Itat/104/2023 Of Lnb Renewable Energy Limited v. Principal Commissioner Of Income Tax-2, Kolkata

OD- 10IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE ITAT/104/2023IA NO. GA/1/2023LNB RENEWABLE ENRGY LIMITED-VS- PRINCIPAL COMMISSIONER OF INCOME TAX-2, KOLKATA BEFORE :THE HON’BLE THE CHIEF JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE AJAY KUMAR GUPTADate : 19[th] June, 2023 Appearance :Mr. J.P. Khaitan, Sr., Adv.Mr. Pratyush Jhyunjhunwala, Adv.Mr. Anurag Bagaria, Adv....for the appellant.Mr. Om Narayan Rai, Adv.Mr. Soumen Bhattacharjee, Adv.…for respondent The Court : This appeal by the assessee filed under Section 260A of the Income Tax Act, 1961, is directed against the order dated 30.11.2022passed by the Income Tax Appellate Tribunal “A” Bench, Kolkata, (theTribunal) in ITA No. 2011/Kol/2018 and C.O. No. 117/Kol/2018 for theassessment year 2013-14. The assessee has raised the following substantialquestions of law for consideration (a)Whether the Assessing Officer’s appeal was maintainable beforethe Tribunal when the appellate order was based on his remand (b) (c) (d) (e) report accepting the valuation report dated March 14, 2018obtained by the assessee pursuant to the direction of theappellate authority ? Whether and in any event the Tribunal was justified in law inreversing the order of the Commissioner of Income Tax (Appeals)and upholding the addition of Rs.8,05,00,000/- by invocation ofsection 56(2)(viib) of the Income Tax Act, 1961? Whether the purported findings of the Tribunal that input forpreparing the valuation report dated March 14, 2018 were notcorrectly supplied to the expert and rejecting the said report andupholding the addition under section 56(2)(viib) of the IncomeTax Act 1961, of share premium of Rs.8,05,00,000 as being inexcess of the fair market value of the assessee’s shares have beenarrived at by ignoring the relevant materials and/or by takinginto consideration irrelevant and/or extraneous materials andare arbitrary, unreasonable and perverse ? Whether and in any event, the provisions of section 56(2)(viib) ofthe Income Tax Act, 1961 can be invoked in case of issue ofshares by a wholly owned subsidiary to its holding company ?Whether and in any event, the assessment order passed withoutcomplying with the binding direction of the Additional Commissioner of Income Tax under section 144A of the IncomeTax Act, 1961 was ex facie illegal and the Tribunal ought to havedecided the said contention of the assessee raised in its cross-objection ? Heard learned Counsel for the either sides. The Tribunal by the impugned order had allowed the appeal filed by therevenue challenging the order passed by the Commissioner of Income Tax –Appeals (IV), Kolkata CITA dated 13[th] June, 2018 arising out of anassessment order under Section 143(3) of the Act dated 30[th] March, 2016.At the first blush it appears that the facts are very complicated but on acloser examination more particularly with regard to the grounds raised bythe assessee the matter is, at the threshold projected by the assessee oncertain technical grounds. The brief facts which are required forconsideration after considering the correctness of the grounds canvassed bythe appellant are that the assessing officer was required to obtain the fairmarket value of the preference shares and which was required to be referredto the appropriate valuation officer. A direction was issued by the AdditionalCommissioner of Income Tax, Range 2, Kolkata on 22.3.2016 under Section144(A) of the Act directing the assessing officer to refer the matter to thevaluation officer under Section 142(A) of the Act to estimate the valuationincluding the fair market value of the asset being equity shares of the company and obtain a report from the valuation officer. The valuation officerwas requested to provide in his valuation report the fair market value of thepreference shares in terms of rule 11UA (1)(c)(c) of the Income Tax Rules. Theassessing officer instead of referring the same in terms of the direction issuedunder Section 144A of the Act referred the matter to the valuation officer whodeals with valuations of immovable properties. The said authorities hadpromptly returned the papers on the ground that he does not havejurisdiction to deal with the subject as it is required certain expertise.Aggrieved by the assessment order the assessee was on appeal before theCIT(A). The CIT(A) had issued a direction to the assessee to prepare anexpert report and a report to be submitted which was to be in turn examinedby the assessing officer for comments. The report was accordingly drawn byexpert subject to the CIT(A) which was referred to the assessing officer for hiscomments/report. The assessing officer did not find any fault in thevaluation report submitted by the merchant banker/accountant appointedby the assessee. Accordingly, the appeal filed by the assessee was allowed.Aggrieved by the said order the revenue preferred the appeal before theTribunal. The assessee filed cross-objection contending that the appeal wasnot maintainable as the revenue cannot be stated to be an aggrieved personover the order passed by the CIT(A), since the assessing officer did not recordany objection or reservation to the valuation report submitted by the expert appointed by the assessee. The revenue argued their appeal on the merits ofthe matter seeking to sustain the order passed by the assessing officer. Thelearned Tribunal after considering the submission on either side inparagraph 12 of the impugned order has held that as far as the preparationof the valuation report and its technical aspects are concerned the Tribunalrefrained from making any comments. However, the revenue succeeded inthe appeal in the light of the reasoning given by the Tribunal in paragraph 14of the order which is quoted hereinbelow :- “14. Now, before us the Revenue has pointed out the fact that theassessee company was incorporated on 07.11.2012 and the cut off datefor the valuation of share was 16.11.2012. Further, the fact has beenplaced before us by the Revenue through its grounds of appeal is that thesubsidiary companies were acquired on 29.12.2012 & 10.01.2013 whichwas after the valuation date i.e. 16.11.2012. This fact of acquiring thewholly owned subsidiaries/step down subsidiaries after the cut off dateof valuation of share remain uncontroverted by the assessee and there isno whisper about controverting this fact at any stage during the course ofassessment proceedings/appellate proceedings both before the Ld. CIT(A)and before us.” The submission of the learned Senior Advocate for theappellant/assessee is that the Tribunal ought to have considered that for The submission of the learned Senior Advocate for theappellant/assessee is that the Tribunal ought to have considered that for funding out project, financial projection had to be made on the basis offuture expected cash flow and the business sought to be undertaken had tobe value and such exercise was invariably undertaken well in advance.Further, it was contended that the Tribunal should have considered thedates on which entities involved in the project became the assessee’s whollyowned subsidiaries or step down subsidiaries was of no consequence.However, the Tribunal failed to consider one of the methods described underRule 11UA of the 1962 Rules was the “Designated free cash flow method” fordetermining the value of the business of the company and its shares and theexperts have followed the said method and in their report dated 13.11.2012and 14.03.2018 for the purpose of valuing the assessee’s future businessand its shares. Several other grounds have also been raised by the assessee.So far as the cross objection is concerned the Tribunal has not consideredthe specific objection of the assessee that the revenue should not have beensaid to be an aggrieved person over the order passed by the CIT(A) since theassessing officer did not record and adverse comments on the valuationreport which was forwarded by the CIT(A) for its comments and observations.However, the learned Tribunal held that cross-objection merely supports thefinding of the learned CIT(A). We are informed that the assessee filed amiscellaneous application before the learned Tribunal in M.A. No. 10 &14/Kol/2023 with a submission that the appeal filed by the revenue before the learned Tribunal is not maintainable on the ground that the assessingofficer has accepted the valuation report without any adverse finding in theremand report and it is liable to be quashed. The said miscellaneousapplication is now pending before the Tribunal. From the above discussionand noting the facts we find that once the Tribunal holds that they do notwish to make any comments on the technical aspects, and simultaneouslyfiles the valuation reports, two courses were open to the Tribunal, one coursecould have been adopted, that is was to afford an opportunity to the assesseeto explain as to the relevance of the date on which the subsidiary companieswere acquired and is it of any significance quay the valuation of the shareswhich took place admittedly prior to the acquisition on 16.11.2012. Thesecond option was to call for a fresh valuation report from an expert andexamine such report on facts, as the Tribunal being the last fact findingauthority was entitled to do so. We find either of the two options was notexercised by the Tribunal. Thus considering the totality of the circumstanceswe are of the view that the assessee should have been afforded anopportunity to explain as to what would be the consequence or relevance ofthe date on which subsidiary companies were acquired by the assessee andtaking note of the opinion of the Tribunal the valuation report should becalled for from the experts and that procedure can also be resorted to. Thatapart, since the assessee has filed a miscellaneous application to consider as to whether appeal filed by the revenue was maintainable before Tribunal,that issue also needs to be gone into as the cross-objection filed merely tosupport the finding of the CIT(A). Thus, for all the above reasons we are of the clear view that the matteris to be reheard and re-decided by the Tribunal on all the issues that may becanvassed both by the assessee and the revenue. In the result, the appeal filed by the assessee is allowed. The orderimpugned is set aside. The matter is remitted back to the learned Tribunalfor fresh consideration on merits and in accordance with law.Consequently, the substantial questions are left open. (T.S. SIVAGNANAM) CHIEF JUSTICE pkd/GH. (AJAY KUMAR GUPTA, J.)