TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 39
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....hod adopted by the appellant by relying upon Rule 11UA(2)(b) but instead applying Net Asset Value (NAV) method, which being not justified, the addition of Rs. 6,60,02,100/- may kindly be deleted. 2. The Hon. CIT(A) erred in in upholding the action of the Id AO in making addition of Rs. 6,60,02,100/- under s. 56(2)(viib) of the IT Act, 1961, not appreciating that as per section 56(2)(viib) r.w. Rule 11UA(2)(b), the choice of adopting a valuation method lies with the assessee and not with the Id AO and therefore the addition of Rs. 6,60,02,100/- made by the Id AO by replacing the validly adopted method of valuation, is unjustified and may kindly be deleted. 3. The appellant craves leave to add, alter, amend and/or vary the above grounds of appeal at any time before the decision of the appeal." 3. Brief facts of the case are that the return of income for A.Y. 2017-18 was filed by the assessee on 29.03.2019 declaring total income of Rs. 4,45,96,930/-. In the assessment order passed u/s 143(3), ld. AO made an addition of Rs. 6,60,02,100/- u/s. 56(2)(viIb) of the Act, holding that the 4700 equity shares issued by the assessee to third party share holders @ Rs. 16491/....
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....r, Ld. AO rejected the assessee's computation and applied the NAV method on the ground that basis of valuation adopted by the assessee is not scientific and not based on past performance and the date used in computation of DCF is far from reality. 5. With regard to the issue under consideration, the assessee has made the written submissions, relevant portion of which is reproduced below: "3. During the year under appeal, the appellant for raising capital required for expansion and diversification of its business decided to issue equity shares under private placement. With this in mind, the appellant company appointed M/s GHG & Co. Chartered Accountants for determining the valuation of shares. The appellant company based on the valuation provided by the cited Chartered Accountant firm issued equity shares at premium to resident Indian entities as given hereunder. Name of the Allottee Date of allotment No. of equity shares Shares premium (in Rs) Share face value Total Amount FV per share Premium per share Total value of allotment per share OPG Securities Pvt. Ltd. 05.04.2016 2,062 3,39,83,822/- 20,620 3,40,04,442/- 10 16,....
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....it was explained that while issuing shares at FMV of 16491/- per share, the appellant was confident of securing contracts primarily from Indian Army for Infantry use for about 2100 UAV's and expected contract from DRDU for 9000 Target Drones. Both these opportunities had target period of upto 10 years supply. The valuation by accountant takes into consideration the revenue from these projected sales. Subsequently, as these orders did not materialize, the next round of placement was done at FMV of 9900 per share. Thereafter, due to requirement of Drones for * Smart city projects * Defence requirements due to URI attack in Sept. 2016 and revision of FDI limits, the revised projections determined FMV of 18246/- per share. A SEBI registered category 1 Merchant Banker M/s. Corporate Capital Ventures vide report dated 05.09.2019 determined FMV of equity share as on 30.06.2019 at Rs. 18,484/-. Thus, the valuation of shares is done as per DCF method in a fair and transparent manner by authority specified under Rule 11UA. 7.Unfortunately, the Id.AO did not accept the appellant's explanation submitted alongwith plethora o....
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....r. Assessment Year Name of the Investor Issue price Per Share Rs. (including premium) 2015-16 CIIE 4,325 2015-16 Grow India Capital Pvt. Ltd. 8,663 2015-16 Anuraag Shah 8,642 2015-16 Charulata Chah 8,642 2015-16 Ramesh Shah 8,642 2016-17 Ganapathy Subrimanium 8,696 2016-17 Infina Finance Private Limited 8,656 2016-17 Ajay Doshi 12,887 2016-17 Growth Securities Pvt. Ltd. 12,887 2016-17 Nirmal Commodities Broker Pvt. Ltd. 12,887 2016-17 Piyush Maheshwari 12,887 2016-17 Puneet Maheshwari 12,887 2016-17 Nambirajan Seshadri 12,887 2016-17 Richa Garg 12,887 It is thus to be appreciated that the department has accepted FMV of share in A.Y 2016-17 at Rs. 12,887/- but adopts FMV at Rs. 2447.10 in AY 2017-18. Copies of assessment order dt. 29.12.2016 and 12.12.2017 for AY 2014-15 and AY 2015-16 respectively are enclosed at page nos 217 to 221 of the paperbook. 9.The ld.AO/Hon. CIT(A) failed to appreciate that as the appellant had determined FMV in accordance with rule 11UA(2)(b), no amount was required to be taxed as income from other source....
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....Trib.) [2024] (ix) Movefast Automobiles (P.) Ltd.-vs-ITO, 152 taxmann.com 532 (Delhi-Trib.)[2023]" 6. Ld. DR on the other hand, strongly relied on the orders of the lower authorities and argued that the valuation method adopted by the assessee has rightly been rejected by the ld. AO as it is not based on sound reasoning and uses distorted figures for profitability and projected cash flow. Accordingly, the valuation method adopted by the ld. AO at NAV deserves to be upheld. 7. We have considered the rival submissions and perused the material on record. It is pertinent to refer to the relevant provisions regarding valuation of shares as per rule 11UA(2) which are reproduced below: Section 11UA "2. Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (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 val....
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....s issue stands decided in favour of the assessee. Specifically, on identical facts and circumstances, the co-ordinate Bench in the case of DCIT Vs. Credtalpha Alternative Investment Advisors (P.) Ltd. 134 taxmann.com 223(Mum-Trib)[2022] have held as under: "14. As is manifest from the above, the explanation placed in clause (viib) postulates that the FMV of shares as may be prescribed or as may by the company to the satisfaction of the AO, whichever be higher. The methods for valuation stand enumerated in Rule 11UA which reads as follows: -"Determination of fair market value. 11UA. [(1)] For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely,- (a) valuation of jewellery,- (i) the fair market value of jewellery shall be estimated to be the price which such jewellery would fetch if sold in the open market on the valuation date; (ii) in case the jewellery is received by the way of purchase on the valuation date, from a registered dealer, the invoice value of the jewellery shall be the fair market value; (iii) in case the j....
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....ted 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 represent the value of any asset, B=the price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer, C=fair market value of shares and securities as determined in the manner provided in this rule; D=the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property; 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 divide....
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....rt 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 for taxation other than 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, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE total amount of paid-up equity share capital as shown in the balance sheet, PV= the paid-up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker [*] ....