9911796707
TMI Blog2023 (12) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... 56(2)(viib) of the I.T. Act, 1961. 4. The learned Commissioner of Income Tax (Appeals) erred on facts as well as in law in enhancing the addition by Rs. 33,50,000/- thereby making total addition of Rs. 1,34,00,000/- under section 56(2)(viib) of the I.T. Act, 1961. 5. The learned Commissioner of Income Tax (Appeals) erred on facts as well as in law in confirming the charging of interest u/s. 234A, 234B, and 234C of the Act, when addition itself not sustainable." 3. At the outset, it was pointed out that there is only one issue raised in the present appeal relating to addition made to the income of the assessee in terms of provisions of Section 56(2)(viib) of the Act. The addition being made on account of the Assessing Officer noting the fact that the assessee had issued shares at a value far exceeding its Fair Market Value and accordingly the difference in the fair market value of the shares, as estimated by the Assessing Officer and the premium at which the shares were issued to the assessee, was added to the income of the assessee - amounting in all to Rs. 1,00,50,000/-. 4. However, this addition was enhanced by the ld. CIT(A) in appeal before him treating the difference in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Net Worth of Shareholders (A) (-)58,911 Existing No. of Equity shares of face value of Rs. 10/- each (B) 10000 Fair Market Value per Share (A/B) (-) 5.89 7. Noting, therefore, that the assessee had issued shares for Rs. 40/- per share, he treated the consideration received in excess of premium of Rs. 1,00,50,000/- for the issue of 3,35,000 shares issued as taxable under Section 56(2)(viib) of the Act. The ld.CIT(A) agreed with the dismissal of the Fair Market Valuation of the shares by the Assessing Officer noting certain pertinent fact that the land, which had been valued at 10 times more than its purchase price for the purpose of deriving Fair Market Value of the shares, was purchased during the current year itself. He also noted the fact that the land was purchased for Rs. 8,74,460/- and its jantri value was Rs. 7,35,000/- @ Rs. 642/- per square meter, while the valuer had valued it at Rs. 87,62,000/- estimating the value of land at Rs. 8,000/- per sq. yard without giving any basis of such valuation.On this basis, he held the valuation report to be a self-serving valuation to which no credence could be given. His finding in this regard at paragraph No.6.2 of his orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oing so, he confronted the same to the assessee, dealt with objection to the same, and thereafter proceeded with the enhancement. His findings in this regard are at page Nos. 16 to 19 of the order as under:- ".... Having rejected the contentions of assessee as regards the quantum of FMV of shares issued and thus having affirmed in principle the action of AO in making the impugned addition u/s 56(2)(viib), I find that the quantification of deemed income needs some correction. While the AO has made addition of only the amount of premium as deemed income, in my considered opinion, it is the aggregate consideration of shares issued which is the deemed income as per provisions of this section as the FMV being negative is nil. Accordingly vide order sheet entry dated 30/5/2017 the AR of appellant was made aware of the provisions of section 56(2)(viib) and was asked to show cause why an enhancement be not made. On behalf of the appellant the AR of assessee vide his written submission dated 31/5/2017 submitted that: "With reference to captioned subject we would like to state that vide above referred appeal and further submission made at personal hearing we have requested your authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income- tax under the head "Income from other sources". However, this provision shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund. Further, it is also proposed to provide the company an opportunity to substantiate its claim regarding the fair market value. Accordingly, it is proposed that the fair market value of the shares shall be the higher of the value- (i) as may be determined in accordance with the 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 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. This amendment will take effect from 1st April, 2013 and will, accordingly. apply in relation to the assessment year 2013-14 and subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been rejected without giving any reasonable cause. 11. We do not find any merit in this contention of the ld. Counsel for the assessee. As noted above by us and as is evident from the orders of the authorities below, the primary objection to the valuation report submitted by the assessee was the unusually enhanced value given to the asset of the assessee i.e. the land, which was noted to be valued at 10 times more than its purchase price. The assessee submitted a valuation report of the valuer for the valuation of piece of land at Rs. 87,62,200/- as against its purchase price of Rs. 8,74,460/-, but we have noted that the ld. CIT(A) found that while the asset was purchased in the same year at a fair lesser price and its jantri value was also fair less, the valuer had given no basis at all for valuing it at 10 times its actual cost at which it was acquired. The ld. Counsel for the assessee has not been able to controvert this finding of the ld. CIT(A); therefore, the contention of the assessee that there was no basis given for rejecting the valuation report is found to be incorrect on facts and is accordingly rejected. 12. No other arguments having been made by the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:" 14. The bare perusal of the above reveals that the conditions specified in the said section which are necessary for invocation are that... (i) the assessee is a company which is not a company in which the public are substantially interested; (ii) it receives, in any previous year, consideration for issue of shares which exceeds the face value of the shares; (iii) the aggregate consideration received for such shares as exceeds the fair market value of shares is then subjected to tax. 15. In the present case, the condition No.1 is not in dispute and is also not an issue in consideration before us. It is only the condition No.2 & 3 which has to be considered by us for deciding the issue raised by the assessee that scope of addition to be made under Section 56(2)(viib) of the Act is to be restricted only to the component of premium received by the assessee on issue of shares. While the section specifies that it would be invoked only when the consideration received exceeds the face value of shares, i.e. the assessee receives premium on issue of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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