TaxTMI 
TaxTMI 
2023 (1) TMI 1123
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....otherwise unreasonable and perverse? 2. Whether on the facts and circumstances of the case the Ld.CIT(A) was justified in ignoring the fact that as per section 56(2)(vii)(b) there is no difference between preferential shares or equity shares and that the language of the section uses the word 'Shares" which would also include preference shares. 3. Whether on the facts and circumstances of the case the Ld. CIT(A) was justified in assuming that Rule 11UA is not applicable in cases other than equity shares whereas the said Rule 11UA is applicable in all kinds of shares under Rules 11UA (1)(c)(c) of the IT Rules which is applicable for section 56 and lays down the procedure for determination of market value of property including valuation of shares and security. 4. Whether on the facts and circumstances of the case the Ld. CIT(A) had erroneously concluded that the provisions of sec 56 (2)(vii)(b) and Rule 11UA are not applicable in the case of the assessee whereas the facts and circumstances shows that the said provisions of the Act and Rules are applicable in the case of the assessee. 5. That the applicant craves leave to add, amend or alter the grounds of appeal, if an....
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....tion in respect of the issue of cumulative redeemable preference shares issued by the assessee at a premium of Rs.50/- per share. Notice u/s 133(6) of the Act was issued to the shareholder M/s. Raghuvansh Agrofarms Limited, who had subscribed for the cumulative redeemable preference shares. Ld. Assessing Officer in para 6 of the impugned order noted that M/s. Raghuvansh Agrofarms Limited, has confirmed that they have subscribed a total of 4,00,000 shares at a premium of Rs.50/- per share. In their reply in response to notice u/s 133(6) of the Act, copy of the share certificate duly signed by the Director of the assessee company and its bank statements were also furnished. Ld. Assessing Officer showcaused the assessee for calculation of fair market value (FMV) of the cumulative redeemable preference share as per Rule 11U and Rule 11UA of the Rules. 5.1. Ld. Assessing Officer arrived at a value of (-)5.91/- as the FMV of the said shares and considered it as Rs. Nil. By considering the FMV as Nil of these preference shares, ld. Assessing Officer again showcaused the assessee to explain why the difference between the FMV and the share premium received amounting to Rs.3,29,00,000/- be ....
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.... first year of operation of the assessee and does not justify charging of such a high share premium. He thus submitted that, ld. CIT(A) has wrongly concluded on the applicability of Rule 11UA of the Rules which ought to be reversed. 10. Per contra, ld. Counsel for the assessee reiterated the facts narrated above which are not repeated for the sake of brevity. Ld. Counsel for the assessee submitted that ld. Assessing Officer has failed to appreciate the difference between the equity shares and preference shares and has mechanically applied the provisions of Rule 11UA of the Rules for resorting to the addition made in the present case. 11. Before adverting on the issue, let us apprise ourselves with the relevant provisions of the Act and the Rules. The relevant provisions of Section 56 of the Act are reproduced as under:- "56. (1) ********************** (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :- (viib) where a company, not being a company in which the public are substantially interested, receives, in any previou....
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....019)]; (ab) "trust" means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under any other law for the time being in force;] (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;] 11.1. From the above provision, we note that the explanation refers to FMV of the shares which may be determined in accordance with such method as prescribed. The method prescribed are under Rules 11U & 11UA of the Rules. 12. Rule 11UA(2) relevant in the present case is extracted as under:- "(2) Notwithstanding anything contained in sub-clause (b) of clause (c) of subrule (1), the fair market value of unquoted equity shares for the purposes of subclause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely:- (a) the fair market value of unquoted equity shares = (A-L) x (PV), (PE) where, ....
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....other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price 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.]" 13.1. This above sub-clause (c) deals with the valuation of unquoted shares and securities other than equity shares which is based on a report from the merchant banker or an accountant. 14. We note that Ld. Assessing Officer had called for a valuation report in the course of assessment proceedings which the assessee could not produce, leading to adverse view by the ld. Assessing Officer. However, the same was produced before the ld. CIT(A) who took cognizance of the same and called for a remand report from the ld. Assessing Officer who did not deal with it for expression of his views on the same. Before us, ld. Counsel for the assessee referred to the valuation report issued by Pallavi Prasad & Associates, Chartered Accountants, dtd. 04/04/2014, wherein, valuation of preference shares has been arrived at a value of Rs.60.21. The relevant extract from the valuation report is reproduced as ....