NEW ENTERPRISE ASSOCIATES 15 LIMITED PARTNERSHIP,UNITED STATES OF AMERICA V. ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(2), BANGALORE

ITITA 930/BANG/2022

AI Insights

The case involves New Enterprise Associates 15, Limited Partnership, a US-based fund, appealing against the assessment order passed by the Assistant Commissioner of Income-tax, which treated the cost of acquisition of shares as the sale consideration, disregarding the actual sale consideration and fair market value as per the valuation report. The primary legal contention revolved around the correct application of the Income Tax Rules for computing capital gains on the sale of shares of non-resident entities, which indirectly involved assets located in India. The Tribunal's decision emphasized the need for a proper valuation method and adherence to procedural requirements under the Income Tax Act and Rules.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 474954 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 19-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-09-2024
• Assessment Year: 2019-2020
• Appeal Filed On: 23-09-2022
• Laws Referred To: Income-tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D.K. MISHRA; LD
• Assessee Lawyers: T. SURYANARAYANA
• Keywords: Capital asset; Depreciation; Sale consideration of property below Jantri Value; Fair market value; Cost of acquisition; Capital Gains; Valuation report; Source of fund; Deemed to accrue or arise in india
• Section: 143(3); 142(1); 143(2); 143(1); 56; 2; 144C; 9(1); 9(1); 9(1); 20

Judgement Text

" 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE “A” BENCHES, BANGALORE BEFORE MRS. BEENA PILLAI, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER IT(IT)A No. 930/Bang/2022 Assessment Year: 2019-20 New Enterprise Associates 15, Limited Partnership, 1954 Greenspring Drive, Suite 600 Timonium, Maryland, United States of America-21093 v. Assistant Commissioner of Income- tax, International Taxation-Circle- 1(2), 2nd Floor, BMTC Building, 80 Feet Road, Koramangala, Bangalore-560095 PAN:AAGCN2935G (Appellant) (Respondent) Assessee by: Sh. T. Suryanarayana, Advocate Revenue by: Sh. D.K. Mishra, Ld. CIT Date of hearing: 03.09.2024 Date of pronouncement: 19.11.2024 O R D E R PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, in IT(IT)A No. 930/Bang/2022 for assessment year 2019-20, has arisen from assessment order passed by ld. Assessing Officer dated 25.07.2022 under section 143(3) r.w.s. 144C (13) of the Income-tax Act, 1961 (having DIN & Order No. ITBA/AST/S/143(3)/2022-23/1044105429(1)) in pursuance to directions of the ld. Dispute Resolution Panel-2, Bengaluru under section 144C(5) vide order dated 23.06.2022 under section 143(3) r.w.s. 144C of the 1961 Act. 2. The assessee has raised following grounds of appeal in Memo of Appeal filed with Income Tax Appellate Tribunal, Bangalore Benches, Bangalore:- “1. That the Assessing Officer (\"AO\") and the Dispute Resolution Panel (\"DRP\") erred in denying the carry forward of capital loss by treating the cost of acquisition of shares of NEA FDI III and NEA FVCI III as the sale consideration by ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 2 disregarding the actual sale consideration received by the Assessee and the fair market value of the shares as per the valuation report. 2. That the AO and the DRP erred in applying the provisions of Rule 11UB/11UC instead of Rule 11UA of the Income Tax Rules, 1962 (\"the Rules\") for the purpose of computation of full value of consideration as provided for Section 50CA of the Income-tax Act, 1961 (\"the Act\"). 3. That the AO erred in holding that the Appellant has chosen to apply the FMV wherever beneficial to it without appreciating that the Appellant has computed capital gains by considering higher of the actual sale consideration or FMV as specified under Section 50CA of the Act. 4. That the AO erred in going beyond his jurisdiction in questioning the commercial rationale of the Appellant in undertaking the transaction especially so when it is with an unrelated party. 5. That the AO erred in rejecting the valuation report of the Assessee on the ground that the FMV adopted by the Assessee does not have any basis. 6. That, in arriving at the capital gains arising from the transfer of shares of GoQii, the AO erred in adopting a Telegraphic Transfer rate without any basis for conversion of income earned in foreign currency to INR, as against the rate to be adopted in terms of Rule 115 of the Rules. The DRP erred in upholding the same. The Appellant submits that the above grounds are independent of and without prejudice to one another. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, the above grounds of appeal, at any time before or during the hearing of the appeal.” 2.2. The assessee has also raised following additional ground of appeal:- “7. The directions dated 23.06.2022 issued by the DRP without quoting the document identification number (DIN) on the body of the document is in contravention to the Circular No. 19/2019 dated 14.08.2019 issued by the Central Board of Direct Taxes, thus rendering the directions to be invalid and consequently, the final assessment order passed by the Assessing Officer a nullity.” 3. The brief facts of the case are that the assessee is a company incorporated in USA. The assessee is a fund based out of Timonium, Maryland, USA. The assessee filed its return of income on 29.11.2019 for the impugned assessment year, claiming loss of Rs. 20,75,75,911/- , which has arisen mainly under the Head of Capital Loss owing to sale of shares of non-resident entities. Thus, it was observed by the ld. Assessing ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 3 Officer that there was an indirect transfer. The AO observed that the assessee has shown total sale consideration received of unquoted shares of Rs. 137,29,69,529/- and fair market value of those shares is claimed by the assessee to Rs. 146,93,93,555/-, while the cost of acquisition without indexation is claimed to be to the tune of Rs. 189,76,43,135/-. Thus, the loss on account of sale of unquoted shares to the tune of Rs.42,82,49,580/- was claimed by the assessee. The case of the assessee was selected by Revenue for framing scrutiny assessment under CASS. Statutory notices under section 143(2) and 142(1) were issued by the ld. Assessing Officer from time to time, during the course of the assessment proceedings. The assessee participated in the assessment proceedings. The ld. Assessing Officer observed that the assessee does not have any business activity in India. The assessee does not hold any movable or immovable property in India during the year. The AO observed that the assessee has sold shares of three overseas entities. The assessee was asked by the AO to submit complete details. The assessee submitted details which are as under:- “New Enterprise Associates 15, LP Computation of Total Income and the Tax Liability for the Assessment Year 2019-20 (Financial Year 2018-19) Particulars Curre ncy NEA FDIII-equity shares NEA FVCI III-equity shares GoQii Inc-preference shares Short term Long term Short term Long term Short term Long term Actual Sale Consideration A USD 10,801,084 7,242,180 7,190,772 3,499,293 1,960,179 12,353,393 Deemed sale consideration as per section 50CA of the Income Tax Act, 1961 B USD 9,626,831 6,454,838 8,589,438 4,179,934 1,960,179 12,353,393 (“the Act”) Full Value of Consideration (Higher of A and B) C USD 10,801,084 7,242,180 8,589,438 4,179,934 1,960,179 12,353,393 Less D USD 15,041,924 10,085,684 11,012,100 5,358,890 1,500,000 4,992,508 ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 4 Cost of acquisition E USD Expenses incurred wholly and exclusively in connection with the transfer F USD -4,240,840 -2,843,504 -2,422,662 -1,178,956 460,169 7,360,885 Capital Gain/(loss)(C- D-E) Income attributable to assets held in India as per rule 11UC of the Income tax Rule, 1962 G USD 450,278 7,202,517 TT Buying Rate a son specified date (refer note below) H INR / USD 68.94 68.94 68.94 68.94 69.14 69.14 Capital Gain/(Loss) (F/G*H) INR -292,363,502 -196,031,173 -167,018,325 -81,277,217 31,132,246 497,982,060 3.2. The ld. Assessing Officer observed that the main reason for capital loss is that the assessee has received sale consideration lower than the cost of Acquisition. All the three overseas entities whose shares were sold namely NEA FDI III, NEA FVCI III and Go Qii Inc are privately held companies , and they are not listed on any recognized stock exchanges in the world. Thus, the ld. Assessing Officer was of the view that the fair market value in accordance with the provisions of the Act needs to be computed. The assessee was asked by the AO to submit documentary evidences to show that the valuation of overseas companies was done as per Rule 11UC of the Income-tax Rules, 1962. The assessee submitted that the valuation of all three companies was conducted by independent valuer and the capital loss was adopted as per the valuation report. The assessee was asked by the ld. Assessing Officer to submit details in respect of financials of those overseas entities for last three financial years, and ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 5 valuation report determining the fair market value from the prescribed author in the 1961 Act. The assessee submitted financials of NEA FDI III and NEA FVCI III for Financial Year 2016-17 , and also the assessee submitted Valuation Report from M/s Fortress Capital Management Services Pvt. Ltd. for all the three overseas entities based upon the valuation available as on 31.03.2018. 3.3 The AO reproduced relevant findings in the valuation report, as under:- “A] FMV as per Valuation Report in the case of NEA FDI III “……….6.2 Considering the above, the fair market value of assets of all the Portfolio Companies located in India as held by NEA FDI III is USD 23.90 million as on valuation Date as per Rule 11UB of the IT Rules, as given in the table below.....” B] FMV as per Valuation Report in the case of NEA FVCI III ...........6.2 Considering the above, the fair market value of assets of all the Portfolio Companies located in India as held by NEA FVCI III is USD 14.17 million as on valuation Date as per Rule 11UB of the IT Rules, as given in the table below.....\" C] FMV as per Valuation Report in the case of Go Qii Inc “.....5. VALUATION OF GOQII AS PER RULE 11UB 5.1 As explained in para 4.2.2.1 above, the fair market value of assets of GoQii is computed as under. Fair Market Value of all assets of GoQii=A+B Where; A Fair market value of shares of GoQii determined based on CTM Method (Explained in subsequent para); B= Book value of the liabilities of GoQii as on Valuation Date. 5.2 As mentioned in para 4.2.2.4 above, the Management has informed that GoQii has entered into a Series B Preferred Stock Purchase Agreement ('SPA') with certain investors on November 12, 2018 for raising funds of-USD 9.5 million by way of issue of Series B Preferred Stock at a price of USD 30.43 per preferred Stock. 5.3 Under CTM Method, the equity value (i.e. fair market value of shares) of GoQii is considered at USD 78.69 million (diluted number of equity shares X issue price of Series B preferred Stock i.e. 25,85,741 shares X USD 30.43 per share), which is the value based on the transaction as mentioned above. 5.4 Book value of liabilities of GoQii as on March 31, 2018 have been added to the fair market value of shares as arrived in para 5.3 above to arrive at the fair market value of all assets of GoQii as per Rule 11UB of the IT Rules……….” ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 6 3.4 From the above valuation report, the ld. Assessing Officer observed that the fair market value of GoQii shares is adopted on the basis of recent share transfer transaction in the same entity , and FMV is valued as USD 30.43 per share. The AO observed that the assessee has adopted the same value while computing capital gain. Thus, the ld. Assessing Officer accepted the capital gain computation as submitted by the assessee in respect of GoQii share transfer transaction. Thus, there is no dispute so far as share transfer transaction with respect to GoQii share is concerned and the same has attained finality. 3.5 So far as the remaining two entities are concerned namely NEA FDI III and NEA FVCI III, the ld. Assessing Officer observed that the actual sale consideration claimed to be received by the assessee company is lower than the fair market value as computed by the independent valuer. The ld. Assessing Officer further observed that the FMV adopted by the assessee company is not having any basis other than certified by the management. The ld. Assessing Officer observed as under:- “A] In the case of NEA FDI III .....5. VALUATION OF NEA FDI III AS PER RULE 11UB 5.1 As explained in para 4.2.2 above, the fair market value of assets of NEA FDI III is computed as under: Fair market value of all assets of NEA FDI II = A+B Where; A= Market capitalization of NEA FDI III computed on the basis of the full value of consideration for transfer of the share or interest i.e. USD 18 million(as informed by the Management); B= Book value of the liabilities of NEA FDI III as on valuation dates as certified by the Management………” B] In the case of NEA FVCI III “………5. VALUATION OF NEA FVCI III AS PER RULE 11UB 5.1 As explained in para 4.2.2 above, the fair market value of assets of NEA FVC III is computed as under: Fair market value of all assets of NEA FVCI III =A+B ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 7 Where; A= Market capitalization of NEA FVCL III computed on the basis of the full value of consideration for transfer of the share or interest ie USD 10.69 million (as informed by the management); B= Book value of the liabilities of NEA FVCI III as on Valuation Date as certified by the Management......” 3.6 The ld. Assessing Officer also further observed that the assessee company is conveniently choosing FMV wherever it is more beneficial to it , and is adopting a pick and choose approach which is not allowed as per 1961 Act. The AO observed that if the assessee company is accepting valuation report in one case , it has to accept in other cases also. The ld. Assessing Officer observed that the valuation report has taken the FMV as on 31.03.2018, and the valuation of the investment as on the date of transfer i.e. November, 2018 is not considered by the management as well as by the independent valuer. Thus, the ld. Assessing Officer rejected the valuation computation of capital loss prepared by the assessee in case of two entities namely NEA FDI III and NEA FVCI III based on the valuation report of the valuer , in totality. The ld. Assessing Officer further observed that as per the financials of both the entities for Financial Year 2016 & 2017, the investment value in books of both the entities was increasing every year in the range of 45 to 60%, and thus there is no apparent cause to sell these investments below the cost of acquisition. The ld. AO considered the cost of acquisition as FMV.The ld. Assessing Officer recomputed the capital gain in the case of NEA FDI III and NEA FVCI III as below:- S. No. Entity Cost acquisition in USD Sale Consideration received as per FMV in USD Capital gain in USD Capital Loss in INR (Lowest SBI TT Rate @ 69.880) 1 NEA FDI III 25.127608 million 25.127608 Nil Nil 2 NEA FVCI III 16.37099 million 16.37099 million Nil Nil Total Nil ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 8 Therefore, considering all the facts mentioned above, gross capital gain from share transfer transaction of all three entities is reworked as follows: S. No. Entity Capital Gain in INR (Lowest SBI TT Rate @ 69.880 1 NEA FDI III Nil 2 NEA FVCI II Nil 3 Go Qii Inc (USD 76,52,795) 53,47,77,315 Total 53,47,77,315 3.7 Thus, the ld. Assessing Officer observed that there is a variation in the income returned by the assessee , as per Section 143(1) and assessed by the AO in the scrutiny proceedings. The AO observed that as per Section 144C(1), draft order will be passed if variation is prejudicial to the interest of the assessee. The AO observed that the assessee is an eligible assessee under section 144C(b)(ii) of the 1961 Act, and the draft of the proposed assessment order was prepared by the ld. Assessing Officer dated 30.09.2021 under section 144C r.w.s. 143(3) of the Act, wherein the addition proposed by the ld. Assessing Officer were to the tune of Rs. 53,47,77,315/- being a long term capital gains, as against the long term capital loss of Rs.20,75,75,911/- declared by the assessee. 4.1 Aggrieved, the assessee filed objections before ld. DRP , and raised as many as eight objections before ld. DRP, which reads as under:- “Sale of equity shares of NEA FDI III and NEA FVCI III 1. The learned AO has erred in law and on facts in denying the carry forward of capital loss by treating the sale consideration as equal to the cost of acquisition of shares of NEA FDI III and NEA FVCI III, by completely disregarding the actual sale consideration received by the assessee and the fair market value (\"FMV\") of the shares as per the valuation reports. 2.The learned AO has erred in law and on facts in referring to the provision of Rule 11UC of the Income-tax Rules, 1962 (\"the Rules\") for the purpose of computation of full value consideration under section 50CA of the Act, without appreciating the fact that Rule 11UA has been prescribed in aforesaid section 50CA of the Act. 3. The learned AO has erred in law and on facts in stating that the Company has conveniently chosen FMV wherever it is more beneficial to it without appreciating the ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 9 fact that the Assessee has computed capital gain by considering higher of actual sale consideration or FMV as specified in section 50CA of the Act. 4. The learned AO has erred in stating that there is no apparent cause to sell the investments below the cost of acquisition, without appreciating the fact that the transaction has been undertaken with an unrelated third party and hence the learned AO is not justified in questioning the commercial rationale. 5. The learned AO has erred on facts in mentioning that the valuation has been computed as on 31 March 2018 and not on the date of transfer i.e. 04 December 2018. 6. The learned AO has erred in law and on facts by rejecting the valuation report by stating that FMV adopted by the assessee company does not have any basis other than certified by management, thereby ignoring the entire valuation exercise. Sale of preference shares of GoQii Inc. 7. The learned AO has erred in not following the Rule 115 as prescribed under Income Tax Rule, 1962 for the rate to be used as on specified date, for conversion of income earned in foreign currency into INR and in adopting different Telegraphic Transfer(“TT”) rate of INR 69.88 = 1 USD(as against the rate of INR 69.14 applied by the assessee), without providing any explanation for the same. Applicable Tax and surcharge rates 8. The learned AO has erred in applying the tax rate of 20 percent on long-term capital gains as against the rate of 10 percent , disregarding the applicability of Section 112(1)(c)(iii) of the Act. 9. The learned AO has erred in applying the surcharge rate of 15 percent without appreciating the fact that surcharge applicable to a foreign company is 5 percent as per the Schedule to Finance Act 2019 Each of the above grounds are independent and without prejudice to the other grounds of objections preferred by the assessee. The assessee craves leave to Add, alter , vary ,omit , substitute or amend the above grounds of objections , at any time before or at , the time of hearing, of the objections , so as to enable the Honourable Dispute Resolution Panel to decide on the objections according to law. ” 4.21 With respect to grounds of objection 1 to 6 raised by the assessee before ld. DRP, the assessee has contended before the ld. DRP that ld. Assessing Officer has erroneously taken the value as per valuation report derived based on Rule 11UB of the Income Tax Rules, and as per assessee, Rule 11UB of the Income Tax Rules was only for the purpose of attribution not for determination of the full value of ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 10 consideration. The assessee submitted that the valuation report under Rule 11UA shall be considered for determining full value of consideration and computing the capital gain on sale of equity shares of NEA FDI III and NEA FVCI III. The assessee further submitted that it has computed capital gain by considering higher of actual sale consideration or deemed sale consideration as specified in section 50CA of the Act. 4.22 The ld. DRP observed that the ld. Assessing Officer has rightly valued the fair market value of the share based on the financials as on 31st March, 2018 ,and the contentions of the assessee that the AO has chosen wrong valuation report as per Income-tax Rules, 1962 are not correct. The ld. DRP observed that the assessee is making inappropriate objections and conveniently choosing fair market value, wherever it is more beneficial to it. The ld. DRP observed that the assessee has adopted a fair market value without any basis other than those certified by the management , and there was no reason to sell the shares below the cost price. The ld. DRP further observed that the fair market value has been determined by the ld. Assessing Officer based on the management certified provisional balance-sheet prepared and submitted as on the date of transaction considering various factors and projections, business conditions, growth of the company, economic or market conditions, expected demand and supply, cost of capital and host of other factors. The ld. DRP observed that there is no much difference in the method adopted by the AO and the assessee to ascertain the fair market value. Thus, the ld. DRP rejected the contention of the assessee that the ld. Assessing Officer has adopted the wrong valuation report by application of invalid income tax rules. 4.23 The ld. DRP further observed that the main reason for the capital loss claimed by the assessee is due to the reason that the assessee has received sale consideration less than cost of acquisition. Thus, the ld. DRP further observed that these overseas entities namely NEA FDI III and NEA FVCI III and Go Qii Inc are privately held company which are not listed on the recognized stock exchange any where in the ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 11 world. The Assessee was asked to submit the documentary evidence to show that the valuation of overseas companies were done as per Rule 11UC of the Act . The ld. DRP observed that the assessee has submitted the financial and valuation report obtained from M/s Fortress Capital Management Services Private Limited for all the three overseas entities as on 31st March, 2018 which is based on financial projections and the same cannot be acceptable. The ld. DRP rejected the contentions of the assessee and held that the AO has rightly dealt with the issue in the draft assessment order. Thus, the draft order of the ld. Assessing Officer was approved by the ld. DRP and grounds of objection raised thereto stood rejected by ld. DRP. 4.31 The second issue raised by the assessee before ld. DRP was with respect to the applicability of Rule 115 for the rate to be used as on the specified date for conversion of income earned in foreign currency into INR and in adopting different telegraphic transfer rate of INR 69.88 = 1USD as against the rate of INR 69.14 applied by the assessee. The assessee contended that since the shares are acquired and sold in foreign currency, Rule 115 will be applicable. The ld. DRP observed that as per Rule 115 if any person is assessable in respect of any income in foreign currency , then such foreign currency shall be converted into rupee notionally at the SBI TT rate of such currency as on the specified date, being the last day of month immediately preceding the month in which capital asset is transferred i.e. SBI TT rate on 30th November, 2018 which is Rs. 68.94. 4.32 The ld. DRP after considering submissions of the assessee , observed from valuation report that fair market value of GoQii Inc. shares is adopted on the basis of recent share transactions in the same entity and FMV is valued as 30.43 USD for sale, and the assessee has adopted the same value of USD 30.43 per share while computing the capital gain, and the said computation of capital gains is accepted by the AO. 4.33 Thus, ld. DRP rejected the contentions of the assessee as the AO accepted the computation of capital gains in respect of GoQii Inc share transfer transaction. The ld DRP also rejected other contentions of the assessee regarding AO not following Rule ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 12 115 of the 1962 Rule. Thus, as per ld. DRP. the contentions of the assessee lacked merit, which stood rejected by ld. DRP. Thus, ld. DRP rejected this ground of objection. 4.4. With respect to ground of objection 8 and 9 raised by the assessee, the same stood dismissed by the ld. DRP as it was held that ld. DRP has no jurisdiction in deciding the above objections relating to applicability of tax and surcharge, and even otherwise the objections are premature for adjudication which stood rejected by ld. DRP. 4.5 The ld. DRP communicated its directions passed u/s 144C, dated 23.06.2022 , to the AO as well the assessee as is required u/s 144C(5). 5.Thereafter, the AO passed assessment order dated 25.07.2022 u/s 143(3) read with Section 144C(13), vide order dated 25.07.2022 , keeping in view Directions of ld. DRP, wherein income of the assessee from long term capital gains were computed at Rs. 53,47,77,315/- 6. Being aggrieved by the assessment order dated 25.07.2022 passed by the AO, the assessee has now filed an appeal before the Tribunal. 6.2. The ld. Counsel for the assessee opened the arguments before the Division Bench. The ld. Counsel for the assessee brought to the notice of the Bench that the assessee has raised an Additional Ground viz. Ground No. 7 , challenging directions dated 23rd June, 2022 issued by ld. DRP without quoting the Documentation Identification Number(DIN) in the body of document i.e. Directions issued by ld. DRP, is in contravention to Circular No. 19/2019 dated 14th August, 2019, issued by the CBDT , and thus rendering the Directions issued by ld. DRP to be invalid , and consequently the final assessment order passed by the ld. Assessing Officer is a nullity. At the outset, ld. counsel for the assessee stated before the Division Bench that the assessee does not want to challenge this additional ground of appeal bearing Ground No. 7 , and it should be dismissed as being withdrawn. The ld. Counsel for the assessee countersigned on the file against ground no. 7 in confirmation of his statement before the Division Bench, that this ground of appeal is not pressed and ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 13 should be dismissed as withdrawn. The Department has no objection if ground No. 7 is dismissed as not being pressed. Thus, after hearing both the parties, the Ground No. 7 stand dismissed as being withdrawn . We order accordingly. 6.3 The ld. counsel for the assessee submitted that presently we are concerned with A.Y. 2019-20 . The ld. counsel submitted that the assessee is a company based in USA and that the assessee does not have any business activities in India nor the assessee hold any immovable or movable property in India. It was submitted that the assessee company is holding shares in three Mauritius entities , and those three entities in Mauritius are holding shares in Indian companies. These Indian Companies are having assets , business activities and/or sources of income situated / located in India. The shares held by assessee in three Mauritius companies were transferred by assessee to Non Resident Entities. Thus, there is an indirect transfer by assessee of assets located/situated in India as is contemplated under section 9(1)(i) of the Act read with Explanation 5 & 6 to section 9(1) , which is applicable in the instant case, and the income from capital gain is admitted by ld. Counsel for the assessee to be chargeable to tax in India, keeping in view deeming fiction of section 9(1)(i) of the Act read with Explanation 5 & 6 to Section 9(1). Our attention was drawn to provision of section 50CA , and also to Rule 11UAA of the Income-tax Rules, 1962. It was submitted that the fair market value of the share is to be computed. It was also submitted that the assessee’s sale consideration as well as fair market value was compared , and the higher value was taken. Our attention was also drawn to Rule 11UA of the 1962 Rules. It was submitted that Section 50CA read with Rule 11UAA is applicable. It was submitted that the ld. Assessing Officer has applied Rule 11UB of the 1962 Rules while valuing the assets under section 9(1)(i) of the Act. It was submitted that the dispute between rival parties is as to whether Rule 11UAA will be applicable as is contended by the assessee, or Rule 11UB of the 1962 Rules will be applicable as is contended by Revenue. It was submitted that the AO is not contesting the valuation. Our attention was drawn to the draft assessment order as well as the ld. DRP’s directions. Our ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 14 attention was also drawn to Rule 11UC of the 1962 Rules. It was submitted that the assessee has not followed the DCF method for valuing the shares. It was also submitted that there is a transfer by assessee of the shares held in three Mauritius Entities to non-resident parties, and these parties are not related parties. It was submitted that Section 50CA read with Rule 11UAA are applicable. It was submitted that this is a specific provision in case of transfer of unquoted shares. Rule 11UB cannot be applied as was done by the AO. The ld. Counsel for the assessee prayed that the additions be deleted. 6.4 On the second issue, the ld. counsel for the assessee submitted that the assessee has rightly adopted the TT buying rate of SBI on the date of transfer i.e. 03.12.2018 which is higher than the closing rate of the last month of 30th November, 2018 , and no prejudice is caused to Revenue . It was submitted that the ld. Assessing Officer has applied even the higher rate, but no explanation was given by the ld. Assessing Officer on what basis this higher rate is applied/adopted. Our attention was drawn to Rule 115 of the 1962 Rules. Our attention was drawn to page 202 and 204/Paper Book , where in TT Buying rate of SBI for 30.11.2018 and 03.12.2018 are placed. The ld. Counsel for the assessee prayed that the additions be deleted. 6.5 The ld. CIT-DR, on the other hand submitted that there is an indirect transfer of asset as is contemplated u/s Section 9(1)(i) of the Act read with Explanation 5 & 6. Independent valuation report was submitted but it was based only on the management certification. Our attention was drawn to the report submitted by the valuer M/s Fortress Capital Management Services Pvt. Ltd., and it was submitted that these reports were mainly on the basis of data submitted by the Management, and prayers were made that the matter should be remanded to the ld. Assessing Officer. The ld. CIT-DR, on the other hand , submitted that these reports are not accepted by the Revenue. Reference was drawn to Rule 11UA and Rule 11UB. 6.6 The ld. counsel for the assessee submitted in rejoinder that independent valuer has done the valuation, and Rule 11UAA was applied. It was submitted that keeping ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 15 in view Section 50CA of the 1961 Act, the assessee has rightly applied Rule 11UAA read with Rule 11UA. Our attention was drawn to page 94 of the paper book which is a report of the valuer valuing equity shares of NEA FVCI III, Ltd as per Rule 11UA is placed. The ld. counsel for the assessee submitted that the matter should not be remanded back to the AO , but should be decided by the ITAT. It was submitted that if the ld. Assessing Officer was not satisfied with the valuation done by the assessee, he could have got the valuation report prepared at its own behest. The ld. Assessing Officer has taken the cost of acquisition as fair market value, while there is no provision in the statute to take cost of acquisition as the fair market value for computing capital gains. 6.7 The Bench asked both the rival parties as to support their contentions with the judicial precedents on the issue arising in this appeal as to applicability of Rule 11UAA or Rule 11UB , in the facts and circumstances of the case, and both the parties submitted that with in their knowledge there are no judicial preceded available on this issue. 7. We have considered rival contentions and perused the material on record. In brief, the assessee is a company incorporated in USA. The assessee is a fund based out of Timonium , Maryland,USA. The assessee held shares in NEA FDI-III equity shares , NEA FVC III-equity shares and GoQii Inc-Preference share.These three entities are Mauritius based entities, whose shares held by the assessee stood transferred to another non resident entities, during the year under consideration. These three entities are in turn owning the investment in the companies situated in India. These Indian Companies are owning the businesses /assets /sources of income in India. Thus, the underneath assets / business or source of income are located/situated in India, and this is a case of indirect transfer. The assessee has claimed loss of Rs. 20,75,75,911/- under the head capital loss , which has arisen due to the sale of shares of non-resident entities. Admittedly, this is a case of indirect transfer , and admittedly income thereof is chargeable to tax in India u/s 9(1)(i) read with Explanation 5 and 6 ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 16 , and both the parties to the dispute are ad-idem that income arisen from sale of aforesaid shares are chargeable to tax in India. The facts in details are stated in the preceding para’s of this order and are not repeated. So far as the capital gains arising from transfer of preference shares in GoQii Inc. are concerned, the same has attained finality between rival parties. The first question which arose for our consideration is with respect to valuation of shares held by the assessee in Mauritius based entities namely NEA FDI-III equity shares and NEA FVC III-equity shares , and which stood transferred during the year under consideration, as to whether Rule 11UAA read with Rule 11UA read alongwith Section 50CA shall be applicable , or whether Rule 11UB read with Rule 11UC read with Section 9(1)(i) shall be applicable. The Revenue has applied Rule 11UB read with Rule 11UC read with Section 9(1)(i), while the assessee is contemplating applying Rule 11UA read with Rule 11U read with Rule 11UAA read with Section 50CA. 7.2 Before , we proceed further , it will be important to reproduce the relevant provisions of the statute/rules: “Income deemed to accrue or arise in India. “Income deemed to accrue or arise in India. “Income deemed to accrue or arise in India. “Income deemed to accrue or arise in India. 9. (1) The following incomes shall be deemed to accrue or arise in India : 9. (1) The following incomes shall be deemed to accrue or arise in India : 9. (1) The following incomes shall be deemed to accrue or arise in India : 9. (1) The following incomes shall be deemed to accrue or arise in India :— — — — (i) all income accruing or arising, whether directly or indirectly , through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, [***] or through the transfer of a capital asset situate in India. *** *** Explanation 5.—For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India:] **** **** [Explanation 6.—For the purposes of this clause, it is hereby declared that— (a) the share or interest, referred to in Explanation 5, shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if, on the specified date, the value of such assets— ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 17 (i) exceeds the amount of ten crore rupees; and (ii) represents at least fifty per cent of the value of all the assets owned by the company or entity, as the case may be; (b) the value of an asset shall be the fair market value as on the specified date, of such asset without reduction of liabilities, if any, in respect of the asset, determined in such manner as may be prescribed; (c) \"accounting period\" means each period of twelve months ending with the 31st day of March: Provided that where a company or an entity, referred to in Explanation 5, regularly adopts a period of twelve months ending on a day other than the 31st day of March for the purpose of — (i) complying with the provisions of the tax laws of the territory, of which it is a resident, for tax purposes; or (ii) reporting to persons holding the share or interest, then, the period of twelve months ending with the other day shall be the accounting period of the company or, as the case may be, the entity: Provided further that the first accounting period of the company or, as the case may be, the entity shall begin from the date of its registration or incorporation and end with the 31st day of March or such other day, as the case may be, following the date of such registration or incorporation, and the later accounting period shall be the successive periods of twelve months: Provided also that if the company or the entity ceases to exist before the end of accounting period, as aforesaid, then, the accounting period shall end immediately before the company or, as the case may be, the entity, ceases to exist; (d) \"specified date\" means the— (i) date on which the accounting period of the company or, as the case may be, the entity ends preceding the date of transfer of a share or an interest; or (ii) date of transfer, if the book value of the assets of the company or, as the case may be, the entity on the date of transfer exceeds the book value of the assets as on the date referred to in sub-clause (i), by fifteen per cent. Section 50CA Section 50CA Section 50CA Section 50CA [Special provision for full value of consideration for transfer of share other than quoted Special provision for full value of consideration for transfer of share other than quoted Special provision for full value of consideration for transfer of share other than quoted Special provision for full value of consideration for transfer of share other than quoted share. share. share. share. 50CA. 50CA. 50CA. 50CA. Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being share of a company other than a quoted share, is less than the fair market value of such share determined in such manner as may be prescribed, the value so determined shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer. Explanation.—For the purposes of this section, \"quoted share\" means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.] ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 18 Rule 11U of the Income Rule 11U of the Income Rule 11U of the Income Rule 11U of the Income- - - -tax Rules, 1962 tax Rules, 1962 tax Rules, 1962 tax Rules, 1962 H.—Determination of fair market value of the property other than immovable property Meaning of expressions used in determination of fair market value. 11U. For the purposes of this rule and rule 11UA,— [(a) [***] (b) \"balance sheet\", in relation to any company, means,— (i) for the purposes of sub-rule (2) of rule 11UA, the balance sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under section 224 of the Companies Act, 1956 (1 of 1956) and where the balance sheet on the valuation date is not drawn up, the balance sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company; and [(ii) in any other case,— (A) in relation to an Indian company, the balance sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under the laws relating to companies in force; and (B) in relation to a company, not being an Indian company, the balance sheet of the company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company, if any, appointed under the laws in force of the company is registered or incorporated;]] (c) \"merchant banker\" means category I merchant banker registered with Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); (d) \"quoted shares or securities\" in relation to share or securities means a share or security quoted on any recognized stock exchange with regularity from time to time, where the quotations of such shares or securities are based on current transaction made in the ordinary course of business; (e) \"recognized stock exchange\" shall have the same meaning as assigned to it in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 19 (f) \"registered dealer\" means a dealer who is registered under Central Sales Tax Act, 1956 or General Sales Tax Law for the time being in force in any State including value added tax laws; (g) \"registered valuer\" shall have the same meaning as assigned to it in section 34AB of the Wealth-tax Act, 1957 (27 of 1957) read with rule 8A of the Wealth-tax Rules, 1957; (h) \"securities\" shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) ; (i)\"unquoted shares and securities\", in relation to shares or securities, means shares and securities which is not a quoted shares or securities; [(j) \"valuation date\" means the date on which the property or consideration, as the case may be, is received by the assessee.] Rule 11UA of Income-tax Rules, 1962 Determination of fair market value. 11UA. [(1)] For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely,— (a) *** (b) *** (c) valuation of shares and securities,— (a) the fair market value of quoted shares and securities shall be determined in the following manner, namely,— (i) if the quoted shares and securities are received by way of transaction carried out through any recognized stock exchange, the fair market value of such shares and securities shall be the transaction value as recorded in such stock exchange; (ii) if such quoted shares and securities are received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be,— (a) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation date, and (b) the lowest price of such shares and securities on any recognized stock exchange on a date immediately preceding the valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date there is no trading in such shares and securities on any recognized stock exchange; ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 20 [(b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner, namely:— the fair market value of unquoted equity shares = (A + B + C + D – L) × (PV)/(PE), where, A = book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) in the balance sheet as reduced by,— (i) any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any; and (ii) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; B = the price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer; C = fair market value of shares and securities as determined in the manner provided in this rule; D = the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property; L = book value of liabilities shown in the balance sheet, but not including the following amounts, namely:— (i)the paid-up capital in respect of equity shares; (ii)the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii)reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv)any amount representing provision for taxation, other than amount of income- tax paid, if any, less the amount of income-tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PV = the paid-up value of such equity shares; ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 21 PE = total amount of paid-up equity share capital as shown in the balance sheet;] (c)the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation.] [ (2) Notwithstanding anything contained in sub-clause (b) or sub-clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of the Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a)) or clause (b) , at the option of the assessee, namely:— (a) the fair market value of unquoted equity shares =(A-L)× [PV/PE], where, A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance- sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; L= book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:— (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balance-sheet; PV = the paid up value of such equity shares; or ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 22 (b) the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method; [Determination of Fair Market Value for share other than quoted share. 11UAA. For the purposes of section 50CA, the fair market value of the share of a company other than a quoted share, shall be determined in the manner provided in sub-clause (b) or sub-clause (c), as the case may be, of clause (c) of sub-rule (1) of rule 11UA and for this purpose the reference to valuation date in the rule 11U and rule 11UA shall mean the date on which the capital asset, being share of a company other than a quoted share, referred to in section 50CA, is transferred.] I-Determination of value of assets and apportionment of income in certain cases Fair market value of assets in certain cases. 11UB. (1) The fair market value of asset, tangible or intangible, as on the specified date, held directly or indirectly by a company or an entity registered or incorporated outside India (hereafter referred to as \"foreign company or entity\"), for the purposes of clause (i) of sub- section (1) of section 9, shall be computed in accordance with the provisions of this rule. (2) **** (3) Where the asset is a share of an Indian company not listed on a recognised stock exchange on the specified date, the fair market value of the share shall be its fair market value on such date as determined by a merchant banker or an accountant in accordance with any internationally accepted valuation methodology for valuation of shares on arm's length basis as increased by the liability, if any, considered in such determination. (4) & (5)**** (6) The fair market value of all the assets of a foreign company or an entity shall be determined in the following manner, namely:— (i) where the transfer of share of, or interest in, the foreign company or entity is between the persons who are not connected persons, the fair market value of all the assets owned by the foreign company or the entity as on the specified date, for the purpose of such transfer, shall be determined in accordance with the following formula, namely:— Fair market value of all assets = A+B ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 23 Where: A = Market capitalisation of the foreign company or entity computed on the basis of the full value of consideration for transfer of the share or interest; B = book value of the liabilities of the company or the entity as on the specified date as certified by a merchant banker or an accountant; (ii) in any other case, if, — (a) *** (b) the share in the foreign company or entity is not listed on a stock exchange on the specified date, the value of all the assets owned by the foreign company or the entity shall be determined in accordance with the following formula, namely :— Fair market value of all the assets = A+B Where: A = fair market value of the foreign company or the entity as on the specified date as determined by a merchant banker or an accountant as per the internationally accepted valuation methodology; B = value of liabilities of the company or the entity if any, considered for the determination of fair market value in A. (7) Where fair market value has been determined on the basis of any interim balance sheet referred to in the first proviso to clause (ix) of the Explanation, then the fair market value shall be appropriately modified after finalisation of the relevant financial statement in accordance with the applicable laws and all the provisions of this rule and rules 11UC and 114DB shall apply accordingly. (8) For determining the fair market value of any asset located in India, being a share of an Indian company or interest in a partnership firm or association of persons, all the assets and business operations of the said company or partnership firm or association of persons shall be taken into account irrespective of whether the assets or business operations are located in India or outside. (9) The rate of exchange for the calculation in foreign currency, of the value of assets located in India and expressed in rupees shall be the telegraphic transfer buying rate of such currency as on the specified date. Explanation.—For the purposes of this rule and rule 11UC,— (i) \"accountant\" means an accountant referred to in the Explanation to sub-section (2) of section 288 and for the purposes of sub-rule (6) includes any valuer recognised for undertaking similar valuation by the Government of the country where the foreign ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 24 company or the entity is registered or incorporated or any of its agencies, who fulfils the following conditions, namely :— (a) if he is a member or partner in any entity engaged in rendering accountancy or valuation services then,— (i) the entity or its affiliates has presence in more than two countries; and (ii) the annual receipt of the entity in the year preceding the year in which valuation is undertaken exceeds ten crore rupees; (b) if he is pursuing the profession of accountancy individually or is a valuer then,— (i) his annual receipt in the year preceding the year in which valuation is undertaken, from the exercise of profession, exceeds one crore rupees; and (ii) he has professional experience of not less than ten years. (ii) \"connected person\" shall have the meaning as assigned to it in clause (4) of section 102; (iii) \"right of management or control\" shall include the right to appoint majority of the directors or to control the management or policy decision exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of shareholding or management rights or shareholders agreements or voting agreements or in any other manner; (iv) \"telegraphic transfer buying rate\" shall have the meaning as assigned to it in the Explanation to rule 26; (v) \"observable price\" in respect of a share quoted on a stock exchange shall be the higher of the following :— (a) the average of the weekly high and low of the closing prices of the shares quoted on the said stock exchange during the six months period preceding the specified date; or (b) the average of the weekly high and low of the closing price of the shares quoted on the said stock exchange during the two weeks preceding the specified date; (vi) \"book value of the liabilities\" means the value of liabilities as shown in the balance- sheet of the company or the entity as the case may be, excluding the paid-up capital in respect of equity shares or members' interest and the general reserves and surplus and security premium related to the paid-up capital. (vii) \"specified date\" shall have the meaning as assigned to it in clause (d) of Explanation 6 to clause (i) of sub-section (1) of section 9; ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 25 (viii) the terms \"merchant banker\" and \"recognised stock exchange\" shall have the meaning as assigned to them in rule 11U; (ix) \"balance sheet\",— (a) in relation to an Indian company, means the balance-sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the specified date which has been audited by the auditor of the company appointed under the laws relating to companies in force; and (b) in any other case, means the balance-sheet of the company or the entity (including the notes annexed thereto and forming part of the accounts) as drawn up on the specified date and submitted to the relevant authority outside India under the laws in force of the country in which the foreign company or the entity is registered or incorporated: Provided that where the balance-sheet as on the specified date is not drawn up, pending finalisation of accounts, as mentioned in clauses (a) and (b), the balance sheet shall mean an interim balance-sheet drawn up as on the specified date and approved by the board of directors of the company or an equivalent body in case of any other entity: Provided further that where the specified date is the date referred to in sub-clause (ii) of clause (d) of Explanation 6 to clause (i) of sub-section (1) of section 9, the balance sheet means the balance sheet as drawn up on the specified date and certified by an accountant. Determination of income attributable to assets in India. 11UC. (1) The income from transfer outside India of a share of, or interest in, a company or an entity referred to in clause (i) of sub-section (1) of section 9, attributable to assets located in India, shall be determined in accordance with the following formula, namely:— A × B C Where: A = Income from the transfer of the share of, or interest in, the company or the entity computed in accordance with the provisions of the Act, as if, such share or interest is located in India; B = Fair Market Value of assets located in India as on the specified date, from which the share or interest referred to in A derives its value substantially, computed in accordance with rule 11UB; ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 26 C = Fair Market Value of all the assets of the company or the entity as on the specified date, computed in accordance with rule 11UB: Provided that if the transferor of the share of, or interest in, the company or the entity fails to provide the information required for the application of the aforesaid formula then the income from the transfer of such share or interest attributable to the assets located in India shall be determined in such manner as the Assessing Officer may deem suitable. (2) The transferor of the share of, or interest in, a company or an entity that derives its value substantially from assets located in India, shall obtain and furnish along with the return of income a report in Form No. 3CT duly signed and verified by an accountant providing the basis of the apportionment in accordance with the formula and certifying that the income attributable to assets located in India has been correctly computed.] 7.3 The assessee transferred shares held by it in the two Mauritius based entities NEA FDI III AND NEA FVCI III, who in turn were holding assets in India by way of shares of Indian companies, and the Indian companies were carrying on businesses in India . Thus, the underneath assets which stood transferred are the assets located in India. It is undisputed between rival parties and admitted position by the parties, that the said transfer of shares by the assessee is chargeable to income-tax in India keeping in view provisions of Section 9(1)((i) read with Explanation 5 and 6. The only dispute is regarding applicability of Rule 11UAA read with Rule 11UA read with Section 50CA for computing full value of consideration as a result of transfer of shares of a company other than a quoted share as applied by the assessee, vis-à-vis Rule 11UB read with Rule 11UC read with Section 9(1)(i) of the 1961 Act which is a deeming fiction wherein the income is deemed to accrue or arise in India whether, directly or indirectly through or from , inter-alia, any asset in India or through the transfer of a capital asset situated in India. 7.4 It is noted that Section 50CA deals with computing full value of consideration as a result of transfer of shares of a company other than quoted shares. Section 50CA was inserted in the statute by Finance Act, 2017 w.e.f. 01.04.2018. 7.5 Rule 11 UAA deals with determining of fair market value of shares other than quoted shares , which shall be determined in the manner provided in sub-clause (b) ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 27 or sub-clause(c) , as the case may be , of clause (c) of sub-rule (1) of rule 11UA. This Rule 11UAA was inserted by Income-tax(Twentieth Amendment) Rules, 2017 w.e.f. 01.04.2018. 7.6 We are presently concerned with Assessment Year 2019-20. Clause (b) to Explanation 6 to Section 9(1)(i) refers to the valuation of asset which shall be the fair market value as on the specified date , of such asset without reduction of liabilities , if any, in respect of the asset, determined in such manner as may be prescribed. Explanation 5 to Section 9(1)(i) of the 1961 Act refers to the asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly , its value substantially from the assets located in India. Rule 11 UB and 11UC concerns with determination of value of assets and apportionment of income attributable to assets located in India, for the purposes of Section 9(1)((i). These Rules 11UB and 11UC were inserted by Income Tax(Nineteenth Amendment) Rules, 2016 w.e.f. 28.06.2016. From the language of Rule 11UB and 11UC , it is very clear that these Rules deals with fair market value of assets and apportionment of income attributable to assets located in India as is referred to in and for the purposes of Section 9(1)((i). In sub-rule 3 read with Rule 1 of Rule 11UB , clearly stipulates the manner to determine the fair market value of the shares of asset , tangible or intangible , as on specified date , held directly or indirectly by a foreign company or an entity for the purposes of clause (i) of sub-section (1) of Section 9, the fair market value of the share shall be its fair market value on such date as determined by a merchant banker or an accountant in accordance with internationally accepted valuation methodology for valuation of shares on arms length basis as increased by the liability , if any , considered in such determination. Clause b of sub-Rule 6 of Rule 11UB also deals with manner of determination of the fair market value of a foreign company or an entity if the shares of the foreign company or entity is not listed in a ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 28 stock exchange on the specified date. Thus, these are the specific rules viz. Rule 11UB and 11UC deals with fair market value of assets and apportionment of income attributable to assets located in India as is referred to in and for the purposes of Section 9(1)((i) which became effective from 28.06.2016. These are the specific rules that are to be considered for valuing the shares of foreign company wherein the underneath asset is a share in an Indian company who holds asset, business or source of income located/situated in India. 7.7 Section 50CA was inserted by Finance Act, 2017 wef 01.04.2018, and deals with manner of determination of fair market value of unquoted shares which are not listed on stock exchange . This is a general provisions for computing capital gains. Rule 11UB and 11UC were in force , when Section 50CA was inserted. Had there been any intention of legislature to regulate computation of fair market value of assets and apportionment of income for the purposes of Section 9(1)((i) by Rule 11UA and Rule 11UAA keeping in view newly inserted Section 50CA, it would thereof have manifested its intention expressly . In the absence of any such intention expressed by Legislation computing , so far as computing fair market value of an underlying capital assets in an Indian Company whose shares are not listed and apportionment of income attributable to such assets referred in Section 9(1)((i) , will be regulated by Rule 11UB and 11UC. 7.8 Further, Rule 11UA deals with manner of determination of Fair Market value of a property , other than immovable property, for the purposes of Section 56. Further, Section 50CA generally deals with determination of full value of consideration for transfer of shares other than quoted shares, while on the other hand Section 9(1)(i) is a specific provision dealing with income arising or accruing whether directly or indirectly , through or from any business connection in India, or through or from any property in India , or through or from any asset or source of income in India or through the transfer of capital asset in India . ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 29 7.9 Rule 11UB and 11UC deals specifically with manner of computation of fair market value of asset held directly or indirectly, for the purposes of Section 9(1)(i) and determination of income attributable to assets in India. Rule 11UB and IIC were inserted prior to insertion of Rule 11UAA . Rule 11UAA refer to valuation for the purposes of Section 50CA which was also inserted in 2017 with effect from 01.04.2018. Thus, the lawmakers were fully aware of provisions as are contained in Section 9(1)(i) read with Explanation 5 & 6 as well Rule 11UB and 11UC which were existing prior to insertion of Section 50CA and Rule 11UAA. Thus, when Section 50CA as well Rule 11UAA came into force Rule 11UB and 11UC were in force, and hence if the intentions of the law makers were to oust/or to eclipse determination of fair market value for Section 9(1)(i) in the manner laid down in Rule 11UB and 11UC , the lawmakers would have manifested its intentions specifically, which was not done. Further, when special provisions are in force and later general provisions are inserted, and the special provisions are not repealed or eclipsed , then the intention of the legislature is to introduce general provisions by carving out /excluding the special provisions in force while inserting general provisions, and the special provisions would continue to apply to the purposes for which they were mandated. 7.10 We thus reject the argument advanced by the learned Counsel regarding applicability of Section 50CA r.w.Rule 11UA & Rule 11UAA. We are of the considered opinion that Rule 11UB shall be applicable in the present facts of the case of an indirect transfer of assets as is contemplated u/s 9(1)(i) read with Explanation 5 & 6. Much is said that Rule 11UB concerns with determining fair market value of assets while presently , where we are concerned with valuing the shares of Mauritius company. To value the share of the Mauritius Company , it is necessary to value the underlying assets of the Indian Companies where the Mauritius Company is holding shares more than 50%. ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 30 7.11 This argument of the assessee cannot be accepted keeping in view the plain, simple , clear and unambiguous language of Rule 11UB and 11UC, which clearly stipulates that these Rules will, inter-alia , concerns with valuing unquoted shares located outside India which are held by the transferors , wherein the underneath asset is in India , as well for valuing shares of Indian company who are holding underneath assets located in India. It could be seen by referring to Rule 11UB and 11UC that the definition of ‘asset’ inter-alia includes unquoted shares. The relevant extract of Rule 11UB and 11UC are reproduced hereunder: “Fair market value of assets in certain cases. 11UB. (1) The fair market value of asset, tangible or intangible, as on the specified date, held directly or indirectly by a company or an entity registered or incorporated outside India (hereafter referred to as \"foreign company or entity\"), for the purposes of clause (i) of sub-section (1) of section 9, shall be computed in accordance with the provisions of this rule. (2)*** (3) Where the asset is a share of an Indian company not listed on a recognised stock exchange on the specified date, the fair market value of the share shall be its fair market value on such date as determined by a merchant banker or an accountant in accordance with any internationally accepted valuation methodology for valuation of shares on arm's length basis as increased by the liability, if any, considered in such determination. *** ***” “Determination of income attributable to assets in India. 11UC. (1) The income from transfer outside India of a share of, or interest in, a company or an entity referred to in clause (i) of sub-section (1) of section 9, attributable to assets located in India, shall be determined in accordance with the following formula, namely:— *** ***” 7.12 Once the language of the statute is clear, simple, plain and unambiguous, the same is to be applied. There is no scope of indentment. The AO as well ld. DRP rejected the aluation report submitted by the assessee prepared by Merchant bankers namely M/s Fortress Capital Management Services Pvt. Ltd, which is based on certification by management. The Merchant Bankers obviously have to take the primary data from their ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 31 clients, and then they have to prepare the report based upon and applying their specialized skills , experience and knowledge to arrive at the true fair market value of the assets based on the manner as provided in the statute itself. The Merchant bankers are approved by Regulator Bodies such as SEBI India . While granting approval , the SEBI make detailed enquiry and verification about the background, experience, qualification, knowledge , skill set etc. of Merchant Banker as well the professionals/promoters who are at the helm of affairs including their capacities and capabilities to prepare valuation reports which are dependent upon several complex factors. 7.13 In the instant case, the Merchant banker relied upon the sale consideration received by the assessee, which information was provided by the assessee. We have observed that the assessee has submitted report of valuation based on rule 11UB and 11UC, but it is observed that the report prepared by Merchant Banker merely relies on the data furnished by the assessee. 7.14 Further, there are requirements as stipulated u/s 285A wherein there is requirements of furnishing of information or documents by an Indian Concern , where any share of , or interest in , a company or entity registered or incorporated outside India derives, directly or indirectly, its value substantially from the assets located in India , as referred to in Explanation 5 to clause (i) of sub-section (1) of section 9 , and such company or , as the case may be , entity , holds , directly or indirectly , such assets in India through or, as the case may , entity, holds , directly or indirectly , such asset in India through , or in , an Indian concern , then, such Indian concern shall, for the purposes of determination of any Income accruing or arising in India under clause (i) of sub-section (1) of Section 9 , furnish within specified period to the prescribed income-tax authority the information or documents , in such manner,as may be prescribed. Thus, as per Section 9(1)(i) , income accruing or arising , whether directly or indirectly through or from any business connection in India or through or from any property in India , or through or from any asset or source of income in India or through the transfer of a capital asset situate in ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 32 India, shall be deemed to accrue or arise in India and accordingly shall be taxable in India. As per Explanation 5 to Section 9(1)(1), an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, If the share or interest derives , directly or indirectly , its value substantially from the assets located in India. Further, as per Explanation 6 to Section 9(1)(i), the share or interest, referred to in Explanation 5 , shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India , if on the specified date , the value of such assets exceed the amount of ten crore rupees and represents at least fifty per cent of the value of all the assets owned by the company or entity , as the case may be. Coming Back, the information or documents to be furnished u/s 285A are prescribed under Rule 114DB. Further, these details were required to be furnished in Form No. 49D. It is also the requirements of the statute that audit report in Form No. 3CT from an accountant as defined in Explanation below sub-section 2 to Section 288 is required to be submitted to ascertain income attributable to assets located in India u/s 9. The Merchant Banker in the instant case before us has not delved upon all these requirements. The Merchant Banker has simply relied on the actual transfer consideration, as well recent transactions of issuance of shares and accepted the valuation . The Merchant Banker did not made any attempt to independently looked into the valuation aspects to arrive at fair market value. Neither the assessee has demonstrated the compliances of the aforesaid provisions of law viz. Section 285A read with Rule 114DB as well submissions of Form No. 49D and the audit report in prescribed form 3CT nor the authorities below ever looked into these aspects, the object being to determine the correct income chargeable to tax in the hands of the correct assessee for the correct assessment year at the correct rates. The assessee has simply relied upon report prepared by Merchant Banker which in turn is based on insufficient information provided by the assessee , and as could be seen from the report , no effective due diligence, verifications and enquiries were made by the ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 33 Merchant Bankers. The AO on its part rejected the report of Merchant Banker being merely based on the information provided by Management, but the matter was never referred to valuation department by the AO or DRP , rather AO erroneously took cost of acquisition as fair market value for computing capital gains. Under these facts and circumstances , it will be fit and appropriate in the interest of justice, to remand the matter back to the AO to recompute the capital gains chargeable to tax in the hands of the assessee keeping in view provisions of Section 9(1)((i) read with Explanation 5 & 6, further read with Rule 11UB and 11UC . While computing the capital gains chargeable to tax , the compliances u/s 285A read with Rule 114DB , Form No. 49D and audit report in prescribed Form No. 3CT shall be looked into. 7.15 So far as the date which is relevant for the purposes of computing fair market value is concerned, it is clearly stipulated in Explanation 6 to Section 9(1)(i) as under: (i) date on which the accounting period of the company or, as the case may be, the entity ends preceding the date of transfer of a share or an interest; or (ii) date of transfer, if the book value of the assets of the company or, as the case may be, the entity on the date of transfer exceeds the book value of the assets as on the date referred to in sub-clause (i), by fifteen per cent Thus, the specified date which is to be applicable is a factual matter which needs verification of facts. The assessee has submitted its valuation report as on 31.03.2018 , while transfer took place on 04.12.2018. Thus, it requires verification of fact as to whether book value of the assets as on the date of transfer exceeds the book value as on the date of when the accounting period of the company ends preceding the date of transfer of a share or an interest, by 15%, then the valuation is to be done as on the date of transfer i.e. 04.12.2018, while the assessee has done valuation as on 31.03.2018 when the accounting period ends. The specified date as is referred to in Explanation to Rule 11UB also referred to Explanation 6 to Section 9(1)(i). Thus, AO will look into this aspect. We order accordingly. ITA No.930/Bang /2022 A.Y. 2019-20 New Enterprise Associates 15 Ltd. Partnership 34 7.16 So far as TT buying rate adopted by the AO for conversion of income earned in foreign currency, Rule 115 of Income-tax Rules, 1962 clearly stipulates the manner in which such TT buying rate is to be applied. Reference is drawn to Rule 115 (1) Explanation 1 and 2(f) . It is pertinent to refer to first proviso which stipulates the specified date to be the date on which tax was required to be deducted under the provisions of Chapter XVII- B read with Rule 26. The AO is directed to apply TT buying rate in the manner stipulated in Rule 115. We order accordingly. 8. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in Open Court on 19/11/2024. Sd/- Sd/- [BEENA PILLAI] [RAMIT KOCHAR] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19/11/2024 sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CITDR , 4. CIT, 5. The CIT(A) By Order Assistant Registrar, ITAT, Bangalore "