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2024 (12) TMI 115

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.... Assessing Officer during the course of assessment proceedings and without considering the same, the Assessing Officer passed the assessment order on 19.04.2021. On perusal of the assessment order at page 5, which shows that the Assessing Officer issued show-cause notice dated 15.03.2021 incorporating draft assessment order for the proposed addition by giving an opportunity to the assessee in the form of show-cause why the assessment order should not be passed with the proposed addition. As it appears the assessee filed reply on 19.03.2021 and the relevant part is reproduced at page 5 & 6 of the assessment order. The Assessing Officer found the said submission as not acceptable, proceeded to add an amount of Rs.. 2,74,30,010/- being the difference between the value of shares shown by the assessee and as determined by the Assessing Officer, as excess fair market value, which is clear from page 5 of the assessment order. Therefore, we find no force in the argument of the ld. AR that no opportunity was given to the assessee during the course of assessment proceedings. Therefore, we find the submission of the ld. AR in remitting the matter to the file of the Assessing Officer is not ac....

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....below: 4.4 It is a matter of fact that the appellant company is a private limited company in which the public are not substantially interested. It is also a matter of fact that the appellant company had received share price over and above the face value of the shares and there is no exclusion clause for non-applicability of section 56(2)(viib) for receipts from family members. Therefore, the provision of section 56(2)(viib) is applicable in the instant case. Also, this section prescribes that the fair market value of the equity shares shall be the higher of the value of shares determined under Rule 110 & 11UA and value substantiated by the company to the satisfaction of the AO. Further, Considering facts of the present case and provision of Income Tax Rules, I find that the Rule 11UA(1)(b), is applicable in the instant case because the appellant had issued unquoted equity shares and not the rule 11UA(1)(c) as relied by the appellant in it's submission because Rule 11UA(1) (c) is applicable for determination of the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange. 4.5 In the presen....

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....) provides an option to the appellant for choosing the method of valuation but it has to be chosen at the time of issuance of equity shares and not during the assessment proceedings. This is a case, where the appellant didn't obtain any valuation report from Merchant Banker before determination of FMV for issuance of equity shares and thus, the valuation has to be made by adopting method as prescribed by Rule 11UA(2)(a) and not Rule 11UA(2)(b). During the course of appellate proceedings, the appellant submitted various case laws which is related to section 56(2)(vii)(c) pertaining to Individual and HUF but it is not related to any company, which has independent legal entity and having separate provision for determination of fair market value of shares. Also, the facts of the other case laws are different from the facts of the present case, hence, not applicable. On a similar facts, the Hon'ble ITAT Delhi Bench in the case of Agro Portfolio (P.) Ltd. Vs ITO [2018] 94 taxmann.com 112 (Delhi - Trib) [2018] 171 ITD 74 (Delhi - Trib.) held that where assessee allotted shares to a company and fair market value of shares was done by a Merchant banker only on basis of Direct Cash F....

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....2)(a) or on the basis of report of Merchant Banker as per DCF method. The ld. AR stressed upon that furnishing valuation report at the time of claim is not relevant and the assessee can furnish report during the course of assessment proceedings also and drew our attention to para 17 of the said decision. The ld. AR argued that the Merchant Banker valued under DCF method and determined fair market value, which requires to be followed by the Assessing Officer. He vehemently argued that the order of the ld. CIT(A) is not justified in not taking into consideration the valuation of fair market value determined by the Merchant Banker on the basis of DCF method. 7. The ld. DR Ms. Gouthami Manivasagam, JCIT argued that there is no basis followed by the assessee in issuing shares at Rs.. 150/- per share at the time of issuance of shares and making claim and the report furnished during the course of assessment proceedings cannot be taken into consideration. The fair market value determined by the assessee under DCF method during the course of assessment proceedings relevant to the assessment year 2018-19 is not justified, but it should have been at the time of issuance of shares. The Assess....

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....caused as to why the assessment should not be passed taking into consideration the FMV as determined under Rule 11UA of the IT Rules. The assessee has given written reply pointing out the mistakes stated to have been committed by the Assessing Officer of which are reproduced in the assessment order reflected at page 5 of the assessment order. The Assessing Officer held that the reply of the assessee is not acceptable for the reason that there was no supporting document for the same. 9. The ld. AR referred to report on fair market value of shares under DCF method at pages 4 to 6 and brought to the notice of the Assessing Officer by way of letter dated 18.03.2021. The said letter is placed at page 1 to 3 of the paper book. On perusal of the same, we find no signature and date of the report, but only annexed as A & B to the letter dated 18.03.2021, wherein, it is contended that the DCF method as provided under Rule 11UA(2)(b) of IT Rules are based on the generally accepted principles and methods followed internationally and on arms-length basis. Further, it is contended the most common valuation approaches are on income based approach, market based approach and asset based approach. ....

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....ing documents and it was prepared based on the discussion with the management of the company. Before us, no material filed supporting the DCF method, except annexure A & B annexed to letter dated 18.03.2021. Therefore, we find the Assessing Officer rightly adopted the method under Rule 11UA(2) of the IT Rules in determining the FMV of the unquoted shares at Rs.. 63.47. Further, we note from the impugned order of the ld. CIT(A) observed that the assessee obtained valuation of shares by DCF method only during the course of assessment proceedings in 2021 and there was no basis for claim of premium of Rs.. 140/- at the time of issuance of shares to its promoters/existing shareholders. Therefore, admittedly, there was no valuation by DCF method at the time of issuance of shares as rightly held by the ld. CIT(A) and we hold the same. 10. The ld. AR placed on record Income Tax (Twenty First Amendment), Rules, 2023 in respect of Rule 11UA regarding option of assessee to adopt the date of valuation. On plain reading of the sub-rule (3) of Rule 11UA clearly explains the date of valuation report by merchant bankers for the purposes of sub-rule (2) is not more than 90 days prior to the date o....