×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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This appeal is filed by the assessee which is directed against the order of CIT (A) – 3, Bangalore dated 23.02.2018 for A. Y. 2014 – 15.
2. The grounds raised by the assessee are as under:-
“1. GROUNDS RELATING TO NATURAL JUSTICE
The Learned Income Tax Officer 3(1)(1) (hereinafter " AD") and the Learned Commissioner of Income Tax (Appeals) - 3 (hereinafter "CIT-A") have erred in passing the order without considering all the submissions and / or without appreciating properly the facts and circumstances of the case and law applicable.
2. GROUNDS RELATING TO REJECTION OF EQUITY SHARES VALUATION REPORT ISSUED BY INDEPENDENT CHARTERED ACCOUNTANT
The order of the Learned AO passed under section 143(3) of the Income Tax Act, 1961 (`the Act') and confirmed by Learned CIT-A is erroneous in reckoning that share premium collected is above fair market value and thereby liable to tax in pursuance to section 56(2)(viib) by adopting Rule 11UA(a) to the exclusion of the option under Rule 11UA(b) as opted by the assessee without taking cognizance of the facts submitted and on the following grounds namely:
a) The valuation report provided by appellant shows that the Accountant has taken haze cash flow as certified by the management. No verification of projections and assumptions adopted by management was made by valuer, whereas Para 2.4 of the valuation report outlines that analysis, review and inquiry has been carried out for issuing report.
b) Appellant has failed to provide any information, which formed the basis of its projection for various years, whereas Para 3 of the valuation report outlines the Basis of Valuation and past business performance forming basis of projections have been submitted;
c) Comparison of projections with actual data, hindsight information not available to the appellant is used to make unfair comparison and extending the scope beyond the realm of law;
d) Mandates of regulatory changes disclosed has been alleged to have intentionally ignored while making projections, the allegation is without basis and does not appreciate the intricacies of technological challenge and business constraints.
e) Appellant has merely adopted the values provided by the management clearly ignoring factors such as performance, growth prospects, earnings capacity, whereas average actual monthly revenue from April 13 to Sept 13 was Rs. 1.52 Crores, an arithmetic extrapolation of annual revenue is Rs. 18.24 crores and the
projections have assumed annual growth between 15% to 25% which is realistic assumption as compared to past actual growth rates, further the growth projections are corroborated with an independent report "Payment Systems in India: Vision 2012-2015 prepared from public information source — www.rbi.org.in
f) Appellant has not been able to point out justification of application of DCF, the provisions of Income Tax allow an assessee the option to adopt DCF method without giving any reasons and more so for a technology company DCF method is more apt and suitable vis-à-vis the net asset value method.
g) The data used is totally unreliable, without any surety of accuracy or completeness, this allegation is devoid of facts in the light of submissions made.
3. The appellant submits that each of the above grounds / sub-grounds are independent and without prejudice to one another. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or, at the time of hearing of the appeal, so as to enable Income Tax Appellate Tribunal to decide the appeal according to law.
The appellant prays accordingly.”
3. Brief facts are that the AO has noted on page 2 Para 4 of the assessment order that the assessee company has collected premium of Rs. 245,02,463/- as securities premium. He further noted that the securities premium shares were allotted during this year in December 2013. The AO has also noted complete details of such shares issued on premium of Rs. 23.50 per shares and noted that the face value of shares at Rs. 10/- per share. He has noted that to 11 persons, 10,42,658 such shares were issued for a total consideration of Rs. 349,29,043/-. The AO noted that from this year, the provisions of section 56 (2) (viib) are applicable and if the shares are issued at a price which is more than fair market value then the amount received in excess of fair market value of shares will be charged to tax in the hands of the company as income from other sources. The AO asked the assessee to substantiate the share premium so collected. The assessee vide its letter furnished the copy of the certificate issued by a chartered accountant dated 10.11.2013 and said that this is the basis for valuing the shares. The valuation adopted by the assessee was found to be as per DCF (Discounted Cash Flow) method. The AO has reproduced the computation table in Para 6 of he assessment order. As per the same, actual revenue for F. Y. 2012 – 13 was considered at Rs. 1,933 Lacs. In F. Y. 2013 – 14, the revenue was estimated at Rs. 2,222 lacs with an estimated increase of 15%. Thereafter in F. Y. 2014 – 15 and 2015 – 16, with estimated increase of 25% in each year, the revenue was estimated at Rs. 2,778 Lacs and Rs. 3,473 lacs respectively. Thereafter, in F. Y. 2016 – 17 and 2017 – 18, with estimated increase of 15% in each year, the revenue was estimated at Rs. 3,993 Lacs and Rs. 4,592 lacs respectively. In the same manner, the expenses were also estimated and PBT and PAT were worked out for each year. Net margin for F. Y. 2012 – 13 was noted at 5% but the same was @ 6% in F. Y. 2013 – 14 to 2015 – 16 and 8% in F. Y. 2016 – 17 and 9% in F. Y. 2017 – 18. After making adjustments on account of depreciation, Increase/Decrease in current assets, noncurrent assets, capital expenditure and current liabilities, net cash flow was worked out and the same was discounted @ 15%. Such present value of cash flow was worked out at Rs. 549 lacs. To this, terminal value was added at Rs.