TaxTMI 
TaxTMI 
2024 (7) TMI 1332
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....he course of assessment proceedings, it was observed by the AO that the assessee-company had issued 7,99,900 Compulsory Convertible Preference Shares of Rs. 10/- each at a premium of Rs. 990/- per equity share. Accordingly, share capital of company was increased by Rs. 79,99,000/- and securities premium by Rs. 79,19,01,000/-. 2.1. The assessee was asked to provide details and genuineness of share capital and share premium along with the certificate of Valuer in accordance with section 56(2)(viib) read with Rule 11UA. Based on the Audited balance-sheet of the assessee-company as on 31st March-2015, the AO observed that the Net Asset Value of the share of company was negative (-) Rs. 2.10/- per share. To arrive at this value, the AO used paid up capital of Rs. 10,00,290/- and Reserves and Surplus of (-) Rs. 1,21,398/-. Accordingly, the AO issued a show-cause notice to the assessee to explain why the amount of Rs. 79,98,71,290/- should not be added to the income as per provisions of section 56(2)(viib) of the Act. In reply to the show-cause notice, the assessee submitted the valuation certificate, wherein the Valuer considered Discounted Cash Flow Method for valuation of shares in ac....
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.... revenue and the valuation of shares done by the valuer has got reasonable basis......". The Ld AR therefore, submitted that these reasons were also vague and cannot be grounds for rejecting the valuation report prepared in accordance with the prescribed provisions of law. I have considered the decision cited by the AR the view taken by the Ld CIT(A) has been supported by various ITATs. The ITAT, Bangalore Bench in the case of Innovit Payment Solutions Pvt. Ltd., v. ITO [2019] 102 Taxmann.com 59 has held as follows: "14. In nutshell, our conclusions are as under:- (1) The AO can scrutinize the valuation report and the if the AO is not satisfied with the explanation of the assessee, he has to record the reasons and basis for not accepting the valuation report submitted by the assessee and only thereafter, he can go for own valuation or to obtain the fresh valuation report from an independent valuer and confront the same to the assessee. But the basis has to be DCF method, and he cannot change the method of valuation which has been opted by the assessee. (2) For scrutinizing the valuation report, the facts and data available on the date of valuation only has to be considered an....
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.... Appellant's counsel Advocate Sh. I.S. Verma along with Sh. D.R. Rajan, C.A. cum General Manager of the appellant group of company attended the hearing and submitted written reply which has been reproduced in this order supra in para 4:2 pages 24 to 31 of this order. 5.4.7. Case was discussed with the ARs and written replies have also been perused. In view of the provisions of 250(4), which provide that before disposing of the appeal, the CIT(A) may make such further inquiry as he thinks fit or may direct the A.O. to make further inquiry, and the unprecedented Covid-19 restrictions it was thought fit to verify the Appellant's reply to show cause notice vis-à-vis to the allegations/ shortcomings/defects etc pointed and relied upon by the A.O. to reject the valuation report and consequently the F.M.V. of the CCPS. 5.4.8. After having considered the facts on records, contents of show cause notice, AO's case, Appellant's reply, provisions of section 56(2)(viib) read with Explanation thereto and the Rule 11UA (1)(c)(c) and Rule 11UA(2)(a)/ 11UA(2)(b), I find force in the submissions of the appellant. Had the A.O. considered the appellant's various replies ....
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.... CIT(A) failed to appreciate that the valuer had not taken into consideration the financials of the. company on 19.11.2018 i.e date of issuance of shares while determining the value of share. 3. The CIT(A) failed to appreciate that as per the Explanation a(ii) to Section 56(2) (viib), the assessee was bound to substantiate the valuation of shares to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. 4. The CIT(A) failed to provide any opportunity to the Assessing Officer to reconsider the evidences based on which such relief was granted to the assessee 5. The CIT(A) failed to appreciate that during the course of assessment proceeding, the assessee had not given any specific response to the show cause issued by the Assessing Officer and Sub-rule (3) of Rule 46A interdicts the CIT (A) from taking into account any evidence produced for the first time before him unless the Assessing Officer has had a reasonable opportunity of examining the evidence and re....
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....ion of projections was done by an independent expert. The Ld.AR argued that the legislative intent of section 56(2)(viib) of the Act is to deter the generation and use of unaccounted money done through subscription of shares of a closely held company, at a value which is higher than the Fair Market Value (FMV) of shares of such company and in the present case where holding company has infused capital by way of hybrid instrument of CCPS therefore the AO's addition is not in line with the legislative intent. He stated that the Ld.CIT(A) has dealt with this issue in detail and placed reliance on following judicial pronouncements: 1. ITO, Ward - 24(1), New Delhi Vs. Solitaire BTN Solar Pvt. Ltd (ITA No. 1416/DEL/2020 dated 12-6-2024). 2. ACIT, Circle -7(2), New Delhi Vs. Dhruv Milose Pvt. Ltd. (ITA No. 8431/DEL/2019 dated 8-2-2024. 3. Rugby Regency (P.) Ltd. Vs. Additional Commissioner of Income Tax (ITA No.653/DEL/2019 dated25-1-2024). 6. We have heard the rival contentions and perused the material available on records. We noted that the assessee as per its submission dated 09-07-2020 before the Ld.CIT(A) provided information which was already available with the AO. We also not....