TMI Blog2023 (1) TMI 1123X X X X Extracts X X X X X X X X Extracts X X X X ..... f unquoted equity shares only and does not refer to valuation of preference shares in any manner, whatsoever. The sub- Clause (c) of Rule 11UA(1), deals with the valuation of unquoted shares and securities other than equity shares which is based on a report from a merchant banker or an accountant. In compliance to this sub-clause, a valuation report has been furnished by the assesse which justifies the premium charged by the assessee on the issue of cumulative redeemable preference shares and accordingly, no addition is called for under Section 56(2)(viib) of the Act by treating it as income from other sources. The valuation arrived at by the ld. Assessing Officer is a negative figure of Rs. (-)5.91/- and thereby considering the FMV is at Nil, is not in accordance with the relevant provisions of the Act and the Rules stated above. Accordingly, we uphold the findings of the ld. CIT(A) and set aside the addition made by the ld. Assessing Officer. Accordingly, grounds taken by the revenue in this respect are dismissed. - ITA No. 600/Kol/2020 - - - Dated:- 20-1-2023 - SHRI SANJAY GARG, HON BLE JUDICIAL MEMBER And SHRI GIRISH AGRAWAL, HON BLE ACCOUNTANT MEMBER For the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case as culled out from the record are that assessee is a Private Limited Company engaged in the business of manufacturing and supply of stone chips. Return of income was filed on 29/09/2015 reporting a loss of Rs.38,19,183/-. Case of the assessee was selected for limited scrutiny on the issue of Large share premium received during the year (verify applicability of Sec 56(2)(viib)) . The statutory notices were issue and served upon the assessee which were duly complied with in the course of assessment proceedings. In the course of assessment, assessee submitted its memorandum of association, audit report and bank statements including other documents and explanations called for by the ld. Assessing Officer. Ld. Assessing Officer noted that assessee had issued, subscribed and paid up capital of Rs.24,50,000/- and security premium of Rs.2,64,50,000/-. The details of capital raised by the assessee is tabulated as under:- List of Equity Share Holder. Name of Share Applicant (A) No. of Equity Share issued (B) Nominal Price per Equity Share Nominal Value of Equity Share (D) Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has confirmed that they have subscribed a total of 4,00,000 shares at a premium of Rs.50/- per share. In their reply in response to notice u/s 133(6) of the Act, copy of the share certificate duly signed by the Director of the assessee company and its bank statements were also furnished. Ld. Assessing Officer showcaused the assessee for calculation of fair market value (FMV) of the cumulative redeemable preference share as per Rule 11U and Rule 11UA of the Rules. 5.1. Ld. Assessing Officer arrived at a value of (-)5.91/- as the FMV of the said shares and considered it as Rs. Nil. By considering the FMV as Nil of these preference shares, ld. Assessing Officer again showcaused the assessee to explain why the difference between the FMV and the share premium received amounting to Rs.3,29,00,000/- be added as income from other sources u/s 56(2)(viib) of the Act. Assessee made its submissions and contended that Rule 11UA(1)(c) of the Rules stipulates valuation method in case of issue of shares other than equity shares for which the FMV shall be estimated to be the price fetched if sold in the open market on the valuation date and for this the assessee may obtain a report from a mercha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee submitted that ld. Assessing Officer has failed to appreciate the difference between the equity shares and preference shares and has mechanically applied the provisions of Rule 11UA of the Rules for resorting to the addition made in the present case. 11. Before adverting on the issue, let us apprise ourselves with the relevant provisions of the Act and the Rules. The relevant provisions of Section 56 of the Act are reproduced as under:- 56. (1) ********************** (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources , namely :- (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 underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f [Explanation] to clause (23FB) of section 10;] 11.1. From the above provision, we note that the explanation refers to FMV of the shares which may be determined in accordance with such method as prescribed. The method prescribed are under Rules 11U 11UA of the Rules. 12. Rule 11UA(2) relevant in the present case is extracted as under:- (2) Notwithstanding anything contained in sub-clause (b) of clause (c) of subrule (1), the fair market value of unquoted equity shares for the purposes of subclause (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) (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 Incometax Act and any amount shown in the balance sheet as asset including the unamortised amount of deferred ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such valuation.] 13.1. This above sub-clause (c) deals with the valuation of unquoted shares and securities other than equity shares which is based on a report from the merchant banker or an accountant. 14. We note that Ld. Assessing Officer had called for a valuation report in the course of assessment proceedings which the assessee could not produce, leading to adverse view by the ld. Assessing Officer. However, the same was produced before the ld. CIT(A) who took cognizance of the same and called for a remand report from the ld. Assessing Officer who did not deal with it for expression of his views on the same. Before us, ld. Counsel for the assessee referred to the valuation report issued by Pallavi Prasad Associates, Chartered Accountants, dtd. 04/04/2014, wherein, valuation of preference shares has been arrived at a value of Rs.60.21. The relevant extract from the valuation report is reproduced as under:- 14.1. From the perusal of documents placed on record and the applicable provisions of the Act and the relevant Rules, we note that sub-Rule (2) of Rule 11UA deals valuation in respect of unquoted equity shares only and does not refer to valuation of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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