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TMI Blog2024 (2) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2017-18. 2. In the captioned appeal, the assessee seeks to challenge the reversal of additions of Rs. 2,60,00,000/- on account of share premium received by the assessee-company in excess of Fair Market Value (FMV) under Section 56(2)(viib) of the Act. 3. Briefly stated, the assessee-company is engaged in the business of corrugated boxes. In the course of scrutiny assessment for Assessment Year 2017-18 in question, the Assessing Officer observed that the assessee has issued Rs. 10 lakh equity shares of face value Rs. 10/- per share at Rs. 36 per share, i.e, at a premium of Rs. 26 per share. The shares were subscribed by the directors of the company, namely, Shri Vinod Sac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances, the CIT(A) found force in the plea of the assessee and accepted that deeming provisions of Section 56(2)(viib) is wholly inapplicable in the facts of the present case. The relevant operative paragraph of the order of the CIT(A) is reproduced hereunder: "4.2.1 I have carefully gone through the submission of the Appellant. I have also gone through the records and facts of the case. Assessee has received share capital alongwith premium from its directors Sh Vinod Sachdeva and Sh Nalin Sachdeva. Share capital has been subscribed by two directors @ Rs 36 per share including premium of Rs 26 per share. The fair market value of unquoted equity shares for the purposes of subclause (i) of clause (a) of Explanation to clause (vii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balance-sheet; PV = the paid up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method.] Appellant has option of adopting different methods of valuation of share price as prescribed in section 56(2)(viib) as reproduced above. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. counsel for the assessee, on the other hand, supported the first appellate order and submitted that for the purposes of determining the FMV of unquoted equity shares under Rule 11UA(2)(a) of the Rules, there is no legal requirement of obtaining any valuation report. The valuation report is required only for the purposes of determination of FMV as per Discounted Free Cash Flow (DCF) Method as provided in Rule 11UA(2)(b) of the Rules. The ld. counsel submits that since FMV has been determined on the basis of book value of assets and liabilities, the assessee was not required in law to obtain separate valuation report. The fair market value as per Rule 11UA(2)(a) can be easily vouched from the financial data available in the audited ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of determination of valuation under Rule 11UA(a) of the Rules. 9. We observe that the book value of assets and liabilities adopted for the purposes of NAV method of valuation is in consonance with last audited balance-sheet items as on 31.03.2016 whereas the allotment has been stated to be made in November, 2016 during the Financial Year 2016-17 relevant to Assessment Year 2017-18. The AO misdirected himself in law on seeking valuation report which requirement do not emanate from the law codified in this regard. The phraseology of clause (a) to sub-rule (2) of Rule 11UA read with Explanation (a) to Section 56(2)(viib) do not thrust the requirement of Valuation Report for substantiation of valuation under NAV method. 10. We thus see ..... X X X X Extracts X X X X X X X X Extracts X X X X
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