TaxTMI 
TaxTMI 
2025 (3) TMI 2095
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.... "1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 126,98,69,717/- made u/s Section 56 (2)(vija) of the Act" 2. "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of 126,98,69,717/- made by the AO, without appreciating the fact that the entire scheme of transactions embarked by the partners and the assessee firm is merely a colourable device to evade tax by misusing the provisions of the Act" 3. The appellant craves leave to amend or alter or add a new ground which may be necessary." 3. Representatives were heard at length, case records carefully perused and the relevant documentary evidence....
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....t as per Rule 11UA of the Income-tax Rules, 1962. Thereafter, on 18/01/2016, all the assets of the assessee firm including shares of UFIPL were valued based on valuation report of M/s. V B Desai Financial Services Limited (VBDFSL), a SEBI registered merchant banker. 7. A perusal of the report of VBDFSL, shows that the AO found that the value per share of UFIPL was computed by a merchant banker on intrinsic value of Rs. 4786.53/- per share. The AO accordingly took the differential price of Rs. 4693.65 (4786.53 - 92.88) per share aggregating to Rs. 126,72,80,806/- as the fair value of shares of UFIPL and invoking the provisions of Section 56(2)(viia) of the Act, the AO made the addition of Rs. 126,72,80,806/-. 7.1. At this stage, it wou....
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....hall not apply to any such property received by way of a transaction not regarded as transfer under 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);]" 8. It would be pertinent to refer to the family settlement pursuant to the will of Mr. D.M. Neterwala. The relevant clause of the deed of family settlement dated 10/11/2015, reads as under:- " DEED OF FAMILY SETTLEMENT This deed of family settlement ("Deed") is executed on the lO....
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.... The Parties have agreed that in order to ensure smooth functioning of the family's businesses, companies set up by the Testator but managed separately by respective beneficiaries namely FDN and SFV, shall be solely entrusted to the respective beneficiaries. This would inter alia involve reciprocal gifts of shares of companies between the Parties. One of the beneficiaries namely, PRM, though holding shares in various family companies was not managing the affairs of any company and even during the family settlement proceedings she expressed her desire not to be involved with the management of any companies." 8.1. A perusal of the provisions of Section 56(2)(viia) shows that it is not applicable in respect of capital contribution by pa....
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....y and settlement of disputes, there is no transfer of assets and the provisions of Section 56(2)(viia) of the Act would not apply. 11. We further find that while introducing the shares as capital contribution of UFIPL, partners have undertaken determination of the FMV of the shares as laid down under Rule 11UA of the Income-tax Rules, 1962 ('Rules') r.w.s. 56(2)(viia) of the Act. The relevant part of Rule 11UA, reads as under:- "Determination of fair market value. 11UA. ^30[(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,- ...........................................................................
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.... 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;" 12. The AO was carried away with the valuation report of VBDFSL, completely ignoring the fact that the merchant banker has valued the shares at an intrinsic value. When the merchant banker itself has made clear that the term "intrinsic value" is n....