i o n s . N e v e r t h e l e s s , a t t h e t i m e w h e n v a l u a t i o n i s m a d e , it i s b a s e d o n r e f l e c t i o n s o f t h e p o t e n t i a l v a l u e o f b u s i n e s s a t th a t p a r t i c u l a r t i m e a n d a l s o k e e p i n g i n m i n d u n d e r l i n e f a c t o r s t h a t m a y c h a n g e o v e r t h e p e r i o d o f t i m e a n d t h u s , t h e v a l u e w h i c h i s r e le v a n t t o d a y m a y n o t b e r e l e v a n t a f t e r c e r t a i n p e r i o d o f t i m e . . . 3 3 . I n a n y c a s e , i f l a w p r o v i d e s t h e a s s e s s e e t o g et t h e v a l u a t i o n d o n e f r o m a p r e s c r i b e d e x p e r t a s p e r t h e p r e s c r i b e d m e t h o d , t h e n t h e s a m e c a n n o t b e r e j e c t e d b e c a u s e n e i t h e r t h e A s se s s i n g O f f i c e r n o r t h e a s s e s s e e h a v e b e e n r e c o g n i z e d a s e x p e r t u n de r t h e l a w . " 6 . 1 4 I t i s c l e a r f r o m t h e a b o v e j u d g m e n t b y t h e H o n' b l e J u r i s d i c t i o n a l I T A T t h a t n e i t h e r A O h a s a n y p o w e r or e x p e r t i s e t o c h a n g e t h e m e t h o d o f v a l u a t i o n n o r i t c a n r e j e c t a v a l i d v a l u a t i o n b y a c o m p e t e n t p e r s o n s a y a C A i n t h i s c a s e . T h e l aw h a s t o b e f o l l o w e d i n l a t e r a n d s p i r i t . T h e f a c t s a n d r a t i o la i d d o w n b y t h e H o n ' b l e I T A T i n t h e a b o v e r e f e r r e d c a s e a r e s q u a r e ly a p p l i c a b l e t o t h e a p p e l l a n t a n d h e n c e r e s p e c t f u l l y f o l l o w i n g t h e s a m e , i t i s h e l d t h a t t h e a d d i t i o n u / s . 5 6 ( 2 ) ( v i i b ) w i t h r e s p e c t t o c h a n g e i n t h e m e t h o d o f v a l u a t i o n i s n o t i n a c c o r d a n c e w i t h l a w . 6 . 1 5 T h e a p p e l l a n t h a s e l a b o r a t e l y d i s p u t e d a n d d i st i n g u i s h e d t h e f a c t o f t h e d e c i s i o n i n t h e c a s e o f A g r o P o r t f o l i o P v t . L t d . f r o m t h a t o f t h e c a s e o f a p p e l l a n t . I n t h e s a i d c a s e , t h e H o n' b l e I T A T a l l o w e d t h e A O ' s w o r k i n g o f N A V v a l u e o n t h e g r o u n d t h a t n o c o g e n t r e a s o n i n g w a s p r o v i d e d i n t h e r e p o r t a n d t h e v e r a c it y o f t h e d a t a s u p p l i e d w a s a l s o n o t j u s t i f i e d . I n t h e c a s e o f a p pe l l a n t a s w e l l a s i n t h e c a s e o f M / s C i n e s t a a n E n t e r t a i n m e n t P v t . L t d. , t h e v a l u a t i o n r e p o r t i s d u l y s u p p o r t e d b y t h e f a c t s a n d f i g u r e s . I t i s t r i t e l a w t h a t t h e p r o j e c t i o n s c a n n o t b e e q u a t e d w i t h 1 0 0 % a c t u a l p e r f o r m a n c e w h i c h i s a l s o c o n f i r m e d b y H o n ' b l e I T A T D e l h i i n t he c a s e o f I n d i a T o d a y O n l i n e P v t . L t d ( S u p r a ) . 6 . 1 6 T h e r e f o r e , l o o k i n g t o t h e f a c t s a n d c i r c u m s t a nc e s o f t h i s c a s e , c o n s i d e r i n g a p p e l l a n t ' s s u b m i s s i o n s a n d i n l a w , w h ic h i s f u r t h e r s u p p o r t e d b y t h e j u d g m e n t o f H o n ' b l e I T A T D e l h i i n t h e c a s e o f C i n e s t a a n E n t e r t a i n m e n t P v t . L t d . ( S u p r a ) a n d o t h e r c a s e l a w s a n d a s d i s c u s s e d i n d e t a i l i n t h e s u b m i s s i o n o f a p p e l l an t , i t c a n n o t b e s a i d t h a t t h e v a l u e a d o p t e d b y t h e a p p e l l a n t i s l i ab l e t o b e r e j e c t e d I.T.A. No.8689/Del/2019 7 o r s u b j e c t e d t o t a x u / s . 5 6 ( 2 ) ( v i i b ) o f t h e A c t , e nf o r c i n g t h e c h a n g e o f m e t h o d o f v a l u a t i o n o f F M V o f s h a r e s . A c c o r d i n g ly , t h e v a l u a t i o n d o n e b y a p p e l l a n t i s f o u n d t o b e i n a c c o r d a n c e w i t h l a w . T h e r e f o r e i n v i e w o f a b o v e d i s c u s s i o n s a n d c o n s i d e r i n g t h e e xt a n t l a w , t h i s a d d i t i o n i s d i r e c t e d t o b e d e l e t e d . T h u s t h e a p p e l la n t g e t s a r e l i e f o f R s . 2 , 6 3 , 0 0 , 0 0 0 / - . T h i s g r o u n d o f a p p e a l i s a l l o w e d .” 5. A gg rieve d by t he r eli ef granted b y t he C IT (A ), the R evenue is in a ppeal be fore the T ri bunal. 6. We ha ve c ons i de red t he ri val s ubmi ssions a nd pe rus e d the fi rs t appel lat e o rder a nd the assessment orde r. The doc uments re fe rre d to a nd als o c ase laws re ferre d in t he course of hea ring by the res pec ti ve sides have been tak en i nt o acc ount. 6. 1 T he R evenue has con trove rted t he actio n of t he C IT( A) on the t ouchs t one o f Section 56 (2)( vi ib ) of t he A ct tow ard s al lot ment of e qui t y s hares to the s ubs cri be r K V A romat ics Pvt. L td. w hich is the e xis ting s hareho ld er, ho lding 51% of the e quit y s hare of the assessee-compan y. The e ffec t of i ssues o f sha re s to holdi ng co mpan y a t a premiu m has be en e xa mi ne d by t he Co-ordi na te Bench of T ribuna l in the ca se of BLP Vayu (P ro jec ts - 1) P vt. Lt d. rep orted in (202 3) 151 taxm ann. com 47 (D el-Tr i b. ). The relevant ope rative pa ra graph of the or der of the T ri bunal is hereunder : “ 1 1 . 1 A s p e r c a s e r e c o r d s , i t i s a n u n d i s p u t e d f a c t t h a t t h e s h a r e s h a v e b e e n a l l o t t e d a t a p r e m i u m t o i t s 1 0 0 % h o l d i n g c o m p a n y . T h u s , a p p l i c a b i l i t y o f S e c t i o n o n 5 6 ( 2 ) ( v i i b ) h a s to b e s e e n i n t h i s p e r s p e c t i v e . T h e C o - o r d i n a t e B e n c h o f T r i b u n a l i n DC I T v s . O z o n e I n d i a L t d . i n I T A N o . 2 0 8 1 / A h d / 2 0 1 8 o r d e r d a t e d 1 3 . 04 . 2 0 2 1 i n t h e c o n t e x t o f S e c t i o n 5 6 ( 2 ) ( v i i b ) h a s a n a l y z e d t h e d e em i n g p r o v i s i o n s o f S e c t i o n 5 6 ( 2 ) ( v i i b ) o f t h e A c t t h r e a d b a r e a n d i nt e r a l i a o b s e r v e d t h a t t h e d e e m i n g c l a u s e r e q u i r e s t o b e g i v e n a s c h em a t i c i n t e r p r e t a t i o n . T h e t r a n s a c t i o n o f a l l o t m e n t o f s h ar e s a t a p r e m i u m i n t h e i n s t a n t c a s e i s b e t w e e n h o l d i n g c o m p a n y a n d i t i s s u b s i d i a r y c o m p a n y a n d t h u s w h e n s e e n h o l i s t i c a l l y , t h e r e i s no b e n e f i t d e r i v e d b y t h e a s s e s s e e b y i s s u e o f s h a r e s a t c e r t a i n p r e m iu m n o t w i t h s t a n d i n g t h a t t h e s h a r e p r e m i u m e x c e e d s a f ai r m a r k e t v a l u e I.T.A. No.8689/Del/2019 8 i n a g i v e n c a s e . I n s t i n c t i v e l y , i t i s a t r a n s a c t i o n b e t w e e n t h e s e l f , i f s o t o s a y . T h e t r u e p u r p o r t o f S e c t i o n 5 6 ( 2 ) ( v i i b ) w a s a n a l y z e d i n O z o n e c a s e a n d i t w a s o b s e r v e d t h a t t h e o b j e c t i v e be h i n d t h e p r o v i s i o n s o f S e c t i o n 5 6 ( 2 ) ( v i i b ) i s t o p r e v e n t u n la w f u l g a i n s b y i s s u i n g c o m p a n y i n t h e g a r b o f c a p i t a l r e c e i p t s . I n t h e i n s t a n t c a s e , n o t o n l y t h a t t h e f a i r m a r k e t v a l u e i s s u p p o r t e d b y i n d e p e n d e n t v a l u e r r e p o r t , t h e a l l o t m e n t h a s b e e n m a d e t o t h e ex i s t i n g s h a r e h o l d e r h o l d i n g 1 0 0 % e q u i t y a n d t h e r e f o r e , t h e re i s n o c h a n g e i n t h e i n t e r e s t o r c o n t r o l o v e r t h e m o n e y b y s u c h is s u a n c e o f s h a r e s . T h e o b j e c t o f d e e m i n g a n u n j u s t i f i e d p r e m i u m c h a r g ed o n i s s u e o f s h a r e a s t a x a b l e i n c o m e u n d e r S e c t i o n 5 6 ( 2 ) ( v i i b ) is w h o l l y i n a p p l i c a b l e f o r t r a n s a c t i o n s b e t w e e n h o l d i n g a n d it s s u b s i d i a r y c o m p a n y w h e r e n o i n c o m e c a n b e s a i d t o a c c r u e t o t he u l t i m a t e b e n e f i c i a r y , i . e . , h o l d i n g c o m p a n y . T h e c h a r g e a b i l it y o f d e e m e d i n c o m e a r i s i n g f r o m t r a n s a c t i o n s b e t w e e n h o l d i n g a nd s u b s i d i a r y o r v i c e v e r s a m i l i t a t e s a g a i n s t t h e s o l e m n o b j e c t o f Se c t i o n 5 6 ( 2 ) ( v i i b ) o f t h e A c t . I n t h i s b a c k d r o p , t h e e x t e n t o f i n q u i r y o n t h e p u r p o r t e d c r e d i b i l i t y o f p r e m i u m c h a r g e d d o e s n o t r e a l l y m a t te r a s n o p r e j u d i c e c a n p o s s i b l y r e s u l t f r o m t h e o u t c o m e o f su c h i n q u i r y . T h u s , t h e c o n d i t i o n f o r a p p l i c a b i l i t y o f S e c t i o n 2 63 f o r i n q u i r y i n t o t h e t r a n s a c t i o n s b e t w e e n t o i n t e r w o v e n h o l d i n g a n d s u b s i d i a r y c o m p a n y i s o f n o c o n s e q u e n c e . W e a l s o a f f i r m a t i v e l y n o t e t h e d e c i s i o n o f S M C B e n c h i n t h e c a s e o f K B C I n d i a P v t . L t d . v s . I T O i n I T A N o . 9 7 1 0 / D e l / 2 0 1 9 o r d e r d a t e d 0 2 . 1 1 . 2 0 2 2 ( S M C ) wh e r e i t w a s o b s e r v e d t h a t S e c t i o n 5 6 ( 2 ) ( v i i b ) c o u l d n o t b e a p p li e d i n t h e c a s e o f t r a n s a c t i o n b e t w e e n h o l d i n g c o m p a n y a n d w h o l l y o w n ed s u b s i d i a r y i n t h e a b s e n c e o f a n y b e n e f i t o c c u r r i n g t o a n y o u t si d e r . ” 6. 2 T he C o-ordi na te B ench has essentia ll y obs erved t ha t wher e the all ot me nt has been made to exis ting s hareho lders, the dee mi ng pro visions of Se cti on 56(2 )(v ii b) w oul d not ordina ril y be appl icable. This a pa rt, the ass essee, i n the i ns tant case, has als o dis lo dge d t he obs ervati on of t he A ssessing O fficer t hat the net w orth at the ti me of issuance o f shar es w ere in negat ive by adduc in g va lu at ion re por t. A s per the va luat ion repo rt, t he FMV has been deter mi ned at Rs. 14.815 per share w hich is at par w it h the FMV a t w hi ch s hares ha ve bee n issued to t he holdi ng co mpan y. T hus t he pr emiu m cha rged is support able by the valuati on repo rt and the pre mi um charg ed is q ui te ne gl igible and char ged t o exis tin g sh areholder. Th us e ffec ti ve l y, t he bene fi t i f an y ar is ing t o t he compan y in t ur n be nefits t o the subsc riber I.T.A. No.8689/Del/2019 9 havi ng pre-exist in g ri ght i n the com pan y. T hus, in our v iew , the concl us ion draw n b y t he C IT (A ) ca nno t be faul ted eit her on fa cts or i n law . 7. Withou t reiterat in g the pr ocess re ason in g adopted by the CIT (A ), w e endors e the same and de cli ne to inte rfe re therew ith. 8. In the res ul t, the appeal of t he R eve nue is d is miss ed. Order pronounced in the open Court on 13/12/2023 Sd/- Sd/- [YOGESH KUMAR US] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /12/2023 Prabhat