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2023 (5) TMI 164 - ITAT DELHIAddition u/s. 56(2)(viib) - method of determination of fair market value of unquoted shares - Premium received in respect of the issue of shares - AO valued the share of the company using Net Asset Value Method both under ‘asset approach’ as well as under ‘liability approach’ - AO determined the fair market value of the share of the assessee company @Rs.14 as against the issue price of 17.50 per share, hence the excess portion as added by the ld. AO as income u/s. 56(2)(viib) HELD THAT:- Rule 11UA of the Income Tax Rules which prescribes the method of determination of fair market value of unquoted shares does not prohibit inclusion of share premium as part of reserves and surplus. Even if the recipient company does not justify receipt of share premium, still the fact of share premium being reflected in the balance sheet cannot be ignored by the ld. AO as the taxation of the same is only by way of deeming fiction. Share premium would be included in the ‘reserves and surplus’ even as per Rule 11UA of Income Tax Rules. While this is so, it is completely wrong on the part of the ld. AO to ignore the same while valuing the shares of the assessee company both under ‘liability approach’ and considering the same as a liability under ‘asset approach’. Accordingly, the value determined by the ld. AO is totally flawed and since no mistake is found by us in the valuation adopted by the assessee, we hold that addition made by the ld. AO would have no legs to stand. In any case, NAV method adopted by the assessee is one of the recognized methods provided in rule 11UA of the Rules. Addition made by the ld. AO u/s. 56(2)(viib) of the Act, is hereby directed to be deleted. Ground raised by the assessee are allowed.
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