TMI Blog2019 (3) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... ence shares or for issue of equity shares because even if it is found that because of limited voting right only, the said shares are not equal to equity shares, then also, this is important to note that ultimately, these preference shares are to be converted into equity shares after a fixed time at a fixed rate and hence, this is important to find out as to whether the premium received is for equity shares to be issued later or for preference shares issued now since ultimately, these preference shares are compulsorily to be converted in to equity shares. If it is found that the premium received is mainly for conversion of preference shares into equity shares at an agreed price after an agreed time than there may be a case of non applicability of sub clause (c) of sub rule (c ) of Rule 11UA (1). These details are not available in the paper book and even if some things are available, the same are in the form of additional evidence without any comment of the lower authorities and explanation of the assessee and hence restore the matter to the CIT (A) for a fresh decision on this issue after deciding this aspect first that in the facts of the present case, which Rule/Sub Rule/ sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n expert's report a) The Learned CIT(A) erred in not placing reliance on the valuation report obtained by the Appellant from a CA for determination of value of shares, which is the requirement prescribed by Rule 11(2)(b) of the Rules. b) The CIT(A) erred in alleging that: The CA made a tailor-made report to suit the requirement of the management; and No scientific method had been employed for determining the valuation of shares and the CA had considered unverified exorbitant future cash flows which led to inflated value of shares. 1.3. Comparison of projected figures with actuals is unwarranted a) The learned CIT(A) erred in making an arbitrary comparison between the projected numbers of revenue and profit along with the actual figures and challenging the sanctity of the projections. b) The learned CIT(A) failed to take cognizance of the fact that the valuation report obtained by the CA was based on several factors [macro and micro] like Company's future business objectives, expansion plans, industry, economic scenario, customer sentiments, etc. prevalent at the time of drawing such forecasts and these could not have been compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied to equity shares could not be arbitrarily applied to preference shares. The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds, which may be raised at the time of hearing, it is prayed that necessary relief may be provided. 3. Brief facts are that the AO has noted on page 2 of the assessment order that the assessee company has allotted 36,000 Compulsory Cumulative Convertible Preference Shares (CCCPS) at a premium of ₹ 490/- per share to various 7 parties. After noting this, he invoked the provisions of section 56 (2) (viib) of the I. T. Act. He also referred to Rule 11UA (2) of Income Tax Rules, 1962 and thereafter, he referred to valuation report of M/s JBN Associates, Chartered Accountants dated 31.03.2014, which was obtained by the assessee for valuation of shares as per DCF method at ₹ 516/- per share on the basis of management certified future cash flow statement. The AO was of the opinion that this certificate obtained by the assessee from the said C. A. is a self serving docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the company and vote on resolutions directly affecting their interest. In our considered opinion, the only main difference in the rights of a holder of an equity share and preference share is this that the holder of preference share does not have voting right. But in the present case, as per this para of the offer letter, the holder of a preference share is provided with voting righjt also and therefore, can it be said that the nature of the share issued in the present case is actually that of an equity share and not preference shares but this evidence is brought on record as an additional evidence and there is no comment of any of the authorities below on it. Hence, in our considered opinion, this aspect of the matter should be decided first as to which Rule/Sub Rule/ sub clause is applicable in the facts of the present case and thereafter, the matter should be decided as per the applicable Rule/Sub Rule/ sub clause. All the terms of the issue of preference shares have to be looked into for this purpose to find out whether the present receipt of share premium is for issue of preference shares or for issue of equity shares because even if it is found that because of limited v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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