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2021 (12) TMI 439 - AT - Income TaxAddition u/s 56(2)(vii)(b) - difference in the market value and issued value of shares - HELD THAT - Explanation (a) (ii) of section 56(2)(viib) leads to a conclusion that any competent evidence that proves the market value of the assets is sufficient to satisfy the requirements of the section. Thus, the said valuation report submitted during the assessment proceedings was a relevant evidence which was ignored by the Ld. AO in the valuation of shares. Assessee had relied on the valuation report of the land in Gram Khajrana to substantiate the value of shares. The valuer is Government approved valued and an expert and Property valuation depends upon many factors which an expert after considers and then come to his conclusion. Also, the valuation was conducted by bank empaneled valuer for the purpose of granting loan to assessee due to which it has high credibility - assessee had established through various evidences submitted during appeal proceedings that even if Guideline value of land is considered than also the valuation of land is very high. Even the Ld. AO in its remand report, admitted the same fact of high market valuation of land but further mentioned that the same is not a relevant evidence which is against the provisions of section 56(2)(viib). See UNNATI INORGANICS PVT. LTD. 2019 (9) TMI 553 - ITAT AHMEDABAD and ASG LEATHER PVT. LIMITED, C/O. SUBASH AGARWAL ASSOCIATES 2018 (6) TMI 1114 - ITAT KOLKATA We are of the view that the addition on account of section 56(2)(viib) of the Act was based on wrong interpretation of the provisions of law ignoring the evidences directly relevant to the facts of the present case - Decided against revenue.
Issues Involved:
1. Deletion of addition made by the AO under section 56(2)(viib) of the Income Tax Act, 1961. 2. Dispute over the valuation of shares as per Rule 11UA of the Income Tax Rules, 1962. Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 56(2)(viib): The Revenue challenged the deletion of an addition of ?2,72,22,105 made by the Assessing Officer (AO) under section 56(2)(viib) of the Income Tax Act, 1961. The AO had determined the fair market value (FMV) of 21,000 shares issued by the assessee at ?77,895 (?3.709 per share) against the issue price of ?1,300 per share, leading to the addition. The AO's view was that the difference between the issue price and FMV should be taxed as "income from other sources." The assessee argued that the FMV of shares was higher than the consideration received, thus making section 56(2)(viib) inapplicable. The assessee provided a valuation sheet based on the net asset value as per the balance sheet dated 31.03.2013, adjusted with the market value of land situated at Gram Khajrana, Indore. The land had a book value of ?19,74,547 but a market value of ?4,15,44,360 as per a government-approved valuer's report. The AO rejected this valuation, arguing that the market value was not revised in the books of accounts and that the valuation rate was too high compared to the guideline value. The CIT(A) accepted the assessee's valuation, stating that section 56(2)(viib) allows the FMV to be substantiated by the company to the satisfaction of the AO based on the value of its assets on the date of issue of shares. The CIT(A) noted that the AO had not disputed the existence or high value of the land and found that the FMV of the plot was much higher than the FMV determined by the AO. 2. Dispute over Valuation of Shares as per Rule 11UA: The AO had applied Rule 11UA to determine the FMV of the shares, which led to the addition. However, the assessee contended that the valuation should also consider the market value of tangible and intangible assets, as allowed under Explanation (a)(ii) of section 56(2)(viib). The CIT(A) agreed with the assessee, stating that the FMV should be the higher of the value determined under Rule 11UA or the value substantiated based on the market value of assets. The Tribunal upheld the CIT(A)'s decision, noting that the AO had ignored relevant evidence, including the valuation report from a government-approved valuer. The Tribunal also referenced judicial pronouncements supporting the assessee's position, including cases from the Ahmedabad and Kolkata Tribunals. Conclusion: The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order that deleted the addition of ?2,72,22,105. The Tribunal found that the addition was based on a misinterpretation of section 56(2)(viib) and ignored substantial evidence provided by the assessee. The order was pronounced on 04.10.2021.
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