TMI Blog2021 (3) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... nce sheet such as cash and cash equivalent of ₹ 6,18,035/-, -short-term loans and advances of ₹ 2,38,07,381/- and other current assets of ₹ 1,16,534/-. The AO did not apply the formula provided in Rule 11UA and did not make any attempt to compute the value of shares of the assessee in accordance with Rule 11UA of IT Rules, 1962 which has been upheld by the ld. CIT(A). When the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. See A.K. ROY VERSUS STATE OF PUNJAB [ 1986 (9) TMI 412 - SUPREME COURT] Thus as assessee has issued the shares at fair market value computed in accordance with Rule 11UA(a) of the IT Rules 1962 and no fault has been found in the method applied by the assessee and the lower authorities have made the addition u/s. 56(2)(viib) purely on presumptions and surmises. Therefore such action of the lower authorities being not in accordance with law is unsustainable - set aside the order of the CIT(A) and direct the AO to delete the addition - Decided in favour of assessee. - ITA No. 6170/Del/2019 - - - Dated:- 12-2-2021 - SHRI R. K. PANDA, ACCOUNTAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. He, therefore, confronted the same to the assessee and asked it to substantiate the ingredients of section 68 of the IT Act. Rejecting the various explanations given by the assessee and following the decisions of the Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More reported in 82 ITR 540, McDowell Co. Ltd. vs. CTO (1985) 154 ITR 148 and Sumati Dayal vs. CIT (1995) 214 ITR 802, the AO made addition of ₹ 48 lakhs to the total income of the assessee u/s. 68 of the IT Act. While doing so, the AO further observed that since the addition on account of share premium and share capital has already been made u/s. 68 of the Act, no separate addition is being made u/s. 56(2)(viib) of the Act. While holding so, he rejected the calculation made by the assessee in terms of section 11UA for calculating the share premium on the ground that the company is not having any worth of receiving any share premium. 4. In appeal, the ld. CIT(A) deleted the addition made u/s. 68 of the Act on the ground that such share capital was not received by the assessee during the year, but, was received in F.Y. 2013-14 relevant to assessment year 2014-15 and the assessee has only allotte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. Referring to the above provision which was inserted by the Finance Act, 2012 and as existed during the relevant assessment year, the ld. Counsel submitted that as per the said provision where a company receives 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 shall be taxable as income from other sources. Further, clause (a)(i) of Explanation provides that fair market value of the shares shall be the value as may be determined in accordance with such method as may be prescribed. He submitted that for the purpose of section 56(2)(viib) of the Act, the valuation of the shares has to be done in accordance with Rule 11UA of the Income Tax Rules. The ld. Counsel also referred to the provisions of Rule 11UA and submitted that as per the aforesaid Rules, the fair market value of unquoted equity shares for the purpose of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be determined under clause (a) or clause (b) at the option of the assessee. He submitted that as per clause (b) value has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the AO has adopted the FMV of shares at ₹ 10/- (at the face value) without appreciating the formula provided in Rule 11UA and has completely given a go by to the value of assets and liabilities shown in the balance sheet. He has not made any attempt to compute the value of shares of the assessee in accordance with Rule 11UA of IT Rules, 1962. He submitted that the adoption of the fair market value of shares @ ₹ 10 per share as against ₹ 82 per share as computed by the assessee without recourse to the formula as provided in Rule 11UA is unsustainable in law as for the purpose of section 56(2)(viib) of the Act, the fair market value of the shares has to be computed only in accordance with Rule 11UA. Further, the ld. CIT(A) without considering the statutory provision and without computing the fair market value of shares as per Rule 11UA, arbitrarily upheld the finding of the AO. 9. Referring to the order of the CIT(A) as well as the assessment order, the ld. Counsel submitted that none of the authorities below has found any fault in the computation of fair market value produced in the assessment proceedings. Both the lower authorities have summarily re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant since incorporation. There are no fixed assets or any other intangible assets in possession of the appellant to justify such kind of cash flow in the prior years. In the absence of any business worth of the appellant, the reliance of the appellant on the valuation report for the premium charged of ₹ 70/- on each share under Rule 11UA does not carry any force. Such valuation report has been found without any basis and thus, is rejected. Reliance is hereby placed upon the decision of Hon'ble ITAT Delhi in the case of Agro Portfolio Pvt. Ltd., vs. ITO 2018, 171/ITD/74 (Del). Therefore, in the absence of business worth of the appellant the reliance of the appellant on the valuation report for the premium charged of ₹ 70/- on each share under Rule 11UA does not carry any force. 12. Referring to the above, he submitted that the ld. CIT(A) while sustaining the addition made u/s. 56(2)(viib) has given justifiable reasons and, therefore, the same should be upheld. 13. I have considered the rival arguments made by both the sides and perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. I have also considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 80 per share (face value of ₹ 10 per share + premium at ₹ 70 per share) as on 31.03.2015 and the valuation of each share was in accordance with Rule 11UA of the Act. It is also his submission that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. 15. I find merit in the above argument of the ld. Counsel. The provisions of section 56(2)(viib) of the Act reads as under:- (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; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation.--For the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balance-sheet; PV = the paid up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method. 16. A combined reading of section 56(2)(viib) read with Rule 11UA states that for the purpose of section 56(2)(viib) of the Act the valuation of the shares has to be done in accordance with Rule 11UA and the fair market value of unquoted equity shares for the purpose of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be determined under clause (a) or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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