Gujarat High Court
The Principal Commissioner Of Income ... vs Surana Metacast (India) Pvt. Ltd on 19 June, 2023
Author: Vipul M. Pancholi
Bench: Vipul M. Pancholi
C/TAXAP/266/2023 ORDER DATED: 19/06/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 266 of 2023
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THE PRINCIPAL COMMISSIONER OF INCOME TAX 3
Versus
SURANA METACAST (INDIA) PVT. LTD.
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Appearance:
MRS KALPANAK RAVAL(1046) for the Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE VIPUL M. PANCHOLI
and
HONOURABLE MR. JUSTICE DEVAN M. DESAI
Date : 19/06/2023
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE VIPUL M. PANCHOLI)
1. Heard learned standing counsel Mr. Nikunt Raval for learned advocate Mrs. Kalpanak Raval for the appellant.
2. The present Tax Appeal has been filed by the appellant under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as per `the Act') challenging the order dated 14.10.2022 passed by the Income Tax Appellate Tribunal, Ahmedabad, `C' Page 1 of 9 Downloaded on : Wed Jun 21 20:38:42 IST 2023 C/TAXAP/266/2023 ORDER DATED: 19/06/2023 Bench.
3. The facts in brief leading to filing the present appeal are as under:
3.1. Respondent assessee engaged in the business of manufacturing and trading of SS Scrap, Rod, Plates etc which is used for manufacturing SS Pipe, tubes, vessels, industrial equipment and machinery utensils. It is further the case of the revenue that the assessee imports raw materials from various dealers from Gulf countries and also locally by tender option from various suppliers. It is stated that for further expansion of the business, the assessee company installed a new plant for the production of MS Alloys and SS Alloys with a production capacity of 100 MT per annum. During the assessment year, the assessee issued 19,01,000 shares of face value of Rs.10/- at a premium of Rs.25/- per share. It is also stated that for the Assessment Year 2013-14, the Page 2 of 9 Downloaded on : Wed Jun 21 20:38:42 IST 2023 C/TAXAP/266/2023 ORDER DATED: 19/06/2023 assessee company filed its return of income on 30.9.2013 declaring total loss of Rs.(-) 83,72,012/-
and booked profit u/S.115JB of the Act at Rs. (-)34,60,819/-
3.2. The return was taken up for scrutiny assessment. During the assessment proceedings, second aspect were noticed and, therefore the Assessing Officer held that working of premium was not in accordance with Section 56(2)(viib) of the Act. Consequently the AO has not accepted the valuation made under DCF method by the assessee and adopted the formula as per Rule 11UA and valued the fair market value of shares at Rs.10/- per share and treated the premium as excess consideration on issue of share premium received of Rs.4,70,25,000/- which is covered u/s. 56(2)(vii) of the Act and added the same as income from other sources of the assessee company and also initiated penalty proceeding u/s.271(1)(c) of the Act.
Page 3 of 9 Downloaded on : Wed Jun 21 20:38:42 IST 2023 C/TAXAP/266/2023 ORDER DATED: 19/06/2023 3.3. Thereafter, being aggrieved and dissatisfied with the said order, the respondent assessee filed an appeal before the CIT (Appeals). CIT (A) passed an order dated 20.9.2018 and partly allowed the appeal of the assessee and held that the present respondent - appellant before the CIT (A) has issued shares at the fair market value determined by the Chartered Accountant following the DCF Method as prescribed in Rule 11UA of the Rules. It is further observed that the additions made u/S.56(2)(viib) of the Act amounting to Rs.4,70,25,000/- made by the AO are not sustainable and hence deleted. 3.4. Against the said order passed by the CIT (Appeals), the appeal was filed by the respondent assessee as well as the present appellant challenging the order dated 20.9.2018 passed by the CIT (Appeals) before the ITAT. The tribunal vide impugned order dated 14.10.2022 dismissed the appeal filed by Page 4 of 9 Downloaded on : Wed Jun 21 20:38:42 IST 2023 C/TAXAP/266/2023 ORDER DATED: 19/06/2023 the Revenue and, therefore the present appeal has been filed by the appellant - revenue before this Court.
4. The learned Standing Counsel for the appellant revenue has raised various contentions and submitted that the tribunal has committed error while recording the findings in paragraph Nos.6 and 6.1 of the impugned order which read as under:
"6. Heard rival contentions and perused the materials available on record including the paper book filed by the assessee. The promoters and directors of the Company having their rich experience for long time in steel business and also to install a new plant for production of MS alloys and SS alloys with a production capacity of 100 MT per annum, proposed the extension of the business of the company. As per the Valuation Report given by the Chartered Accountant, Fair Market Value of the shares is arrived at Rs.36.50 per share which has been rounded off to Page 5 of 9 Downloaded on : Wed Jun 21 20:38:42 IST 2023 C/TAXAP/266/2023 ORDER DATED: 19/06/2023 Rs.35 per share which includes the Face Value of Rs.10 and premium of Rs. 25. The chartered accountant has given the details of history of the company, promoter's background and nature of business as well as the present status at the time of valuation. The valuer followed the income approach and applied the DCF method which is the method prescribed by "Technical Guide for valuation" by ICAI. We find that the Assessing Officer do not find any infirmity in the said valuation report submitted by the Chartered Accountant. In fact, it is seen from the Assessment Order and the remand report, the AO has disregarded the valuation report on the ground it was not made by a merchant banker only and he do not find any defect as regard the projection as made in the Valuation Report.
6.1. As per Rule 11UA(2) Fair Market Value of unquoted equity shares for the purpose of Section 56(2)(viib) shall be the value determined under prescribed formula or as per DCF method which is at the option of the assessee. Thus the DCF method adopted Page 6 of 9 Downloaded on : Wed Jun 21 20:38:42 IST 2023 C/TAXAP/266/2023 ORDER DATED: 19/06/2023 by the assessee for determining the Fair Market Value of shares as per Rule 11UA does not requires any interference. Therefore the additions made u/s. 56(2) (viib) amounting to Rs.4,70,25,000/- are not sustainable in law and the learned CIT (A) correctly deleted the same. Thus, the Grounds of Appeal raised by the Revenue are devoid of merits and the same are hereby rejected."
5. Thereafter, referred the provisions contained in Section 56(2)(viib) of the Act and thereafter contended that the aforesaid findings recorded by the tribunal are not correct and, therefore the present appeal has been filed for considering the following substantial question of law.
"5(i) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT has erred in deleting the addition of Rs.4,70,25,000/- made in respect of share premium u/s.56(2)(viib) of the IT Act ?"
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C/TAXAP/266/2023 ORDER DATED: 19/06/2023
6. We have considered the submissions canvassed by the learned counsel for the appellant. We have also gone through the material placed on record including the impugned order passed by the tribunal.
7. The tribunal has after considering the provisions contained in Section 56(2)(viib) as well as Rule 11UA(2) of the Rules observed that as per the aforesaid Rule, fair market value of the shares shall be the value determined under the prescribed formula or as per DCF method which is at the option of the assessee and, therefore the DCF method adopted by the assessee for determining the fair market value of the share as per Rule 11UA2 does not require any interference and therefore the additions made u/S.56(2)(viib) amounting to Rs.4,70,25,000/- are not sustainable in law and, thereby the tribunal has upheld the order passed by the CIT (Appeals) to the said extent and, thereby rejected the appeal filed Page 8 of 9 Downloaded on : Wed Jun 21 20:38:42 IST 2023 C/TAXAP/266/2023 ORDER DATED: 19/06/2023 by the appellant - Tribunal.
8. We are of the view that no substantial question of law as contained by the revenue in the present appeal is involved and, therefore, we are not inclined to entertain the present appeal. Accordingly, this appeal is dismissed.
(VIPUL M. PANCHOLI, J) (D. M. DESAI,J) VATSAL Page 9 of 9 Downloaded on : Wed Jun 21 20:38:42 IST 2023