TaxTMI 
TaxTMI 
2025 (1) TMI 450
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....f Rs. 51,00,000/- is bad in law and be deleted. 2. That appellant reserves his right to add or amend grounds of appeal." 3. Brief facts of the case are that the assessee is a Company and had filed its original Return of Income on 03.09.2015 declaring therein total income as NIL by claiming loss of Rs (-)758076/-. The case of the assessee was selected for limited scrutiny and accordingly notice u/s 143(2) dated 13.04.2016 was issued and duly served upon the assessee, fixing the case for hearing on 29.04.2016. A detailed questionnaire u/s 142 been issued to the assessee requesting the assessee to produce certain information / clarifications. 3.1 During the pendency of the assessment proceeding the case was converted into complete scrutiny after approval of ld. Pr.CIT, Udaipur on 05.12.2017. In response to the notices so issued assessee submitted the requisite details, information, documents and clarifications sought for vide notices u/s 143(2) &142(1) as recorded in the order sheet entries made by the ld. AO. 3.2 During the course of assessment it was noticed that assessee was not doing any business activity. Even AR of the assessee in his reply dated 12.07.2017 acc....
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....alculated as per book value of asset according to rule 11UA, and was considered as Nil. Vide order sheet entry dated 22.11.17 and notice u/s 142(1) dated 05.12.17 assessee was asked to show cause why the a sum of Rs. 51,00,000/- should not be added back to the total income of the assessee as per sec 56(2)(viib) rw rule 11UA. AR replied vide order sheet entry dated 28.11.17 and again on 07.12.17 that he has nothing further to say in this regard and case may be decided based on reply already submitted. Ld. AO based on that observation added Rs 51,00,000/ as Income of assessee company. 4. Aggrieved, from the said order of assessment, assessee has filed an appeal before the ld. CIT(A). The ld. CIT(A) after hearing the contention of the assessee partly allowed the appeal of the assessee by giving following findings on the issue:- "5.4 Decision 5.4.1 It is seen from the assessment order that the A.O. has made addition by invoking provision u/s. 56(2)(viib) of the I. T. Act r.w.r. 11UA of the I. T. Rules. The facts of the case in brief is that the appellant is a private limited company who during the relevant previous year issued 170000 shares at the face value of Rs.....
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....A is a negative figure/not worth a penny. However the appellant had issued shares with face value of Rs. 10 each with premium @Rs.20 per share aggregating the value of per share @ Rs. 30. Therefore the provisions of section 56(2)(viib) of the I. T. Act is clearly applicable to the appellant's case. In the written submission, it is submitted by the appellant that the consideration received of Rs. 17,00,000/- being the face value of equity shares cannot be added u/s. 56(2)(viib) of the I. T. Act. This contention raised by the appellant is not found acceptable. It is clear from provision u/s, 56(2)(viib) of the I. T. Act that where a company receives any consideration for issue of shares that exceeds the face value of the shares, the aggregate consideration received for such shares as exceeds the fair market value of shares is taxable. Thus in view of provision u/s. 56(2)(viib) of the I. T. Act the aggregate consideration received (face value plus premium received) is to be considered. In the instant case, the face value of shares is at Rs. 10 per share and premium charged is @Rs. 20 per share. However as per the method prescribed in rule 11UA for determination of fair market valu....
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....tal Income 51,00,000/- 5. Being aggrieved, appellant filed first appeal before CIT A-1, Udaipur (Raj) which was later on migrated to National Faceless Appeal Centre, and the appeal was decided by confirming following addition : a) Addition u/s Sec 56(2)(viib) entire Share Capital and Share Premium amounting to Rs 51,00,000/-. Total Addition Confirmed - Rs 51,00,000/- Being aggrieved by these additions, present appeal is filed before honourable ITAT, which has following grounds: 1. That Learned CIT A has wrongly confirmed addition of Rs 51,00,000/- of Share Premium and Share Capital treating the value of Share Value at Rs nil under section 56. The confirmation of addition is made without following provisions of law. Hence the addition of Rs 51,00,000/- is bad in law and be deleted. 2. The appellant reserves his right to add or amend any grounds of appeal. A. First Ground of Appeal First Ground of appeal reads as under: 1. "That Learned CIT A has wrongly confirmed addition of Rs 51,00,000/- of Share Premium and Share Capital treating the value of Share Value at Rs nil under section 56. The confirmation of addi....
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....d accordingly made addition of Rs. 51,00,000/-by invoking provision u/s. 56(2)(viib)of the I.T. Act. 5.4.2 During the course of appellate proceedings, the appellant made written submission reproduced above and also filed copy of share valuation report. It is seen from the share valuation report dated 05.01.2015 that the fair market value of the shares has been determined under various methods of valuation including discounted cash flow method. However as per explanation given under provision of section 56(2)(viib) of the I.T. Act, the fair market value of the shares shall be the value as may be determined in accordance with rule 11Uand 11UA of I. T. Rules. Therefore it is mandatory that the fair market value of the shares for the purpose of section 56(2)(viib) of the I.T. Act is determined as per the method prescribed under rule 11U and 11UA of the I. T. Act only and thus the fair market value of shares determined by any other method is not to be considered. 5.4.3 As per rule 11UA of I.T. Rules the fair market value of unquoted equity shares is equal to(A-L)X(PV) PxE) Where A=Book value of asset in the Balance Sheet L = Book value of Lia....
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....l raised by the appellant is thus dismissed. 7. It is respectfully submitted that provision of Sec 56(2)(viib) read with Rule 11UA are dealing with the case when any private limited company choose to issue its share capital more than face value of equity shares. The company has a liberty to determine value of shares after obtaining report for an accountant or merchant banker and the accepted method of valuation is Discounted Cash Flow Method. 8. It is respectfully submitted that in this case it is undisputed facts that : a) Company has issued Equity share at a price of Rs 30/- per share while face value per share is Rs 10/- only. b) Company has obtained fair market value report as per requirement of Rule 11UA and submitted the copy of it before Ld AO and Ld CIT A (A copy of which is also enclosed Paper Book Page No from to) . c) Ld AO made addition considering the fact the Net Asset Value of company is in Negative, ignoring Valuation on the Future Earning Method and Discounted Cash Flow Method. d) Ld CIT A also confirmed the same adopting the logic adopted by the AO. e) Ld CIT A as well as AO has not rejected or pointed....
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..... It is his option whether to choose NAV Method (Book Value) under clause (a) or to choose DCF Method under clause (b) and the ld. AO cannot adopt a method of his own choice. The ld. DR has relied on Agro Portfolio (P.) Ltd(supra). But the order is not coming under factual matrix, Here the data supplied was incorrect and correctness of DCF method was in question. In assessee's case there is no question about the correctness of data. 8.1 We relied on the order of the ITAT Mumbai Bench in the case of Crown Chemicals, (supra), ITAT, Delhi Bench in the case of Hometrail Buildtech (P.) Ltd and ITAT Jaipur Bench in the case of NabhMultitrade Pvt. Ltd., (supra). We find that the assessee valued the share amount to Rs. 158/- per share and allotted share is Rs. 100 which is much less than the NAV which is not contravening of section 56(2) of the Act. 11. It is respectfully submitted ITAT Jaipur Bench in case of VINAYAKA MICRONS (INDIA) PRIVATE LTD. vs. PRINCIPAL COMMISSIONER OF INCOME TAX reported at (2021) 63 CCH 0294 JaipurTrib deal with similar issue as under : Brief Facts The assessee has filed it's return of income for the assessment yea....
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....e submitted report from an accountant who has determined the fair market value of shares at Rs 250.17 per share where as the assessee has issued shares of face value of Rs 100 at a premium of Rs 100, thus at a value lower than the fair market value. During the course of revisionary proceedings, the ld PCIT pointed out that the valuation report has been obtained from an associate member of ICAI as against fellow member of ICAI as prescribed under Rule 11UA(2). The assessee thereafter obtained and submitted a report from a merchant banker who is equally qualified to issue such valuation report under Rule 11UA(2) and who has determined the fair market value of the shares at Rs 219.50 per shares which is still higher the value at which the shares were issued by the assessee company. Thus, even where the report of the merchant banker is considered, the provisions of section 56(2)(viib) continues to remain inapplicable. Further, there is no adverse finding recorded by the ld PCIT and no dispute which has been raised regarding the discounted cash flow method of valuation and the methodology adopted in both the valuation reports. Though there is a variation in valuation so determined in tw....
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....AR of the assessee has relied upon the following evidences/ records / judicial decisions :- S. No. Particulars From To 1. Written submission 1 15 2. Valuation report 16 44 3. Idana Pet Industries P. Ltd. vs. ITO ITAT Jodhpur 45 52 4. Vinayaka Microns (India) Pvt. Ltd. vs. Pr. CIT ITAT Jaipur 53 58 5. Annu Agrotech Private Limited vs. Principal Commissioner of Income Tax ITAT Jaipur 59 86 7. Per contra, ld. DR relied upon the orders of the lower authorities and raised the similar contention as recorded in the orders of the lower authorities and submitted that the orders made are reasoned order made in accordance with the provision of law. 8. We have heard both the parties and perused the materials available on record. The apple of discord in this case is that whether the addition of Rs. 51,00,000/- made by the ld. AO and sustained by the ld. CIT(A) made as per the provision of section 56 of the Act is correct or not. 8.1 The brief facts related to the solitary issue raised in this appeal are that the assessee (a company, not being a company in which public are substantially interested) had issued share ....
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....(2)(viib) or not?. Before we produce to decide let us recap the provision referred while making the addition in this case along with the application rule 11UA which reads as under : Income from other sources.[ Provision of the Act] 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable 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", namely :- (i) dividends ; xx xx xx xx (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,- (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; (b) any immovable property,- ....
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....old 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.] 8.4 We have gone through the provision of the Act and relevant rules which prescribed that fair market value can be determined for the unquoted shares which are not listed shall be estimated to be price it would fetch if sold in the open market on valuation date and for that assessee may obtained a report of the Merchant Banker or an accountant in respect of such valuation. Having gone through the provision of and relevant rule we note that during Assessment Proceedings Appellant-assessee company filed Valuation Report obtained from an Accountants as per requirement of Rule 11UA of the Income Tax Rule. In the said report valuation of Equity Share is carried out on various methods i.e. Fair Market Value, Net Asset Value, Future Earning Method and Discounted Cash Flow method. (The aforesaid fact has been accepted even by Ld CIT Appeal - Para 5.4.2 Page No 15 of CIT A Order). Ld AO has made addition on the basis that Fair Market Value Method and Future Earning Method is not prescribed method under Rule 11UA and in view of negative ....