AI Drafter 
TaxTMI 
TaxTMI 
2020 (2) TMI 484
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....- and the same was assessed u/s. 143(3) on 28.03.2016 determining total income at Rs. 63,93,230/-. 3. The perusal of the assessment records reveals that you issued 8,00,000 shares during the previous year corresponding to the Assessment Year 2013-14 with a share premium of Rs. 140 and face value of Rs. 10 totaling to Rs. 150 per unit of share. However, as per the provisions of the Income Tax Act, 1961, (to be referred as Act hereinafter) face value of the shares issued by any private company should not exceed the fair market value of shares issued during the year. As per Rule 11U and 11UA of Income Tax Rules, 1962 the fair market value of the shares issued by you can be re-calculated at Rs. 23.00 (approx.). So, the value of share issued by you at Rs. 150/- per share exceeds the fair market value of share determined as per section 56(viib) read with Rule 11U and 11UA by Rs. 127 (150-23). Therefore, in view of above the excess of the fair market value of share premium along with share capital received by you i.e. Rs. 127 on 8,00,000 shares issued during the previous year of the AY 2013-14 amounting to Rs. 10,16,00,000/- was needed to be added back to your total income. ....
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....he part of the AO on this issue as stated afore. According to him, this premises of Ld. Pr. CIT to interfere with the order of AO is patently wrong because the AO had made enquiries on the issue and for supporting this contention, the Ld. AR pointed out several questions that were asked by the AO during the assessment proceedings and he drew our attention to page 68 of the paper book wherein copy of the order sheet entries recorded by AO are kept from pages 68 to 72. Drawing our attention to page 68 of the paper book the Ld. AR drew our attention to the order sheet dated 08.07.2015 and 22.07.2015 wherein the AO has recorded as under: "08.07.2015 - Notice u/s. 142(1) of the Act issued on date. 22.07.2015 - Shri Pankaj Kumar Goyal, ACA and A.R of the 'a' company today appeared and furnished detail under a covering letter dated 22.07.2015. The case is discussed and he is asked to furnish the following: 1. Name, Address, PAN and other details to whom shares were allotted with evidence. 2. Applicability to section 56(2)(vii) of the Act. 3. Details to substantiate the squared up unsecured loan, 4. Details to substantiate the R....
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....et Amont to considered for Valuation I EQUITY AND LIABILITIES SHAREHOLDERS FUNDS (a) Share Capital 168,51,300 168,51,300 - (b) Reserves & Surplus 222,77,685 222,77,685 - CURRENT LIABILITIES (a) Short Term Borrowings 226,75,000 - 226,75,000 (b) Trade Payable 22,41,160 - 22,41,160 (c) Other Current Liabilities 4,31,200 - 4,31,200 (d) Short Term Provisions 1,23,551 1,23,551 - TOTAL(B) 645,99,896 392,52,536 253.47,360 Net Amount (A-B) (A-L) 2533,59,260 Total amount of Paid up equity shown in the Balance: PE 168,51,300 The Paid up value of each equity share PV 10 Value per share (A-L)X (PV) 150 (PE) 8. Drawing our attention as to how the calculation was done the Ld. AR explained that the assessee company was holding investments in M/s. Shiv Agrevo Ltd. (refer pages 5-17 of paper book) and M/s. Shiv Edibles Ltd. (refer pages 18-30 of paper book) which had valuation of Rs. 8,61,00,000 + Rs. 14,31,90,000 = Rs. 22,92,90,000/-. ....
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....to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature,- Whichever is higher;[emphasis given by us] ** ** ** (b) "venture capital company", "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation to clause (23FB) of section 10' 9. From the reading of the aforesaid provision the Ld. AR drew our attention to Explanation 1 to clause (viib) of sec. 56(2) of the Act, the fair market value shall be the value (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrig....
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....of the Act, the fair market value of the shares shall be the value- (i) As may be determined in accordance with such method as may be prescribed; or (ii) As may be substantiated by the Company to the - satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. Accordingly, the fair market value of shares of the company has been arrived at by substituting the cost price of the assets of the company with fair value of those assets. The valuation had been arrived at by following the below mentioned basis:- (a) Our company holds 1290000 equity shares of M/s Shiv Edibles which is equal to 36.35% equity capital of the said company. (b) Similarly, the company holds 3,50,000 equity shares of M/s. Shiv Agrevo Ltd which is equal to 19.96% equity shares of that company. (c) Since both these companies are our group company/Associates, in which we hold significant control, while arriving at the fair value of our shares the cost ....