TMI Blog2023 (5) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... f share premium as part of reserves and surplus. Even if the recipient company does not justify receipt of share premium, still the fact of share premium being reflected in the balance sheet cannot be ignored by the ld. AO as the taxation of the same is only by way of deeming fiction. Share premium would be included in the reserves and surplus even as per Rule 11UA of Income Tax Rules. While this is so, it is completely wrong on the part of the ld. AO to ignore the same while valuing the shares of the assessee company both under liability approach and considering the same as a liability under asset approach . Accordingly, the value determined by the ld. AO is totally flawed and since no mistake is found by us in the valuation ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and perused the materials available on record. The assessee is engaged in the business of software development, market research and public opinion polling, business and management consultancy etc. The assessee company was incorporated on 24.12.1999. The assessee issued 50 lakhs shares of Rs. 20 per share comprising of face value of Rs. 10 and share premium of Rs. 10. However during the under consideration, the assessee has received only Rs. 10, which included share premium of Rs. 7.50 per share and face value of Rs. 2.50 per share. Accordingly the subscribed share capital of the assessee company increased from 8,67,000 shares to 58,67,000 shares. The paid up share capital increased from Rs 86,70,000/- to Rs. 2,11,70,000/-, resulting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment in properties Rs. 79,75,000/- Investment in properties Rs. 61,71,178/- Loan and Advance Rs. 18,97,482/- Cash in hand Rs. 1,11,125/- Cash at bank Rs. 81,845/- Total (A) Rs. 1,82,08,630/- Short Term provision (B) Rs. 18,185/- Net Assets (A) (B) = (C) Rs. 1,81,90,445/- Fair market value of unquoted equity shares = 1,81,90,445/- divided by 8,67,000/- = 20.98 per share. The assessee submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.5/- 7. Under asset approach , the ld. AO valued the share of the assessee company as under:- Particulars Amounts Fixed Assets Rs. 19,72,000/- Investment in properties Rs. 79,75,000/- Investment in properties Rs. 61,71,178/- Loan and Advance Rs. 18,97,482/- Cash in hand Rs. 1,11,125/- Cash at bank Rs. 81,845/- Total (A) Rs. 1,82,08,630/- Short Term provision (L) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t prohibit inclusion of share premium as part of reserves and surplus. Even if the recipient company does not justify receipt of share premium, still the fact of share premium being reflected in the balance sheet cannot be ignored by the ld. AO as the taxation of the same is only by way of deeming fiction. In any case, what is required for the purpose of valuation of shares is the figures reflected in the books of accounts or in the balance sheet prepared as per Companies Act, 1956 which the ld. AO does not have power to tinker with. Only any reserve that has been set apart towards deprecation would not get included under reserves and surplus . In other words, such reserves set apart for depreciation would partake the character of a liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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