2023 (9) TMI 754

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....f shares of M/s Miller Traders (P) Ltd. ignoring the chartered valuation adopted by the assessee and instead adopting its own valuation is against the provisions of law and the addition made a arbitrary, excessive and illegal. 3. That on the facts and in the circumstances of the case the action of the L to confirm the addition made by the A.O. of Rs. 10.15.07.000/- as unexplained investments on the reason that the Sundry Debtors are fictitious is contrary to the settled principles of law and the addition is arbitrary, excessive and illegal. 4. That on the facts and in the circumstances of the case the action of the id.CIT(A) to confirm the addition made by the A.O of Rs. 10.15.07.000/- as unexplained investments by party treating the bogus Sundry Debtors of A.Y. 2014-15 is against the settled principles of law and the addition is arbitrary, excessive and illegal. 5. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to hold that the sales for AY 2014-15 & 2015-16 were not genuine where as no sales in AY 2015-16 on the basis of expenses debited in the Profit & Loss Account is contrary to the material evidences on record and....

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....e by the AO u/s 56(2)(viia) of the Act, on account of investment of shares of M/s Miller Traders (P) Ltd. It is the case of the assessee as per the said grounds of appeal that the Authorities have ignored the Chartered Valuation adopted by the assessee and adopted its own valuation which is against the provisions of law and the addition made is arbitrary, excessive and illegal. 6. The Ld. DR submitted that the assessee has not followed any of the methods contemplated under the Rules for the purposes of valuation and no such valuation report has been furnished before the A.O. therefore, the Ld. A.O. rightly disbelieved/disputed the valuation report submitted by the assessee and made addition. 7. We have heard the Ld. DR and perused the material available on record. The AO while making the above addition, was of the opinion that shares which have been routed at Rs. 10 per share was in violation of provisions of section 56(2)(viia) of the Act. The relevant porition of the assessment order are as under:- "7. As per the assessee submission, it may be noted that assessee has made investment in shares of M/s India Finance Ltd. and M/s Miller Traders Private Limited. Further....

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....is covered in point in (iii) above or not, fair market value of shares of M/s Miller Traders Private Limited is required. Fair market Value of shares of M/s Miller Traders Private Limited as on 31st March 2014, the immediate preceding year, comes to Rs. 214.11/- per share on the basis of balance sheet available at the MCA website. Assessee has purchased 218350 shares of Miller Traders Private Limited @Rs.10/- per share which comes to Rs. 21,83,500/- however the total fair market value of 218350 share@ Rs. 214.11/- per share comes to Rs. 4,67,50,918/- and difference of the total fair market value and total purchase consideration comes to Rs. 4,45,68,174/- which is far excess than rupees fifty thousand and as such claim of assessee that transaction of purchase of shares of M/s Miller Traders Private Limited is not covered u/s 56(2)(viia) has no ground." 8. The Ld. CIT(A) in the Appeal filed by the Assessee while dealing with the issue held as under: "a. The A.O. held that section 56 (2Xviia) was applicable as act of allotment of shares resulted in receiving the shares. The A.O. worked out the book value of the shares in respect of M/s Miller Traders Pvt. Ltd. Dur....

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....es at inadequate consideration Whereas clause viib is in respect of receipt of inadequate consideration for issues of shares. In this context we may be benefitted by the ruling of Hon'ble SC in case of Khoday Distilleries reported in [2009] 176 Taxman 142 (SC) dated 14/11/2008, where the Hon'ble Supreme Court had the occasion to deal with the aspects of allotment of shares. Though in a different context, this ruling clearly points out that the allotment of shares in similar circumstances is similar to receipt of shares. Section 56(2)viia has come into effect wef 01/06/2010 and it clearly deals with such scenarios wherein the appellant receives shares for inadequate consideration by way of purported allotment, thus implicitly receiving undue benefit in such structured transaction. The section does not distinguish the allotment or transfer of shares. Both the transactions fall within scope and domain of RECEVING OF SUCH PROPERTY ie SHARES as envisaged in section referred above. In view of the transaction structures in this case as seen from the assessment order, there is accrual of income in layered form in non cash format. This is a clear case which falls in the scope of the....

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.... to furnish reliable valuation determining such share premium from a qualified valuer. Further, the Assessee had not entered into a distress transaction also though the same is not recognized in the extent scheme of Section 56(2) read with Rule 11UA. Thus, the A.O. was well within his rights to question the valuation reports as they were not in line with the method of valuation adopted basis the assets valuation owned by the concerned entity, as detailed above. Considering the fact that the assessee had not furnished any valuation as per Rules either before the AO or before the Ld. CIT(A) or before us, we find no error or infirmity in the order of the CIT(A) sustaining the addition made by the AO. Accordingly, we find no merit in the Grounds of appeal No. 1 and 2 of the assessee and we dismiss the Ground No.1 & 2 of the assessee. 10. Grounds No.3 to 5 are regarding addition of Rs. 10,15,07,000/- made as unexplained investment. While framing the Assessment for the Assessment Year 2014-15, A.O. concluded that the assessee was not doing any actual purchase or sale and are mere name lender. The A.O. sought to follow the same in the year under consideration and the assessee in reply ....