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2016 (3) TMI 549 - AT - Income TaxAddition under section 56(2)(viia) - addition to the appellant's income as deemed gift - whether as the FMV of shares on transaction date was negative and hence, question of any addition u/s. 56(2)(viia) of the Act does not arise? - Held 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 the opinion that the AO was justified in examining the applicability of the provisions of section 56(2)(viia) of the Act to the transaction of transfer of shares. Fair market value of the shares computation - AO has recorded that the assessee has furnished the valuation of the shares based on the working given under rule 11UA(c )(b) of the IT Rules, according to which, the fair market value of the shares is Rs.-64.48/- (i.e., the value of Optival share is at a negative figure) whereas the assessee has paid at ₹ 1 per share - Held that:- If AO was not satisfied with the working given by the assessee, he ought to have computed the FMV himself in the method prescribed under the rules but ought not to have adopted higher of the prices 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. For the above reasons, we are satisfied that the provisions of section 56(2)(viia) are not properly and correctly applied in the assessee’s case. In view of the same, the assessment order as well as the order of the Ld. CIT(A) are set aside and these issues including the issue raised in the additional ground of appeal are remitted to the file of the AO for reconsideration of the issue in accordance with law. - Decided in favour of assessee for statistical purposes
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