9911796707
TMI Blog2021 (2) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... oked a vital fact that when a Chartered Engineers Valuation is not acceptable to the Assessing Officer as well as the Commissioner of Income Tax (Appeals) the right course would be to secure a valuation report from the District Valuation Officer of the Income Tax Department. 4) The Ld. Commissioner of Income Tax (Appeals) has thus violated the principle of Natural Justice by brushing aside the supporting material in the form of another experts opinion. 5) The Ld. Commissioner of Income Tax has also erred in coming to a unilateral conclusion that Assessing Officers Valuation was right without taking into the following factual position relating to the immovable assets owned by the Assessee and shown, at historical cost in the books of accounts. a) The company owns 36 Acres of land on Coimbatore Pollachi Main road 3 Kilometres from Pollachi town. b) 12.96 Acres of land belonging to Sri Sakthi Textiles B unit situated at Samatur Village of PollachiTaluk. c) 5 Cents of prime Land in Chennai city (on St.Maris Road) which is in close proximity to Adyar Park Hotels in Adyar whose value would be easily 5 crores per ground. 6) The Ld. Commissioner of Income Tax (Appeals) by not s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng loss of Rs. 31,27,463/-. During the year under consideration, the assessee has issued 7,69,260 equity shares having face value of Rs. 10/- at a premium of Rs. 142/- per share to Graghasakthi Infraservices Pvt.Ltd. and thus, received total share premium of Rs. 10,92,34,920/-. The assessment for, impugned assessment year was completed u/s. 143(3) of the Act, on 17.03.2016 accepting returned loss. Subsequently, PCIT-1, Coimbatore had initiated revision proceedings u/s.263 of the Act, and set aside order dated 17.03.2016 to the file of Assessing Officer to redo assessment afresh after verification of the issue of taxability of share premium collected by assessee u/s.56(2)(viib) of the Income Tax Act, 1961. Consequent to 263 proceedings, Assessing Officer has taken up the case for assessment and called upon the assessee to justify issue of shares at premium of Rs. 142 per share/-. In response, assessee vide filed letter dated 15.11.2018 submitted that value of shares has been arrived at considering fair market value of net asset of the company for which necessary valuation report from independent Chartered Accountant as well as from statutory auditor of the company has been obtained. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee has not provided any e-mail communication with the Chartered Accountant, or evidence that valuation fees was paid to him through cheque for the valuation Work, or TDS deducted from the professional fees, if any, paid for the work. etc. in order to establish that such a Valuation Report was really available at the time of issue of the shares at a premium. The claim now made that she held another Valuation Report therefore is only an afterthought to wriggle out of the issue, Therefore, existence of the second Report at the time of issue of the shares at premium is reflected. 5b. Without prejudice 10 above, on examining both the Valuation Reports it is noticed that the valuation have been done on the basis of Net Asset Value. However, while adopting the value of fixed asset, the market value of certified by an engineer, is stated to be adopted. i.e. the value of Fixed asset have been taken at Rs.. 7000 lakhs as against book value of Rs. 1075 lakhs as on 31/3/12. As per Rule 11UA(2) of the IT Rule 1962, the book value of the assets have to be considered while ascertaining fair vaIue of unquoted equity shares as on a valuation date. Thus, if the method prescribed under R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by an Accountant as Rule 11UA(2)(b) of the Income-tax Rules, 1962. Also, the net assetvalue of the shares do not justify any premiium 10 the par value of the equity shares Issued as worked out at Para 5b above.. Thus, the market value of the shares issued by the assessee company during the year is neither supported with any authentic document, nor supported by net worth of the company, therefore, the face value of the share will have to be adopted/considered as the fair market value of the fresh shares issued. The premium received against the fresh shares Issued would therefore be liable ,to be taxed as per the provisions of section 56(2)(viib) of the Income-tax Act, 1961. In view of the facts discussed above the, share premium amount of Rs. 10,92,34.920/- received during the year, is being brought to tax under section36(2)(viib) of the Income-tax Act. 1961." 5. Being aggrieved by the assessment order, the assessee preferred an appeal before learned CIT(A). Before the learned CIT(A), the assessee has reiterated its submissions made before Assessing Officer and argued that when assessee issues shares at premium and issue of price of shares does not exceed fair market value of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) has erred in simply repeating fair market value of shares determined by the Assessing Officer without appreciating the fact that assessee had based on the strength of valuation report issued shares at premium. The AR further submitted that learned CIT(A) has erred in holding that relevance of valuation report of Chartered Accountant /Engineer comes into play only when the company resorted to explanation (a)(i), ignoring the fact that as per provisions of Explanation provided under section 56(2)(viib), it is option of the assessee either to choose explanation (a)(i) or (a)(ii) and, if assessee chooses Explanation (a)(ii), then prescribed method for determination of share price i.e Rule 11UA does not applicable. The AR further submitted that it is not a case of Assessing Officer that assessee has not filed any valuation report to substantiate share price to his satisfaction. In fact, the Assessing Officer himself admitted that assessee has filed valuation report in support of share price. However, rejected such valuation report only on flimsy grounds that said report was not placed at the time of 143(3) assessment or even before learned CIT(A) at revision proceedings, ignori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (a)(i) and (a)(ii), it is very clear that if premium charged on issue of shares exceeds fair market value of shares, then excess amount charged for issue of shares is treated as income of the assessee. Further, to determine fair market value of shares, it is for assessee to choose either a prescribed method which is Rule 11UA of the Act, or the assessee may arrive at fair market value, but such value should be substantiated to the satisfaction of the Assessing Officer based on the value on the date of issue of shares, considering its assets including intangibles etc. In this case, assessee has chosen Explanation (a)(ii) to determine fair market value of shares and as such question of determination of share price in accordance with such method as may be prescribed does not arise and accordingly, Assessing Officer cannot go into Rule 11UA to determine share price in accordance with net asset value method. Further, when the assessee has chosen Explanation (a)(ii) and determined fair market value of shares having regard to its assets, then such fair market value should be substantiated to the satisfaction of the Assessing Officer. In this case, assessee has filed valuation report fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantiated to the satisfaction of Assessing Officer or not. But, what is relevant is whether valuation report supports share price determined by the assessee or not. In this case, valuation report obtained by the assessee from independent Chartered Accountant supports share price. Therefore, when the assessee has substantiated share price to the satisfaction of the AO with the help of valuation report, even if, such valuation report is obtained subsequent to the date of issue of shares, it does not alter the situation. Therefore, we are of the considered view that Assessing Officer as well as learned CIT(A) were erred in rejecting valuation report filed by assessee on this count. 11. Coming back to the observations of learned CIT(A). The learned CIT(A) observed that relevance of valuation report of Chartered Accountant comes into play only when assessee chooses Explanation (a)(i) to determine fair market value of shares, but not when assessee has resorted to Explanation (a)(ii) to section 56(2)(viib) of the Act. The said findings of learned CIT(A) is contrary to law and absurd, because provisions of explanation (a0(ii) of the Act is very specific, as per which, when share price i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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