TMI Blog2022 (6) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... elaborately in his order and we do not find any reason to interfere with the findings of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed. Admissibility of additional evidences and valuation of shares at market value - We observe that revenue has filed the ground that it does not fall under exemption clause mentioned in Rule 46A of I.T. Rules. In this regard, we observe that the Ld.CIT(A) has dealt with the issue in detail before admitting the additional evidences by relying on various decisions. In our view, the issue raised by the revenue in grounds of appeal and the same issue was also raised by the Assessing Officer in his remand report and Ld.CIT(A) has addressed the issue in detail before admitting the additional evidences. We observe from the above findings of the Ld.CIT(A) that he has clearly explained the provisions of section 250 of the Act and he accepted the valuation report considering the fact that the report constitute the very root cause of the additions made by the Assessing Officer and also he has applied his power conferred on him u/s. 250(4) of the Act. Therefore, we are inclined to accept the finding of the Ld.CIT(A) on admitting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the assessee in the earlier assessment years as under: - Date of allotment of OFCDs No. of OFCDs issued Issue price [Rs 1000 per OFCDs] 04-04-2011 1,50,000 15,00,00,000 21-07-2011 1,00,000 10,00,00,000 21-03-2012 37,500 3,75,00,000 Total 2,87,500 28,75,00,000 Financial year Amount received (Rs) Upto March 2010 15,00,00,000 2010-11 5,50,00,000 2011-12 8,25,00,000 Total 28,75,00,000 5. Based on the above information, Assessing Officer asked the assessee to justify why the provisions of section 56(2)(viib) r.w. Rule 11UA of the Act be not attracted. In response, assessee filed its submission before him. However, Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n para 4.1.11 of the assessment order. 6. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions before him, for the sake of clarity it is reproduced below: - 2.01) .. 2.06) At the outset, it is submitted that the years of receipt of the consideration being AY 2010-11 and AY 2011-12 were both under scrutiny assessment u/s 143(3) in the case of the appellant. Copy of the assessment orders passed u/s 143(3) for the said years is enclosed herewith at pages 108 to 112 of the pb for your kind perusal. 2.07) Further AY 2013-14 was also under scrutiny assessment u/s 143(3), wherein the learned AO has mentioned the details of the said Tapovan project as well in the body of the assessment order. Copy of the said assessment order for AY 2013 14 is enclosed herewith at pages 113 to 116 of the pb for your kind perusal. 2.08) We draw your honours kind attention to the fact that even AY 2011-12 and AY 2013-14 of the subscriber company ie M/s Ranon Infrastructure Pvt Ltd (erstwhile known as Rubaina Properties Private Limited) was also under scrutiny assessment u/s 143(3). Copy of the assessment orders passed u/s 1433) for the Said year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be deemed to be that part of the cost of debenture, debenture-stock, bond or deposit certificate in relation to which such asset is acquired by the assessee. [Emphasis supplied] 2.16) Thus your honour will appreciate that conversion of debentures into shares is not considered as taxable transfer and the cost of OCRPS relates back to the cost of OFCDs. Accordingly it is submitted that the said conversion should not attract the provisions of section 56(2)(viib). 2.17) In this regard it is pertinent to refer to para 4.1.3 of the order passed u/s 143(3), wherein the learned AO has relied on the decision of the jurisdictional Mumbai ITAT in the case of Sudhir Menon HUF vs ACIT (2014) 45 Taxmann.com 176. The learned AO has stated that in the said decision, it is held that the right issue of shares are also covered u/s 56(2)(vii), and applying the said analogy, the learned AO has stated that the terms of issue of shares in section 56(2)(viib) includes issue of shares by way of conversion or issue of preference shares. REBUTTAL: a) The question in the said case was whether the provisions of section 56(2)(vii)(c) would be attracted in case of issue of bonus share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a larger number of shares. There is, accordingly, no question of section 56(2)(vii)(c), though per s applicable to the transaction, i.e., of this genre, getting attracted in such a case. ... [Emphasis supplied] f) In the decision, the Hon'ble ITAT then held at para 4.5 that ...... A transaction could be either with or without consideration. Consideration signifies a price, so that it is a case of transfer, which the impugned transaction is not, while if considered as without consideration, the transaction is void in law, being not gift in-as-much as the company is not the owner of its shares. The argument seeks to support the contention that the transaction in order to qualify as valid in law has to be e case of transfer in as much as the consideration implies price, so that the word receipt occurring in section 56(2)(vii) has to be read as a synonym for with purchase or transfer . The shares under question being pot acquired through transfer, the transactions falls outside the ambit of section 56(2)(vii). [Emphasis supplied]. g) Thus in fact the said decision is in favour of the appellant for the twin reasons viz; Firstly there is no dispropo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the provisions of section 56(2)(viilb) is applicable to the facts of the case of the appellant, then it will be applicable only in the year in which the consideration is received. Your honour will note that similar language is also used in other clauses of section 56(2) such as clause (v), (vi), (vii), (viia) which are also on taxability of similar receipts 2.22) Further it also pertinent to refer to Explanation (a) to section 56(2)(viib) which refers to Rule 11U and Rule 11UA for determining the fair market value of shares. These rules are the computational machinery of the charging section 56(2)(viib). On perusal of Rule 11UA(1)(c)(b), 11UA(1)(c)(c) and 11UA(2) which are relevant to the appellant; all states that the fair market value should be determined as on the valuation date. The valuation date is defined under Rule 11U(j) which states as follows: valuation date means the date on which the property or consideration, as the case may be, is received by the assessee. 2.23) Thus your honour will appreciate that even the computational machinery states that valuation should be made on the date on which the consideration / property is received. For the sake brev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, the entire receipts were received till AY 2012-13 i.e in the year in which OFCDs are issued. Your honour will note that section 56(2)(viib) is incorporated wef 1.4.2013 i.e from AY 2013-14 and onwards. Thus it must be appreciated that the impugned section 56(2)(viib) is not applicable to the appellant and thus no additions can be made under the said section. 2 28) Rule 11U(j) being the rule which defines the valuation date is applicable wef 29-11-2012. Thus it must be noted that since the entire consideration is received prior to the date of determining the valuation date for the purposes of section 56(2)(viib), therefore the valuation rules envisaged in Explanation to the said section would not apply to the facts of the case of the assessee. Accordingly the computational machinery also fails and to this effect, no addition can be made u/s 56(2)(viib). 2.29) In this regard, it is also pertinent to refer to the arguments made by the learned AO at para 4.1.3 of the order passed u/s 143(3). Here the learned AO has argued that the taxability of income on receipt basis is provided in section 68 as against section 56(2)(viib) which deals with issue of shares. It is her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even can't be applied. 2.35) Thus the entire addition made by the learned AO is bad-in-law and must be deleted. 7. After considering the submissions and additional evidences filed by the assessee, Ld.CIT(A) decided the issue in favour of the assessee by observing as under 5.13 I have carefully perused the detailed written submissions of the AR on this issue. I find force in the AR s argument and therefore inclined to agree with the Learned AR that the provisions of section 56(2)(viib) would be attracted in the year of receipt of consideration and not in the year of allotment of OCRPS. This is due to the following reasons which remain undisputed and not rebutted by the learned AO. a) The language used in section 56(2)(viib) is not free from ambiguity. it states where a company, not being a company in which the public are substantially interested, receives.... b) Similar language is also used in other clauses of section 56(2) such as clause (v), (vi), (vii), (viia) which are also on taxability of similar receipts. c) Rule 11U(j) which defines the valuation date means the date on which the property or consideration, as the case may be, is receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the share application monies were received in the FY 2012-13 pertaining to AY 2013-14. According to my considered opinion, the connotation of the meaning received in any previous year used in section 56(viib) of the Act would be in respect of the year of receipt and not the year of allotment. In the instant case as rightly pointed out by the AR based on materials on record, share application monies were received during the year under - consideration. Thus, | find that the provisions of section 56(2)(viib) ar to be construed with respect to the year in which considerations were received and not the year in which the allotment of shares were made..... 13. Keeping in view the submissions of both the sides, we find since shares were applied in AY 2012-13 as per the terms and conditions settled in AY 2012-13, the provision u/s 56(2)(viib) of the Act introduced from AY 2013-14 which is year under consideration in the present case and, therefore, cannot be applied merely on the basis that shares were allotted in AY 2013-14. Thus, we find the reasons recorded by the CIT(A) in the impugned order specifically at para 4.2 is justified in terms of applicability of provision u/s 56(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the above reasoning s, I hold that learned AO has wrongly applied the provisions of section 56(2)(viib) to the facts of the case of the appellant. Accordingly the addition made by the learned AO u/s 56(2)(viib) is not made on strong footing and cannot stand the test of law and the AO is therefore directed to delete the same. Accordingly, the grounds of appeal relevant to the applicability of the provisions of section 56(2)(viib) are considered as ALLOWED. 8. At the time of hearing, Ld.DR brought to our notice the findings of the Ld.CIT(A) in Page No. 40 of the order wherein he has decided the issue in favour of the assessee by interpreting the words receives to mean that the section 56(2)(viib)of the Act is applicable in the year of receipt of consideration and not in the year of issuance of shares. He objected to the above interpretation of section 56(2)(viib)of the Act and he brought to our notice findings of the Assessing Officer in his order that as and when shares are issued and allotted the provisions of section 56(2)(viib) of the Act are rightly attracted. Therefore, he relied on the findings of the Assessing Officer in this regard. 9. On the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. NO. Reasoning given by the learned AO to object the admissibility of the additional evidence Our rebuttal 1. Non submission of the Valuation report of Merchant Banker' or Chartered Accountant as required by section 56(2) (viib) rw Rule 11UA during the assessment proceedings ........Assessee has been granted ample opportunity vide letter dated 08.02.2017, 28.07.2017 14.09.2017 in which it specifically mentioned that the assessee has to submit valuation report for the above mentioned transaction but assessee chose not to submit further..... [last para of the page 1 of the Remand report] (a) As regards the various letters referred to by the learned AO in terms of different opportunities accorded, we hereby submit as follows. Letter dated 08.02.2017 [Copy enclosed]: This is notice issued u/s 142(1) which asked for basic details such as computation of income, return of income, financials, details of assessments of previous three AYs, and including justification of the large share premium received with valuation report. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05.10.2017 asked the appellant to justify as to why the provisions' of section 56(2)(viib) rw Rule 11UA be not attracted in the case of the appellant. In response to the said requirement, the appellant on 16.10.2017 inter-alia submitted as under. (i) Note providing justification of share premium received. The note also carried detailed submission of the appellant that the provision of s.56(2)(viib) of ITA not applicable to the facts of the case of the appellant. Briefly, the said provision was stated to be not applicable for the following brief reasons: (a) Since the present case is that of conversion of OFCDs into OCRPS (and, there is no issuance of shares for cash consideration at premium, provisions of section 56(2) per se are not applicable to facts of the case (b) That the provisions of section 56(2)(viib) v/ould apply only in the year of the receipt of the consideration and not in the year of conversion of OFCDs into OCRPS. Since the said consideration was received till AY 2012-13. section 56(2)(viib) which is incorporated wef 1.4.2013 did not have any applicability to the appellant. (c) Even if it is argued that the said provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant's submissions. All along, the appellant carried a bonafide belief that its submissions are acceptable to the learned AO. Without prejudice to the same, the requirements called for in the notices specified by the learned AO herein are of generic nature and without any specific query or issue. It would not be correct to have too much weightage of the same to be treated as grant of specific opportunity by the learned AO to the appellant to comply with the requirement of j submitting valuation report. Thus your honour will appreciate that the primary allegation of the learned AO of ample opportunity being accorded to the appellant wherein the appellant did not submit the valuation report and other details to justify the share premium is devoid of any merits. 2. Architect report submitted which is not the requirement of section 56(2) (viih): ...... as a final opportunity vide order sheet dated 03.11.2017 it was again show caused to explain why provisions of section 56(2)(viib) rw Rule 11UA not be attracted as the premium charged..... is purely based on the valuation report of the architect for Tapovan project and not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime given by AO vide the order sheet noting dated 03.11.2017 was very short. (b) The appellant submits that valuation report has been submitted as an additional evidence as learned AO did not accept appellant's primary submission that, in its facts of the case, provision of s.56(2)(viib) did not trigger and the learned AO insisted for the valuation report of CA. (c) The appellant strongly objects to the learned AO's allegation that valuation report now obtained and submitted is an after-thought and/or that it was with a view to delaying the proceeding from attaining finality. The allegations are baseless and devoid of any merits. (d) Valuation report of CA is dt 27 March 2018 which provides valuation of shares as on 24.03.2015. Kindly refer to page 73 of the submissions already made. Circumstances under which the valuation report is obtained have already been narrated above. Admittedly, valuation report is obtained post date of assessment in response to posture that the learned AO took in the assessment of the appellant. Even if it may be treated as new evidence, it is in connection with and related to issue involved in the assessment and is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates with actual result. What is relevant is whether estimates done by valuer is based on reasonable information and evidences. Refer paras to follow. These estimates may vary due to change in circumstances, but, that itself may not make valuation report incorrect, All these propositions are well settled in the various tribunal rulings including jurisdiction IT AT ruling in the case of DC/7 vs M/s Ozoneland Agro Pvt Ltd. ITA No. 4854/Mum/2016 dated 02-05-2018. Thus the learned AO's reasoning to object the DCF valuation on the basis that it is not supported by actual is contrary to the legal position set out by number of IT AT rulings including jurisdictional Mumbai ITAT. (b) The appellant submits that the valuation report of CA is after collating several information, representations of the management, third party independent technical reports Approved plans, Development agreement etc as can be perused from the Valuation report. These are various parameters which need to be relied for calculation of the Value as per Rule 11UA. This is more so for applying the Discounted Cash Method as this method also requires estimation of the future expected earnings. (c) F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 145 of the Act, it is to be valued at cost or market value whichever is lower and hence the upward revision in valuation of inventory for the purposes of valuation of equity shares is nothing but a dishonest effort of the assesses to increase the NAV of the equity shares of the assessee company so as to bring the issue price below the issue price and avoid the provisions of section 56(2)(viib)of the Act of the Act [Page 4 of the remand report] (a) To recollect, the appellant has obtained valuation report dt 27.03.2018 from the Chartered Accountants, M/s G.K.Choksi Co. Refer, pages 72 to 107 of paper book. This report values shares of the appellant company as on 31.03.2015 at Rs 1,007/- per share under DCF method. b) The appellant also obtained valuation report dt 05.01.2018 from Khandekar Architects Surveyors who provides valuation of project as on 31.03.2015. Tapovan land and under construction building. The value of the project land building worked out at ₹.16,98,60,243/-. Refer pages 89 to 99 of paper book. Since the appellant company during the relevant period was predominantly involved in project Tapovan, value of its sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assumption are realistic. Rameshwaram Strong Glass (P.) Ltd. vs [TO [2018] 96 taxmann.com 542 (Jaipur - Trib.). DCIT vs M/s Ozoneland Agro Pvt Ltd. ITA No. 4854/Mum/2016 dated 02-05-2018 Medplus Health Services (P) Ltd. vs ITO (2016) 68 Taxmann.com 29 (Hyd ITAT) ACIT vs Safe D cor P Ltd. (2018) 90 Taxmann.com 161 (Jaipur ITAT) 12. Thus the aforesaid reasoning s given by the learned AO in the Remand report to object the assertions in the Valuation report is devoid of any merits. Accordingly, we request your honour to admit the aforesaid Valuation Report as Additional evidence and accept the valuation provided thereunder. 4.5. Apart from the above written submissions, the appellant further submitted copy of the following documents in addition to the paper book filed with written submissions. a. Copy of assessment order passed u/s 143(3) for AY 2010-11 in the case of appellant. b. Copy of assessment order passed u/s 143(3) for AY 2011-12 in the case of appellant. c. Copy of assessment order passed u/s 143(3) for AY 2013-14 in the case of appellant. d. Copy of the assessment order passed u/s 143(3) in the case of M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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