2022 (12) TMI 456

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....CIT(A) has erred in holding that provisions of Sec.56(2)(viia) are not attracted to the case of assessee company without appreciating that during the relevant previous year, the assessee company had received shares of M/s. D. B. Projects Pvt. Ltd. and M/s. SLS Energy Pvt. Ltd. for a consideration which was less than the aggregate Fair Market -Value (FMV) of the equity shares of each such investee company by an amount exceeding fifty thousand rupees. 3. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 2. The facts in brief are that, Assessee Company is engaged in the business of construction work and during the year, have not reported any revenue activity. During the course of assessment proceedings, the AO noted that Assessee Company has made investment by way of purchasing shares of group concerns at a lesser then the fair market value (FMV). The Ld. AO had proposed the FMV of the shares as per rule 11UA in the following manner:- No. Particulars   M/s. SLS Energy Pvt. Lt.   M/s. DB Project Pvt Ltd.   1 Date of allotment or investment or payment made....

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....e of SLS Sr. No.   Date   Event/Particulars   Proof Submitted   1 09-07-10   Allotment of 6,80,000 Equity Shares to Mystical.   Form No.2   2 13-07-10   Redemption of 68,00,000 Preference Shares to Dynamix Balwas Infrastructure Pvt. Ltd at Premium.   Board Resolution dated 13/7/2010   3 30-07-10   Purchase of 90,000 Equity Shares by Mystical from Dynamix Balwas Infrastructure Pvt. Ltd.   Demat Statement & Share Certificate   4 03-08-10   Allotment of 68,00,000 Preference Shares to the assessee.   Board Minutes dated 3/8/10   Chronology of events in case of DBPPL Sr. No.   Date   Event/Particulars   Proof Submitted   1 09-07-10   Allotment of 6,85,000 Equity Shares to Mystical   Form No.2   2 13-07-10   Redemption of 68,50,000 Preference Shares to Dynamix Balwas Infrastructure Pvt Ltd at Premium.   Board Resolution dated 13/7/2010   3 30-7-10   Purchase of 10,000 E....

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....standing in the books of the account. The computation of FMV as done by AO was not in conformity with rule 11U and 11UA because AO has not taken the liability on account of redemption of preference share standing in the books of Investee Company. He further noted that assessee had submitted the valuation report of the shares from B. B. Jain and Associates which supported this view. His relevant observation for deleting the entire addition made by the AO reads as under:- 5.7 The. Section 56(2)(viia) applies to a purchase of shares by a person from another person who had held the shares, prior to their transfer. In the present case the appellant had subscribed to the shares of the group concerns which came into existence or were created in the closely held company due to fresh allotment. It is not a case of transfer of shares from a third party below the market value of shares as on date of transfer. It is noted in the instant case the appellant had subscribed to the share capital of two group companies i.e. D B Projects Pvt. Ltd. and SLS Energy Pvt. Ltd. on 09.07.2010. It is noted the appellant has submitted the valuation of shares as on 09.07.2017 to be Rs. 10/share after ....

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....000/-, u/s 56(2)(viia) cannot be sustained in appeal and is,- directed to be deleted. Accordingly these grounds of appeal are allowed. 8. Before us, Ld. DR strongly referred and relied on the order of AO and submitted that the AO has threadbare analyzed the assessee's explanation and has taken the valuation as per the net asset value method as on 09.07.10 which is in accordance with rule 11/11UA. 9. On the other hand, Ld. Counsel for the assessee strongly relied on the order of Ld. CIT (A) and drew our attention to the copy of balance sheet of both the companies as on 09.07.10 which are appearing in the paper book at page 213 and 218 and pointed out that there was a clear cut liability on account of redemption of preference shares which AO has not taken into account as provided specifically under rule 11UA(2). 10 We have heard the rival submission and perused the relevant findings and material placed on record. From the discussion as made above, the short controversy which involves is, whether the valuation was done by the AO is in accordance with rule 11U and rule 11UA or not. The AO in his detail order has nowhere made any whisper about liabilities outstanding in the bal....

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....6,861,338,970.   SLS Energy Pvt. Ltd. LIABILITIES   Amount (Rs.)   Amount (Rs.)   ASSETS   Amount (Rs.)   Amount (Rs.)      CAPITAL ACCOUNT Equity Share Capital   68,00,000 0.01% Optionally Convertible Cumulative 'reference Shares of Re I/- each (Due for Redemption)     LOAN (LIABILITY)   CURRENT LIABILITIES Sundry Creditors   Payable to Dynamix Bahvas Infrastructure Private Limited on account of premium on redemption of (DBffL)     7,700,000.00       6,800,000.00               14500,000.00         48,500,000.00                 6,793,188,970.00   FIXED ASSETS Pre Operating Expenses Fending Capitalization                 CURRENT ASSETS Deposits .cans & Advances                 Cash-....