AO and assessee both used wrong valuation dates for unquoted equity shares under Section 56(2)(viib) Rule 11UA

ITAT Raipur held that both AO and assessee incorrectly determined valuation dates for unquoted equity shares under Section 56(2)(viib). AO valued shares at Rs. 91/- per share on 31.03.2012 while assessee valued at Rs. 144/- per share on 29.03.2013. Tribunal found both dates wrong as FMV should be determined on actual consideration receipt date per Rule 11UA. Matter restored to AO for fresh determination using correct valuation date, considering Rule 11UA amendments effective 29.11.2012. Regarding interest on FDRs, Tribunal accepted assessee's contention that pre-commencement interest income constituted capital receipt to be set off against pre-operative expenses, vacating AO's addition treating it as income from other sources.

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Issues Involved:
1. Addition under Section 56(2)(viib) for share premium.
2. Addition of interest income on Fixed Deposit Receipts (FDRs).
3. Addition related to depreciation.

Summary of Judgment:

1. Addition under Section 56(2)(viib) for Share Premium:
The assessee challenged the addition of Rs. 8,64,000/- made under Section 56(2)(viib) based on the valuation of net worth as per audited financial statements dated 31.03.2012, while shares were allotted on 30.03.2013. The assessee argued that the valuation should be based on the balance sheet as on the valuation date, which is the date of issue of shares. The Tribunal found that both the Assessing Officer (A.O) and the assessee had incorrectly adopted the valuation date. The matter was restored to the A.O. to determine the fair market value (FMV) of the shares as per Rule 11UA r.w. Rule 11U applicable for the relevant year, ensuring the correct valuation date is used. The option for valuation method remains with the assessee, either as per the Net Worth Method or the Discounted Free Cash Flow (DCF) method. Thus, this ground was allowed for statistical purposes.

2. Addition of Interest Income on FDRs:
The assessee contested the addition of Rs. 99,957/- as interest income on FDRs, arguing it was a capital receipt since it was earned before the commencement of business and should be set off against pre-operative expenses. The Tribunal agreed with the assessee, citing the judgment of the Hon'ble Delhi High Court in Indian Oil Panipat Power Consortium Ltd. Vs. ITO, which held that interest income earned prior to the commencement of business is a capital receipt. Consequently, the addition was vacated, and this ground was allowed.

3. Addition Related to Depreciation:
The assessee did not advance any argument regarding the addition of Rs. 16,027/- out of depreciation. Therefore, this ground was dismissed as not pressed.

General Grounds:
The general ground of appeal was dismissed as not pressed.

Conclusion:
The appeal was partly allowed for statistical purposes, with the matter concerning the share premium addition remanded back to the A.O. for fresh adjudication, and the addition of interest income on FDRs was vacated. The depreciation-related addition was dismissed due to lack of argument.

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