Case Law Details
Kheer Bhawani Trading P. Ltd Vs ITO (ITAT Delhi)
On behalf of the assessee it was submitted that assessee had merely issued preferential shares and as for the purpose of Section 56(2)(viib) of the Act, the Rule 11UA (2) is not applicable. It was submitted that assessee has issued preferential shares and the valuation under Rule 11UA(2) is applicable only to unquoted equity shares. It was submitted that in fact Rule 11UA(1) Sub clause (c) was applicable which prescribes method for determination of value of unquoted shares and securities other than equity shares it was submitted that the AO arbitrarily rejected the bonafide method adopted by the assessee and he particularly relied to judgment of Hon’ble Delhi High Court in Cinestan Entertainment (P.) Ltd. [2019 (6) TMI 1367 – ITA No. 8113/Del/2018 vide order dated 27.05.2019 of ITAT Delhi] and contended that Assessing officer cannot examine or substitute his own value in place of valuation arrived by the assessee either DCF Method or NAY Method. It is also submitted that Ld. AO has not proceeded to make assessment on the basis of Principles of Law as applicable but made assessment on the basis of certain wrong provisions cited by the assessee and did not follow the principle that there is no estoppel against statute.
Giving thoughtful consideration to the matter on record, in regard to the pleas of the assessee that Ld. AO has wrongly applied the provisions of law on the basis of principles of estoppels, it comes up, that as such it is not one of the specific grounds raised but being a question of law, can be suitably considered to be falling under the general ground no. 1. Remaining grounds when taken along are based on same set of facts and law and cover the controversy as to if the tax authorities below have fallen in error and applied provisions of Rule 11 UA for the valuation of preferential shares issued for Rs. 344/- each and the valuation of Rs. 354/- per share is correct and the value would not be Rs. 213/-per shares. In this context, at the outset, it can be observed from the assessment order that Ld. AO was carried away by the fact that assessee has taken two different pleas with regard to valuation of preferential shares and that the assessee was itself not convinced Rule 11UA should be applicable or not. However, the assessment orders shows that even the Ld. AO was not convinced of applicability of Rule 11UA. As it applies to unquoted equity shares but he applied the valuation method of Rule 11UA upon the preferential shares considering them to be similar.
It is jurisdictional error where AO not being convinced himself about applicability of Rule 11UA proceeded to make the valuation according to method of 11UA on the basis that at some stage assessee itself had applied the method.
Next, even if preferential shares and equity shares are considered to be falling within the purview of Section 56(2)(viib) of the Act, they stand on different footing . While the equity shareholders are the real owners of the company, the preference shareholders are not in fact, the owners of the company, they get preference over the equity shareholders on certain aspects. Hence the Net asset value of the company really represents the value of Equity shares and not “Preference shares” – As held Mumbai Bench in case of ACIT 16(1) Vs. M/s. Golden Line Studio Pvt. Ltd, [TS-8635-ITAT-2018(Mumbai)-O].
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