TaxTMI 
TaxTMI 
2021 (11) TMI 261
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....100/- at a premium of Rs. 100/-. The Fair Market Value of the shares was Rs. 250/- as per Discounted Free Cash Flow method, which was opted by the assessee as provided in Rule 11UA(2)(b) of the Income Tax Rules, 1962. The Valuation Report was obtained by the assessee from a Chartered Accountant in practice as prescribed in the Rules existing at that time. However the assessee company issued shares @ Rs. 200/- only i.e. less that the Fair Market Value thus determined. The case of the assessee was selected for scrutiny for verification of issue of share premium. The assessee filed valuation report and relevant documents alongwith detailed submission regarding selection of option of Discounted Free Cash Flow method for valuation of shares at the time of scrutiny assessment which is available on the record of the A.O. After detailed verification, returned income of the assessee was accepted without making any addition / disallowances. 3. It was submitted that thereafter, a notice u/s 263 notice was received by the assessee from the ld PCIT, Udaipur stating that the report required for this purpose should be from the FCA i.e. the fellow member of the ICAI whereas the report in question....
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....263 has stated that there is wide variations as regard the value of shares, furnished by the assessee company during the course of assessment proceedings and vide submission dated 10.12.2020, especially in view of the fact that the Merchant Banker in the Note mentioned on page no. 12 (annexure-2) has specifically mentioned that "we have used the same data which has been provided by the company to Chirag Parakh for preparation of valuation report". In this connection it is submitted that in fact there is negligible variation in the value of shares done by Chartered Accountant vis-a-vis Merchant Banker, which is explained in the below table: Sr. No. Particulars Chartered Accountants Report Merchant Banker Report 1 Per share price/value 294.32 292.69 2 Less : Discount for llliquidity Ratio 44.15 (@15%) 73.17 (@ 25%) 3 Fair Value per Equity Share 250.17 219.50 8. It was submitted that it is clear from the above table that the difference in valuation of shares done by both the persons was due to illiquidity discount provide @ 15 % by ACA as against 25% by Merchant Bank. This is a subjective matter based on their assumption regarding illiquidity which affecte....
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....od for valuation of shares issued by it during the year under consideration and as per Rule 11UA(2)(b), the fair market value of shares should be determined by a Merchant Banker or an Accountant. Further, accountant for the purpose of Sub-rule (2) of the Rule 11UA, means a fellow of the ICAl within the meaning Chartered Accountancy Act, 1949 who is not appointed by the Company as an Auditor u/s 44AB of the I.T. Act. However, in the instant case, the assessee has furnished valuation report from an ACA, which is not sustainable and the same is liable to rejected as he was not a certified fellow of the ICAI as on 31.03.2016. 6.1 Further, it is pertinent to mention here that, as per the valuation report submitted by the assessee company duly signed by an Associated Chartered Accountant (ACA Chirag Parakh M.No. 142965), during the assessment proceedings, the fair value of equity share has been taken at Rs. 250.17 as per share, whereas as per the valuation report submitted by the assessee company duly signed by an Merchant Banker, Capital Square Advisors Pvt. Ltd, during the proceedings u/s 263 vide submission dated 10.12.2020, the fair value of equity share has been taken at Rs. 219.5....
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....iib). The same is therefore set-aside/cancelled and restored back to the file of AO on this issue with the direction to pass fresh assessment order after conducting proper verification and enquiries on this issue and make necessary addition in accordance with the provisions of I.T. Act 1961. However, an opportunity of being heard should be given to the assessee before passing the order." 14. We have heard the rival contentions and perused the material available on record. The issue under consideration relates to fair market value of the shares and receipts of consideration on issue of shares over and above the fair market value invoking applicability of section 56(2)(viib) of the Act. During the course of assessment proceedings, the assessee submitted report from an accountant who has determined the fair market value of shares at Rs. 250.17 per share where as the assessee has issued shares of face value of Rs. 100 at a premium of Rs. 100, thus at a value lower than the fair market value. During the course of revisionary proceedings, the ld PCIT pointed out that the valuation report has been obtained from an associate member of ICAI as against fellow member of ICAI as prescribed un....