TMI Blog2022 (12) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... y companies was after the cut off date of valuation of share, therefore as on 16.11.2012, the fair market value of the equity share capital remains at Rs. 10/- and that of the preference share capital remains at Rs. 100/-. Therefore, share premium of Rs. 2.50 per share on issue of equity share capital totalling to Rs. 5 lakh and share premium of Rs. 8 Cr received on issue of preference share capital at Rs. 25 per share along with face value of each equity share at Rs. 10/- and each preference share at Rs.100/- is in excess of the fair market value of Rs. 10/- per equity share and Rs. 100/- per preference share for preference and therefore, provisions of Section 56(2)(viib) of the Act have rightly been invoked by ld. AO for making the addition of Rs. 8.05 Cr received towards share premium in the hands of the assessee. Thus, the finding of ld. CIT(A) is reversed, addition at Rs.8.05 Cr. made by ld. AO is confirmed and ground of the Revenue s appeal are allowed. - I.T.A. No.:2011/Kol/2018 C.O. No.: 117/Kol/2018 Arising Out of I.T.A. No.: 2011/Kol/2018 - - - Dated:- 30-11-2022 - SRI SANJAY GARG , JUDICIAL MEMBER And DR. MANISH BORAD , ACCOUNTANT MEMBER Sh. Biswanath Das,CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Report obtained from the Income Tax registered Valuer for issue of Compulsorily Convertible Preference Shares of the company. The appeal filed by the Revenue in this regard is unjustified and without any substance and is liable to be dismissed. 3.That the respondent be allowed to add/alter/amend/delete either, all or any of the grounds of cross objection either before or at the time of hearing. 4. First, we will take up the Revenue s appeal where the sole grievance of the Revenue is that ld. CIT(A) erred in deleting the addition of Rs. 8.05 Cr made by Ld. AO u/s 56(2)(viib) of the Act for receiving consideration against share issued in excess of fair market value. 5. Brief facts of the case as culled from the records are that the assessee is a private limited company engaged in the business of production and generation of renewable energy. Income of Rs. 17,95,200/- declared in the e-return filed for AY 2013-14 on 28.09.2013. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) 142(1) of the Act. The reason for the case being selected for scrutiny was introduction of capital in the year and large share premium received. During the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to accept the said calculation sheet/valuation report as the determining basis for the share premium charged on equity shares by the company. In view of this fact, the entire share premium amounting to Rs.5,00,000/-is disallowed and added back with the net profit of the assessee under section 56 (2) (viib) of the I.T. Act. [Addition of Rs. 5,00,000/- is made] 2. Share Premium Charged on fresh issue of Preference Shares: The assessee has credited a sum of Rs 8,00,00,000/- during the previous year as share premium under the head Reserves and Surplus in its Balance Sheet received on issue of preference share capital. The terms of reference as set out in the valuation report of the firm of chartered accountant is limited to valuation of equity shares. However, the assessee company has taken that as the basis for justifying the share premium charged on issue of preference share issued by it during the year. It is pertinent to refer to the terms and conditions attached to the preference shares issued by the company. The terms and conditions of the preference shares as observed from the audited balance sheet states that preference shares are non-cumulative compulsorily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ological collections, drawings, paintings, sculptures or any work of art,- (i) ; (ii) ; (iii) ; (c) valuation of shares and securities,- (a) the fair market value of quoted shares and securities shall be determined in the following manner, namely,- (i) if the quoted shares and securities are received by way of transaction carried out through any recognized stock exchange, the fair market value of such shares and securities shall be the transaction value as recorded in such stock exchange; (ii) if such quoted shares and securities are received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be - (a) the lowest price of such shares and securities quoted on any recognized stock exchange on lie valuation date, and (b) the lowest price of such shares and securities on any recognized stock exchange on a date immediately preceding the valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date there is no trading in such shares and securities on any recognized stock exchange; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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) x (PV),(PE) 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 company; (iii) reserves and surp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premium. In the case of Singhal Credit Management Ltd. vs Assistant Commissioner of Income-tax, Central Circle, Alwar* [2012] 19 taxmann.com 49 (Jp) the issue of valuation has been dealt with. After 1-10-2009, the fair market value of the unquoted equity shares is to be determined on the basis of book value of the assets for computing income u/s 56 of the Act. It has not been provided that fair market value of the assets as contained in balance sheet of the company should be considered for ascertaining the value of the shares. The share is bundle of right and is distinct from the assets of the company. Share also refers to the voting power and in case the assessee is having more than the particular number of shares, then it can have a controlling interest. However, in the instant case, the shares in question, is preference shares premium charged thereon and as mentioned herein before the preferenceshares does not carry any voting rigid. Hence, those shareholders cannot be treated at par with the equity shareholders. There is no doubt that the preference shareholders carry a right which mandatorily entitles them and the company to convert those preference shares into equity s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the fair market value of the shares under Rule 11UA, therefore, the addition made by the AO cannot be sustained. 4. In the result, appeal of assessee is ALLOWED. 6. Aggrieved, the Revenue is now in appeal before this Tribunal. Ld. D/R vehemently argued referring to the detailed finding of ld. AO. He, further stated that the date of incorporation of the assessee company is 07.11.2012 and the cut-off date for valuation of share was 16.11.2012. Further, he stated that in the valuation report reference is made to the subsidiary companies and their net worth has been added to the assessee company s net worth and valuation report has been prepared. However, such inclusion of subsidiary companies was not correct since they were acquired on 29.11.2012 and 10.01.2013 i.e. after the valuation date on 16.11.2012. 7. On the other hand, ld. Counsel for the assessee vehemently argued referring to the finding of ld. CIT(A) and further, referred to the following written submissions: Background: - 1. LNB Renewable Energy Private Limited (hereinafter referred to as LNB Renewable or the Respondent or Assessee ), is into the business of power and energy. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) ( CIT(A) ) on April 29, 2016. Proceedings before the CIT(A): - 9. The Assessee took multiple grounds before the CIT(A), wherein it also challenged the validity of the assessment order, as the same was passed in non-compliance of section 144A of the Act. 10. The CIT(A) having appreciated the fact that the Assessment Order was passed without following the directions as issued u/s 144A of the Act in spirit, opined that the said non-compliance was procedural irregularity, which is curable. 11. Thereafter, the CIT(A) had directed the Assessee to obtain a fresh valuation report from an independent Merchant Banker or an accountant. The report from the valuer confirmed the compliance by the Assessee for issuance of shares at premium. (Copy of the report is attached at Page 34-53 of the paper book). 12. The CIT(A) specifically called a remand report from the AO, to provide his comments/ views on the above-mentioned valuation report. The AO vide his letter dated April 06, 2018, has duly accepted the valuation report. (Copy of remand report is attached at Page 55 of the paper book. Further, a clear legible copy is also placed at Page 72 of the supplementa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/ preference shares. Thereafter, the AO, without any further course of action, mechanically, went on to make the assessment by addition of entire premium received on issue of shares. Hence, it was brought before the Hon ble Bench that the directions u/s 144A of the Act were not followed by the AO in spirit and true sense and accordingly, the assessment order is to be considered void-ab-initio, liable to be quashed. In this regard, the following cases and CBDT circular were relied upon, which provides that the directions u/s 144A of the Act are binding on the AO: Amrit Sales Promotion (P) Ltd. (2013) (353 ITR 68) (Calcutta HC) - Page 76-79 of the supplementary paper book Swadesh Trading Co (Kar IIC) (WP No. 828 of 2019) -Page 80-84 of the supplementary paper book Copy of CBDT Circular No. 197 dated April 17,1976 - Page 85-86 of the supplementary paper book b) Acceptance of the fresh valuation by the Assessing Officer Without prejudice to the above, the AR also drew the attention of the Hon ble Bench to the fresh valuation report (supra) as obtained by the Assessee, following the CIT(A) s directions. The said valuation report was also provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TD 809) (Delhi Tribunal) -Page 120-139 of the supplementary paper book Rameshwaram Strong Glass (P) Ltd (2018) (172 ITD 571) (Jaipur Tribunal) - Page 140 - 157 of the supplementary paper book Narang Access Pvt. Ltd. (ITA No. 3521/M/2018) (Mumbai Tribunal) - Page 158-165 of the supplementary paper book Karmic Labs Pvt. Ltd. (ITA No. 3955/M/2018) (Mumbai Tribunal) - Page 166-182 of the supplementary paper book Safe Decor (P) Ltd. (2018) (169 ITD 328) (Jaipur Tribunal) - Page 183- 187 of the supplementary paper book 8. We have heard rival contentions and perused the records placed before us. The Revenue is in appeal challenging the finding of ld. CIT(A) deleting the addition of Rs. 8.05 Cr made by ld. AO invoking the provisions of Section 56(2)(viib) of the Act alleging that the assessee has received consideration for issue of equity shares and preference share capitalin excess of the fair market value of the shares. We notice that the assessee company which is said to be incorporated on 07.11.2012 issued shares at a premium on 16.11.2012and charged premium of Rs. 25/- per share on the preference shares of face value of Rs. 100/- each and Rs. 2.5/- per sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee referring to various judgments is that once there is a report prepared as per Rule 11UA(2)(b) of the I.T Rules, then it has to be accepted and the valuation process so adopted and the results arrived at should not be doubted. 12. Now, so far as the preparation of the valuation report and its technical aspects are concerned, we refrain from making any comments. However, it is an admitted fact that for the preparation of such valuation reports by the experts which in this case is a Chartered Accountant, the basic information is supplied by the management and based on such information the valuation reports are prepared. In case wrong information or an incorrect information is inadvertently given, the results so arrived cannot be accepted. 13. In the instant case valuation report prepared by the Chartered Accountant is dated 14.03.2018 and the fair market value of equity share and preference share at Rs.23.75 and 237.50 respectively has been arrived at mainly after considering the net-worth of two step down subsidiaries namely a) Palimarwar Solar Projects Private Limited b) Manifold Agricrops Private Limited in following manner. Valuation of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r received on issue of preference share capital at Rs. 25 per share along with face value of each equity share at Rs. 10/- and each preference share at Rs.100/- is in excess of the fair market value of Rs. 10/- per equity share and Rs. 100/- per preference share for preference and therefore, provisions of Section 56(2)(viib) of the Act have rightly been invoked by ld. AO for making the addition of Rs. 8.05 Cr received towards share premium in the hands of the assessee. Thus, the finding of ld. CIT(A) is reversed, addition at Rs.8.05 Cr. made by ld. AO is confirmed and ground nos. 1, 2, 3 4 of the Revenue s appeal are allowed. 16. Ground no. 5 is general in nature which needs no adjudication. 17. In the result, the appeal filed by the Revenue is allowed. 18. Now, we take up the Cross Objection filed by the assessee in C.O. No. 117/Kol/2018. We find that ground nos. 1 2 in the Cross Objection merely supports the finding of ld. CIT(A) and since we have already reversed the finding of ld. CIT(A), thus, two grounds raised by the assessee in the Cross Objection are dismissed. 19. Ground no. 3 raised in the Cross Objection is general in nature which needs no adjudication. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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