TaxTMI 
TaxTMI 
2016 (3) TMI 549
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.... law, the Hon'ble CIT(A) erred in upholding the order of the Learned AO of making an addition of Rs. 21,22,73,565 to the appellant's income as deemed gift u/s. Section 56(2)(viia) of the Act without appreciating the fact that the FMV of shares on transaction date was negative and hence, question of any addition u/s. 56(2)(viia) of the Act does not arise. 4. On the facts and the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the order of the Learned AO of making an addition of Rs. 21,22,73,565 to the appellant's income as deemed gift u/s. Section 56(2)(viia) of the Act without appreciating the submissions filed by the appellant on non-applicability of Section 56(2)(viia) of the Act in the appellants case. 5. On the facts and the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the action of the AO in not following the prescribed Rule-11UA while computing disallowance u/s 56(2)(viia) of the Act. The appellant prays that the aforesaid addition made by the A.O. be deleted. 6. On the facts and in circumstances of the case, the Ld AO erred in levying interest under section 234C of the Act. 7. On the fac....
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....sessee company becoming the holding company of M/s. Optival Health Solutions P. Ltd., and both the wholesale and retail operations coming under the assessee company indirectly. He further observed that majority of the small shareholders of M/s. Medplus Health Care P. Ltd., transferred their shares to Mr. G. Madhukar Reddy, promoter and one of the major shareholders of assessee company and Mr. Madhukar Reddy along with other major shareholders transferred their majority of share holdings at an attractive price to some local and international institutional investors. Out of these transactions, the A.O. observed that two persons i.e., Mr. C. Srinivasa Raju and Chintalapati Holdings P. Ltd., transferred their shares to the assessee on 04.03.2011 at Rs. 75.49 per share whereas, on the same day and also on 08.03.2011 all the other shareholders transferred their shareholdings to the assessee at Re.1 per share. He observed that when the market rate is Rs. 75.49ps, the assessee has purchased the shares at less than the market price i.e., Rs. 1 per share and therefore, the transactions attract provisions of section 56(2)(viia) of the I.T. Act. Therefore, the A.O. issued a show cause notice d....
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....arties to be the market price of the unquoted shares of the company M/s. Optival Health Solutions P. Ltd., and the difference of Rs. 74.49ps per share was treated as "Income from other sources" in the hands of the company. Further, vide its letter dated 19.03.2014, the assessee submitted that as on 3rd March, 2011, the total value of equity shares of M/s. Optival Health Solutions P. Ltd., was Rs. 45,44,740, out of which, the shares of Rs. 15,90,000 were partly paid i.e., only up to Rs. 0.50ps and that these partly paid up shares were also acquired by the company from the shareholders. It was submitted that in the case of partly paid up shares, an amount of Rs. 9.50ps is still to be paid by the purchaser and hence, the value of deemed gift in the case of partly paid shares is to be calculated accordingly. After considering the assessee's contentions, the A.O. computed the value of the deemed gift of partly paid up shares at Rs. 10,33,34,100 and of fully paid up shares at Rs. 10,89,39,465 and brought it to tax. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) who confirmed the order of the A.O. and against the order of the Ld. CIT(A), the assessee is in second appeal bef....
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....ith regard to ground No.2, we find that though the assessee has raised this ground of appeal before the Ld. CIT(A), it was rejected on the ground that the assessee did not press the said ground of appeal. Even before us, the assessee did not advance any arguments on this issue at the time of hearing. In view of the same, ground No.2 of the assessee is not adjudicated and treated as rejected. 7. As regards grounds No. 3 to 5 are concerned, we find that the undisputed facts are that the assessee has purchased the shares of M/s. Optival Health Solutions P. Ltd., at Re.1 on 4/3/2011 and 8/3/2011 while some of the share holders have sold the shares of the very same company to the assessee on the very same day at Rs. 75.49 per share. It is also not disputed that the assessee company and M/s. Optival Health Solutions P. Ltd., are related to each other. The only dispute is whether the provisions of section 56(2)(viia) of the I.T. Act are applicable to the facts of the case before us. For the sake of convenience and ready reference, the relevant provisions are reproduced hereunder : 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be char....
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....value of the assets in Balance Sheet as reduced by any amount paid as advance tax payment under the Income-tax Act and any amount shown in the balance sheet including the debit balance of the profit and loss account or the profit and loss appropriation account which does not represent the value of any asset; L = Book value of liabilities shown in the Balance Sheet but not including the following amounts:- (i) the paid-up capital in respect of equity shares: (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves, by whatever name called, other than those set apart towards depreciation; , (iv) credit balance of the profit and loss account; (v) any amount representing provision for taxation, other than amount paid as advance tax payment under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (vi) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vii) any amo....
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....hod in which that power is to be exercised, it necessarily prohibits the doing of the act in any other manner than that has been prescribed. In support of this contention, the assessee has relied upon various decisions cited supra. Let us now examine the applicability of the said decisions to the facts of the case before us. 1. Bharaath Hari Singhania & others vs. CWT & others (cited supra): In this case, the Hon'ble supreme court of India was dealing with the validity of rule 1D of Wealth Tax Rules which prescribed break up method for valuation of unquoted equity shares for the purposes of valuing the net wealth of the assets of the assessee therein and the Hon'ble supreme court laid down the following principles which are relevant to the case before us: a) Rule 1D prescribed for the valuation of unquoted equity shares has necessarily to be followed and WTO has no option either to follow or not to follow the same and the question whether the rule is mandatory or directory does not arise. b) Valuation officer is as much bound by rules of valuation made under the Act as anybody else is. Since Rule 1D uses the word 'shall', it prima facie indicates its mandatory character. 2. ....
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....uced above and also the precedents discussed above, it is seen that section 56(2)(viia) requires that before application of the said provision, the A.O. has to necessarily compute the fair market value and only then can compare the same with the consideration paid by the assessee and apply the said provision only if the conditions set therein are satisfied. In the case before us, undisputedly some of the shareholders have sold the shares at a much higher price than that at which the assessee has purchased the balance of the shares from other shareholders i.e., at Re.1. Though the A.O. has not computed the fair market value in accordance with Rule 11UA of the I.T. Rules, he had evidence before him to be satisfied that the market value of the shares was much higher than the value at which the balance of shares were transferred to the assessee. The AO has observed that "mainly the valuation of any property is based on fact as to what value the property would fetch if sold in open market but generally the details as to how much value an unlisted share would fetch will not be available and hence the formula is given to overcome that deficiency". Since the market price of some of the sha....