TMI Blog2018 (8) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... passed in ITA No. 895/JP/2017. 2. The ld. A.R. of the assessee has submitted that the issue involved in the appeal of the assessee was valuation of fair market value of the shares issued by the assessee at premium U/s 56(2)(viib) of the Income Tax Act, 1961 (in short the Act) read with explanation to the said Section. The ld AR has pointed out that the Tribunal, though, decided the issue of valuation by considering the methods prescribed under Rule 11UA of the Income Tax Rules, 1962 (in short the Rules) whereas the assessee claimed the value of the asset and fair market value of the shares in terms of Clause (i) of Explanation (a) to Section 56(2)(viib) of the Act. The finding of the Tribunal is based on Explanation (a)(i) to Section 56(2)(viib) of the Act and therefore, the issue of valuation as per Explanation (a)(ii) has not been adjudicated by the Tribunal. The ld AR has referred to the contention of the assessee in para 3.1 of the impugned order and submitted that the assessee raised this contention that it has valued the fair market value of shares based on Clause (ii) of Explanation (a) and not (i) of Explanation (a) to Section 56(2)(viib) of the Act. Hence, there is a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the land was also produced. The Id. A/R has forcefully contended that when the Chartered Accountant has evaluated the information by using his expert knowledge and only on his satisfaction he has issued the Certificate, then the valuation report based on the certificate of the Chartered Accountant cannot be rejected without bringing the contrary material on record. The Id. CIT (A) has given the instance of DLC rates of the similarly situated land which also corroborates the claim of the assessee though the rates cited by the Id. CIT (A) were without any deduction on account of encroachments/encumbrances. Thus the Id. A/R has submitted that the rejection of valuation report by the Id. CIT (A) is not justified. He has further contended that the assessee had made a specific request for referring the land valuation to the DVO. However, the AO rejected the request for reference to the DVO on the reason that no such reference is possible under section 56(2)(viib) and that the reference under section 55A is related with capital gain income. The ld. A/R of the assessee has referred to the provisions of section 55A and contended that the section provides ascertaining the fair market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus in case the consideration received against the issue/allotment of shares exceeds the fair market value of the shares, the said excess amount received by the assessee has to be assessed as income from other sources. Explanation to Section 56(2)(viib) defines the fair market value of the shares. For ready reference, we reproduce provisions of section 56(2)(viib) and Explanation (a)(ii) as under :- 56. (1) xxxxx xxxxxx. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources , namely :- [(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this Clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a venture capital fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market value of unquoted equity shares for the purposes of sub- Clause (i) of Clause (a) of Explanation to Clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under Clause (a) or Clause (b), at the option of the assessee, namely:- (a) the fair market value of unquoted equity shares = (A L) (PE) (PV), where, A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the land which is shown as asset in the Balance Sheet at book value by the AO and at market price by the assessee. Going by the language and process as prescribed under Clause (a) of Rule 11UA(2), the only inference can be drawn is that the book value of the assets in the Balance Sheet has to be taken into account by reducing the book value of the liabilities as well as other deductions as prescribed thereunder and, therefore, the question of taking the market price of the asset does not arise under the said method. Since the assessee has not disputed the method and has opted only the net worth method as prescribed under the rule, therefore, we cannot go to examine the applicability of the other method in the case of the assessee. Thus when the rule does not provide the market price of the asset, then the assessee s claim has no leg to stand and accordingly the appeal of the assessee is without any merit. Thus, it is evident from the finding on this issue that the Tribunal has adjudicated the issue of valuation in terms of Clause(i) of Explanation (a) to Section 56(2)(viib) of the Act read with Rule 11UA(2) of the I.T. Rules. Therefore, the particular issue raise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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