TaxTMI 
TaxTMI 
2022 (12) TMI 180
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.... "1. That the Ld. CIT(A) had erred in deleting the addition of Rs. 8,05,00,000/- made u/s. 56(2)(viib) of the I.T.Act. 2. That the Ld. CIT(A) had erred in ignoring the absence of any details regarding the acquisition of the step down subsidiary companies, the value of whose shares formed the basis of valuation by the valuer regarding the equity share and compulsory convertible preference share of the assessee company in view of the fact that the date of incorporation of the assessee company was 07/11/2012 and the cut-off date for valuation of shares was 16/11/2012. 3. That the Ld. CIT(A) had erred in not calling for a remand specifying the issues to be enquired into and also accepting the remand report which mentioned only the valuer's valuation of shares without any independent findings of the AO. 4. That the Ld. CIT(A) had erred in accepting the valuer's report when the report itself was questionable since the subsidiary companies were acquired on 29/12/2012 and 10/01/2013 after the valuation date of shares (16/11/2012). 5.The appellant craves for leave to add, alter or modify the grounds of appeal." 3. The assessee has raised the fo....
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....d directions were received u/s 144A of the Act dated 22.03.2016 by ld. AO to refer the matter immediately to the Valuation Officer u/s 142A of the Act. On 28.03.2016 the case was referred to the District Valuation Officer, but on 30.03.2016 reply was received from the Asst. Valuation Officer-6, Kolkata stating that the Valuation Officer deals only with immovable property and has not dealt with the valuation of shares, debenture, jewellery, vehicle, machinery and plant. On the same day i.e 30/3/2016 ld. AO completed the assessment making addition of Rs. 8.05 Cr for the alleged share premium received in excess of the face value of the shares invoking the provisions of Section 56(2)(viib) of the Act observing as follows: "1. Share Premium Charged on fresh issue of Equity Shares: The assessee has credited a sum of Rs 5,00,000/- during the previous year as share premium under the head Reserves and Surplus in its Balance Sheet received on issue of equity share capital. From the details as furnished and valuation report as stated herein before it was noted that the company had appointed a firm of chartered accountants who had applied Discounted Free Cash Flow Method as p....
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....ar, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation. -For the purposes of this clause,- (a) 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,whichever is higher; (b)"venture capital company", "venture capital fund" and "v....
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....amortized amount of deferred expenditure 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, 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, ether 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, any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable i....
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....mount representing provisions made for meeting liabilities, other than ascertained liabilities; any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balance-sheet; PV = the paid up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method.] Rule 11UA(1) (c) (b) deals with the valuation methods and procedure and also suggest alternative Sub rule (2) which gives the option to the assessee to apply either option (a) or option (b) in respect of equity shares. However, only Rule 11UA (1) (c) (c) provides that the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be priced it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation. Accordingly, as st....
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....t profit of the assessee under section 56(2)(viib) of the IT. Act. [Addition of Rs.8,00,00,000/- is made]" 5. Aggrieved, the assessee preferred appeal before ld. CIT(A) and stated that the valuation report has been obtained from registered valuer on 14.03.2018 which justifies the share premium charged by the assessee on the issue of equity share capital and preference share capital. Considering the submissions of the assessee, ld. CIT(A) deleted the addition observing as follows: "3.5. I have perused the Assessment Order, SOF, Submissions of the Assessee, Valuation Report and reply of the AO on the valuation report. It is seen that the Assessee has issued equity shares of Rs. 10/- at a premium of Rs. 2.5 and preference shares of Rs. 100/- at a premium of Rs. 25 per share. Total amount of premium is Rs 5 lakhs on equity shares and Rs. 8 crore on preference shares. Both the share capital has been raised from M/s. Placid Limited a group concern of the Assessee company. M/s. Placid Limited is a group concern of Bangar Group a reputed business house of Kolkata and the company is having a net-worth of more than Rs. 500 crore. During the course of Appellate proceeding....
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....ce value of Rs. 100/- each at a premium of Rs. 25/- per share, to its holding company. 4. The Assessee issued the shares basis the valuation report provided by an independent Chartered Accountant Firm. The valuation of the shares was based on the Discounted Free Cash Flow Method, which is in conformity with the provisions of Rule I lUA(2)(b) of the Income Tax Rules, 1962. 5. The Assessee's case was thereafter selected for scrutiny assessment for the captioned year. Assessment Proceedings: - 6. During the assessment proceedings, the Assessing Officer ('AO') issued multiple notices, calling for information, which were duly provided by the Assessee, including a detailed explanation for issue of shares at premium along with valuation report of an independent Chartered Accountant Firm. 7. Thereafter, the Assessee vide its letter filed on March 16, 2016, requested the Joint/ Addl. Commissioner of Income-tax ('Addl. CIT'), to issue appropriate directions u/s 144A of the Act. In response, the Addl. CIT had issued a specific direction to the AO vide its letter dated March 22, 2016, to complete the assessment after obtaining a valuation report from the Val....
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....order. 14. Being aggrieved with the said order, the Revenue preferred an appeal before your Honors vide appeal no. 2011/Kol/2018. The Assessee also preferred cross objections against the appeal by the Revenue, vide C.O. 117/Kol/2018 Proceedings before the Hon'ble Tribunal: 15. Before the Hon'ble Tribunal, the Assessee filed the following: Factual Paper book along with submissions and other documents, dated February 10, 2020, filed on February 11,2020. Supplementary Paper book along with judicial precedents, filed on October 06, 2020. Letter dated October 19, 2021, providing certain documents from the assessment records, as directed by the Hon'ble Bench, filed on October 22, 2021. 16. During the course of hearing, the Authorized Representative for the Assessee (Mr. MP Lohia), argued the following: a) Legality of the Assessment Order He contended that the Assessment Order which is passed in noncompliance with the directions of section 144A of the Act is illegal and void-ab-initio, liable to be deleted. He took the bench through the specific directions dated March 22,2016, issued by the Addl.....
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....tion report as obtained by the Assessee was accepted by the AO, the Revenue's appeal becomes infructuous and unmaintainable, being liable to be quashed. In this regard, the following judicial precedents are brought to your Honor's notice, wherein, it is settled law that having accepted the valuation report, the appeal of the Revenue is not maintainable and liable to be quashed: B. Jayalakshmi (2018) (407 ITR 212) (Mad HC) - Page 87-95 of the supplementary paper book Delight Merchants Pvt. Ltd. (ITA No. 1753/Kol/2017) - Page 96-100 of the supplementary paper book c) Non-applicability of the provisions of S. 56(2)(viib) of the Act As per the provisions of S. 56(2)(viib) of the Act, if a closely held company issues shares at a premium, which exceeds the fair market value (FMV), then such excess of issue price over the FMV is taxable as income from other sources in the hands of the Company issuing shares. In the instant case, it is to be noted that the shares were issued by the Assessee at a premium, which was lower than the FMV of the shares. The FMV of the shares was substantiated by way of an Independent Valuers report. Hence, th....
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.... transaction in light of the provisions of Section 56(2)(viib) of the Act as well as Rule 11UA of the Income Tax Rules, 1962 and came to a conclusion that provisions of Section 56(2)(viib) of the Act are attracted on the alleged sum as the share premium received is in excess of the fair market value of the equity share of the company. 9. We further observe that during the course of assessment proceedings a valuation report obtained from a Chartered Accountant was filed in support of the said valuation which was not accepted and the matter was referred to the District Valuation Officer. But surprisingly District Valuation Officer denied to have any expertise in the field of valuation of equity shares and ld. AO framed the assessment during the period when the matter was pending before the first appellate authority. The assessee obtained a valuation report from registered valuer dated 14.03.2018 prepared as per Rule 11UA(2)(b) of the I.T Rules justifying the charging of said share premium. The same was considered by ld. CIT(A) and accepted the claim of the assessee. 10. Now, on perusal of the said valuation report dated 14.03.2018 prepared by registered valuer, we find that bri....
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....26.63 Combined 456.20 10.00 4,562.00 10,836.70 23.75 14. Now, before us the Revenue has pointed out the fact that the assessee company was incorporated on 07.11.2012 and the cut off date for the valuation of share was 16.11.2012. Further, the fact has been placed before us by the Revenue through its grounds of appeal is that the subsidiary companies were acquired on 29.12.2012 & 10.01.2013 which was after the valuation date i.e. 16.11.2012. This fact of acquiring the wholly owned subsidiaries/step down subsidiaries after the cut off date of valuation of share remains uncontroverted by the assessee and there is no whisper about controverting this fact at any stage during the course of assessment proceedings/appellate proceedings both before Ld. CIT(A) and before us. 15. Based on these facts, we are of the considered view that since the input needed for preparing the valuation report dated 14.03.2018 were not supplied correctly to the expert (CA), the results arrived at in the said valuation report dated 14.03.2018 cannot be accepted. Under these given facts and circumstances of the case we are of the considered view that since the company was incorporated on ....