Karmic Labs Pvt. Ltd. Vs ITO (ITAT Mumbai)
We note that the assessee has issued shares at a premium. In order to ascertain the market value of the shares, the assessee adopted DCF method, as prescribed under Rule 11UA r.w.s 56(2) of the Act and accordingly, the shares were issued at a premium. According to the Ld. AO, the valuation report furnished by the assessee is not realistic as the projections shown by the assessee in the valuation report were not realistic and were not achieved in actuality in the subsequent years. Whereas on the other hand the assessee has tried to justify the valuation with reference to orders book of Rs.18.01 crores. Therefore, only issue before us, whether the Ld. AO has the power to change the method adopted by the assessee from one method to another method provided under Rule 11UA. We have perused the decisions relied upon by the assessee and are of the considered view that the issue is settled in the following cases, where it has been held that it is beyond the jurisdiction of the AO to change the method of valuation.
Bombay High court, in the case of Vodafone M-Pesa Ltd. vs PCIT (supra), the Hon’ble court has held that the Ld. AO cannot change the method adopted by the assessee for valuing the market value of the shares from discounted cash flow method to net asset value method, which was violation of Rule 11UA and accordingly, the impugned order was to be set aside. Similarly, the co-ordinate bench in the case of Vodafone M-Pesa Ltd vs PCIT (supra) has held that the Ld. AO cannot change the method of valuation adopted by the assessee by merely relying on the actual results in the subsequent years and arbitrarily coming to the conclusion that projections were not achieved. We, therefore respectfully following the decisions as discussed above, set aside the order the Ld.CIT(A) and direct the Ld. AO to delete the additions.
FULL TEXT OF THE ITAT JUDGEMENT
The Assessee by way of this appeal is challenging the order of the Ld. Commissioner of Income-Tax (Appeals)-24 hereinafter called [CIT(A)], Mumbai, in Appeal No.CIT(A)-24/ITO-15(2)(1)I.T 349/2016-17 dated 28/03/2018. The assessment for impugned AY was framed by Income Tax Officer Ward-15(2)(1), Mumbai [AO] u/s 143(3) of the Income Tax Act,1961 on 30/03/2015. The various grounds raised by the assessee are reproduced as under:
1.0 Re.: Considering the premium of Rs. 3,96,54,531/- received from shareholders via-a-vis issue of equity shares and preference shares as income u/s. 56(2)(viib) of the Income-tax Act, 1961:
1.1 The Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer of considering the share premium received from the shareholders on issue of equity shares and preference shares as income for the year under consideration u/s. 56(2)(viib) of the Income-tax Act, 1961.
The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the premium on issue of equity shares and preference shares cannot be considered as income and the Commissioner of Income tax (Appeals) ought to have held as such.
1.3 The Appellant submits that the Assessing Officer be directed to delete the addition so made by him and to re-compute its total income accordingly.
2:0 Re.: General:
2:1 The Appellant craves leave to add, alter, amend, substitute and / or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal.
2. The only issue raised by the assessee is against the confirmation of addition by Ld.CIT(A) as made by the Ld. AO u/s 56(2)(viib) of the Act.
3. The facts in brief are that the assessee filed a return of income on 29/09/2014 at ‘Nil’. The case of the assessee was selected under CASS for scrutiny and accordingly statutory notices were issued and served upon the assessee. The assessee is a registered company under the Companies Act and is engaged in the business of providing Clinical Testing, Clinical Trial Management, Clinical Data Management, Bio Statistics and Medical Writing services to Pharmaceutical & Medical Device companies. During the course of assessment proceedings, the Ld. AO observed that during the year, the assessee has issued equity shares, as well as preference at a premium as per details below:
