2024 (4) TMI 341 - AT - Income Tax

Addition u/s 56(2)(viib) - share premium receipts - Correct method of calculating the fair market value - as per AO fair market value of unquoted shares has not been determined by a merchant banker or by accountant as per the discounted free cash flow method and noted that the valuation of fair market value of the shares was done by the Govt. registered valuer which is contradictory to the provisions of the Act - HELD THAT - We note that the assessee s balance sheet is comprised of both movable and immovable properties. We note that immovable property comprised of land and building which houses the rice mill. As is apparent from the AO as well as Ld. CIT(A) orders that both the authorities have failed to point out any defect in the valuation report furnished by the assessee. We note that the AO has valued the fair market value of the equity shares based on the book value which is totally incorrect and erroneous method of calculating the fair market value as the assessee owns movable as well as immovable properties valuing the equity share at Rs. 23.20 per share whereas the fair market value of the equity share was much higher. AO has not referred the issue to valuation expert and therefore the said act of AO is not acceptable as the assessee has furnished valuation before the AO which was done by registered valuer. The valuer is also registered with the Department as valuer. While contrary to this even the immovable properties were valued at book value by the AO which is blatantly anomalous. Under the circumstances we are not in an agreement with the conclusion drawn by the authorities below for the reasons that valuation obtained by the assessee from a registered valuer cannot be brushed aside by simply citing technical reasons without pointing out any discrepancy or defect in the said valuation. Thus assessees case deserves to be treated with leniency and accordingly we set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Appeal of the assessee is allowed.

Summary

Issues Involved:
The appeal against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi for the AY 2014-15 regarding the addition of share premium to the income of the assessee.

Details of the Judgment:

Issue 1: Addition of Share Premium
- The assessee challenged the addition of Rs. 46,52,400/- on account of share premium to their income.
- The AO determined the share premium based on incorrect valuation methods, contrary to the valuation report obtained by the assessee from a registered valuer.
- The AO valued the equity shares at Rs. 23.20 per share, while the fair market value was higher, leading to an erroneous calculation.
- Both the AO and Ld. CIT(A) failed to identify any defects in the valuation report provided by the assessee.
- The AO did not consult a valuation expert despite the assessee's submission of a valuation report by a registered valuer.
- The Tribunal found that the assessee's valuation by a registered valuer should not be disregarded without valid reasons or discrepancies being pointed out.
- The Tribunal set aside the Ld. CIT(A)'s order and directed the AO to delete the addition, considering the assessee's case with leniency.

Conclusion:
The Tribunal allowed the appeal of the assessee, emphasizing the importance of proper valuation methods and the validity of valuation reports obtained from registered valuers.

This summary provides a detailed overview of the judgment, focusing on the issues involved and the Tribunal's decision regarding the addition of share premium to the assessee's income.