This case involves Raj Sheela Growth Fund (P) Ltd., New Delhi (the appellant) and ITO, Ward-21(1), New Delhi (the respondent), for the assessment year 2015-16. The appellant contested several issues related to the jurisdiction and the valuation of shares under Section 56(2)(viia) of the Income Tax Act, 1961. The final tribunal order, dated 9th August 2019, addresses these contentions.
The appellant argued that the assessment order was invalid due to the lack of a legally valid jurisdiction. They claimed that the mandatory requirements under Section 127/127(2) of the Income Tax Act for transferring jurisdiction were not complied with. The appellant emphasized that the original jurisdiction was with the Central Circle-16 (now Central Circle-20), and the transfer to ITO Ward-21(1) was not legally executed.
The appellant challenged the addition of Rs. 135,11,67,220 under Section 56(2)(viia) read with Rule 11UA. They argued that the authorities exceeded the scope of limited scrutiny and questioned the applicability of the section. The appellant provided several grounds, including the inability to get audited balance sheets due to changes in the Companies Act and the improper valuation methods adopted by the authorities.
The tribunal noted that the appellant had raised jurisdictional objections late in the assessment proceedings. The tribunal emphasized the necessity of a valid transfer order under Section 127 and directed a re-examination of the jurisdictional transfer order to ensure compliance with legal requirements.
The tribunal meticulously examined the appellant’s contentions regarding the valuation of shares. It considered the objections related to the fair market value determination and the adjustments claimed by the appellant. The tribunal acknowledged the detailed notes by the auditors regarding the assets’ true value and the adjustments needed for accurate valuation.
The tribunal accepted the appellant’s contention that forfeited earnest money and advances should not be considered as assets. The appellant provided evidence from NOIDA authorities confirming the forfeiture due to non-compliance with contractual terms. The tribunal directed the reduction of these amounts from the asset value.
The tribunal scrutinized the appellant’s claim that borrowing costs included in the asset values should be excluded. It acknowledged that such costs, capitalized as per accounting standards, do not represent the assets’ true value. The tribunal agreed that these amounts should be deducted to reflect a fair market value.
The appellant argued for the exclusion of bad debts and non-recoverable amounts from the asset values. The tribunal reviewed the supporting documents and auditor’s notes and directed the exclusion of these amounts, recognizing that they do not represent recoverable assets.
The tribunal examined the appellant’s claim regarding impairment in asset value due to adverse court orders. It noted that while the appellant cited court orders affecting asset values, no immediate impact on the valuation date was substantiated. Hence, this adjustment was not accepted.
The tribunal’s final judgment addressed the jurisdictional and valuation issues comprehensively. It directed the authorities to verify the jurisdictional transfer and correct the calculation errors in the share valuation, considering the adjustments proposed by the appellant. The judgment emphasized adherence to legal procedures and accurate representation of asset values to determine the fair market value.
The tribunal’s order reflects a balanced approach, ensuring compliance with statutory requirements while considering the appellant’s contentions on valuation methodologies. This case underscores the importance of precise documentation and adherence to legal protocols in tax assessments and appellate proceedings.
Raj Sheela Growth Fund (P) Ltd. vs ITO, Ward-21(1), New Delhi: Final Tribunal Order for AY 2015-16
Manage the increasing number of hearings effortlessly by leveraging the legal AI revolution We are India's Leading revolutionary AI-powered legal platform where you can get enough insights into top cases and judgements.
Research Platform