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2023 (1) TMI 607 - AT - Income TaxAddition u/s. 56(2)(viib) - Computation of the fair market value of the shares - whether the assessee has valued the shares as per the balance sheet of the valuation date 31.03.2014 in consonance with Rule 11U/11UA of the IT Rules? - HELD THAT - Balance Sheet should be drawn on the valuation date, which is 31.03.2014 in the present case, which has been audited by the auditor of the company and if these two conditions are not satisfied, then the balance sheet drawn up as on the date immediately preceding the valuation date which has been approved and adopted in the Annual General Meeting of the share holders of the company, which would be 31.03.2013 in the present case. For a company, it is impossible to get it accounts audited on 31st March and present the same for approval in the Annual General Meeting on March 31st. In the case in hand, when the Bench asked the ld. counsel for the assessee about the unaudited balance sheet as on 31.03.2014, the ld. counsel for the assessee could not reply and instead, referred to the certificate of the auditors wherein nowhere says that the valuer has considered the audited balance sheet as on 31.03.2014 which was approved and adopted in the Annual General meeting by the shareholders for the simple reason that it is practically impossible for any company to present the audited balance sheet of the F.Y. before the Annual General Meeting on the date of closing of the F.Y. i.e. 31st March. The certificate of the auditors is based on the statement and documents furnished by the company which is neither audited nor certified by the auditors. Even the Legislators put the onus of proof on the companies and in the case in hand, the assessee has miserably failed in discharging the onus. AO found that the audited balance sheet of 31.03.2013 was approved by the shareholders in the Annual General Meeting and, accordingly, computed the fair market value of the shares as per the balance sheet as on 31.03.2013 which, in our considered opinion, is as per the provisions of the Act read with the relevant rules of the IT Rules and cannot be faulted with. Appeal of assessee dismissed.
Issues:
Valuation of shares under section 56(2)(viib) of the Income-tax Act, 1961. Analysis: The appeal pertains to the valuation of shares by the assessee under section 56(2)(viib) of the Income-tax Act, 1961 for the Assessment Year 2014-15. The primary contention of the assessee was against the addition made by the Assessing Officer amounting to Rs. 1,49,60,000/- based on the valuation of shares issued during the year. The appellant company, incorporated in 1995, was involved in providing accommodation entries without any actual business operations. During the year, the company issued 8 lakhs shares at a face value of Rs. 10/- each to two companies in exchange for 60,000 shares valued at Rs. 6 crores. The assessee valued its own shares at Rs. 75/- each, comprising a face value of Rs. 10/- and a premium of Rs. 65/-. The Assessing Officer, however, determined the fair market value of the shares at Rs. 65.6447 per share and made an addition of the difference, leading to the dispute. The Assessing Officer rejected the valuation report submitted by the assessee, as it did not align with Rule 11UA of the Income Tax Rules. The key issue revolved around whether the assessee valued the shares in accordance with the balance sheet as on the valuation date of 31.03.2014, as required by Rule 11U/11UA of the IT Rules. The Balance Sheet, as per the Rule, should be audited by the company's appointed auditor and approved in the Annual General Meeting. The assessee failed to provide an audited balance sheet for the valuation date, leading to a reliance on an unaudited certificate for valuation, which did not meet the statutory requirements. The Tribunal emphasized the importance of adhering to the statutory provisions while valuing shares, especially concerning closely held companies. The Tribunal noted that the assessee failed to discharge the onus of proof regarding the valuation of shares as per the legislative intent. The decision highlighted the significance of presenting audited balance sheets in compliance with Rule 11UA for fair valuation. Ultimately, the Tribunal dismissed the appeal of the assessee, upholding the addition made by the Assessing Officer based on the valuation discrepancies.
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