TMI Blog2021 (12) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee did not file any valuation report to substantiate the fair market value of shares issued in terms of Sec.56(2)(viib) (a)(i) of the Act and Rule 11UA of the Rules. In such circumstances, we are of the view that the AO could not have accepted the intrinsic value without calling for a value in terms of Rule 11UA of the Rules to find out whether class (i) or class (ii) of explanation (a) to Sec.56(2)(viib) of the Act would be applicable - Thus the order of the AO was erroneous. With regard to the argument that the money was received in the previous year relevant to Assessment Year 2014-15 and therefore the provisions of section 26(2)(viib) of the Act were not application to Assessment Year 2015-16, the admitted position is that the shares were issued in Assessment Year 2015-16 and this would be the appropriate year in which the applicability of provisions of section 56(2)(vii) of the Act should be considered. In this regard, we place reliance on the decision of M/S. Taaq Music Private Limited [ 2020 (10) TMI 28 - ITAT BANGALORE] in which the view as stated above was laid down by the Tribunal. We, therefore, find no merit in the appeal by the assessee. - ITA No.351/Bang/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee pointed out that as per sec 56(2)(Vllb), the premium becomes taxable only if the valuation is not substantiated by us. As explained above the premium was fixed keeping in view the intrinsic value of share, the past performance of the company and future prospects. The intrinsic value of share as at 31/03/2014 itself was around ₹ 45/- per share. The assessee therefore submitted that the valuation has been properly arrived at as per guidelines given be SEBI and Reserve Bank of India and is fair. 4. The AO thereafter issued another notice dated 07.12.2017 specifically calling upon for explanation as to why a sum of ₹ 4,12,85,817/- should not be brought to tax under section 56(2)(viib) of the Act. The assessee in the reply filed before the AO on 13.12.2017 submitted that the share value as per the net assets value method is ₹ 66/- and not ₹ 22/- as arrived at by the AO in his notice dated 07.12.2017. Thereafter, the AO passed an order under section 143(3) of the Act in which he did not make any reference whatsoever to the notice and replies of the assessee but accepted the loss as return by the assessee in the order passed under section 143(3) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per NAV method. d) The action of the AO in accepting the method of valuation contrary to Rule 11UA of the Rules was erroneous and prejudicial to the interest of the Revenue. The CIT therefore held that there was no application of mind by the AO and the AO has accepted the version of the assessee in mechanical manner. The CIT according set aside the order of the AO with the following observations to be redone by the AO afresh in accordance with law, with the following observations: 4. The written submissions made by the assessee are carefully examined in the light of fact of the case, material paced on record and the provisions of sec. 263 of the Act. The fair market value of shares can be book value or value as per discounted cash flow method. The value of shares as per NAV method works out to ₹ 42.60 and the assessee has not furnished any valuation report as required u/r 11UA. The assessee in its submissions stated that the fixed assets were got valued by Registered Valuers as required under company law and the intrinsic value of the equity shares was much higher at the end of the F.Y.2014-I 5. Ihe submissions of the assessee are not tenable as the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The submissions of the learned Counsel for the assessee was that explanation to section 56(2)(viib) of the Act defines fair market value as follows: Explanation.-For the purposes of this clause,- (a) the fair market value of the shares shall be the value- (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher ; (emphasis supplied) It was submitted that fair market value of the shares may be computed as under: a. Value determined in accordance with the prescribed under Rule 11UA read with Rule 11U of the IT Rules, 1962. (Or) b. 'Intrinsic Value' It was submitted that a s per Rule 11UA(2), the fair market value of unquoted equity shares for the purposes Clause (a)(i) of Explanation to Section 56(2)(viib) of the Act shall be the value as determined in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6(2)(viib) (a)(i) of the Act and Rule 11UA of the Rules. In such circumstances, we are of the view that the AO could not have accepted the intrinsic value without calling for a value in terms of Rule 11UA of the Rules to find out whether class (i) or class (ii) of explanation (a) to Sec.56(2)(viib) of the Act would be applicable. In this view of the matter, we are of the view that the order of the AO was erroneous. With regard to the argument that the money was received in the previous year relevant to Assessment Year 2014-15 and therefore the provisions of section 26(2)(viib) of the Act were not application to Assessment Year 2015-16, the admitted position is that the shares were issued in Assessment Year 2015-16 and this would be the appropriate year in which the applicability of provisions of section 56(2)(vii) of the Act should be considered. In this regard, we place reliance on the decision of ITAT, Bengaluru Bench in the case of M/S. Taaq Music Private Limited, Vs Income Tax Officer ITA No.161/Bang/2020, order dated 28 September, 2020 in which the view as stated above was laid down by the Tribunal. We, therefore, find no merit in the appeal by the assessee. We, however, make ..... X X X X Extracts X X X X X X X X Extracts X X X X
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