TaxTMI 
TaxTMI 
2026 (4) TMI 1487
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....1. The Appellant submits that the Order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts on record, and also the law applicable to the facts of the case. 2. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 59.82,060/-. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition under section 56(2)(viib) in respect of share premium received in Assessment Year 2007-08, when section 56(2)(viib) was not on the statute. 4. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition of share premium of Rs. 59,82,060/- by invoking section 68 of the Act, ignoring the fact that there was no receipt of share premium in Assessment Year 2016-17. 5. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition by invoking provisions of Section 68 of the Act, when the provisions of the said section do not apply to opening balances. 6. The learned Commissioner of Income Tax (Appeals) erred in not giving opportunity before confirming the addition under section 68 of the Act and further erred in contravening the provision....
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....he assessee for the year ending 31/03/2016, it was noticed that the assessee has issued equity shares to Perfiles Especiales, Mr. V.K.Kothari and Mr. Girish Jain, having a face value of INR 10 per share with a premium of INR 30 per share. Accordingly, the assessee received a total share premium of INR 1,22,08,260 upon issue of equity shares. During the assessment proceedings, the assessee was asked to furnish complete details and justification for charging a premium on shares issued during the year. In response, the assessee submitted the following details of shares allotted and premium received: - Name of shareholder Residential status No. of shares allotted Date of Allotment Amount Received Share Premium Perfiles Espaciales Selak, S.L Spain Foreign Company 5,10,000 28.03.2016 83,01,639 62,26,200 Vinay Kothari Resident 2,45,000 28.03.2016 40,76,780 29,91,030 Girish S. Jain Resident 2,45,000 28.03.2016 40,76,780 29,91,030 Total 1,64,55,199 1,22,08,260 5. The assessee submitted that the valuation has been done on the basis of projected future performance of the company b....
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....on 56(2)(viib) of the Act, and not the year in which the funds were received. The AO agreed with the submissions of the assessee that the provisions of section 56(2)(viib) of the Act are not applicable in respect of shares allotted to a non-resident. However, in respect of shares allotted to Mr. V.K.Kothari and Mr. Girish Jain, the AO held that the calculation of premium by following DCF method by the assessee is by following one of the prescribed methods, however, just by following the method of valuation of a share will not make the premium justified and explained, as the profit before tax and profit after tax has not been met even in the financial year ending 31/03/2018, rather the assessee had negative profits for the above year. The AO also rejected the contention of the assessee that it has charged premium less than the value per share arrived at by the Chartered Accountant on the basis that the premium charged at INR 30 per share though stated to be less that the value per share determined by the accountant, is also found to be much higher looking into the available financial statements of the assessee. Thus, on the basis that there is no basis for charging such a high premi....
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.... ("learned DR") vehemently relied upon the order passed by the lower authorities. 10. We have considered the submissions of both sides and perused the material available on record. In the present case, during the assessment year 2007-08, the assessee made an offer for right shares to all its existing shareholders at a price of INR 40 per share (including share premium of INR 30 per share). As per the assessee, the said share premium was determined on the basis of a valuation report prepared by a Chartered Accountant on 28/12/2006. Accordingly, three shareholders, namely, Perfiles Especiales (a Spanish Company), Mr V.K.Kothari and Mr. Girish Jain, accepted the offer and subscribed to the right shares. It is further the plea of the assessee that since one of the subscribers to the right issue was a foreign company, the share allotment was required to be completed within 180 days from the receipt of share application money under FEMA. As the assessee failed to allot the said shares within the prescribed time limit, it approached the RBI for specific approval for the allotment of shares after 180 days from the date of receipt of the share application money. Since the entire process ....
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....and (c) Such consideration should exceed the face value of such shares. 13. Thus, the aggregate consideration received for such shares as exceeding the fair market value of the shares is considered as income of the company under the head "Income from Other Sources". In the present case, the assessee consistently pleads that no consideration was received in the relevant assessment year for the issue of shares, and that the entire share application money was received from the aforementioned three subscribers/shareholders in the financial years 2006-07 and 2007-08. In this regard, our attention was drawn to the details of receipt of share application money in the bank account of the assessee, forming part of the paper book on page 69, which we find was also filed before the AO by the assessee along with its written submission dated 07/12/2018 in response to notice issued under section 142(1) of the Act. The said details are reproduced as follows for ready reference: - 14. From the perusal of the aforesaid details, it is evident that the entire share application money was received by the assessee from the aforementioned three subscribers/shareholders from 15/01/2007 to 0....
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....dit, independent of section 56(2)(viib) of the Act, it is evident from the perusal of the impugned order that no notice was issued to the assessee prior to rendering such findings. Thus, there is a clear violation of the provisions of section 251(2) of the Act. Be that as it may, the learned CIT(A) is of the view that the assessee has failed to produce the valuation report for share premium, identity and creditworthiness of subscribers, source of funds and justification of excess premium. However, we find that in response to specific query from the AO vide notice issued under section 142(1) of the Act, the assessee provided the details such as name of the Applicants, address, PAN together with of a letter and the acceptance as well as bank statement evidencing the payment together with income tax return of Mr. V.K.Kothari and Mr. Girish Jain. From the perusal of the written submission filed by the assessee dated 07/12/2018 before the AO, a copy of which, along with annexures, forms part of the paper book from pages 31-98, we find that the assessee also furnished copies of FIRC in respect of share application money received from M/s Perfiles Especiales. It is evident from the record....
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....d as follows: - "10. In the present case, it is undisputed that the assessee opted for valuation as per the DCF method and the auditor arrived at the fair market value of Rs. 735 per share. Since the assessee had issued the shares at Rs. 600 (including a premium of Rs. 590), which was lower than the fair market value determined by the auditor on the basis of the DCF method, the assessee claimed that section 56(2)(viib) of the Act is not applicable, as the said section only brings to tax the consideration in excess of the fair market value. In the alternative, during the appellate proceedings before the learned CIT(A), the assessee also furnished the fair market value of the shares at Rs. 410.14 per share as per the NAV method. However, it is evident from the record that the AO neither accepted the valuation report as furnished by the assessee to arrive at the fair market value of the shares on the basis of the DCF method nor pointed out any mistake in the valuation report so furnished by the assessee. Rather, in the present case, the AO treated the value of the premium on the shares at Rs. Nil without following any of the methods prescribed under the relevant Rules. The Ho....
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....to challenge the valuation, on that footing. This approach lacks material foundation and is irrational since the valuation is intrinsically based on projections which can be affected by various factors. We cannot lose sight of the fact that the valuer makes forecast or approximation, based on potential value of business. However, the underline facts and assumptions can undergo change over a period of time. The Courts have repeatedly held that valuation is not an exact science, and therefore cannot be done with arithmetic precision. It is a technical and complex problem which can be appropriately left to the consideration and wisdom of experts in the field of accountancy, having regard to the imponderables which enter the process of valuation of shares. The Appellant-Revenue is unable to demonstrate that the methodology adopted by the Respondent-Assessee is not correct. The AO has simply rejected the valuation of the Respondent-Assessee and failed to provide any alternate fair value of shares." 18. Therefore, respectfully following the aforesaid decision, we do not find any merits even in the addition made by applying the provisions of section 56(2)(viib) of the Act. 19. Thus,....