Income Tax Appellate Tribunal - Mumbai
Vodafone M-Pesa Limited, Mumbai vs Deputy Commissioner Of Income Circle ... on 15 March, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "F", MUMBAI
BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND
SHRI MAHAVIR SINGH, JUDICIAL MEMBER
SA NO. 97/MUM/2019 : (A.Y : 2015-16)
(in ITA No. 1073/Mum/2019)
Vodafone M-Pesa Limited Vs. DCIT, Circle-8(3)(2), Mumbai.
Peninsula Corporate Park, Ganpatrao (Respondent)
Kadam Marg, Lower Parel, Mumbai.
PAN : AAECV8934F (Applicant)
Applicant by : Shri Deepak Chopra
Respondent by : Shri Rajeev Gubgotra
Date of Hearing : 15/03/2019
Date of Pronouncement : 15/03/2019
ORDER
PER G.S. PANNU, VICE PRESIDENT :
By way of the captioned application, applicant seeks stay on the recovery of the disputed outstanding demand of `34,78,34,630/-. When the matter came-up earlier for hearing on 08.03.2019, the following directions were issued :
"Both the parties have been heard. The primary dispute is with regard to invoking of section 56(2)(viib) in respect of equity shares allotted at premium to the holding company. The assessee has allotted shares at a consideration of ` 24.7/- per equity share whereas, as per the order of the 2 SA No. 97/Mum/2019 Vodafone M-Pesa Ltd.
CIT(A) the value per equity share works out to ` 11.17/- per share, thus, there is difference of ` 13.53/-per share. The CIT(A) has sustained the addition of ` 10,12,14,568/- in terms of section 56(2)(viib) of the Act. Both the sides have also been heard on the prima facie sustainability of the addition. Before passing a final order on the stay application, it was brought to our notice that refund to the tune of ` 4.71 crores is due to the assessee for the subsequent assessment years. The learned DR is directed to obtain a report on the status of such refund before the next date of hearing. In the meanwhile, the learned representative for the has offered to deposit ` 3.5 crores against the disputed demand before the next date of hearing. Both the sides are directed to show compliance by the next date of hearing i.e. on 15th March 2019. The Registry is directed to fix the Stay Application on 15 th March 2019 and till the said time no coercive measures are to be taken by the department to recover the outstanding demand."
2. Today, the learned representative states that in compliance to the directions dated 08.03.2019, the afore-directed amount of `3.5 crores has been deposited. The ld. DR has furnished a report on the status of refunds amounting to `4,71,13,600/- pertaining to Assessment Years 2016-17 to 2018-19. It is also informed that for Assessment Year 2017-18, the Department is proposing to issue notice under Section 245 of the Income Tax Act, 1961 for adjustment of the refunds of `1,26,62,500/- against the outstanding demand. The learned representative for the assessee has made a statement at Bar conveying the consent of the assessee for such adjustment of refund of `1,26,62,500/- for Assessment Year 2017-18.
3. The disputed addition revolves around the efficacy of the premium charged by the assessee on issuance of equity shares to its holding company, Vodafone India Ltd. Pertinently, during the year assessee had issued 101214568 equity shares of the face value of `10/- each at a premium of `14.70 per share to its holding company. It was asserted that the valuation 3 SA No. 97/Mum/2019 Vodafone M-Pesa Ltd.
was in accordance with the Foreign Exchange Management Act Regulations and was done by a SEBI registered Category 1 Merchant Banker in terms of an accepted pricing methodology, i.e. Discounted Cash Flow (DCF) method. The Assessing Officer rejected the Valuation Report and arrived at Fair Market Value (FMV) of the equity shares based on the Net Asset Value (NAV) method. The consideration received for issue of equity shares in excess of the FMV of the equity shares arrived at by the Assessing Officer was calculated as an addition to the returned income in terms of Sec. 56(2)(viib) of the Act. Before the CIT(A), varied submissions were made, inter-alia, contending that rejection of the DCF based valuation methodology was unjustified because Rule 11(UA)(2) of the Income Tax Rules, 1962 confers an option on the assessee regarding the choice of method. The CIT(A) concurred with the assessee on some of the points and noted that the Assessing Officer was not justified in outrightly rejecting the Valuation Report. However, the CIT(A) noted that the projections considered while arriving at the valuation in the DCF method did not match with the actual results in terms of sales, etc. Therefore, he went on to hold that the enterprise value of the assessee be adopted at 40% of the projected value taken in the DCF method and accordingly, worked out the value per share at `11.17 and thereby reducing the addition under Section 56(2)(viib) of the Act to `136,94,33,105/-.
4. In this background, the learned representative vehemently pointed out that the CIT(A) erred in not properly appreciating the fact that no adjustments could be permissible based on actual performance or results so long as no error has been found with the valuation arrived at on the basis of the DCF method. It was pointed out that the assumptions made in the 4 SA No. 97/Mum/2019 Vodafone M-Pesa Ltd.
Valuation Report prepared on the basis of the DCF method with regard to the future projections were appropriate as on the date of the valuation and, therefore, the methodology adopted by the Assessing Officer as well as the CIT(A) is quite unjustified. It has also been pointed out that the application of Sec. 56(2)(viib) of the Act is only restricted to cases where there is a doubt of generation and use of black money, which in the present case is completely absent. According to him, the instant was a commercial and genuine transaction of infusion of funds by holding company into its subsidiary and, therefore, Sec. 56(2)(viib) of the Act has been wrongly applied.
5. Be that as it may, the merits of the addition would finally be tested in the full-blown hearing of the appeal, yet insofar as it is necessary to evaluate the prima facie validity of the impugned addition, we have considered the same. One thing which emerges is the subjectiveness in the approach of income-tax authorities in valuing the equity shares. Quite clearly, the DCF method is an internationally accepted method of valuation and when the valuation in the present case was carried out, it was based on future projections of sales, etc. Ostensibly, when the income-tax authorities examined the valuation, they had the benefit of actual performance/financial results, but then, the same is no ground to evaluate the reasonableness or quality of the valuation done on an anterior date based on the DCF method, unless it could be brought out that the assumptions made by the Valuer were outlandish or fanciful. In any case, we find that the assessee has a good arguable case and, therefore, on an overall consideration, we find that there exists a prima facie case meriting a 5 SA No. 97/Mum/2019 Vodafone M-Pesa Ltd.
restrain on the Revenue from adopting coercive measures to collect the whole of the disputed demand.
6. Considering that the applicant has deposited a reasonable sum of amount vis-a-vis the disputed demand, and also taking into account the prima facie nature of the addition made, in our considered opinion, it would be in the fitness of things that the Assessing Officer is restrained from taking any coercive steps to recover the outstanding demand except to the extent of the aforesaid.
7. The corresponding appeal of the assessee pending with the Tribunal is directed to be fixed on an out-of-turn basis on 08.05.2019, a date consented by both the parties.
8. In the result, the Stay Application is disposed of as above.
The above decision was pronounced in the open court in the presence of both the parties at the conclusion of the hearing on 15th March, 2019.
Sd/- Sd/-
(MAHAVIR SINGH) (G.S. PANNU)
JUDICIAL MEMBER VICE PRESIDENT
Mumbai, Date : 15th March, 2019
*SSL*
6 SA No. 97/Mum/2019
Vodafone M-Pesa Ltd.
Copy to :
1) The Appellant
2) The Respondent
3) The CIT(A) concerned
4) The CIT concerned
5) The D.R, "F" Bench, Mumbai
6) Guard file
By Order
Dy./Asstt. Registrar
I.T.A.T, Mumbai