Case Law Details
IBS Fintech India Pvt. Ltd Vs ITO (ITAT Bangalore)
The issue under consideration is whether AO in invoking section 56(2)(viib) of the Act and taxing the share premium under the said provisions?
ITAT states that As per the judgment of Hon’ble Bombay High Court the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a final determination from an independent valuer to confront 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. Respectfully following this judgment of Hon’ble Bombay High Court,ITAT set aside the order of CIT (A) and restore the matter to AO for a fresh decision in the light of this judgment of Hon’ble Bombay High Court. The AO should scrutinize the valuation report and he should determine a fresh valuation either by himself or by calling a final determination from an independent valuer and confront the same to the assessee. Further as per report of research committee of (ICAI) as reproduced above, most critical input of DCF model is the Cash Flow Projections. Hence, the assessee should be asked to establish that such projections by the assessee based on which, the valuation report is prepared by the Chartered accountant is estimated with reasonable certainty by showing that this is a reliable estimate achievable with reasonable certainty on the basis of facts available on the date of valuation and actual result of future cannot be a basis of saying that the estimates of the management are not reasonable and reliable.”
Hence, ITAT set aside the order of CIT(A) on this issue and restore the matter back to the file of AO for a fresh decision.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is filed by the assessee and the same is directed against the order of learned CIT(A)-3, Bengaluru, dated 01.08.2018, for Assessment Year 2015-16.
2. In the course of hearing, it was submitted by learned AR of the assessee that only ground Nos. 2 and 10 are pressed and the remaining grounds are not pressed. Accordingly, all grounds except ground Nos. 2 and 10 are rejected as not pressed.
3. Ground Nos.2 and 10 are as under:
“2. The Learned CIT(A) has erred in confirming the action of Assessing Officer (AO) of invoking section 56(2)(viib) of the Act and taxing the share premium of Rs.93,01,290/- under the said provisions.
10. The Learned CIT(A) erred in holding that the share capital along with the premium should be brought to tax u/s 68 of the Act which has the effect of enhancing the Assessment, ignoring the position of law that for enhancement, specific opportunity of hearing should be provided to the appellant.”
4. Regarding Ground No.2, learned AR of the assessee placed reliance on the Tribunal order rendered in the case of Innoviti Payment Solutions (P) Ltd., Vs. ITO as reported in 175 ITD 10 (Bangalore – Trib.) and submitted that as per para No.12 of this Tribunal order, the Tribunal has restored the matter back to the file of AO for a fresh decision by following the judgment of Hon’ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr.CIT as reported in 256 Taxman 240. He submitted that in the present case also, the matter may be restored back to the file of AO for a fresh decision with similar direction. Regarding ground No.10, it was submitted that as per para No.5.5 of the order of CIT(A), he has made enhancement of Rs.1,98,710/- but without complying with the mandatory requirements of section 251 and therefore, the order of CIT(A) on this aspect should be set aside.
5. In reply, it was submitted by learned DR of the Revenue that regarding ground No.10 of the appeal also, the matter may be restored back to the file of AO for a fresh decision because it is noted by learned CIT(A) in para No.5.5 of his order that this is an apparent mistake in the Assessment Order which should be rectified by AO.
6. We have considered the rival submissions. First, we decide ground No.2 and for that purpose, we reproduce para No.12 of the Tribunal order cited by learned AR of the assessee having been rendered in the case of Innoviti Payment Solutions (P) Ltd., Vs. ITO (supra). This para reads as under:-
“12. As per above Para of this judgment of Hon’ble Bombay High Court. it was held that the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a final determination from an independent valuer to confront 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. Hence, in our considered opinion. in the present case, when the guidance of Hon’ble Bombay high Court is available, we should follow this judgment of Hon’ble Bombay High Court in preference to various tribunal orders cited by both sides and therefore. we are not required to examine and consider these tribunal orders. Respectfully following this judgment of Hon’ble Bombay High Court, we set aside the order of CIT (A) and restore the matter to AO for a fresh decision in the light of this judgment of Hon’ble Bombay High Court. The AO should scrutinize the valuation report and he should determine a fresh valuation either by himself or by calling a final determination 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. In our considered opinion and as per report of research committee of (ICAI) as reproduced above, most critical input of DCF model is the Cash Flow Projections. Hence, the assessee should be asked to establish that such projections by the assessee based on which, the valuation report is prepared by the Chartered accountant is estimated with reasonable certainty by showing that this is a reliable estimate achievable with reasonable certainty on the basis of facts available on the date of valuation and actual result of future cannot be a basis of saying that the estimates of the management are not reasonable and reliable.”
7. Respectfully following this Tribunal order and in turn the judgment of Hon’ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr.CIT (supra), we set aside the order of CIT(A) on this issue and restore the matter back to the file of AO for a fresh decision with same directions as were given by the Tribunal in that case as per para No.12 of the Tribunal order reproduced above. Ground No.2 of the assessee’s appeal is allowed for statistical purposes.
9. Now we decide ground No.10 of the assessee’s appeal. In this regard, we first reproduce para No.5.5 from the order of CIT(A). This para reads as under:
“5.5 Further this is noted from the order of the AO that although the amount treated as unexplained cash credit was Rs 95,00,000/-, the AO has made addition of only Rs 93,01,290/- by treating the same as income under Section 56(2)(viib) of the Act. This addition was without prejudice to the fact that amount of Rs 95,00,000/- was treated as unexplained cash credit. As regards balance amount of Rs 1,98,710/-, the same should also have been added to the income of the appellant. The AO can take necessary remedial action to rectify the same.”
10. We find that in this para, it is noted by the CIT(A) that although the AO treated the entire amount of Rs.95 lakhs as unexplained cash credit, but he AO has made addition of only Rs.93,01,290/- by treating the same as income under section 56(2)(viib) of the Income Tax Act, 1961. We find that in para No.1.1 of the Assessment Order, the AO has noted that prima facie the said amount of Rs.95 lakhs can be construed as unexplained cash credit and thereafter, he has discussed and decided about the addition ultimately made by him of Rs.93,01,290/- under section 56(2)(viib) of the Income Tax Act, 1961. The Assessment Order is dated 06.11.2017. Under these facts, it appears that there is apparent mistake in the Assessment Order because even after observing this in para 1.1 of the Assessment Order that the entire amount of Rs.95 lakhs is unexplained cash credit, the AO has made addition of only Rs.93,01,290/- under section 56(2)(viib) of the Income Tax Act, 1961 without making any addition u/s 68. Even now, the period of rectification under section 154 has not expired and hence, we feel it proper that on this aspect also as to whether any addition is to be made under section 68 or not, we feel that the matter should be decided afresh by the AO. We hold accordingly and ground No.10 is rejected.
11. In the result, assessee’s appeal is partly allowed for statistical purposes.
Pronounced in the open court on the date mentioned on the caption page.
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