M/S. AMBATTUR DEVELOPERS PVT. LTD.,CHENNAI V. ITO, CORPORATE WARD-1(1), CHENNAI

ITA 2601/CHNY/2024

AI Insights

The case involves M/s. Ambattur Developers Private Limited, which appealed against the order of the Commissioner of Income Tax (Appeals), NFAC, Delhi, for the assessment year 2015-16. The primary issue was the addition made under section 56(2)(viib) of the Income-tax Act concerning the valuation of shares allotted at a premium during a rights issue. The Assessing Officer had rejected the valuation report provided by the assessee and adopted a lower valuation based on guideline values, which the Tribunal found inappropriate. The Tribunal noted that the shares were issued to existing shareholders in proportion to their holdings and at the same price, which did not lead to any unaccounted money being introduced into the company. The Tribunal also emphasized that the valuation should consider the business as a whole, including intangible assets like brand value, rather than just individual assets in isolation.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 785002 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 10-10-2024
• Other Referred Cases: ACIT v. Subodh Menon, IPSAA Holdings (P.) Ltd v. ACIT, Sadhvi Securities (P.) Ltd v. Asstt. CIT, Clearview Healthcare Pvt. Ltd. v. ITO, DCIT Vs Kissandhan Agri Financial Services (P.) Ltd., BLP Vayu (Project-1) (P.) Ltd. v. PCIT, Royal orchid Hotel, Leela Palace, Agra Portfolio (P.) Ltd. v. PCIT, Cinestaan Entertainment (P.) Ltd. v. ITO, Dy.CIT vs. Kilitch Healthcare India Ltd., Weldon Polymers (P) Ltd vs. DCIT, Mafatlal Industries Ltd. vs. Miheer H. Mafatlal, Securities & Exchange Board of India & Ors. vs. DQ (International) Ltd., Renuka Datla (Mrs.) vs. Solvay Pharmaceuticals B. vs. & Ors., CIT vs. VVA Hotels (P) Ltd., Bharat Hari Singhania & Ors. vs. Commr. of Wealth Tax & Ors., CIT vs. VVA Hotels (P) Ltd., CIT vs. VVA Hotels (P) Ltd.
• Laws Referred To: Income-tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BIPIN; C.N.
• Assessee Lawyers: R. VIJAYARAGHAVAN
• Keywords: Transfer pricing; International transaction; Sale consideration of property below Jantri Value; Fair market value; Commercial expediency; Capital receipt; Gift; Reopening of assessment; Capital Gains; TDS; Valuation report; Deemed to accrue or arise in india
• Section: 56; 56(2)(vii)(b); 56(2)

Judgement Text

" आयकर अपील य अ धकरण, ‘सी’ \u000eयायपीठ, चे\u000eनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI \u0015ी मनु क ुमार ग\u0019र, \u000eया\u001aयक सद य एवं \u0015ी एस. आर. रघुनाथा, लेखा सद य क े सम# BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 2601/Chny/2024 \u001aनधा$रण वष$ / Assessment Year: 2015-16 M/s. Ambattur Developers Private Limited, (Amalgamated with Ambattur Hotels Private Limited) No. 86/E2, Industrial Estate, Ambattur, Chennai - 600 058. Tamil Nadu. vs. Income Tax Officer, Corporate Ward- 1(1), Chennai. [PAN: AAECA-7490-D] (अपीलाथ&/Appellant) ('(यथ&/Respondent) अपीलाथ& क) ओर से/Appellant by : Shri. R. Vijayaraghavan, Advocate '(यथ& क) ओर से/Respondent by : Shri. Bipin, C.N., CIT सुनवाई क) तार ख/Date of Hearing : 09.09.2025 घोषणा क) तार ख/Date of Pronouncement : 11.11.2025 आदेश /O R D E R PER S.R.RAGHUNATHA, AM : This appeal by the assessee is filed against the order of the learned Commissioner of Income Tax (Appeal), NFAC, Delhi, (in short Ld.CIT(A)) for the assessment year 2015-16, vide order dated 12.08.2024. 2. The grounds raised by the assessee are as follows: Printed from counselvise.com :-2-: ITA. No: 2601/Chny/2024 1) The Order of the Commissioner of Income tax, National Faceless Appeal Centre (NFAC), Delhi is contrary to law, facts and in the circumstances of the case. 2) The CIT(A) NFAC erred in confirming the addition made under section 56(2)(vii)(b) to the extent of Rs. 72,69,89,420/- in respect of shares allotted at a premium of 1,767/- per share. 3) The CIT(A) / NFAC erred in estimating the Fair market value of shares at 837.24 per shares instead of Rs.1,777/- as submitted by the Appellant. 4) The CIT(A) /NFAC should have appreciated that, even under 11UA, what is being valued is the conglomeration of assets which together form a thriving running hotel business and the valuation should be based on/ estimated on the value of the business on commercial principles on what the business concern would fetch in the market and not on the basis of guideline value of a property which is not comparable. 5) The benefits accruing to association with an internationally recognized brand \"HYATT\" would certainly enhance the value of the business. Such benefits are real if intangible in nature and hence to be valued as has been done by the Appellant. The CIT(A) NFAC erred in completely ignoring the addition to the valuation due to the association with such an internationally recognized brand in the Hotel industry as \"HYATT\". 6) The CIT(A) / NFAC, in effect has concluded that the value of shares of the Hotel will not alter whether they have and association with а internationally recognized brand or operate without any association with a recognized brand name. It is against all commercial principles of valuation of business. 7) The CIT(A) / NFAC erred in adopting the value of the land of the company@ ₹12,000/- per sq.ft based on the value of some vacant land in the nearby area without considering whether such lands can be considered as comparable in value ignoring the fact that on the Appellant's land a Luxury Five Star Hotel is running and the land cannot be valued as a vacant land at the guideline value. 8) The CIT(A) / NFAC while assuming value of the land value should be only 12,000 per square feet On the basis of sale of some other properties based on information by SRO, about which he has not specified nor discussed the characteristics of the such properties which he has taken as comparison in relation to the Appellant's land which has been fully developed into a Five Star Luxury Hotel. Printed from counselvise.com :-3-: ITA. No: 2601/Chny/2024 (9) The CIT(A) / NFAC ought to have appreciated that in the case of a High end luxury hotel with Five star facilities, the Land and the hotel building with facilities should be valued jointly at the market value. AO cannot take the land value independently and compare with some ordinary regular empty land and adopt it as a comparative figure for land on which a running Five Star Hotel is in existence and running. 10) The CIT(A) / NFAC ought to have appreciated that a Architecturally Planned operational building cannot be valued as the aggregate of the cost of individual components. 11) The CIT(A) / NFAC ought to have appreciated that what was being valued was the business and land and the hotel building constitute a composite business asset which cannot be segregated and land and building valued separately. 12) The valuation reports made by recognized valuers taking into account the intangible benefits computed on the basis of accepted valuation principles, cannot be ignored lightly without any commercial reasons, and also value the land merely at the guideline value. CIT(A)/NFAC ought to have appreciated that it is a case of business valuation and not capital gains computation under Section 50C. 13) The combined value of the land and the Hotel building with the facilities is well worth the Rs. 365.12 Crores and the total tangible assets Rs. 470.11 Crores as taken by the Appellant and the value of intangible assets at Rs. 26 Crores as given by Registered valuers. Neither the AO or the CIT(A) have not given any reason as to why it did not reflect the correct market value of the running Hotel facility. 14) The AO/CIT(A) action of segregating the land portion alone and valuing the same on the basis of some sale of nearby land is not comparable and is not based on any rudimentary commercial principles. 15) The CIT(A) / NFAC should have appreciated that the valuation should be done from the angle of Investors and what would the business was worth and whether it would be a good risk to invest. 16) The CIT(A) / NFAC ought to have appreciated that in valuing assets of the business for the purpose of valuing the business, value of contribution of each asset as a constituent of the overall business value has to be considered and not what individual asset would fetch if sold in the market, because the valuation is not made as if the assets are all individually sold in the open market. Value of synergy cannot be ignored. Printed from counselvise.com :-4-: ITA. No: 2601/Chny/2024 17) For all and other reasons, documents and evidence that may be submitted the order of the CIT(A) bet aside and delete the addition made u/s sec 56(2)(viib). 3. The Assessee is running a Hotel under the name “HOTEL PARK HYATT” in a central location in Velachery Main Road, Guindy in Chennai. The company was having paid up capital of Rs.1,90,81,770/- consisting of 19,08,177 shares with face value of Rs.10/- and net share premium of Rs.145,49,27,637/-. During the year under appeal the Company had allotted further 8,40,869 equity shares to the existing shareholders (7,73,393 shares to domestic shareholder and balance 67,476 shares to Non-Resident Shareholder) at a price of Rs.1,777/- per share, at a premium of Rs.1,767/- per share, with the objective of reducing borrowings that had significantly affected the entity's profitability. 4. The issue price of the shares was determined based on a valuation carried out by a Registered Valuer and a Chartered Accountant. The Valuer assessed the market value of land, building, and other tangible assets, arriving at an aggregate value of Rs.462.99 Crores. Additionally, the value of the brand “HYATT”, a well-recognized name in the hospitality sector and used by the Assessee, was estimated at Rs.26 Crores. The Brand value was computed on the basis of estimated incremental revenue on account of the Brand and discounted at 17.54%. Based on this combined valuation and adopting the value of other assets and liabilities as per Books, the Chartered Accountant computed the fair value of shares, taking into account the other assets and liabilities at Book value, at Rs.1,776/- per share. Based on this valuation, Assessee issued shares to the existing shareholders at Rs.1777/- per share. Printed from counselvise.com :-5-: ITA. No: 2601/Chny/2024 5. In the course of Assessment, the Assessing Officer (AO), relying on data from the Sub Registrar's Office (SRO) regarding guideline land values, concluded that the land valuation by the Valuer was overstated. He also opined that the brand valuation at Rs.26.00 Crores was inflated, in view of the Assessee's failure to achieve the projected revenues on which the brand value was premised. Consequently, the AO rejected the valuation reports totally and adopted the book value of the assets and arrived at a fair value of Rs.398/- per share. The AO treated the difference between the issue price of Rs.1,777/- and the computed fair value of Rs.398/-, in respect of the 7,73,393 shares issued to domestic shareholder, as income under the head “Income from Other Sources” in terms of Section 56(2)(viib) of the Income-tax Act (in short the Act) and added Rs.106,65,08,947/-in the order of Assessment. 6. On appeal, learned Commissioner of Income Tax (Appeals) [CIT(A)] at Para 4.3.6 (Page 34) of his order generally accepted the valuation of the Valuer of Rs. 339.12 Crores (referred to in Page 8 of his order) in respect of all the assets except the land valuation and inclusion of Brand value at Rs.26.00 Crores. He to adopted value of land at a rate of Rs.12,000/- per sq.ft based on guideline values provided by the SRO, in place of the book value adopted by the AO. However, the CIT(A) concurred with the AO's decision to exclude the brand value of Rs. 26 Crores attributed to “HYATT” for enterprise valuation purposes. On this basis the CIT(A) arrived at valuation of the shares at Rs.837.24 per share as against the value of she at Rs.1767/- per share. The Printed from counselvise.com :-6-: ITA. No: 2601/Chny/2024 ld.CIT(A) worked out the addition, in respect 7,73,393 shares allotted to Domestic shareholders, under sec 56(2)(viib) at Rs.72,69,89,420/-. 7. The Assessee is in further appeal before us. The issue in appeal, in effect, concerns the applicability of section 56(2)(viib) of the Act and the valuation of a running hotel with all its facilities for determining the fair market value of shares u/s.56(2)(viib) of the Act. It is imperative to understand to whom the shares are issued, the nature of shares and whether it was offered in the same proportion to all the shareholders. Further, it is also crucial to ascertain whether the AO has alleged or proved that unaccounted money is infused for investment in shares to decide the applicability of Section 56(2)(vii)(b) of the Act. 8. The Ld.AR submitted that during the subject A.Y., the shares were offered and issued only to existing shareholders of the Assessee, which is in the nature of rights issue and/or preferential issue. Further, the Ld.AR submitted that the shares were issued in the same proportion to all the existing shareholders (i.e. resident as well as non-resident shareholders) of the company and the same was not offered to outsiders (i.e. other than existing shareholders). The Ld.AR submitted that the Resident shareholders as well as Non-resident shareholder subscribed the shares at the same price. 9. Applicability of section 56(2)(viib) At the outset, it is important to determine the applicability of Section 56(2)(viib) of the Act to the facts of the present case. The Ld.AR submitted that Printed from counselvise.com :-7-: ITA. No: 2601/Chny/2024 the purpose of introduction of this section will be determinative factor and submitted as under: 9.1 Purpose of Section 56(2)(viib) – Finance Act, 2012 The amount received by way of share premium is essentially a capital receipt. However, Section 56(2)(viib) of the Act, introduced through the Finance Act, 2012, seeks to treat such consideration received as deemed income by a closely held company. Section 56(2)(viib) is one of the anti-abuse provision which brings to tax such excess consideration deemed to have been received by the closely held company while issuing shares at premium if such consideration is found to exceed the FMV of such shares. The rationale behind the introduction of deeming provisions of section 56(2)(viib) in the statute is to deter generation and use of black money. The Finance Minister, while presenting the Budget, made it explicit that this provision, along with several related amendments, was intended to address only one mischief: the generation and use of unaccounted money. The speech made in Parliament clearly sets out the objective: “I propose a series of measures to deter the generation and use of unaccounted money. To this end, I propose— • Compulsory reporting of assets held abroad. • Reopening of assessments up to 16 years in relation to assets held abroad. • Tax collection at source on cash purchase of bullion/jewellery exceeding ₹2 lakh. • TDS on transfer of immovable property (other than agricultural land) above a prescribed threshold. • TCS on trading in coal, lignite, and iron ore. • Enhanced onus of proof on closely held companies for funds received from shareholders, and taxation of share premium in excess of fair market value. Printed from counselvise.com :-8-: ITA. No: 2601/Chny/2024 • Taxation of unexplained money, credits, investments, or expenditures at 30%, irrespective of income slab.” (emphasis supplied) 9.2 From the above memo it is evident that introduction of section 56(2)(viib) has been grouped with other amendments all of which have been brought in with the main purpose to identify and curb transactions with unaccounted monies. It is evident that the provision was not meant to disturb genuine, bona fide business transactions but to curb tax abuse through unexplained money inflows. In the instant case, neither the AO nor the ld.CIT(A) have held or alleged that unaccounted money has been introduced by the Assessee. In fact, their only case is that the figures adopted for the purpose of valuation is not acceptable to them. The major subscriber to the shares is the holding company Ambattur Clothing Limited. The present investment seems to have been accounted in the books of the holding company as well as the Non-residents and it is out of their accounted resources and funds were transferred through banking channels. Further neither of the lower authorities have doubted the source of the investment and as such they cannot hinder the genuine and bona fide business transactions. Therefore, in the absence of this primary criteria (i.e. investment is out of unaccounted money), we feel invocation of section 56(2)(viib) of the Act is against main objective of the said section and hence we hold it is incorrectly invoked. 9.3 In support of the above contentions reliance was placed upon the following decisions: (i) ACIT v. Subodh Menon (2019) 103 taxmann.com 15 / 175 ITR 449; Printed from counselvise.com :-9-: ITA. No: 2601/Chny/2024 (ii) IPSAA Holdings (P .) Ltd v. ACIT [2025] 176 taxmann.com 823 (Delhi - Trib) (iii) Sadhvi Securities (P .) Ltd v. Asstt. CIT [2019] 109 taxmann.com 245/179 ITD 197 (iv) Clearview Healthcare Pvt. Ltd. v. ITO (2020) 114 taxmann.com 167 (Del- Trib.). 8 ITA.No.2720/DEL/2023 9.4 We also find that in IPSAA Holdings (P.) Ltd v. ACIT (supra), the Delhi Tribunal has held as under: “Since the shares were allotted to its own promoters, there is no avenue for the assessee to generate or convert any unaccounted money and bring on record. Further there is no evidence brought on record by the Assessing Officer to question the genuineness of the transaction, rather he analysed only the projections.” 9.5 In the instant case also the shares are issued to the promoter shareholders and the Revenue has neither doubted the genuineness of the transaction nor have they alleged any unaccounted money being deployed in the transaction. Respectfully following the above decision we also hold that the section 56(2)(viib) cannot be invoked to defeat the object of the said Section. 9.6 The advent of “Angel tax” u/s.56(2)(viib) of the Act was initially designed to apply to unlisted companies that received investments from resident investors at a share price higher than the FMV. The main objective behind this provision was aimed to curb unaccounted money being invested in shell companies. Later these provisions extended to include investments from non- resident investors from the F.Y.2023-24. However, the 2024 Union Budget effectively abolished the angel tax for all types of investors (i.e. resident and non-resident) by curtailing its application with effect from 01.04.2025 i.e. sun- set clause was inserted. Therefore, the Section has been introduced by the Printed from counselvise.com :-10-: ITA. No: 2601/Chny/2024 Government only to curb unaccounted money/Black money and since no such presumption has been drawn in the present case, the application of Section 56(2)(viib) of the Act is unwarranted and we delete the same. 10. Genuine business transaction 10.1 It is also evident from the cash flow statement that the entire funds were utilized to pay off the ECB and term loan. It is the contention of the Assessee that since the Rupee value was depleting, servicing the foreign currency ECB will become extra expensive and it might severely affect the overall operation and growth of the Hotel. Similarly, the interest on term loans also impacted the business profits. Therefore, the existing shareholders in the best interest of the company i.e. to mitigate the excess outflow due to forex fluctuation and also to reduce the interest liability, chose to infuse funds through share premium and squared off the ECB and term loan. This factual aspect clearly establishes the genuine nature of the transaction and it also shows there is no ulterior motive to obtain funds at a value higher than the FMV. In fact as the logic strikes us, that even assuming the contention of the Revenue is accepted for a moment and the FMV as determined by the lower authorities is accepted, what the Assessee would have done is, offered/issued more no of shares to meet its requirement to pay off the ECB and term loan as the funds are anyway being infused by the existing shareholders to pay off the debt. Our view is also impliedly supported by the observation of the Mumbai Tribunal decision in the case of ITO Vs Chiripal Poly Films Ltd. [2019] 104 taxmann.com 172 (Mumbai - Trib.) Printed from counselvise.com :-11-: ITA. No: 2601/Chny/2024 “Moreover, in case of many closely held companies and even in new companies promoters used to issue share at premium with the main purpose of keeping share capital low, yet capital base stronger so that breakup value and market value is high. This leads to advantage of low cost of servicing share capital and also improved prospects to issue share at premium in future by way of initial issue of offering by promoters. One more practical advantage was to save on account of cost of fees payable on increase of authorized capital. When shares are issued at premium, number of shares and authorized capital increase lesser in comparison of capital raised by way of capital and premium.” (emphasis supplied) 10.2 Another important aspect to be noted here is the total assets remain the same as the infused funds have been utilised to pay off the entire borrowing and as such the total asset value continues to remain the same pre-issue and post-issue of the shares. 10.3 We may reiterate that the object of the Section 56(2)(viib) of the Act was only to curb unaccounted money being invested and not to disturb genuine business transaction. 11. Shares issued to existing shareholders – Rights/Preferential issue 11.1 Another crucial fact which needs consideration is the nature of shares being issued. During the subject A.Y. the Assessee has issued shares to existing shareholders which is more in the Rights issue and/or Preferential issue to the existing shareholders. However, it is an undisputed fact that these shares were offered to all the existing shareholders in the same proportion and at the same price. 11.2 The shares were offered to all existing shareholders in the same proportion/ratio and at the same price. Both the Resident shareholders, Printed from counselvise.com :-12-: ITA. No: 2601/Chny/2024 including the holding company, have subscribed to the shares. However, as far as Non-Resident shareholders are concerned only one non-resident shareholder has subscribed to the shares at the same price and other non- resident shareholders abstained from subscribing the same. In any case, there was no outsider subscribing to the rights/ preferential issue. In such a case there is no increase or decrease in the wealth of the shareholders (or of the issuing company). Shares are offered at the same price to all shareholders in proportion to their existing shareholding. Only those shareholders who rejected the offer are not allotted any shares. As the refusal is on their own volition and there is no disproportionate allotment, i.e., shares are allotted pro-rata to the shareholders, the Assessee cannot be said to have obtained higher premium for shares only from a few shareholders. 11.3 The details of shares issued, the pre-issue and post-issue shareholding are summarized in the CIT(A) order at page 15 is reproduced hereunder: Name of the investor Pre-issue holding Post Issue holding Shares subscribed Date of issue Ambattur Clothing Limited 13,14,900 20,64,433 7,49,533 5,12,450 – 30.04.2014 8,441 – 30.06.2014 56,274 – 09.03.2015 84,411 – 11.03.2015 87,957 – 13.03.2015 Ambattur Construction Limited 1,96,750 2,20,610 23,860 30.04.2014 Lilaram Bharvani Rajan 1,25,019 ,192,495 67,476 31.05.2014 Lilaram Bharvani Rajan & Mala Rajan Bharvani 60,556 60,556 Mala Rajan Bharvani 9,997 9,997 0 Mala Rajan Bharvani & Lilaram Bharvani Rajan 1,01,030 1,01,030 0 Printed from counselvise.com :-13-: ITA. No: 2601/Chny/2024 Ganga Lilaram Bharvani 99,925 99,925 0 Total 1,908,177 2,749,046 8,40,869 Issue Price of the share (Face Value – Rs. 10) 1,777 Total proceeds of issue in Rs. 149,42,24,213 11.4 This apart, the CBDT has issued Circular No.10 of 2018, which is reproduced for our reference: “Circular No. 10/2018 [F.NO. 173/626/2018-ITA.I], DATED 31-12-2018 Section 56(2)(viia) of the Income-tax Act, 1961 ('Act') provides for taxation of income where a company in which public are not substantially interested ('specified company')or a firm receives shares of a specified company from a person for no or inadequate consideration. 2. It has been represented before the Board that the term 'receives' used in section 56(2)(viia) of the Act, being of wider import and might lead to taxation of income in the cases where the shares are received by a firm or a specified company as a result of the fresh issuance of shares including by way of issue of bonus shares, rights shares and preference shares or transactions of similar nature by the specified company. 3. The matter has been examined, Clause (viia) was inserted in the section 56(2) of the Act vide Finance Act, 2010. The Memorandum explaining the provisions of Finance Bill, 2010 inter alia provided the following legislative intent for insertion of the said clause:— \".................In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, it is proposed to amend section 56 to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested) ..........\". 4. It is apparent from the legislative intent that clause(viia) was inserted in section 56(2) of the Act as an anti-abuse provision to prevent the practice of transferring shares of a specified company for no or inadequate consideration. Thus, the intention was never to apply these provisions of said clause (viia) to the fresh issuance of shares as mentioned in para 2 above, by the specified company. Keeping in view the legislative intent to apply anti-abuse provision contained in section 56(2)(viia) to transfer of shares for no or inadequate consideration, it is hereby clarified that section 56(2)(viia) of the Act shall apply in cases where a specified company or firm receives the shares of the specified company through transfer for no or inadequate consideration. Hence, the provisions of section 56(2)(viia) of the Act shall not be applicable in cases of receipt of shares by the specified company or firm as a result of fresh issuance of shares as mentioned in para 2 above, by the specified company.” Printed from counselvise.com :-14-: ITA. No: 2601/Chny/2024 11.5 Though this circular is issued for Section 56(2)(viia) of the Act and later withdrawn and never deem to have been issued, it still reveals the intention of the legislature. In the above circular, there is a specific exclusion for issuance of bonus shares, rights issue and preference shares or transactions of similar nature by the specified company. Further this issue is already dealt by the Raipur Bench of this Tribunal in the case of Chhattisgarh Metaliks and Alloys (P.) Ltd. Vs Income-tax Officer reported in [2023] 147 taxmann.com 441 (Raipur - Trib.). Specific reference is as under: “14. After having given a thoughtful consideration to the contentions of the Ld. AR, we concur with his contention that as the additional shares of the assessee company were issued and allotted on a pro-rata basis to the existing shareholders, i.e., based on their existing shareholding, therefore, the share holding percentage before and after allotment of the aforesaid shareholders remained the same. In sum and substance, as long as there was no disproportionate allotment of shares, i.e., shares were allotted on a pro-rata basis to the shareholders based on their existing holding, then, pursuant to allotment of the additional shares there would only be an apportionment of the value of their existing holding over a larger number of shares. The aforesaid contention of the Ld. AR is fortified by the order of the Co-ordinate Bench of the Tribunal, i.e, ITAT, Bench 'A', Mumbai in the case of Sudhir Menon, HUF (supra). Also, a similar view had been taken by the ITAT, Mumbai in its recent order passed in the case of ITO v. Rajeev Ratanlal Tulshyan [2022] 136 taxmann.com 42/193 ITD 860/[2021] 92 ITR (T) 332. In fact, we find that the CBDT vide its Circular No. 10 of 2018, dated 31-12- 2018, had earlier clarified that the provisions of section 56(2)(viia) of the Act shall not be applicable in cases of receipt of shares by the specified company or firm as a result of fresh issuance of shares including those by way of issue of bonus shares, right shares and preference shares. Although the aforesaid circular was, thereafter, withdrawn, but in our considered view, as the provisions of sec. 56(2)(vii) were introduced as an anti-abuse measure to prevent laundering of unaccounted money in the garb of gifts after abolition of Gift Tax Act, therefore, there is no justifiable reason to the said section is also introduced in the context of taxation of shares issued in excess of FMV in the same context withdrawn depart from the understanding that the said provisions were in the nature of counter evasion mechanism to prevent laundering of unaccounted money. In the case of issuance of bonus shares, allotting of shares to existing shareholders in proportion to their existing shareholding (akin to issue of right shares), there is neither any increase or decrease in the wealth of the shareholder (or of Printed from counselvise.com :-15-: ITA. No: 2601/Chny/2024 the issuing company) on account of a bonus issue and his percentage holding therein remains the same. What in effect transpires is that a share gets split (in the same proportion for all the shareholders). As observed by the Tribunal in its aforesaid order, such allotment of additional shares would be akin to changing a one thousand rupee note for two five hundreds rupee notes. Accordingly, we are of the considered view, that as stated by the Ld. AR, and, rightly so, the provisions of section 56(2)(viib) of the Act in the backdrop of the facts of the case before us could not have been triggered.” 11.6 Other co-ordinate bench decisions on the issue that rights issue cannot be subjected to the rigour of Section 56(2)(viib) of the Act are as under: (i) Tiki Tar Industries Baroda Ltd.Vs PCIT [2024] 159 taxmann.com 1691 (Ahmedabad - Trib.) (ii) ITO Vs Rajeev Ratanlal Tulshyan [2022] 136 taxmann.com 42 (Mumbai - Trib.) (iii) Sudhir Menon HUF Vs ACIT [2014] 45 taxmann.com 176 (Mumbai - Trib.) 11.7 Respectfully following the aforesaid decision, we also hold that provisions of Section 56(2)(viib) of the Act cannot be pressed into service when the shares are offered and issued to existing shareholders, which are rights/ preferential issue. Hence on this addition u/s.56(2)(viib) of the Act is also deleted on this ground. 12. Subscription of shares by Holding Company 12.1 The third dimension to this issue is that the majority of the shares were subscribed by the holding company i.e. Ambattur Clothing Limited and the present infusion seems to have been done with a genuine business intention. This issue is also considered by the co-ordinate Bench in the case of DCIT Vs Kissandhan Agri Financial Services (P.) Ltd. [2023] 150 taxmann.com 390 (Delhi - Trib.) Printed from counselvise.com :-16-: ITA. No: 2601/Chny/2024 “12. This apart, as pointed out on behalf of the assessee, the shares have been subscribed by the holding company, i.e., the existing shareholders only. Pertinent to say, section 56(2)(viib) creates a legal fiction whereby the scope and ambit of expression 'income' has been enlarged to artificially tax a capital receipt earned by way of premium as taxable revenue receipt. Hence, such a deeming fiction ordinarily requires to be read to meet its purpose of taxing unaccounted money and thus needs to be seen in context of peculiar facts of present case. The legal fiction has been created for definite purpose and its application need not be extended beyond the purpose for which it has been created. Bringing the premium received from holding company to tax net under these deeming fictions would tantamount to stretching provision to an illogical length and will lead to some kind of absurdity in taxing own money of shareholders without any corresponding benefit.” 12.2 We note that the Income Tax Appellate Tribunal in BLP Vayu (Project-1) (P.) Ltd. v. PCIT [2023] 151 taxmann.com 47 Delhi -Trib.) had an occasion to construe the ambit of that provision and had ultimately observed as follows:- \"11.1. As per case records, it is an undisputed fact that the shares have been allotted at a premium to its 100% holding company. Thus, applicability of Section on 56(2)(viib) has to be seen in this perspective. The Co-ordinate Bench of Tribunal in DCIT v. Ozone India Ltd. in ITA No. 2081/Ahd/2018 order dated 13.04.2021 in the context of Section 56(2)(viib) has analyzed the deeming provisions of Section 56(2)(viib) of the Act threadbare and inter alia observed that the deeming clause requires to be given a schematic interpretation. The transaction of allotment of shares at a premium in the instant case is between holding company and it is subsidiary company and thus when seen holistically, there is no benefit derived by the assessee by issue of shares at certain premium notwithstanding that the share premium exceeds a fair market value in a given case. Instinctively, it is a transaction between the self, if so to say. The true purport of Section 56(2)(viib) was analyzed in Ozone case and it was observed that the objective behind the provisions of Section 56(2)(viib) is to prevent unlawful gains by issuing company in the garb of capital receipts. In the instant case, not only that the fair market value is supported by independent valuer report, the allotment has been made to the existing shareholder holding 100% equity and therefore, there is no change in the interest or control over the money by such issuance of shares. The object of deeming an unjustified premium charged on issue of share as taxable income under Section 56(2)(viib) is wholly inapplicable for transactions between holding and its subsidiary company where no income can be said to accrue to the ultimate beneficiary, i.e., holding company. The chargeability of deemed income arising from transactions between holding and subsidiary or vice versa militates against the solemn object of Section 56(2)(viib) of the Act.” Printed from counselvise.com :-17-: ITA. No: 2601/Chny/2024 12.3 Similarly, the following decisions have also dealt with the issue of applicability of section 56(2)(viib) of the Act in respect of issuance of shares to holding company. (i) Rugby Regency P Ltd Vs ACIT [2024] 160 taxmann.com 1056 (Delhi - Trib.) (ii) ITO Vs Solitaire BTN Solar (P.) Ltd. [2024] 164 taxmann.com 170 (Delhi - Trib.) (iii) FIS Payment Solutions and Services India (P.) Ltd. Vs UOI [2024] 166 taxmann.com 354 (Delhi) (iv) IPSAA Holdings (P.) Ltd. Vs ACIT [2025] 176 taxmann.com 823 (Delhi - Trib.) 12.4 Therefore, relying on the ratio decendi of these decisions, we arrive at an emphatic conclusion that section 56(2)(viib) of the Act cannot be made applicable for transaction of issuance of shares to promoters/holding company. 13. Same share issued to Non-Resident: 13.1 Apart from the aforesaid legal aspects as discussed herein above, it is also pertinent to note that rights issue was also offered and issued to the Non- resident at the same price as that of resident shareholders. It is noted that the Assessee has supported the valuation with a certificate issued by a chartered accountant using one of approved method as prescribed by RBI. The tax-payer while offering/issuing shares to non-resident investors create an foreign obligation for India in favour of third country. Accordingly, in terms of the RBI/FEMA Master Circular No.15/2012-13 dated 02.07.2012 which mandates that Right Shares issued to Non-resident shall not be less than the price as Printed from counselvise.com :-18-: ITA. No: 2601/Chny/2024 applicable for resident shareholders. Therefore, the tax-payers are required to issue shares for a consideration which has to be necessarily be equal to or higher than the fair market value, arrived at by such approved method. Reason being, the tax-payer should not create an foreign obligation for India in favour of third country at a consideration which is below fair value of shares. Thus, to plug this loss to India, FEMA/RBI stipulate that issue price of shares should be equal to or more than fair value arrived at by approved method. Issuance of shares at a value higher was in compliance with the FEMA/RBI regulations. It is noted that, the RBI has not disputed the fair value of shares, which was supported by CA Certificate, and filed along with the Form FC-GPR through the authorized banker. Since one arm of the Government body has accepted the valuation, the other arm of the Government cannot dispute the same. 13.2 In this context we also refer to the jurisdictional Tribunal decision in the case of ACIT Vs RKM Power (P.) Ltd. [2024] 169 taxmann.com 692 (Chennai - Trib.) wherein it is held that if the RBI has accepted then Revenue cannot question the same transaction: “8.8 To sum up: The Assessee had complied with the provisions of the Companies Act in the allotment of shares and the application of share premia and further because of the provisions of the Companies Act, 1956 the share premium is a capital receipt and cannot be treated as income. The foreign direct investments (\"FDI\") into India are regulated by the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 ('FDI Regulations') issued by RBI. The FDI Regulations require that shares should be issued to foreign investors only at a price equal to or higher than the value of the shares as determined by the discounted cash flow (\"DCF\") method since by the issue of shares to non-residents, companies create an obligation for India in favour of a foreign country. As required by the FDI Regulations: Printed from counselvise.com :-19-: ITA. No: 2601/Chny/2024 (a) All the share application moneys were received through banking channels; (b) Foreign Inward Remittance Certificates were obtained; (c) Banks have obtained KYC from the remitting banks; (d) Receipt of the share application money was informed to RBI; (e) Allotment of shares was communicated to RBI in forms FC GPR; and (f) RBI has acknowledged all the allotments. Thus, the Assessee had complied in full with the FDI Regulations. When FDI Regulations require the issue of shares at a price higher than the value determined by the DCF method, the statement of the Assessing Officer that the premium received is inflated is misconceived.” 13.3 The Mumbai Bench of the Income Tax Appellate Tribunal held in the case of DCIT v Finproject India P Ltd. [2018] 93 taxmann.com 461/171 ITD 82 (Mumbai) as follows: \"The assessee while issuing shares to non-resident investors create an foreign obligation for India in favour ofthird country and as per RBI/FEMA requirements, the assessee are required to issue shares using valuation methods which are approved method (DCF is approved method of valuation) and the consideration for issuance of shares has to be necessarily equal to or above fair value arrived at by such approved method because otherwise the assessee will create foreign obligations for India in favour of third country at a consideration price received which is below fair value of shares computed by an approved method of valuation which will be loss to India as it will create higher foreign obligation of India in favour of third country represented by fair value of shares wherein the consideration price received for issue of shares was lower than fair value of shares, thus to plug this loss to India, FEMA/RBI stipulate that issue price of shares should be equal to or more than fair value arrived at by approved method viz. DCF. The guidelines are issued by RBI vide RBI/2009-10/445 A.P. (DIR series) Circular no. 49 dated 04-05-2010 as was applicable during the relevant period. The CA has arrived at value of Rs. 20 per equity share which consisted of face value of Rs. 10 and share premium of Rs. 10 per share using DCF method which is an approved method specified by RBI in its circular dated 04-052010. The Assessing Officer tried to demolish this fair value of Rs. 20 per equity share by basing its decision on perverse finding of facts. Thus, the assessee was on the right side of the law by issuing equity shares at a value of Rs. 20 per equity shares so far as FEMA/RBI compliances are concerned. RBI has also accepted the said fair price of shares supported by CA Certificate using DCF method and FC-GPR form filed by the assessee through its banker Axis Bank was accepted by RBI and taken on record. The assessee has filed its bank statements as well FIRC issued by its bankers as an evidence. Thus, based on material on record, no fault lies with the assessee in issuing equity shares of face value of Rs. 10 each at share Printed from counselvise.com :-20-: ITA. No: 2601/Chny/2024 premium of Rs. 10 each so far as compliances under FEMA/RBI are concerned. \" ……. ………. 9.1 The Transfer Pricing order u/s.92CA(3) of the Act for the AY 2013-14 was completed after the conclusion of the search, wherein the TPO proposed TP downward adjustment of Rs.407.25 crores on the imports from MIPP. The TPO did not propose any adjustment on the receipt of share capital reported in the Form 3CEB. In the original assessment, the downward adjustment was given effect to but the share premia was not assessed. ….. ……. 9.7 We also accept the assesse's submissions that an Assessing Officer should not step into the shoes of a businessman to decide what should be the right price for issue of shares. This principle has been stated in several cases by the Hon'ble Supreme Court of India, and cited by the AR. It has been repeatedly held by the Supreme Court in a number of cases that it was not open to the Assessing Officer to substitute his judgement over that of the businessmen. Moreover, in this case, the share premium was an international transaction with an associated enterprise that was duly reported in Form 3CEB and was referred to the TPO, who had not found any fault with the share premia. Therefore, it was not open to the Assessing Officer to hold that share premia was unduly inflated.” 13.4 Basis the above decision, we hold that once the RBI has not disputed the valuation of the shares which was submitted along with Form FC-GPR, the Revenue cannot take a different stance for resident shareholders. 13.5 Similarly another decision of the co-ordinate bench in the case of ACIT Vs Subodh Menon [2019] 103 taxmann.com 15 (Mumbai - Trib.), wherein it was held that when the shares were allotted to the employee at the same price like that of general public, there is no question of invoking the provision of Section 56(2)(viib) of the Act. “21. Furthermore, the provisions of section 17 do not apply to the shares allotted by the company to the assessee as the shares were not allotted by the company to the assessee in his capacity of being an employee of the company. The shares were offered and allotted to the assessee by the company by virtue of the assessee being a shareholder of the company. Therefore the provisions of section 17 are not applicable. Circular No.710 Printed from counselvise.com :-21-: ITA. No: 2601/Chny/2024 dated 24 July, 1995 also supports the assessee's stand that where shares are offered by company to a shareholder, who happens to be an employee of the company (as Mr. Subodh Menon indeed is), at the same price as have been offered to other shareholders or the general public, there will be no perquisite in the shareholder's hands. In the instant case, the shares were offered to the assessee and other shareholders at a uniform rate of Rs. 100 and therefore, the difference between the fair market value and issue price cannot be brought to tax as a perquisite under section 17 of the Act.” 14. Accordingly, even under this premise we are of the view that the lower authorities having accepted the valuation for non-resident shareholder, ought not to have taken a different stand for resident shareholders and as such the addition u/s.56(2)(viib) of the Act is unsustainable and hereby deleted. 15. AO has no power to tinker the value or replace his value: 15.1 Section 56(2)(viib) provides for two methods of valuation as per Explanation(i) and Explanation (ii) thereunder. The explanations read as under: Explanation.—For the purposes of this clause, the fair market value of the shares shall be the value- (i)as may be determined in accordance with such method 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, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; 15.2 A reading of the above will show that the methods permitted under Explanation (i) and that permitted under Explanation (ii) are different and it states whichever value is higher is to be considered. Printed from counselvise.com :-22-: ITA. No: 2601/Chny/2024 15.3 The Assessee seemed to have valued the shares as per Explanation (ii) supra, while the Assessing Officer and ld.CIT(A) rejected the same and adopted a totally different method of valuation as per Explanation(i). 15.4 The Assessee has undertaken valuation under Explanation (ii) and has adopted market value approach which is an approved method under FEMA regulations and also recognised by the ICAI. Under this method, the Chartered Accountant has adopted value of land and related tangible assets at market value and other administrative assets/liabilities at book value. Additionally, the intangibles value i.e. incremental turnover that could be achieved by using the brand “Hyatt” was added to determine the overall FMV. The AO seem to have impliedly accepted the overall except for two items viz., (1) land value, the AO was of the view that it is way too high compared to the Guideline Value and (2) intangible value, the AO was of the view that in the subsequent years the Assessee has incurred loss and therefore the projections and estimate of the same was not acceptable. Accordingly, the AO rejected the method adopted by the Assessee under Explanation (ii) and changed the method of valuation as per Explanation (i), which is as per Rule 11UA. 15.5 The ld.CIT(A) has accepted the valuation of the valuer of the other tangible assets, except the value apportioned to the land. The ld.CIT(A) replaced land value arrived by the valuer with a valuation derived from the Guideline value as reported by the SRO. The ld.CIT(A) also rejected the value of Rs.26.00 Crores assigned to the well-known Brand HYATT which the Hotel Printed from counselvise.com :-23-: ITA. No: 2601/Chny/2024 was enjoying. The ld.CIT(A), accepted value of the other assets and liabilities as per the valuation Report and he arrived at market value of shares at Rs.838/- per share. It was contended that both AO and ld.CIT(A) erred in rejection the value of the land adopted by the valuer as well as the value of Rs.26.00 Crores of the 'HYATT' brand. 15.6 It is the contention of the Ld.AR that, unlike standard real estate or asset valuations, hotels require a different lens due to their operational integration of various facilities-rooms, restaurants, parking, and other infrastructure essential for smooth functioning. Importantly, the valuation of a hotel cannot be approached by simply aggregating the value of its individual components. If these assets-such as land, furniture, fixtures, or kitchen equipment-were valued independently, they would not command the same value as they do collectively as part of a running, revenue-generating enterprise. The synergistic effect of these assets being utilized together enhances their worth. Hotel is one of the specified businesses u/s.35AD of the Act and entitled to deduction u/s.80ID of the Act. It requires various licences for operating. If an operating Hotel is transferred it will be a transfer of going concern and the profits will be computed u/s.50B as a concern as a whole and not on the basis of profits on individual assets. In such cases the aggregate value of the undertaking is determined, and the Purchaser allocates the total price of the undertaking among the various assets of the undertaking. This allocation of purchase price (the market value of the enterprise) is an accepted method of accounting. The goodwill is included Printed from counselvise.com :-24-: ITA. No: 2601/Chny/2024 in the purchase price of the enterprise which, in this case, is the brand value of the name \"HYATT\" utilised by the Hotel. 15.7 Accordingly, in the present case also, the valuation of the hotel must be carried out by treating it as an ongoing business enterprise, i.e., a going concern. The overall value of the hotel undertaking is to be determined based on the market value that a willing buyer would reasonably pay for acquiring the business as a whole. In order to align with the requirements of Section 56(2)(viib), which mandates valuation based on the fair market value of individual assets, the total value of the undertaking has been allocated by the valuer among the various constituent assets. 15.8 In this case, another important factor is that market values were adopted based on a valuation report prepared by ITCOT Consultancy and Services Limited (a deemed Government Company) nominated by IDBI Bank, the lender. ITCOT arrived at a total enterprise value of tangible assets at Rs.462.99 Crores for the hotel. This will be the estimated cost of constructing a new 5 star hotel like the assessee in a similar location (net of value of intangible assets). The valuer further allocated this composite value across different asset classes, assigning weight based on their relative importance to the business. 15.9 In respect of allocation of the total value to value of 85,204.35 sq.ft of land owned by the Assessee and entirely used for the purpose of Hotel, the valuer has taken into account, with other comparable land values and after allowing for development cost has arrived at and apportioned value of developed land at Printed from counselvise.com :-25-: ITA. No: 2601/Chny/2024 Rs.225.61 Crores out of the total value of Rs.462.99 Crores for the entire tangible assets of the enterprise. 16. Valuation of Land: 16.1 The Ld.AR submitted as u/s.56(2)(viib) of the Act contemplates determination of FMV and it does not state that guideline value could be employed. Hence, consideration/adoption of guideline value for the purpose of the land is incorrect and cannot be sustained in law. Further, in Valuing the market value of Land, some of the important factors to be considered are level of Development, Scale, and Commercial Utility. These are not taken into account in the determination of guideline value. Guideline value only fixes the value of bare undeveloped land and hence cannot be taken as representing the true market value of a well-developed land, which is part and parcel of part of a running 5 Star Hotel. 16.2 The Assessee owns land admeasuring 35 grounds (approximately 85,000 sq. ft), the entirety of which is operationally necessary for a running hotel enterprise. The Assessee has adopted a value of Rs.255 Crores for the land, which works out to Rs.30,000/- per Sq.ft, based on a registered valuer's report determining the value of the enterprise as a whole. The Assessing Officer (AO)/ CIT(A), however, substituted this with a value of Rs.12,000/- per sq.ft, relying solely on the guideline value notified by the Sub-Registrar's Office (SRO) for some other plots. Printed from counselvise.com :-26-: ITA. No: 2601/Chny/2024 16.3 This substitution fails to account for key differentiators that significantly impact the true market value of the land in the context of a running hotel business: 1. Scale and Contiguity: The subject land comprises 35 grounds of contiguous, commercially usable land-a scale that is rare and increasingly unavailable in urban centres. Larger land parcels command a premium per ground due to their potential for large-format developments particularly hotels and hospitals, which smaller fragmented plots cannot accommodate. Particularly when the Hotel is a Five Star hotel operating under a well-known Brand of HYATT. Guideline values typically reflect small-plot and mostly bare land transactions and do not capture the premium for scale, location synergy, or investment potential. Guideline value is only a base price for the purpose of registration and payment of stamp duty. However, it does not prevent sale at Fair Market Value. Hence the guideline value for a small plot cannot be adopted as the price for a large piece of land with the benefit of location which can be profitably exploited for large commercial enterprises. Importance and value of land for putting up a hotel or Hospital cannot be under stated in as much as the entire area is operationally required and utilised as against putting up other types of buildings. 2. Location and Commercial Utility This land parcel is not vacant or raw; it is: Printed from counselvise.com :-27-: ITA. No: 2601/Chny/2024 • Strategically located in a prime commercial zone, and • Utilized for a running hotel with high footfall, visibility, and accessibility. Such commercial integration substantially enhances the effective value of the land, beyond what a generic rate for residential or small commercial land in the area can suggest. The SRO rate may apply to standard land uses but not to high-value operational hospitality assets. 3. Development Costs & Site Preparation: The land has undergone extensive site-specific improvements and preparatory works, including - Excavation and grading for multi-level basements and structural base. • Humungous OSR charges paid to Chennai Metropolitan Development Authority • A portion of the land gifted to the Chennai Corporation for development of the Hotel • Landscaping and beautification consistent with 4- or 5-star hotel standards • Drainage, access roads, foundation reinforcements, and utility provisioning These expenditures are capital in nature and add significantly to the functional and commercial value of the land parcel. They cannot be ignored simply because they are not visible in guideline valuations, which do not account for land development investments. Printed from counselvise.com :-28-: ITA. No: 2601/Chny/2024 4. Valuation by Registered Valuer Based on Market Evidence: The assessee's value of Rs.255 Crores was not arbitrarily adopted. It was derived by a registered valuer, considering: • Prevailing market rates for large commercial plots in similar zones (₹5 crores per ground) • Additional value contribution from on-site development • Comparable sales data where available Importantly, the valuer applied professional judgment, taking into account the realizable market value of the land in its current, commercially enhanced form. 5. Guideline Value is Not Absolute: It is well settled in valuation law that guideline values are indicative, not conclusive: Courts and Tribunals have consistently held that guideline values cannot override actual market conditions or professional valuation when better evidence exists. 16.4. Conclusion: 16.5 The land value adopted by the Assessee reflects the actual commercial worth of a large, developed, and integrated site-not just a raw land parcel. The CA has relied on the registered Government Approved valuer’s report to adopt Market value of the land. Further, ITCOT was nominated by IDBI Bank Ltd, who has also adopted market value for land. Printed from counselvise.com :-29-: ITA. No: 2601/Chny/2024 16.6 The AO in the assessment order has admitted that Guideline value is only an indicator. Further guideline value does not take into account any of important factors as submitted by the Ld.AR. It is also crucial to note that even the Section mandates Fair Market Value and it does not recognise or contemplate guideline value. Therefore, guideline value cannot be adopted for the purpose of valuation. The AO / Ld.CIT(A)'s reliance solely on guideline value leads to a gross under valuation, especially in the context of Section 56(2)(viib), where fair market value, not official registry rate, is the touchstone. 16.7 The valuation of Rs.255 Crores estimated by the Valuer stands on strong footing, supported by: • Scale and scarcity of the land parcel • Location and integration with commercial operations • Cost and capital invested in site development • Professionally prepared registered valuer report • Market benchmarks for comparable commercial land 16.8 Thus, the assessee's valuation deserves to be accepted over the artificially deflated SRO benchmark. 16.9 The AO and ld.CIT(A) erred in brushing aside the valuation by a Registered Valuer, an expert in the field, and adopting the guideline value suggested by SRO, without appreciating or applying their mind of the difference in market value that will be commanded by a developed land forming part of a running Hotel and the value of a plain undeveloped land piece of land. They have not appreciated the true purport and the difference in method of valuation Printed from counselvise.com :-30-: ITA. No: 2601/Chny/2024 contemplated in Explanation(i) and Explanation (ii) to section 56(2)(viib). Explanation (i) refers to value of assets independently, whereas the purpose of explanation (ii) to cover cases whose value cannot be fully captured by Explanation(i) but has to be valued as a business as a whole with assets recognised in the Books as well other commercial rights not reflected in the Books. 16.10 As pointed out above, market value asset forming part of a running concern cannot be valued individually as the asset cannot be sold individually but should be valued as an integral part of the enterprise and proportionate market value of the enterprise should be allocated to individual asset which form integral and indivisible part of the enterprise. 16.11 In the circumstances, rejection of the value of land estimated by the valuer by AO and ld.CIT(A), rejecting the method of valuation by the Assessee as per Explanation (ii) to sec 56(2)(viib) by an approved valuer and blindly without applying their mind adopting a different method of valuation under Explanation(i) to sec 56(2)(viib) cannot be upheld. 16.12 The ld.CIT(A) has held that the valuation of Mr R.Balajirangarajan, CA was prepared for non-resident’s and it was prepared on the basis information provided by management of the company and it is not made on the basis of field enquiry. We find that the ld.CIT(A) has contradicted his statement in the same para 4.3.2 by observing that the CA has adopted the value of tangible asset on the basis of valuation report, which was provided by the Assessee. Printed from counselvise.com :-31-: ITA. No: 2601/Chny/2024 Therefore, the CA’s certification is backed by a valuation report which of course is on the basis of field enquiry. Further, the ld.CIT(A) has also held that Assessee has not objected to valuation of shares at Rs.398/- by the AO under Explanation (i) which we find is totally contrary as the core issue being contested by the Assessee is that the AO cannot change the method of valuation adopted by the Assessee. Hence the observation of the ld.CIT(A) is contrary to facts on record and we do not approve the same. 16.13 The AO and ld.CIT(A) also record the fact that the guideline value of the property at Sardar Patel Road is around Rs.14,000/- per sq ft despite this fact the ld.CIT(A) adopts the value of property at Velachery road. As held earlier, there are multiple factors which could premium viz., corner property, commercial asset, large parcel of land, well developed star hotel with an affiliation with Hyatt, humungous land development cost etc. None of these factors are considered in the guideline value. What has to be seen is whether a prospective buyer will be willing to pay this premium given these various advantages and the intrinsic business opportunity. In any event, when this same valuation has been accepted by the AO as well as RBI for non-resident shareholder, we cannot approve the action of lower authorities in adopting a different method of valuation for resident shareholders. 16.14 We feel the ld.CIT(A) failed to recognise the fact that basic data of all the assets will always be provided by any taxpayer for the purpose of valuation. Printed from counselvise.com :-32-: ITA. No: 2601/Chny/2024 Further valuation is only an estimation to evaluate whether any prospective buyer would be willing to pay that premium or price for the commercial asset. 16.15 Apart from the above, we are the strong view that the AO/ ld.CIT(A) cannot adopt a different method of valuation different from the one adopted by the Assessee and hence value adopted by AO/ ld.CIT(A) deserve to be rejected and the valuation as per the valuation report submitted by the Assessee should be accepted. Our view is also supported by various judicial precedents as observed below: 16.16 The Hon’ble Delhi High Court in Agra Portfolio (P.) Ltd. v. PCIT [2024] 161 taxmann.com 303 (Delhi) dated 04.04.2024 held that while it would be open for Assessing Officer, for reasons so recorded, to doubt or reject a valuation that may be submitted for its consideration, statute clearly did not appear to empower it to independently evaluate face value of unquoted equity shares by adopting a valuation method other than one chosen by assessee. 16.17 The Delhi Tribunal in Cinestaan Entertainment (P.) Ltd. v. ITO [2019] 106 taxmann.com 300 (Delhi - Trib.) dated 27.05.2019 held Assessee has an option to do valuation of shares and determine fair market value either on DCF Method or NAV method and Assessing Officer cannot examine or substitute his own value in place of value determined. Income Tax Department cannot sit in armchair of businessman to decide what is profitable and how business should be carried out; Commercial expediency has to be seen from point of view of businessman. Printed from counselvise.com :-33-: ITA. No: 2601/Chny/2024 16.18 The same was upheld by the Hon'ble High Court of Delhi in the case of Pr. CIT v. Cinestaan Entertainment (P.) Ltd. [2021] 433 ITR 82 dated 01.03.2021 and the Court also held as under: “The test laid down by the Courts for interfering with the findings of a valuer is not satisfied in the present case, as the Respondent-Assessee adopted a recognized method of valuation and Appellant-Revenue is unable to show that the assessee adopted a demonstrably wrong approach, or that the method of valuation was made on a wholly erroneous basis, or that it committed a mistake which goes to the root of the valuation process.” (emphasis supplied) 16.19 Dy.CIT v. Kilitch Healthcare India Ltd. ITA 7061 of 2019 dated 22.03.2022 “The test laid down by the Courts for interfering with the findings of a valuer is not satisfied in the present case, as the Respondent-Assessee adopted a recognized method of valuation and Appellant-Revenue is unable to show that the assessee adopted a demonstrably wrong approach, or that the method of valuation was made on a wholly erroneous basis, or that it committed a mistake which goes to the root of the valuation process.” 16.20 Respectfully following the above judicial precedents, we are of the view that the lower authorities cannot change the method of valuation and guideline value cannot be relied upon or replaced for market value and hence the valuation determined by the Assessee based on market approach is hereby upheld. 17. Valuation of Brand - Failure to recognize intangible contribution: 17.1 Another key issue pertains to the valuation of brand rights. The assessee enjoys the benefit of operating the hotel under a reputed and widely recognized hospitality brand 'HYATT\", which substantially enhances both occupancy rates and room tariffs. It will be against the recognised valuation principles, and even Printed from counselvise.com :-34-: ITA. No: 2601/Chny/2024 common sense, to conclude that such a well know Brand as “HYATT” is of no value in valuing the Hotel enterprise. 17.2 The assessee has applied a standard and accepted methodology in estimating the incremental income attributable to the brand and then discounting this future income to its present value using an appropriate discount rate. This is consistent with global norms for valuing intangible assets. 17.3 The AO rejected this valuation on the ground that the actual income realized in subsequent years was lower than the projections used for estimating brand value. The AO has also held that the occupancy is less than 72% but failed to note the fact that average actual occupancy for FY 2014-15 to 2016- 17 is more around 74.3% and as such the utilisation of Brand has helped the Assessee to augment the projected revenue. Therefore, the AO allegation is baseless and unsustainable. However, this misunderstands the principle of valuation: \"Valuation is based on reasonable projections made at a point in time, using best available data. Actual outcomes differing from projections do not, by themselves, invalidate the original estimate.\" 17.4 It is not the Department's case that the brand lacks market appeal or fails to add value in terms of revenue generation. The only objection is that the actual performance didn't match projections, which is not a valid basis to disregard the value of an asset-especially an intangible like a brand. We are of the view that projections cannot be expected to be in line with actuals as projection is only an estimate based on positive prospects in the future. Printed from counselvise.com :-35-: ITA. No: 2601/Chny/2024 17.5 The Ld.AR submitted that another way to cross-check the value of a Brand will be by way of present value of multiple of Turnover. Any Third Party purchaser will have to pay Royalty for the use of the Brand Name which will be computed as a percentage of the Turnover. An accepted method of computing the present value of the brand will be the present value Royalty payable computed on the estimated future turnover appropriately discounted plus terminal value. Adopting the normally accepted and reasonable rate of Royalty @ 4% of the turnover and estimating the Turnover at a modest Rs.75 Crores per year with a 5% increase for a period of 10 years with the terminal value Growth rate of 3%, the Brand value will be the NPV of Royalty for 10 years + the terminal value at the end of 10 Years. On the above assumptions and discounted at 11% would give a figure of (NPV of Rs. 22.08 Crores + terminal value of Rs.21.5 Crores) Rs 43.6 Crores- much more than the valuation amount of Rs.26 Crores adopted in the valuation. This method is widely accepted by investors and analysts and aligns with international valuation practices. Thus, the Brand value adopted by the Assessee is a conservative figure based on internationally accepted method. The same cannot be rejected merely on account that the actual profits did not meet the estimated profits. 17.6 The Ld.AR further contended that the valuation can be checked by another method of valuation of a running hotel. It is based on the prevailing market rates for similar hotels and computed as Enterprise value (EV)/ Keys (number of Rooms) which is available in the Public Domain. Printed from counselvise.com :-36-: ITA. No: 2601/Chny/2024 17.7 For example in the publication by ICICI in 2018 while valuing the Royal orchid Hotel has stated as “We had come out with an I-direct Instinct on Royal Orchid Hotel (ROHL) in September, 2017. In a recent development, the hotel industry occupancy has reached an inflection point that may trigger a sharp rise in ARR and EBITDA margin in FY19E. Further, the company expects to clock EBITDA of ~| 50 crore on a consolidated basis in FY19E. Based on this, the stock is available at EV/EBITDA of 14x (vs. industry average of 25x). Hence, we note that despite the recent run up, the company is still available at attractive valuations. On an EV/room basis, the stock is trading at | 1.7 crore/room (below industry average of | 2.5-3.0 crore/room). Given this, we arrive at a target price of | 300-305/share (i.e. EV/adjusted room of | 2.2 crore/room).” 17.8 Similarly, if the replacement cost of the Hotel is to be considered, in the case of Leela Palace a Five Star Hotel situate nearby, having 326 Rooms, the cost of Construction was Rs.800 Crores @ 2.45 Crore/Room. Taking EV/Per Room of the Assessee's Hotel, (Assessee's valuation at Page 34 of CIT(A) order) the value per room will be 339.12 / 201 = 1.68 Crores which is comparable with Industrial average and supports the valuation of the shares by the Assessee. 17.9 We also find that the Assessee has provided a data before the CIT(A) proving that the actual average occupancy for 3 years FY 2014-15 to 2016-17 was 74.3% which was much more than the projected occupancy of 72% estimated in the valuation report. This factual aspect clearly shows that the Hotel has out-performed the estimate in valuation report. The other contention of the AO is that the Assessee has incurred losses. However, we find that what the AO has lost sight of is that the said losses are tax losses and not actual business loss. In our view, while valuing a brand what is being considered is the Printed from counselvise.com :-37-: ITA. No: 2601/Chny/2024 incremental revenue that could be generated because of usage of brand. In the instant, the usage of brand and loyalty programme has augmented higher occupancy and corresponding higher turnover than estimated. Therefore, the basis of the AO to reject intangible valuation is ill-founded. 17.10 We are of the view valuation is at best an estimate. It depends on various factors including the acceptance by the Investors of the cost of shares. The purpose of section 56(2)(viib) is to find out unaccounted monies being invested. There is no whisper that the investment is not genuine. 17.11 In the case of Deputy Commissioner of Income Tаx vs. Weldon Polymers (p) ltd in ITA No.1868/Del/2021; Asst.Yr. 2017-18, Dated 10th June, 2024, the Dehi Bench of the Tribunal has held as under: \"11. We are of the considered view that valuation of shares is a technical and complex issue for which the AO has limited authority to tinker the valuation of methodology applied. As we observed at beginning, it being statutory evidence is required to be given presumption of correctness under law as prepared by an expert. It cannot be assailed unless it is shown that valuation was made on the fundamentally erroneous basis or apparent mistake is pointed out and demonstrated. Resting an additional onus of proof on the assessee, apart from tendering the valuation report to substantiate the report also, cannot be sustained. As for this proposition of law, we rely upon following decisions as relied by assessee also: (i) Miheer H. Mafatlal vs. Mafatlal Industries Ltd. AIR 1997 SC 506 (ii) Rameshwaram Strong Glass (P) Ltd. vs. ITO (2018) 195 TTJ (Jp) 465 : (2018) 170 DTR (Jp)(Trib) 415 : 2018-TIOL-1358-ITAT-Jaipur (iii) G. L. Sultania & Anr. vs. SEBI AIR 2007 SC 2172 (iv) ITO vs. SBS Properties & Finvest (P) Ltd. (ITA Nos. 278 & 2164/Del/2008) (v) Duncans Industries Ltd. vs. State of U.P. & Ors. 2000 ECR 19 (SC) (vi) Securities & Exchange Board of India & Ors. 2015 ABR 291 (Bom) (vii) DQ (International) Ltd. vs. Asstt. CIT (ITA No. 151/Hyd/2015) Printed from counselvise.com :-38-: ITA. No: 2601/Chny/2024 (viii) Renuka Datla (Mrs.) vs. Solvay Pharmaceuticals B. vs. & Ors. (2004) 265 ITR 435 (SC) (ix) CIT vs. VVA Hotels (P) Ltd. (Madras High Court) Tax Case Appeal No. 670 of 2019 (x) Bharat Hari Singhania & Ors. vs. Commr. of Wealth Tax & Ors. (1994) 118 CTR (SC) 125 : (1994) 207 ITR 1 (SC) (xi) Cinestann Entertainment (P) Ltd. vs. ITO (2019) 200 TTJ (Del) 459 : (2019) 180 DTR (Del)(Trib) 65 : (2019) 177 ITD 809 (Del) (xii) Dy. CIT vs. Pali Fabrics (P) Ltd. (2019) 110 taxmann.com 310 (Mumbai) (xiii) Asstt. CIT vs. Subhodh Menon (2019) 198 TTJ (Mumbai) 79 : (2019) 174 DTR (Mumbai)(Trib) 417 : (2019) 175 ITD 449 (Mumbai).” 17.12 In view of our elaborate discussion and findings we hold that the valuation conducted by the registered valuer has taken a holistic, business centric approach, recognizing both tangible and intangible contributors to the value of the running hotel. The reduction of land value to SRO guideline rates and the complete dismissal of brand value are both misaligned with standard valuation methodologies and economic reality. Thus, the valuation methodology adopted by the Assessee based on Valuer's report should be accepted and rejection of the same by Assessing Officer / Ld.CIT(A) is without any basis of valuation methodology or proper valuation considering the commercial considerations. They have also not proposed any alternate valuation in line with normally accepted valuation principles and hence should be rejected. 18. In light of the above, we hold that Printed from counselvise.com :-39-: ITA. No: 2601/Chny/2024 (i) Section 56(2)(viib) of the Act is not applicable as undisputedly the AO/ ld.CIT(A) have not made out a case of unaccounted money being infused and hence in the absence of the primary criteria, normal business transactions cannot be visited with rigours of section 56(2)(viib) of the Act; (ii) Genuineness of the transaction has been established by identifying the parties, transfer of funds through banking channels and utilisation for repayment of ECB loan and term loan (iii) Shares are issued to existing shareholders by way of Rights issue and Preference shares. Since the promoters have infused funds to repay the ECB loan and term loan, there cannot be iota of doubt that the Assessee has benefitted from issuing shares at higher FMV (iv) Shares issued to promoters and Holding company and hence invocation of section 56(2)(viib) of the Act is unsustainable (v) Shares are issued to Non-resident shareholders at the same price as that of resident shareholders, which has not been disputed by RBI and the AO and hence the lower authorities cannot adopt differential pricing only for resident shareholders (vi) the AO and the ld.CIT(A) erred in summarily rejecting the valuer's report (vii) the AO/ ld.CIT(A) rejected the method of valuation and adopted a different method of valuation, which is not permissible. Printed from counselvise.com :-40-: ITA. No: 2601/Chny/2024 (viii) they adopted a lower land valuation without duly considering the factors that enhance its value; and (ix) they dismissed the brand valuation on the tenuous ground that the hotel's actual revenue was below projections, without addressing the inherent value contributed by the well-established HYATT brand in the hospitality sector-particularly in the context of a five-star hotel. 19. In the result the appeal of the assessee is allowed. Order pronounced in the court on 11th November, 2025 at Chennai. Sd/- Sd/- (मनु क ुमार ग\u0019र) (MANU KUMAR GIRI) \u000eया\u001aयक सद य/Judicial Member (एस. आर. रघुनाथा) (S.R.RAGHUNATHA) लेखासद य/Accountant Member चे\u000eनई/Chennai, -दनांक/Dated, the 11th November , 2025 SP आदेश क) '\u001aत/ल0प अ1े0षत/Copy to: 1. अपीलाथ&/Appellant 2. '(यथ&/Respondent 3.आयकर आयु2त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 0वभागीय '\u001aत\u001aन ध/DR 5. गाड$ फाईल/GF Printed from counselvise.com "