M/s Kottaram Agro Foods Pvt Ltd , Bangalore V. The Deputy Commissioner of Income Tax Circle-4(1)(1), Bangalore

MA 48/BANG/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6951 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 09-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Fair market value; Valuation report
• Section: 145; 56; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE SMC-B BENCH, BANGALORE BEFORE SHRI A.K.GARODIA, ACCOUNANT MEMBER [MP NOS. 47 TO 48/BANG/2019 (IN ITA NOS. 2852 TO 2853/BANG/2018)] (ASSESSMENT YEARS : 2014 15 & 2015 16) M/S. KOTTARAM AGRO FOODS PVT. LTD., APPELLANT NO. 9 & 10, MANESHWARA BLOCK, 3 RD CROSS, HARALUGATTE VILLAGE, KADLU GATE, BOMANHALLI POST, BANGALORE 560068. PAN: AAECK3937F VS ACIT (OSD), RANGE 4 (1), RESPONDENT BANGALORE. ASSESSEE BY : SHRI V. K. GURUNATHAN, ADVOCATE REVENUE BY : SHRI GANESH R. G., ADVOCATE & STANDING COUNSEL DATE OF HEARING : 19 07 2019 DATE OF PRONOUNCEMENT : 31 07 2019 O R D E R PER A. K. GARODIA, A.M.: IN THE M. P. FILED BY THE ASSESSEE FOR A. Y. 2014 15, IT IS STATED THAT THE TRIBUNAL HAS NOT ADJUDICATED GROUND NO. 5, 6 AND 7 OF THE ORIGINAL GROUNDS OF APPEAL AND GROUND NOS. 1, 2 AND 3 OF THE ADDITIONAL GROUNDS OF APPEAL. IT IS ALSO STATED IN THE M. P. THAT THE TRIBUNAL HAS NOT CONSIDERED VARIOUS SUBMISSIONS MADE BY THE APPELLANT/PETITIONER. SIMILARLY, IN THE M. P. FILED BY THE ASSESSEE FOR A. Y. 2015 16, IT IS STATED THAT THE TRIBUNAL HAS NOT ADJUDICATED GROUND NO. 3 & 5 OF THE ORIGINAL GROUNDS OF APPEAL AND GROUND NOS. 1, 2 AND 3 OF THE ADDITIONAL GROUNDS OF APPEAL. 2. IN THE COURSE OF HEARING OF THESE M. PS., SAME CONTENTIONS ARE REITERATED. IN ADDITION TO THIS, IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT IT IS STATED IN PARA 2 ON PAGE 3 OF THE M. P. FOR A. Y. 2014 15 THAT THE RELEVANT PROVISIONS OF SECTION 56 IN PARTICULAR CLAUSE 2 OF THE PROVISO TO SECTION 56 (2) (VIIB) PROVIDE FOR OPTION TO THE ASSESSEE TO ADOPT ANY METHOD OF VALUATION AND DO NOT PROVIDE FOR ANY DISCRETION TO THE AO M. P. NOS. 47 TO 48/BANG/2019 2 TO CHANGE THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE. HE ALSO SUBMITTED THAT AS PER CLAUSE (II) OF THE PROVISO TO CLAUSE (VIIB) OF SUB SECTION (2) OF SECTION 56 OF INCOME TAX ACT, 1961, IT IS PROVIDED THAT CLAUSE (VIIB) OF SUB SECTION (2) OF SECTION 56 OF INCOME TAX ACT, 1961 WILL NOT APPLY IF THE AMOUNT IN QUESTION IS RECEIVED BY A COMPANY FROM A CLASS OR CLASSES OF PERSONS AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEHALF. HE SUBMITTED AS PER THIS PROVISO, A NOTIFICATION NO. 45/2016 DATED 14.06.2016 IS ISSUED BY GOVT. OF INDIA AND AS PER THIS NOTIFICATION, CLASS OF PERSON SPECIFIED IS A RESIDENT, WHO MAKE ANY CONSIDERATION EXCEEDING THE FACE VALUE FOR ISSUES OF SHARES OF A STARTUP COMPANY. THEREAFTER, HE SUBMITTED THAT AS PER PAGE 1 OF THE PAPER BOOK FILED IN COURSE OF HEARING OF THE APPEAL IS THE CERTIFICATE OF RECOGNITION GRANTED TO THE ASSESSEE COMPANY ON 24.10.2017 RECOGNISING THE ASSESSEE COMPANY AS A STARTUP COMPANY VALID UP TO 7 YEARS FROM THE DATE OF INCORPORATION ON 09.06.2011. HE SUBMITTED THAT THEREFORE, THE PROVISIONS OF CLAUSE (VIIB) OF SUB SECTION (2) OF SECTION 56 OF INCOME TAX ACT, 1961 ARE NOT APPLICABLE TO THE ASSESSEE AND SINCE, THIS ASPECT IS NOT CONSIDERED AND DECIDED BY THE TRIBUNAL, THERE IS APPARENT MISTAKE IN THE TRIBUNAL ORDER AND IT SHOULD BE RECTIFIED U/S 254 (2). LEARNED DR OF THE REVENUE SUBMITTED THAT THERE IS NO MISTAKE IN THE TRIBUNAL ORDER AND HENCE, THESE M.PS. OF THE ASSESSEE SHOULD BE DISMISSED. HE ALSO PLACED RELIANCE ON A JUDGMENT OF HONBLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF CIT VS. RAZA HUSSAIN CONTRACTOR IN ITA NO. 189 OF 2009 DATED 03.10.2012. HE SUBMITTED A COPY OF THIS JUDGMENT AND DRAWN MY ATTENTION TO PARA 13 THEREOF. HE POINTED OUT THAT IN THIS PARA, IT IS HELD THAT IT IS NOT NECESSARY TO ANY JUDICIAL OR QUASI-JUDICIAL AUTHORITY TO MEET EACH AND EVERY GROUNDS AND SUCH AUTHORITY IS REQUIRED TO DECIDE ONLY THOSE GROUNDS WHICH WERE PRESSED BEFORE IT. 3. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST I EXAMINE AND DECIDE THE SECOND ASPECT OF THE ARGUMENTS ADVANCED BY THE LEARNED AR OF THE ASSESSEE WHEREIN HE ARGUED IN RESPECT OF NOTIFICATION DATED 14.06.2016, CLAUSE (II) OF THE PROVISO TO CLAUSE (VIIB) OF SUB SECTION (2) OF SECTION 56 OF INCOME TAX ACT, 1961 UNDER WHICH THIS NOTIFICATION WAS ISSUED AND M. P. NOS. 47 TO 48/BANG/2019 3 CERTIFICATE OF RECOGNITION GRANTED TO THE ASSESSEE COMPANY ON 24.10.2017 RECOGNIZING THE ASSESSEE COMPANY AS A STARTUP COMPANY VALID UP TO 7 YEARS FROM THE DATE OF INCORPORATION ON 09.06.2011. IN SUM AND SUBSTANCE, HIS ARGUMENT WAS THIS THAT AFTER COMBINED READING OF THIS PROVISO, NOTIFICATION AND THE CERTIFICATE, THE PROVISIONS OF CLAUSE (VIIB) OF SUB SECTION (2) OF SECTION 56 OF INCOME TAX ACT, 1961 ARE NOT APPLICABLE TO THE ASSESSEE. AT THIS JUNCTURE, I EXAMINE THE GROUNDS RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL IN THESE TWO YEARS TO FIND OUT WHETHER THIS ISSUE WAS RAISED BY THE ASSESSEE THAT THE PROVISIONS OF CLAUSE (VIIB) OF SUB SECTION (2) OF SECTION 56 OF INCOME TAX ACT, 1961 ARE NOT APPLICABLE TO THE ASSESSEE BECAUSE I AM DECIDING THE M. PS. AND THEREFORE, IF THIS ISSUE WAS NOT RAISED IN THESE TWO APPEALS, THE SAME CANNOT BE RAISED IN M. P. PROCEEDINGS. I FIND THAT THE ISSUES RAISED IN THESE APPEALS AS PER VARIOUS GROUNDS ARE REGARDING REJECTION OF THE REPORT OF VALUATION, ADOPTION OF VALUE OF SHARES AT RS. 100/- IN A. Y. 2014 15 AND RS. 714.38 IN A. Y. 2015 16 AND REGARDING THE ADOPTION OF VALUATION METHOD AND THERE IS NO SUCH GROUND RAISED IN ANY YEAR ABOUT NON APPLICABILITY OF THE PROVISIONS OF CLAUSE (VIIB) OF SUB SECTION (2) OF SECTION 56 OF INCOME TAX ACT, 1961. HENCE, THESE ARGUMENTS ARE NOT RELEVANT FOR THE PURPOSE OF DECIDING THESE TWO M. PS. BECAUSE IN M. P. PROCEEDINGS, NEW ISSUE CANNOT BE RAISED. 4. NOW I CONSIDER AND DECIDE THE ISSUES RAISED IN THE BODY OF THESE M. PS. IN RESPECT OF NOT DECIDING OF CERTAIN GROUNDS. IN THIS REGARD, I FIND THAT IN A. Y. 2014 15, THIS IS THE CONTENTION THAT IN RESPECT OF SECTION 56 (2) (VIIB) ISSUE, GROUND NO. 5 OF ORIGINAL GROUNDS AND GROUND NO. 1, 2 AND 3 OF ADDITIONAL GROUNDS ARE NOT DECIDED. IN THIS REGARD, I FIND THAT THERE IS NO MERIT IN THIS CLAIM THAT THESE GROUNDS ARE NOT DECIDED. THE CLAIM AS PER GROUND NO. 5 IS THIS THAT THE ASSESSEE CAN ADOPT ANY METHOD OF VALUATION OF SHARES. THIS IS ADMITTED POSITION OF FACTS THAT THE ASSESSEE ADOPTED DCF METHOD OF VALUATION OF SHARES. THE ASSESSEE ADOPTED THE VALUE OF SHARES AT RS. 400/- PER SHARE AND IN SUPPORT THEREOF, THE ASSESSEE SUBMITTED A REPORT OF THE VALUER DATED 15.11.2013. AS PER ANOTHER REPORT OF A DIFFERENT VALUER DATED 02.02.2012, THE VALUE M. P. NOS. 47 TO 48/BANG/2019 4 DETERMINED AS PER DCF METHOD WAS RS. 100/- PER SHARE. THE AO AND THE TRIBUNAL DID NOT ACCEPT THE VALUATION REPORT DATED 15.11.2013 BECAUSE THIS REPORT IS BY THE AUDITORS OF THE ASSESSEE COMPANY AND AS PER RULE 11 U (A), ANY FELLOW MEMBER OF ICAI OTHER THAN THE AUDITOR CAN BE A VALUER. THE EARLIER REPORT DATED 02.02.2012 IS BY AN ELIGIBLE CHARTERED ACCOUNTANT AND AS PER THIS REPORT, THE VALUE DETERMINED AS PER DCF METHOD WAS RS. 100/- PER SHARE. HENCE, IT IS SEEN THAT THE VALUE ULTIMATELY ADOPTED BY THE AO AND APPROVED BY THE TRIBUNAL IS UNDER DCF METHOD AND HENCE, THERE IS NO CHANGE IN METHOD. THEREFORE, THESE GROUNDS BEING GROUND NO. 5 OF ORIGINAL GROUNDS AND GROUND NO. 1, 2 AND 3 OF ADDITIONAL GROUNDS DO NOT SURVIVE AND THEREFORE, THIS IS NOT CORRECT TO SAY THAT THESE GROUNDS WERE NOT DECIDED. 5. REGARDING THIS CONTENTION THAT GROUND NO. 6 AND 7 IN A. Y. 2014 15 WERE NOT DECIDED, I FIND THAT THIS SUBMISSION IN THE M. P. IS CORRECT AND THEREFORE, I RECALL THE TRIBUNAL ORDER FOR A. Y. 2014 15 IN ITA NO. 2852/BANG/2018 FOR LIMITED PURPOSE OF DECIDING THESE TWO GROUNDS I.E. GROUND NO. 6 & 7. THE REGISTRY IS DIRECTED TO FIX THIS APPEAL FOR HEARING IN DUE COURSE FOR DECIDING GROUND NO. 6 & 7. NOTICE SHOULD BE ISSUED TO BOTH SIDES. 6. IN A. Y. 2015 16, IT IS STATED BY THE ASSESSEE IN GROUND NO. 3 THAT THE CIT (A) ERRED IN UPHOLDING THE ORDER OF THE AO IN ADOPTING THE VALUE OF SHARES AT RS. 714.38 PER SHARE AS PER NAV METHOD AS AGAINST THE VALUE OF PREMIUM OF RS. 1528.55 PER SHARE AS PER ASSESSEES VALUATION REPORT DATED 02.05.2014 BASED ON DCF METHOD. IN GROUND NO. 5 OF THIS YEAR ALSO, SIMILAR ISSUE IS RAISED THAT THE ACT ALLOWED THE ASSESSEE TO ADOPT ANY METHOD OF VALUATION AND AS PER ADDITIONAL GROUND NO. 3 RAISED IN THIS YEAR, THIS IS THE CONTENTION RAISED THAT THE AO CANNOT ADOPT NAV METHOD OF VALUATION. I FIND THAT THIS VALUATION REPORT DATED 02.05.2014 IS AVAILABLE ON PAGES 95 TO 107 OF THE PAPER BOOK. THIS VALUATION REPORT IS PREPARED BY M/S AMARNATH KAMATH & ASSOCIATES, CHARTERED ACCOUNTANTS. THE AUDITED ACCOUNTS OF THE ASSESSEE COMPANY FOR THE YEAR ENDING AS ON 31.03.2014 DATED 30.08.2014 IS AVAILABLE ON PAGES 3 TO 37 OF THE PAPER BOOK AND BOTH ARE BY THE SAME FIRM OF CHARTERED M. P. NOS. 47 TO 48/BANG/2019 5 ACCOUNTANTS AND THEREFORE, THIS IS NOT A VALID REPORT IN VIEW OF RULE 11 U (A) OF INCOME TAX RULES, 1962. IN THIS YEAR, THE TRIBUNAL APPROVED THE ACTION OF THE AO OF ADOPTING NAV AS AGAINST DCF METHOD BY THE ASSESSEE BY OBSERVING THAT SINCE NO VALID REPORT OF A VALUER IS AVAILABLE, THE AO DETERMINED FMV OF SHARE ON THE BASIS OF NAV METHOD AND TAXED THE EXCESS AMOUNT RECEIVED BY THE ASSESSEE AND LEARNED CIT (A) HAS CONFIRMED SUCH ADDITION AND IN VIEW OF THESE FACTS, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF CIT (A). THERE IS NO SPECIFIC DISCUSSION OR DECISION ON THIS ASPECT THAT WHETHER THE AO CAN ADOPT NAV METHOD WHEN THE ASSESSEE HAS ADOPTED DCF METHOD. IN THIS YEAR, I FIND FORCE IN THIS CLAIM THAT GROUND NO. 3 & 5 OF ORIGINAL GROUNDS AND GROUNDS NO. 1 TO 3 OF ADDITIONAL GROUNDS WERE NOT DECIDED BY THE TRIBUNAL IN A. Y. 2015 16. 7. AT THIS JUNCTURE, I DEEM IT PROPER TO EXAMINE THE APPLICABILITY OF THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF CIT VS. RAZA HUSSAIN CONTRACTOR (SUPRA). I FIND THAT IN THAT CASE, THE INCOME WAS ASSESSED BY THE AO BY MAKING TWO SPECIFIC DISALLOWANCES AND THESE DISALLOWANCES WERE DISPUTED BY THE ASSESSEE BEFORE THE TRIBUNAL AND THE SAME WERE DECIDED BY GRANTING PART RELIEF IN RESPECT OF ONE DISALLOWANCE AND WITHOUT GRANTING ANY RELIEF IN RESPECT OF THE SECOND DISALLOWANCE. IN ADDITION TO THIS, THE ASSESSEE RAISED THIS GROUND ALSO THAT THE INCOME DETERMINED BY THE AO AT RS. 16.48 LACS IS EQUAL TO 69.33% OF GROSS RECEIPTS AND RS. 13,72,337/- BY CIT (A) EQUAL TO 57.95% OF GROSS RECEIPTS WITHOUT REJECTING THE BOOKS OF ACCOUNT BY THE AO/CIT (A) U/S 145 (3) AND THEREFORE, BOTH THESE ORDERS ARE UNLAWFUL AND ARBITRARY. THE ASSESSEE FILED A M. P. BEFORE THE TRIBUNAL THAT THIS GROUND WAS NOT DECIDED AND THE TRIBUNAL RECALLED THAT TRIBUNAL ORDER TO DECIDE THIS GROUND. AGAINST THIS TRIBUNAL ORDER, THE REVENUE FILED APPEAL BEFORE HONBLE ALLAHABAD HIGH COURT. UNDER THESE FACTS, IT WAS HELD BY HONBLE ALLAHABAD HIGH COURT THAT IT IS NOT NECESSARY TO ANY JUDICIAL OR QUASI-JUDICIAL AUTHORITY TO MEET EACH AND EVERY GROUNDS AND SUCH AUTHORITY IS REQUIRED TO DECIDE ONLY THOSE GROUNDS WHICH WERE PRESSED BEFORE IT. I FIND THAT IN THAT CASE, THE INCOME WAS NOT ASSESSED BY THE AO OR CIT (A) ON THE BASIS OF BEST JUDGMENT ASSESSMENT BY APPLYING A PROFIT PERCENTAGE TO TOTAL TURNOVER M. P. NOS. 47 TO 48/BANG/2019 6 REQUIRING REJECTION OF BOOKS OF ACCOUNT AND TO DECIDE THAT GROUND, THE TRIBUNAL ORDER WAS RECALLED BY THE TRIBUNAL IN M. P. PROCEEDINGS AND HONBLE HIGH COURT HELD THAT IT AMOUNTED TO EXERCISING THE POWER OF APPEAL OVER ITS OWN JUDGMENT. I FIND THAT THE GROUND WHICH WAS SAID TO HAVE NOT BEEN DECIDED IN THAT CASE WAS IN FACT NOT ARISING IN THE FACTS OF THAT CASE BECAUSE NO BEST JUDGMENT ASSESSMENT WAS MADE BY THE AO IN THAT CASE REQUIRING PRIOR REJECTION OF BOOKS OF ACCOUNTS. IN THE PRESENT CASE, THE GROUNDS NOT DECIDED ARE VERY IMPORTANT AND IT CANNOT BE SAID IN THE PRESENT CASE THAT THESE GROUNDS OMITTED TO BE DECIDED ARE NOT ARISING. IN VIEW OF THESE DIFFERENCE IN FACTS, I HOLD THAT IN THE FACTS OF THE PRESENT CASE, THIS JUDGMENT IS NOT APPLICABLE. 8. HENCE, I RECALL THE TRIBUNAL ORDER FOR A. Y. 2015 16 TO DECIDE GROUND NO. 3 AND 5 OF ORIGINAL GROUNDS OF APPEAL AND GROUND NOS. 1 TO 3 OF ADDITIONAL GROUNDS OF APPEAL. I DIRECT THE REGISTRY TO FIX THIS APPEAL ALSO FOR HEARING IN DUE COURSE AND NOTICE SHOULD BE ISSUED TO BOTH SIDES. 9. IN THE RESULT, THE M. P. NO. 47/BANG/2019 FOR A. Y. 2014 15 IS PARTLY ALLOWED AND THE M. P. NO. 48/BANG/2019 FOR A. Y. 2015 16 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE NOTED ON THE CAPTION PAGE. SD/- (A.K. GARODIA) ACCOUNTANT MEMBER BANGALORE D A T E D : 31.07.2019 *MS COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.