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2021 (3) TMI 399 - AT - Income TaxAddition u/s 56(2)(viib) - income from other sources - excess consideration received in the form of share capital over and above fair market value - assessee submitted CIT(A) has erred confirming additions made by the Assessing Officer towards consideration received for allotment of preference shares over and above fair market value of shares as on date of value without appreciating the fact that the provisions of section 56(2)(viib) of the Act will come into operation only in a case where shares has been issued at a premium over and above face value of such shares - HELD THAT:- Fixing share price at ₹ 10,000/-per preference share is not based on any scientific method or method prescribed under Rule 11UA of Income Tax Rules, 1962. The assessee has not filed any valuation report or evidence to justify value of shares. The assessee has also not explained basis for fixing different share price for equity shares and preference shares. The assessee has also not filed any evidence to explain how a prudent businessman would invest in a company, where its net worth is negative and book value of shares is far less than the face value of preference shares. Therefore, under these circumstances, it is very difficult to accept the arguments of the assessee that transaction of issue of preference shares is a normal commercial transaction and purpose of raising capital is for genuine business purpose of the company. We, further, are of the considered view that from sequent of events and manner in which preference share capital was raised, including terms of repayment, rate of return and period of shares, it can be easily concluded that transaction of issue of preference share capital is arranged transaction in the nature of sham transaction to overcome the amended provisions of section 56(2)(viib). Assessee has failed to explain and justify issue of preference shares with a face value of ₹ 10,000/- per share when the fair market value of the shares of the company is ₹ -4.73 per share. The reasons given by the Assessing Officer to treat the transaction as a colurable device to circumvent the provisions of section 56(2)(viib) of the Act, appears to be on sound footing. Hence, we are inclined to uphold the order of the learned CIT(A) in upholding additions made towards excess consideration received towards allotment of preference shares over and above the fair market value of shares under section 56(2)(viib) of the Act and dismiss appeal filed by the assessee.
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