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TMI Blog2025 (1) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... . That appellant reserves his right to add or amend grounds of appeal." 3. Brief facts of the case are that the assessee is a Company and had filed its original Return of Income on 03.09.2015 declaring therein total income as NIL by claiming loss of Rs (-)758076/-. The case of the assessee was selected for limited scrutiny and accordingly notice u/s 143(2) dated 13.04.2016 was issued and duly served upon the assessee, fixing the case for hearing on 29.04.2016. A detailed questionnaire u/s 142 been issued to the assessee requesting the assessee to produce certain information / clarifications. 3.1 During the pendency of the assessment proceeding the case was converted into complete scrutiny after approval of ld. Pr.CIT, Udaipur on 05.12.2017. In response to the notices so issued assessee submitted the requisite details, information, documents and clarifications sought for vide notices u/s 143(2) &142(1) as recorded in the order sheet entries made by the ld. AO. 3.2 During the course of assessment it was noticed that assessee was not doing any business activity. Even AR of the assessee in his reply dated 12.07.2017 accepted that the assessee looking for business proposition and are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered as Nil. Vide order sheet entry dated 22.11.17 and notice u/s 142(1) dated 05.12.17 assessee was asked to show cause why the a sum of Rs. 51,00,000/- should not be added back to the total income of the assessee as per sec 56(2)(viib) rw rule 11UA. AR replied vide order sheet entry dated 28.11.17 and again on 07.12.17 that he has nothing further to say in this regard and case may be decided based on reply already submitted. Ld. AO based on that observation added Rs 51,00,000/ as Income of assessee company. 4. Aggrieved, from the said order of assessment, assessee has filed an appeal before the ld. CIT(A). The ld. CIT(A) after hearing the contention of the assessee partly allowed the appeal of the assessee by giving following findings on the issue:- "5.4 Decision 5.4.1 It is seen from the assessment order that the A.O. has made addition by invoking provision u/s. 56(2)(viib) of the I. T. Act r.w.r. 11UA of the I. T. Rules. The facts of the case in brief is that the appellant is a private limited company who during the relevant previous year issued 170000 shares at the face value of Rs. 10/- is at a premium of Rs. 20/- per share. Accordingly, the appellant received Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r share aggregating the value of per share @ Rs. 30. Therefore the provisions of section 56(2)(viib) of the I. T. Act is clearly applicable to the appellant's case. In the written submission, it is submitted by the appellant that the consideration received of Rs. 17,00,000/- being the face value of equity shares cannot be added u/s. 56(2)(viib) of the I. T. Act. This contention raised by the appellant is not found acceptable. It is clear from provision u/s, 56(2)(viib) of the I. T. Act that where a company receives any consideration for issue of shares that exceeds the face value of the shares, the aggregate consideration received for such shares as exceeds the fair market value of shares is taxable. Thus in view of provision u/s. 56(2)(viib) of the I. T. Act the aggregate consideration received (face value plus premium received) is to be considered. In the instant case, the face value of shares is at Rs. 10 per share and premium charged is @Rs. 20 per share. However as per the method prescribed in rule 11UA for determination of fair market value of the shares, the fair market value of the shares of the appellant company is at a negative figure of Rs. (-) 53.20 per share/nil. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Sec 56(2)(viib) entire Share Capital and Share Premium amounting to Rs 51,00,000/-. Total Addition Confirmed - Rs 51,00,000/- Being aggrieved by these additions, present appeal is filed before honourable ITAT, which has following grounds: 1. That Learned CIT A has wrongly confirmed addition of Rs 51,00,000/- of Share Premium and Share Capital treating the value of Share Value at Rs nil under section 56. The confirmation of addition is made without following provisions of law. Hence the addition of Rs 51,00,000/- is bad in law and be deleted. 2. The appellant reserves his right to add or amend any grounds of appeal. A. First Ground of Appeal First Ground of appeal reads as under: 1. "That Learned CIT A has wrongly confirmed addition of Rs 51,00,000/- of Share Premium and Share Capital treating the value of Share Value at Rs nil under section 56. The confirmation of addition is made without following provisions of law. Hence the addition of Rs 51,00,000/- is bad in law and be deleted." Brief Facts 1. Patel Minerals Private Limited Company is an Private Limited Company incorporated on 07.02.2011 with an object to carry on manufacturing business of various products. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een determined under various methods of valuation including discounted cash flow method. However as per explanation given under provision of section 56(2)(viib) of the I.T. Act, the fair market value of the shares shall be the value as may be determined in accordance with rule 11Uand 11UA of I. T. Rules. Therefore it is mandatory that the fair market value of the shares for the purpose of section 56(2)(viib) of the I.T. Act is determined as per the method prescribed under rule 11U and 11UA of the I. T. Act only and thus the fair market value of shares determined by any other method is not to be considered. 5.4.3 As per rule 11UA of I.T. Rules the fair market value of unquoted equity shares is equal to(A-L)X(PV) PxE) Where A=Book value of asset in the Balance Sheet L = Book value of Liabilities PE= Total Value of Paid Up Equity Share Capital PV = Paid up value of such quity shares. 5.4.4 In the instant case, as calculated by the A.O.intheassessmentorderunderpara4, the book value of assets of the company is at Rs. 80.54 lakhs (A) and book value of liability as per balance sheet at Rs. 85.86 lakhs (B). Therefore the fair market value of unquoted equity shares of appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cash Flow Method. 8. It is respectfully submitted that in this case it is undisputed facts that : a) Company has issued Equity share at a price of Rs 30/- per share while face value per share is Rs 10/- only. b) Company has obtained fair market value report as per requirement of Rule 11UA and submitted the copy of it before Ld AO and Ld CIT A (A copy of which is also enclosed Paper Book Page No from to) . c) Ld AO made addition considering the fact the Net Asset Value of company is in Negative, ignoring Valuation on the Future Earning Method and Discounted Cash Flow Method. d) Ld CIT A also confirmed the same adopting the logic adopted by the AO. e) Ld CIT A as well as AO has not rejected or pointed out any specific defects in valuation made on the basis of Discounted Cash Flow Method 9. It is respectfully that in order to comply and satisfy requirements of Section 56(2)(viib) and Rule 11UA company is required to obtain valuation report from Accountant and valuation adopted by it should be as per Discounted cash flow method. Company has obtained valuation report from Accountant Saruparia Somani & Co - Chartered Accountants and as per them valuation of Shares as DCF me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crown Chemicals, (supra), ITAT, Delhi Bench in the case of Hometrail Buildtech (P.) Ltd and ITAT Jaipur Bench in the case of NabhMultitrade Pvt. Ltd., (supra). We find that the assessee valued the share amount to Rs. 158/- per share and allotted share is Rs. 100 which is much less than the NAV which is not contravening of section 56(2) of the Act. 11. It is respectfully submitted ITAT Jaipur Bench in case of VINAYAKA MICRONS (INDIA) PRIVATE LTD. vs. PRINCIPAL COMMISSIONER OF INCOME TAX reported at (2021) 63 CCH 0294 JaipurTrib deal with similar issue as under : Brief Facts The assessee has filed it's return of income for the assessment year 2016-17 declaring total income of Rs. 49.98 Lakhs. It was submitted that during the year under consideration, the assessee company had issued 59,500 equity shares of face value of Rs. 100/- at a premium of Rs. 100/-. The Fair MarketValue of the shares was Rs. 250/- as per Discounted Free Cash Flow method, which was opted by the assessee as provided in Rule 11UA(2)(b) of the Income Tax Rules, 1962. The Valuation Report was obtained by the assessee from a Chartered Accountant in practice as prescribed in the Rules existing at that time. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied to issue such valuation report under Rule 11UA(2) and who has determined the fair market value of the shares at Rs 219.50 per shares which is still higher the value at which the shares were issued by the assessee company. Thus, even where the report of the merchant banker is considered, the provisions of section 56(2)(viib) continues to remain inapplicable. Further, there is no adverse finding recorded by the ld PCIT and no dispute which has been raised regarding the discounted cash flow method of valuation and the methodology adopted in both the valuation reports. Though there is a variation in valuation so determined in two reports on account of certain underlying assumption regarding illiquidity ratio, as highlighted by the ld A/R, there can always be a different of opinion among the technical experts, but the necessary corollary thereof doesn't necessarily mean than the valuation so determined doesn't stand on sound foundation in terms of data and methodology and the fair market value and issue of shares is not supported by the valuation report. Therefore, we agree with the contention advanced by the ld A/R that even where there is a technical breach in terms of obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the provision of law. 8. We have heard both the parties and perused the materials available on record. The apple of discord in this case is that whether the addition of Rs. 51,00,000/- made by the ld. AO and sustained by the ld. CIT(A) made as per the provision of section 56 of the Act is correct or not. 8.1 The brief facts related to the solitary issue raised in this appeal are that the assessee (a company, not being a company in which public are substantially interested) had issued share on premium during the year. Total 1,70,000/- shares were issued at face value of Rs 10 and @ premium of Rs 20 per share at total consideration of Rs 51,00,000/- including premium received for Rs 34,00,000/- during the year. As there was no business activity during the year as per submission filed, assessee was asked to justify the premium as per section 56(2)(viib) of the Act and rule 11UA of I.T. Rules. Ld. AR submitted share valuation report which was not as per rule 11UA but valuation of shares was done as per 'Adjusted Net Asset Method and as per 'future earning analysis. Ld. AO noted that future earning analysis method not allowed in rule 11UA but that rule allow two method ..... 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", namely :- (i) dividends ; xx xx xx xx (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,- (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; (b) any immovable property,- (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration: Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause: Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning Method and Discounted Cash Flow method. (The aforesaid fact has been accepted even by Ld CIT Appeal - Para 5.4.2 Page No 15 of CIT A Order). Ld AO has made addition on the basis that Fair Market Value Method and Future Earning Method is not prescribed method under Rule 11UA and in view of negative net worth, entire consideration received by the company i.e. Rs 51,00,000/- including face value and share premium is liable to be addition u/s 56(2)(viib) of the Income Tax Act 1961. Ld. CIT(A) did not discuss as to why the report of an accountant placed on record which is based on the relevant rule for valuation of shares is not considered and he has simply confirmed the view of the assessing officer. Before us ld. AR supported that valuation done was as prescribed by the rule and that report of the independent accountant submitted by the assessee was not doubted or challenged on any of the aspect. The assessee has discharged his onus by submitting the relevant report in support of the fair market value adopted by the assessee. The bench noted that assessee-appellant having placed on record the report of the accountant dated 05.01.2015 that the fair market value of the share shall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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