2024 (8) TMI 1014 - AT - Income Tax

Addition u/s 56(2)(viib) - difference between the market value and the consideration received - AO has adopted the book value as on 31.03.2011 whereas the assessee has adopted the revalued figure of land and buildings as on 31.10.2011 - Assessee has issued shares at a value of Rs. 250/- to its Directors at a premium of Rs. 240/- per share. The premium is arrived at by the assessee based on a draft valuation report issued by CB Rechard Elis which was further certified by the Chartered Accountant of the assessee - AO reworked the share premium based on the book value at 31.03.2011 to arrive at the value of share at Rs. 138.50 per share. Accordingly, the AO made an addition u/s 56(2)(viib) - HELD THAT - As per the provisions of Rule 11UA in the case of unquoted shares the Fair Market Value (FMV) shall be determined based on the book value of assets and liabilities as on the valuation date for the purpose of making addition under section 56(viib). In the given case the AO has adopted the value as at 31.03.2011 which in our view is not correct. At the same time we notice that the assessee has not submitted the relevant document to substantiate the basis of valuation and also the proper statement of accounts as at the valuation date to enable to the AO examine whether share premium is not excessive or unsubstantiated. In the light of these facts and that lower authorities have not examined the facts correctly for the reason that the assessee did not produce the required documentary evidences in support of the claim, we deem it just and proper to remit the issue back to the AO for a de novo examination. The assessee is directed to produce all the relevant documents to substantiate the valuation of land and building and the valuation of shares at Rs. 250/- per share. AO is directed to examine the facts of the case based on the documentary evidences that may be submitted by the assessee and decide in accordance with law. Appeal of assessee is allowed for statistical purposes.

Issues Involved:
1. Valuation of shares issued at a premium.
2. Application of Rule 11UA of the Income Tax Rules.
3. Invocation of Section 56(2)(viib) of the Income Tax Act.
4. Discrepancy in valuation dates and methods.
5. Justification for revaluation of assets.

Issue-wise Detailed Analysis:

1. Valuation of Shares Issued at a Premium:
The assessee, engaged in the business of construction, development, and management of hotels, issued 3,98,800 equity shares at Rs. 250 per share to its Directors. The valuation was based on a draft valuation report by CB Richard Elis and certified by the assessee's Chartered Accountant. However, the AO rejected this valuation, stating it should be based on the book value as on 31.03.2011, which resulted in a share value of Rs. 138.50. Consequently, an addition of Rs. 4,44,66,200 was made under Section 56(2)(viib) of the Income Tax Act.

2. Application of Rule 11UA of the Income Tax Rules:
The AO argued that the valuation should be based on the book value of assets as shown in the balance sheet as on 31.03.2011, as per Rule 11UA. The assessee contended that the valuation should consider the revalued figures as on 31.10.2011. The AO maintained that the fair market value (FMV) should be calculated using the book value of assets and liabilities as on the valuation date, which was not adhered to by the assessee.

3. Invocation of Section 56(2)(viib) of the Income Tax Act:
The AO invoked Section 56(2)(viib) because the shares were issued at a price higher than their market value. The difference between the market value and the consideration received was treated as income from other sources, amounting to Rs. 4,44,66,200. The CIT(A) upheld this addition, stating that the revaluation of assets was not substantiated with valid evidence.

4. Discrepancy in Valuation Dates and Methods:
The AO noted discrepancies in the valuation dates and methods. The valuation report dated 31.10.2011 was used to determine the share value as on 31.03.2011, which was not acceptable. The CIT(A) also observed that the revaluation of land and building from Rs. 18,43,55,072 to Rs. 33,58,00,000 within seven months was not substantiated with a valid valuation report.

5. Justification for Revaluation of Assets:
The assessee argued that the revaluation was justified as it was based on the completed project of the hotel as of 31.10.2011, whereas the value as on 31.03.2011 was based on work-in-progress. However, the lower authorities did not find this justification satisfactory due to the lack of supporting evidence. The Tribunal noted that the assessee did not provide sufficient documents to substantiate the revised valuation.

Conclusion:
The Tribunal observed that the lower authorities did not correctly examine the facts due to the lack of documentary evidence from the assessee. Therefore, the issue was remitted back to the AO for a de novo examination. The assessee was directed to produce all relevant documents to substantiate the valuation of land and building and the share value of Rs. 250 per share. The AO was instructed to re-examine the case based on the documentary evidence and decide in accordance with the law.

Result:
The appeal of the assessee was allowed for statistical purposes, and the case was remitted back to the AO for further examination.

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