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TMI Blog2023 (12) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... 77,20,700/- made by the ld. AO under Section 68 on account of unexplained cash credit in terms of unsecured loans." 3. Briefly stated, the assessee-company is engaged in import and trade of crude palm oil and coal business. The assessee filed return of income declaring total income at a loss of Rs. 1,61,70,427/- for the Assessment Year 2016-17 in question. The return filed by the assessee was subjected to scrutiny assessment under Section 143(3) of the Act. 3.1 In the course of the assessment proceedings, the Assessing Officer inter alia observed that the assessee has issued 52,60,000 equity shares at a premium of Rs. 5/- per share to one of the subscriber K.V. Aromatics Pvt. Ltd. in January, 2016. The equity shares were also issued to other three subscribers at about the same period without any premium. The Assessing Officer recomputed the Fair Market Value (FMV) of the equity shares at a negative figure of Rs. 1.11 crore. The AO accordingly invoked the provisions of Section 56(2)(viib) and held that the share premium charged on issue of equity shares to KV Aromatics is in excess of FMV and a sum of Rs. 2,63,00,000/- collected by way of share premium from 'KV Aromatics' is susc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value (FMV) as per the DCF method. It is argued that the intent of legislature is to curb the black money and there cannot be involvement of any such unaccounted money as the funds have been sourced through its holding company. 6.4 It is further argued that the valuation has been done as per DCF method which is duly acceptable as per the prescribed Rules. It is further stated that as per explanation (a)(i) of the section 56(2)(viib), the fair market value of the share shall be the value, as may be determined in accordance with the prescribed method. In the present case, the appellant has gone by the prescribed method i.e. DCF method which is supported by the report of independent auditor and is in accordance with law. Therefore, it is not open to the AO to change the method, adopted by the appellant. Further, no cogent reasoning has been submitted while rejecting the valuation adopted by the appellant. The appellant provided valuation report, which is as per the DCF method. 6.5 The contention of the appellant has been examined. The fair market value as given by the appellant has been rejected which was based on the DCF method of valuation without any cogent material on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecifically provided that the fair market value of the unquoted shares shall be determined as per the prescribed methods and shall be taken whichever is higher. 6.12 In the following case, the Hon'ble ITAT, Jaipur has held that AO cannot force the appellant to select a different method, especially when conditions are fulfilled for method of valuation. M/s. Rameshwaram Strong Glass Pvt Ltd Vs ITO; 2018-TIOL1358- ITAT-JAIPUR "Whether when in terms of Rule 11UA(2)(b), if the assessee is entitled to choose a particular method of valuation of his unquoted equity shares, the AO can still force the assessee to select a different one - NO: ITAT. 6.13 The appellant has heavily relied upon the case of M/s Cinestaan Entertainment Pvt. Ltd. (Supra), where the Hon'ble ITAT, Delhi in the recent judgment held that:- 31.............Any businessman or entrepreneur, visualise the business based on certain future projection and undertakes all kind of risks. It is the risk factor alone which gives a higher return to a businessman and the income tax department or revenue official cannot guide a businessman in which manner risk has to be undertaken. Such an approach of the revenue has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thus, the value which is relevant today may not be relevant after certain period of time... 33. In any case, if law provides the assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected because neither the Assessing Officer nor the assessee have been recognized as expert under the law." 6.14 It is clear from the above judgment by the Hon'ble Jurisdictional ITAT that neither AO has any power or expertise to change the method of valuation nor it can reject a valid valuation by a competent person say a CA in this case. The law has to be followed in later and spirit. The facts and ratio laid down by the Hon'ble ITAT in the above referred case are squarely applicable to the appellant and hence respectfully following the same, it is held that the addition u/s. 56(2)(viib) with respect to change in the method of valuation is not in accordance with law. 6.15 The appellant has elaborately disputed and distinguished the fact of the decision in the case of Agro Portfolio Pvt. Ltd. from that of the case of appellant. In the said case, the Hon'ble ITAT allowed the AO's working of NAV value on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of Tribunal in DCIT vs. Ozone India Ltd. in ITA No.2081/Ahd/2018 order dated 13.04.2021 in the context of Section 56(2)(viib) has analyzed the deeming provisions of Section 56(2)(viib) of the Act threadbare and inter alia observed that the deeming clause requires to be given a schematic interpretation. The transaction of allotment of shares at a premium in the instant case is between holding company and it is subsidiary company and thus when seen holistically, there is no benefit derived by the assessee by issue of shares at certain premium notwithstanding that the share premium exceeds a fair market value in a given case. Instinctively, it is a transaction between the self, if so to say. The true purport of Section 56(2)(viib) was analyzed in Ozone case and it was observed that the objective behind the provisions of Section 56(2)(viib) is to prevent unlawful gains by issuing company in the garb of capital receipts. In the instant case, not only that the fair market value is supported by independent valuer report, the allotment has been made to the existing shareholder holding 100% equity and therefore, there is no change in the interest or control over the money by such issu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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