TMI Blog2019 (1) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... as per Rule 11U(a) of IT Rules, 1962. AO in this year has worked out the fair market value of assessee company at ₹ 714.38/- on the basis of NAV in the absence of any valuation report of any valuer who can be accepted as an Accountant as per Rule 11U(a) and taxed the excess amount of premium received by assessee over and above the permissible amount at ₹ 714.38/- per share in respect of 36957 shares and taxed the excess amount received of ₹ 1,32,29,088/- u/s. 56(2)(viib) of IT Act. In the facts of the present case, find no reason to interfere in the order of CIT(A) on this issue in this year also. Restriction as per Rule 11U(a) on the auditor’s acceptance as Accountant for the purposes of Rule 11UA (2) is well founded. Hence, find no merit in this argument of the learned AR of the assessee that only because the certificate is given by the auditor, it should not be held that the value certified by him is not acceptable. - Decided against assessee. - ITA Nos. 2852 & 2853/Bang/2018 - - - Dated:- 28-12-2018 - Shri Arun Kumar Garodia, Accountant Member For the Appellant : Shri V.K. Gurunathan, Advocate For the Respondent : Smt. Padmameenakshi, JCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as under. 1. On the facts and circumstances of the case and in law the learned CIT (A) erred in passing the order in the manner as done. 2. The CIT (A) erred in upholding the rejection of the report of valuation of the shares dated 02.05.2014 by the AO merely on suspicion, surmise and conjecture and also the value of ₹ 1,538.55 equity share therein inclusive of premium of ₹ 1,528.55 share. 3. The CIT (A) erred in upholding the arbitrary adoption of value of share premium at ₹ 714.38 share by the AO as against the value of share premium of ₹ 1.528.55 share as per Appellant's valuation report dated 02.05.2014 which was based on Discounted Free Cash Flow method (DCF method). 4. The CIT (A) failed to appreciate that the consideration received for the shares equaled the fair market value of shares and no excess over the fair market value was received. 5. The CIT (A) failed to appreciate that the Act allowed the Appellant to adopt any method either the prescribed method as per sub-clause (i) to clause (a) to Explanation under clause (viib) of sub-section 2 to Section 56 of the Act or any other method as per sub-clause (ii) to cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curb transactions in shares using unaccounted money, by unconnected 3rd parties and that the said provisions do not apply to genuine transactions of close relatives of closely held companies. 2. The learned CIT(A) erred in sustaining the order of the AO which determined the share premium at ₹ 704.38 per share following the valuation method provided under Rule 11UA(2)(a) as against the value of premium at ₹ 1,538.55 per share computed by the Appellant following the method as prescribed in Rule 11UA(2)(b) read with technical guide on share valuation issued by Research Committee of the Institute of Chartered Accountants of India. 3. The learned CIT(A) failed to appreciate that there was no discretion available to adopt NAV method by applying Rule 11UA(2)(a) rejecting the method of share valuation adopted by the Appellant as prescribed under Rule 11UA(2)(b) of the Income-tax Rules, 1962. 4. The learned CIT(A) failed to appreciate that the determination of fair market value by an accountant who has signed the report under Section 44AB of the Act is a technical breach of Rule 11UA(2)(b) and hence a venial breach of Rule. 5. At the very outset, it was submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITD 629 and also on another Tribunal order rendered in the case of Rameshwaram Strong Glass (P) Ltd. Vs. ITO as reported in (2018) 172 ITD 571. 6. I have considered the rival submissions. First of all, I reproduce the relevant Rule i.e. Rule 11U(a). The same is as under. 11U. For the purposes of this rule and rule 11UA,- (a) accountant ,- (i) for the purposes of sub-rule (2) of rule 11UA, means a fellow of the Institute of Chartered Accountants of India within the meaning of the Chartered Accountants Act, 1949 (38 of 1949) who is not appointed by the company as an auditor under section 44AB of the Act or under section 224 of the Companies Act, 1956 (1 of 1956); and (ii) in any other case, shall have the same meaning as assigned to it in the Explanation below sub-section (2) of section 288 of the Act; 7. From the above Rule, it is seen that for the purposes of sub-rule (2) of rule 11UA, the auditor cannot be an accountant for the purposes of Rule 11UA (2). In the present case, as per Para 4.1 of the assessment order, the ld. AR of assessee has submitted vide submissions dated 08.11.2016, a copy of valuation report dated 02.02.2012 as per which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no reason to interfere in the order of CIT(A) on this issue in this year also. 8. Before parting, I would like to observe that this is very important to note that when an auditor cannot be accepted as an accountant for the purposes of Rule 11UA (2) read with Rule 11U(a), there is no option available to the AO but to accept the earlier report in A. Y. 2014 15 valuing the shares at ₹ 100/- per share instead of ₹ 400/- per share as per a certificate by the auditor who cannot be accepted as an accountant for the purposes of Rule 11UA (2) read with Rule 11U(a), and adopt NAV method in A. Y. 2015 16. This is very important to note that when a chartered Accountant who can be accepted as an Accountant as per Rule 11UA (2) read with Rule 11U(a) certifies the value, the value certified as on 02.02.2012 is ₹ 100/- per share and when the auditor certifies such value on 15.11.2013 (just after 21 months approx), the value certified rises four times to ₹ 400/- per share. These facts also suggest that such restriction as per Rule 11U(a) on the auditor s acceptance as Accountant for the purposes of Rule 11UA (2) is well founded. Hence, I find no merit in this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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