TMI Blog2023 (10) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... of the unquoted equity shares shall be the value on the valuation date, i.e., the date on which the assessee company receives property or consideration. Considering the fact that neither the A.O. nor the assessee had taken the correct date for determining the FMV of the unquoted equity 96000 shares as per the method provided in Rule UA r.w Rule 11U, i.e., the value as on the valuation date, therefore, neither of the same merits acceptance. As the specific date/dates on which the assessee company had received consideration are not available on record, in all fairness, restore the matter to the file of the A.O. with a direction to determine the same as per Rule 11UA r.w. Rule 11U applicable to the case of the assessee for the year under consideration. As a word of caution, it may be observed that as Rule 11UA/11U had been subjected to an amendment vide IT(Fifteenth Amendment) Rules, 2012 w.e.f. 29.11.2012, therefore, the A.O while computing the FMV of the aforesaid unquoted equity shares, shall take cognizance of the said fact while working out the valuation on the date on which consideration in lieu of such shares was received by the assessee company. As per the mandate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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: In this regard on perusal of Rule 11U 11UA prescribed under the Act, it is stated that Notwithstanding anything contained in subclause (b) of clause (c) of sub-rule (1), the fair market value of unquoted 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 va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iabilities on the valuation date shall be used for the purpose of valuing such unquoted equity shares. When such balance sheet on the valuation date is not drawn up, the balance sheet as drawn up immediately before the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company shall be used for the purpose of valuing such unquoted equity shares. In this regard, we would like to inform you that the assessee has got its accounts audited on the valuation date by the auditor u/s 224 of the Companies Act, 1956 and FMV of the shares was derived accordingly. Since, the balance sheet drawn up on the valuation date is available, the balance sheet drawn up immediately before the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company cannot be used for determining the fair market value of the unquoted equity shares of the company. Thus, the CIT (Appeals) erred in facts as well as law by confirming the additions of Rs. 8,64,000/- u/s 56(2)(viib). 2. The Ld. CIT (A) erred in law as well as facts while sustaining the addition of Rs. 99,957/- on account of interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lia, observed by the A.O. that the assessee company had issued 96000 equity shares of a face value of Rs. 10/- per share at a premium of Rs. 90/- per share. On being queried as regards the huge share premium of Rs. 90/- per share on the basis of which an amount of Rs. 8,64,000/- was received, it was submitted by the assessee company that the said shares were issued only to the directors and their relatives and its book value as on 31.03.2012 was Rs. 91/- per equity share. Considering the aforesaid reply of the assessee, the A.O held a conviction that now, as per Rule 11UA of the Income Tax Rules, 1962, the Fair market value (FMV) of the shares of the assessee company based on the book value method as per its balance sheet on 31.03.2012 worked out at Rs. 91 per share, therefore, same were issued at an excess premium of Rs. 9/- per share, i.e., over and above the FMV of Rs. 91 per share. Accordingly, the A.O., based on his aforesaid deliberations, made an addition u/s. 56(2)(viib) of the Act of Rs. 8,64,000/- (Rs.9/- per share x 96000 shares). Also, the A.O made a further addition of Rs. 99,957/- of interest on FDR, which the assessee company had credited to the pre-construction ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided in Rule 11 UA based on Balance Sheet of assessee company as on 31-03-2012 works out to Rs. 91 per share whereas the shares have been issued at premium .of Rs. 90 per share thus the issue price is totaling to Rs. 100 per share instead of Rs. 91, therefore, the excess premium of Rs. 9 per share over and above the fair market value i.e Rs. 91 per share aggregating to Rs. 8,64,000 (Rs.9*96000) is held as income of the assessee u/s 56(2)(viib). The value of share is Rs 10 which is the face vale and Rs 90 which is the premium. Where as assessee was showing Rs 91 as the value of share. The shares are given directors and its relatives at Rs 100 which includes Rs 10 as the face value and Rs 90 as the premium. Since the shares were issued less than the book value the difference of Rs 9 per share multiplied by 96000 shares issued would be the income which needs to be taxed. The same has been brought to tax by the assessing officer. Kindly refer to provisions of sec 56(2)(viia) and sec 56(2)(vii)(c). 56 (2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes, shall be chargeable to income-tax under the head Income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson 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 9[or a specified fund]; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf: 10 [Provided further that where the provisions of this clause have not been applied to a company on account of fulfilment of conditions specified in the notification issued under clause (ii) of the first proviso and such company fails to comply with any of those conditions, then, any consideration received for issue of share that exceeds the fair market value of such share shall be deemed to be the income of that company chargeable to income-tax for the previous year in which such failure has taken place and, it shall also be deemed that the company has under reported the said income in consequence of the misreporting referred to in sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such unquoted equity shares as determined in the following manner, namely: (A-L) the fair market value of unquoted equity shares = (PE) X (PV), 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 unamortized 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; (it) the amount set apart for payment of dividends on preferences 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 surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat on one hand, the A.O had determined the FMV of the unquoted equity shares of the assessee company as per the Net Worth Method on 31.03.2012 at Rs. 91/- per equity share, while the assessee company had determined the same as per the said method as on 29.03.2013 at Rs. 144/- per equity share. In my considered view, both the A.O and the assessee company had wrongly adopted the date of valuation. I, say so, for the reason that as per the meaning of valuation date as contemplated under Rule 11UA(j), the FMV of the unquoted equity shares shall be the value on the valuation date, i.e., the date on which the assessee company receives property or consideration. Considering the fact that neither the A.O. nor the assessee had taken the correct date for determining the FMV of the unquoted equity 96000 shares as per the method provided in Rule UA r.w Rule 11U, i.e., the value as on the valuation date, therefore, neither of the same merits acceptance. 10. As the specific date/dates on which the assessee company had received consideration are not available on record, in all fairness, I restore the matter to the file of the A.O. with a direction to determine the same as per Rule 11UA r. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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