TaxTMI 
TaxTMI 
2021 (3) TMI 459
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal value per share(Rs.) Premium per share(Rs.) Amount of Premium(Rs.) Total amt. paid including premium(Rs.) Gangashiv Contractors Pvt. Ltd. 33125 10 70 2318750 2650000 Amar shree Industries Pvt. Ltd. 26875 10 70 1881250 2150000 Total 60000 4200000 4800000 3. The AO obtained information u/s. 133(6) from the above referred investors. From the perusal of the information, he observed that the covering letter of all the companies is of same font and none of the companies have any telephone number against them. The financial statement of these companies indicate that these are shell companies and have no real business. The assessee also did not file the bank account statement of the above companies. From the various details furnished by those companies, the AO noted that those details are of typical paper companies having no real business but only credit and equal amount of debit entries. He, therefore, was of the view that the credit worthiness and genuineness of the transaction remain highly suspicious. He, therefore, confronted the same to the assessee and asked it to substantiate the ingredients of sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s well as on facts in confirming the assessment framed by Ld. AO u/s. 143(3) of the Income Tax Act 1961. 2. The Ld. CIT(A) has erred in law as well as on facts in confirming the income of appellant assessee by sum of Rs. 42,00,000/- by invoking section 56(2)(viib) of the Act wherein rejecting the valuation method taken by appellant assessee. 3. The Ld. CIT(A) has erred in law as well as on facts in confirming the addition without giving cogent reasons and by recording incorrect facts and by disregarding the all the documentary evidences furnished by assessee. 4. That, the appellant craves leave to add, alter, amend or withdraw all or any ground either before or during the hearing of these grounds. It is prayed that it be held that additions/disallowance are not in accordance with law and therefore, the additions/disallowance so made may kindly be deleted and appeal of the appellant may kindly be allowed." 6. The ld. Counsel for the assessee strongly challenged the order of the CIT(A) in upholding the addition of Rs. 42 lakh u/s. 56(2)(viib) of the Act. Referring to the above provision which was inserted by the Finance Act, 2012 and as existed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther current liabilities- Rs. 1,655/- Short term provision: Rs. 41,.421/- Total: Rs. 99.33,026 Paid Value of shares : Rs. 17,80,000/ Total amount of paid up equity share: Rs. 10/- 8. Referring to the above, he submitted that the aforesaid valuation was furnished before the AO to justify that the shares issued by the assessee was at fair market value which was computed in accordance with the Rule 11UA(2)(a) of the IT Rules, 1962. However, the AO arbitrarily rejected the valuation furnished by the assessee by holding that the assessee is not having any worth of receiving any share premium. He submitted that the AO has adopted the FMV of shares at Rs. 10/- (at the face value) without appreciating the formula provided in Rule 11UA and has completely given a go by to the value of assets and liabilities shown in the balance sheet. He has not made any attempt to compute the value of shares of the assessee in accordance with Rule 11UA of IT Rules, 1962. He submitted that the adoption of the fair market value of shares @ Rs. 10 per share as against Rs. 82 per share as computed by the assessee without recourse to the formula as provided in Rule 11UA is unsustain....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rdance with the law should be deleted. 11. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). Referring to para 12.2 of the order of the CIT(A), the ld. DR drew the attention to the same which reads as under:- "12.2 The valuation report for the shares as furnished by the appellant under Rule 11UA(2) has been perused. It is noted that the appellant in the said report has considered share premium of Rs. 1,28,28,924/- as on 31.03.2014. From the above facts it has been noted that the appellant has no business worth. There is no tangible business activity being carried out by the appellant since incorporation. There are no fixed assets or any other intangible assets in possession of the appellant to justify such kind of cash flow in the prior years. In the absence of any business worth of the appellant, the reliance of the appellant on the valuation report for the premium charged of Rs. 70/- on each share under Rule 11UA does not carry any force. Such valuation report has been found without any basis and thus, is rejected. Reliance is hereby placed upon the decision of Hon'ble ITAT Delhi in the case of Agro Portfolio Pvt. Ltd., vs. ITO 2018, 171/IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....UA does not carry any force. 14. It is the submission of the ld. Counsel for the assessee that for the purpose of section 56(2)(viib) of the Act the valuation of the shares has to be done in accordance with the Rule 11UA of IT Rules, 1962. As per the said Rule, the fair market value of unquoted equity shares for the purpose of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be determined under clause (a) or clause (b), at the option of the assessee. It is his submission that the assessee in the instant case has issued the share capital @ Rs. 80 per share (face value of Rs. 10 per share + premium at Rs. 70 per share) as on 31.03.2015 and the valuation of each share was in accordance with Rule 11UA of the Act. It is also his submission that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. 15. I find merit in the above argument of the ld. Counsel. The provisions of section 56(2)(viib) of the Act reads as under:- "(viib) where a company, not being a company in which the public are substantially interested, receives, in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f any asset; L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:-- (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 and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund 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; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total ....