TaxTMI 
TaxTMI 
2024 (5) TMI 585
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....ent date of hearings, there was no representation from the side of the assessee. Hence the Bench felt it appropriate to proceed with the disposal of this appeal on hearing the ld. DR and based on materials available on record. 3. The assessee has raised the following grounds of appeal before us:- "1. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to confirm the addition of Rs. 8,25,000/- made by the A.O. u/s 56(2)(viia) of the Act, on account of purchase of shares of M/s Gain E Commerce (P) Ltd. without accepting the valuation of shares declared by the assessee is against the provisions of law and the addition made is arbitrary, excessive and illegal. 2. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to confirm the addition made by the A.O. of Rs. 20,39,400/- u/s 56(2)(viia) of the Act, on account of purchase of shares of M/s Kanti Commercial (P) Ltd. without accepting the valuation of shares declared by the assessee is against the provisions of law and the addition made is arbitrary, excessive and illegal. 3. That on the facts and in the circumstances of the case the action of t....
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....tment in unlisted equities during the year" by the assessee. Details in this regard was sought for from the assessee by the ld. AO during the course of scrutiny assessment proceedings. Since no details were furnished by the assessee, the ld. AO issued a show cause notice on 28.11.2017 as to why the increase in investments during the year be not treated as unexplained investment for want of explanation of source for the same. In response, the ld. AR of the assessee filed his submissions on 5.12.2017 giving the complete details of investments made by the assessee and shares allotted thereon . The ld. AO noted that assessee has made investment in shares of Dahisar Traders Pvt Ltd , Gain E Commerce Pvt Ltd, Kanti Commercial Pvt Ltd and Purbanchal Power Company Ltd. Further assessee has claimed that shares of M/s Dahisar Traders Pvt Ltd were allotted as per the scheme of amalgamation and as such provisions of section 56(2)(viia) of the Act are not applicable in this transaction. The ld. AO noted that the assessee had failed to provide any details in respect of purchase of shares of Gain E Commerce Pvt Ltd, Kanti Commercial Pvt Ltd and Purbanchal Power Company Ltd and also failed to expl....
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....y actual sale or actual purchase. Accordingly, the sundry debtors of Rs 29,47,215/- created from fictitious sale made during the Asst Year 2014-15 has no worth and only book entry. Based on this conclusion drawn in Asst Year 2014-15, the ld. AO similarly treated the sundry debtors of Rs 69,08,850/- relating to current year as also fictitious and as such investment made during the year by the assessee company to the extent of aggregate of sundry debtors of Asst Year 2014-15 and 2015-16 of Rs 98,56,165/- was treated as not genuine and added to the total income of the assessee. 9. The aforesaid action of the ld. AO was upheld by the ld. CIT(A) by observing as under:- 5. Findings I have considered the facts of the case, the basis of addition made by the AO and the arguments of the AR during assessment as well as appellate proceedings. The cases cited by the Ld AR to support their case have all been considered. The decision in respect of the imputations is as below- The AO treated the shares investment as assessable under section 56(2) viia and assessed as below per order of assessment by making the following additions:- 1. Addition u/s 56(2)(viia)....
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....der clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation. For the purposes of this clause, "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii); The appellant has erroneously relied on some opinion stating that clause viib will be applicable in its case and the provisions of Section 56(2)(viia) does not apply to the assessee. This submission is not backed by legal position as can be very clearly seen from the section concerned and the relevant sub clauses. i. Applicability of section 56(2)viia a. The A.O. held that section 56 (2)viia 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 Gain E. Commerce consideration of Rs. 4,75,00,000/- and 18000 shares of M/s Kanti Commercial (P) Ltd. @Rs.3,000/- per share for total consideration of Rs. 5,40,00,000/-. Therefore in the books of the assessee company there was increase in investments to the tune of Rs. 4,75,....
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.... 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 such shares, of its assets, including intangible assets being goodwill, knowhow, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, A whichever is higher. (b) "venture capital company", "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in....
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....able to income tax under any of the heads specified in section 14, items A to E. (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" It is pertinent also to refer here to the judgment by Hon'ble Delhi High Court in [2018] 97 taxmann.com 150 in W.P. (C) NOS. 8293 & 8482, 8483 OF 2018 C.M. APPL. NOS. 31812-31814, 32580-32582 &32583- 32585 OF 2018 PER JUDGMENT DATED 10/09/2018 "55. Here, by virtue of Section 56 (1) income from any source that is not exempted, "shall be chargeable to income tax.. if it is not chargeable to income tax under any of the heads specified in section 14, items A to E". This is clearly a deeming provision, which specifically creates a fiction that "the following income" (Section 56 (2)) is chargeable to tax. The section then enumerates what is deemed to be income; the relevant part is that "any property", other than immovable property(is acquired)"(ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the ....
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....enumerates in details as to what is deemed to be income as per clause viia of 56 (2) and so forth. Therefore, the differential between the fair market value so computed and the cost of acquisition essentially constitutes income. The appellant has also taken a plea that there was a dispute and the conditions for allotment of the shares were not fulfilled and therefore there was breach of contract the share application/allotment of shares were not legally valid. This is not acceptable as the transaction has not been called off. It seems to be a collusive device to hoodwink correct income determination. The issue of the assets remaining under hypothecation with financial institutions is also not tenable, as the assets remain in the name and custody of the appellant entity. There is no loss yet of the assts. Hence these are bound to be considered for the purposes of valuation. Accordingly, I uphold invoking of section 56(2) viia as a correct measure on the facts and as in law. ii. Next issue is about valuation as per rule 11UA. It is pertinent to refer to rule 11UA to better appreciate the computation drawn by the AO. This rule reads as Under a. Determination....
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....and securities quoted on any recognized stock exchange on the valuation date, and (a) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation date, and (b) the lowest price of such shares and securities on any recognized stock exchange on a date immediately preceding the valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date there is no trading in such shares and securities on any recognized stock. exchange. [(b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner, namely:- the fair market value of unquoted equity shares =(A+B+C+D - L)x (PV)/(PE), where, A= book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) in the balance-sheet as reduced by.- (i) any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any, and (ii) any amount shown as asset including the unamortised amount of deferred expenditure which does not r....
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.... 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 = where, A = book value of the assets in the balance-sheet as reduced by any 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 and any amount shown in the balance- sheet as asset including the unamortised 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, other than those set apart towards depreciation; (iv) any amount representing provision....
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....thod for valuation of the fair market value is under Rules 11U and 11UA(c)(b) of L.T. Rules. Rule 11UA (c) (b) reads as under: 7.3 From the literal reading of the above provision, it is clear that to apply the above provision, the following conditions have to be satisfied: i. there is transfer of shares a company not being a company in which the public are substantially interested: ii. the purchaser of the shares is a company not being a company in which the public are substantially interested; iii. the consideration is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees; and iv. the deemed income in the hands of the transferee shall be the aggregate fair market value of such property as exceeds such consideration. 8. From the facts of the case before us, it is seen that the property i.e., shares which are transferred are the shares of a company in which the public are not substantially interested. Since the transaction of sale and purchase of shares is between related parties and both the companies are companies in which the public are not substantially interested, we are of th....
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....essee and apply the said provision only if the conditions set therein are satisfied. In the case before us, undisputedly some of the shareholders have sold the shares at a much higher price than that at which the assessee has purchased the balance of the shares from other shareholders i.e., at Re.1. Though the A.O. has not computed the fair market value in accordance with Rule 11UA of the I.T. Rules, he had evidence before him to be satisfied that the market value of the shares was much higher than the value at which the balance of shares were transferred to the assessee. The AO has observed that "mainly the valuation of any property is based on fact as to what value the property would fetch if sold in open market but generally the details as to how much value an unlisted share would fetch will not be available and hence the formula is given to overcome that deficiency". Since the market price of some of the shares at a higher value than Re.1 was available, the AO has adopted the same as the fair market value. This stand of the AO could have been sustainable had the section provided that the FMV of an unquoted share shall be the value computed in accordance with the rule or the act....
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....paid by the assessee for purchase of some of the shares of M/s Optival as even when the transactions are between the related parties, the provisions of section 56(2)(viia) can be applied only in accordance with the prescribed method and the difference between the price at which the assessee has purchased the shares and aggregate of the fair market value of the shares as computed can be brought to tax as deemed income in the hands of the assessee... 5.2. Section 56 allows the assessees to adopt one of the methods of their choice. But, the AO held that the assessee should have adopted only one method for determining the value of the shares. In our opinion, it was beyond the jurisdiction of the AO to insist upon a particular system, especially the Act allows to choose one of the two methods. Until and unless the legislature amends the provision of the Act and prescribes only one method for valuation of the shares, the assessees are free to adopt any one of the methods. Therefore, in our opinion the order of the FAA does not suffer from any factual or legal infirmity. 5.3. We also find that in the earlier assessment year, the AO had, while completing scrutiny assessme....
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.... was obtained by M/s TV Today Network Ltd. and is dated 24.05.2013 which report had been prepared on analysis of the value of the equity shares of Mail Today Newspapers Pvt. Ltd. as at 31.03.2013. The aforesaid report was in fact obtained by listed public limited company and as per the report obtained by them since they had acquired shares in Mail Today Newspapers Pvt. Ltd., and even going by the said report the value as adopted was Rs. 44.78/- per share. Thus, here it is submitted that the aforesaid approach of the learned AO to criticize the aforesaid report, is not only without jurisdiction but also erroneous. On one hand the AO in his order has held that the amount had been received in the FY 2012-13 and the fair market value has to be determined on the basis of annual report as at 31.03.2012 and on the other hand while valuing the stake he had adopted the figure as at 31.03.2013 which represents the value analyses of Mail Today Newspapers Pvt. Ltd. 11.3 That further, the valuation of shares of M/s Mail Today is also governed by the fact that a well-known media house listed company M/s TV Today Network Ltd. was an investor in M/s Mail Today, which fact has totally been....
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.... 126, 81, 44, 942/- (as on 31.03.2012 at page 103 of paper book), whereas, your goodself have taken the same at Rs. 67, 23, 39, 330/- which in any case, needs to be corrected. 14. In view thereof, it is most respectfully submitted that proposed enhancement vide notice dated 13.09.2018 is uncalled for and wholly untenable both in law as the value of investment in M/s Mail Today as on 31.03.2012 is Rs. 270, 06, 19, 055/- (kindly see page 23 of paper book) and not Rs. 67, 23, 39, 330/- (as computed by your goodself in the captioned show cause notice) and thus, the addition proposed of Rs. 48, 16, 66, 660/- in the captioned show cause notice be dropped at the earliest..." c. The consideration paid by the appellant clearly falls within the scope of section 56 (2) viia for evaluating if the appropriate consideration was indeed transacted as per the provisions of law. The appellant has failed in furnishing a reliable and robust basis of valuation of such equity. The relevant rule in this regard is rule 11 UA(1) cb. The AO has carried out the valuation on NAV method. The appellant assessee is in clear mischief of the same, hence the premium charged by the assessee is to b....
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....of Duncans Industries Ltd. vs. State of U.P. and Ors supra), the case-law, which was relied upon by the assessee has at page 9 held as follows:- "These valuers are technical persons who have while valuing the plant and machinery taken into consideration all aspects of valuation including the life of the plant and machinery. The valuations made both by the Enquiry Committee as well as the valuers are mostly based on the documents produced by the appellant itself. Hence, we cannot accept the argument that the valuation accepted by the Collector and confirmed by the revisional authority is either not based on any material or a finding arrived at arbitrarily. Once we are convinced that the method adopted by the authorities for the purpose of valuation is based on relevant materials then this Court will not interfere with such a finding of fact. That apart, as observed above, even the counsel for the appellant before the High Court did not seriously challenge the valuation and as emphasised by the High Court, rightly so. Therefore, we do not find any force in the last contention of the appellant also. 16. For the reasons stated above, this appeal fails and the same is ....
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....he interest which we consider appropriate to give in the given facts and circumstances of the case. Though the grant of interest, as prayed for by the petitioners, from 31st May, 2002-the stipulated date of submission of valuation report is not called for, we feel that the ends of justice would be adequately met if the respondents concerned are directed to pay the interest at the rate of 9 per cent, on Rs. 8.24 crores, which is the value of shares fixed by the valuer, for a period of 12 months. True, the petitioners contested the valuation and thereby delayed the implementation of settlement. However, having regard to the bona fide nature of the dispute and the fact that the respondents have, retained the money otherwise payable to the petitioners during this period of 12 months and could have profitably utilized the same, we have given this direction taking an overall view. In the result I.As. Nos. 2, 3 and 4 of 2002 are dismissed subject to the above direction as to payment of interest. The SLP(C). Nos. 18035, 18041- 18042 of 2002 shall stand disposed of in terms of the settlement on record coupled with the direction to pay the sum of Rs. 8.24 crores representing the value of 4.9....
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....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. The addition by the AO on share issued valuation basis on account of share premium component is confirmed as upheld based on the position of the law and relevant rule in this regard on basis of recognition of the receipts in particular specific head. The action of the AO is upheld in this respect. C. Grounds 4&5- That on the facts and in the circumstances of the case the action of the AO to make addition of Rs. 98,56,165/- as unexplained investments by partly treating the bogus Sundry Debtors of AY 2014-15 is against the settled principles of law and the addition is arbitrary, excessive and illegal. a. The AO had concluded while framing assessment for AY 2014-15 that the assessee was not doing any actual purchase or sale and are the mere name lender. The AO sought to follow the same in this period also. The appellant has just stated that - "All the purchases and sale were genuine. It was submitted that the sale was out of the opening stock and there was no fresh purchase durin....