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2023 (10) TMI 1058 - AT - Income TaxAddition u/s 56(2)(viib) - determination of the FMV of the shares unquoted equity - excess premium of Rs. 9/- per equity share that was received by the assessee company - HELD THAT - On a conjoint reading of Section 56(2)(viib) r.w. Rule 11UA, find that the FMV of the unquoted equity shares would be their value as of the date on which the assessee company receives property or consideration for the same. As against the aforesaid requirement of law, it transpires that on one hand, the A.O had determined the FMV of the unquoted equity shares of the assessee company as per the Net Worth Method on 31.03.2012 at Rs. 91/- per equity share, while the assessee company had determined the same as per the said method as on 29.03.2013 at Rs. 144/- per equity share. Both the A.O and the assessee company had wrongly adopted the date of valuation. I, say so, for the reason that as per the meaning of valuation date as contemplated under Rule 11UA(j), the FMV of the unquoted equity shares shall be the value on the valuation date, i.e., the date on which the assessee company receives property or consideration. Considering the fact that neither the A.O. nor the assessee had taken the correct date for determining the FMV of the unquoted equity 96000 shares as per the method provided in Rule UA r.w Rule 11U, i.e., the value as on the valuation date, therefore, neither of the same merits acceptance. As the specific date/dates on which the assessee company had received consideration are not available on record, in all fairness, restore the matter to the file of the A.O. with a direction to determine the same as per Rule 11UA r.w. Rule 11U applicable to the case of the assessee for the year under consideration. As a word of caution, it may be observed that as Rule 11UA/11U had been subjected to an amendment vide IT(Fifteenth Amendment) Rules, 2012 w.e.f. 29.11.2012, therefore, the A.O while computing the FMV of the aforesaid unquoted equity shares, shall take cognizance of the said fact while working out the valuation on the date on which consideration in lieu of such shares was received by the assessee company. As per the mandate of law, the option to determine the FMV of unquoted equity shares remains with the assessee as per either of the two methods viz. (i) as per the Net Worth Method; and (ii) as per the Discounted Free Cash Flow (DCF) method remains with the assessee company. Accordingly restore the matter to the file of the A.O. for fresh adjudication. Decided in favour of assessee for statistical purposes. Addition of the interest on FDRs to its returned income - recharacterizing the interest receipt as the income of the assessee company from other sources - We concur with the claim of the Ld. AR that as the interest income earned by the assessee company on the funds which were temporarily parked/deposited with the banks as fixed deposits prior to commencement of its business was in the nature of a capital receipt and, hence, was required to be set off against the pre-operative expenses. See Indian Oil Panipat Power Consortium Ltd. Vs. ITO 2009 (2) TMI 32 - DELHI HIGH COURT Accordingly vacate the addition made by the A.O by recharacterizing the interest receipt as the income of the assessee company from other sources.
Issues Involved:
1. Addition under Section 56(2)(viib) for share premium. 2. Addition of interest income on Fixed Deposit Receipts (FDRs). 3. Addition related to depreciation. Summary of Judgment: 1. Addition under Section 56(2)(viib) for Share Premium: The assessee challenged the addition of Rs. 8,64,000/- made under Section 56(2)(viib) based on the valuation of net worth as per audited financial statements dated 31.03.2012, while shares were allotted on 30.03.2013. The assessee argued that the valuation should be based on the balance sheet as on the valuation date, which is the date of issue of shares. The Tribunal found that both the Assessing Officer (A.O) and the assessee had incorrectly adopted the valuation date. The matter was restored to the A.O. to determine the fair market value (FMV) of the shares as per Rule 11UA r.w. Rule 11U applicable for the relevant year, ensuring the correct valuation date is used. The option for valuation method remains with the assessee, either as per the Net Worth Method or the Discounted Free Cash Flow (DCF) method. Thus, this ground was allowed for statistical purposes. 2. Addition of Interest Income on FDRs: The assessee contested the addition of Rs. 99,957/- as interest income on FDRs, arguing it was a capital receipt since it was earned before the commencement of business and should be set off against pre-operative expenses. The Tribunal agreed with the assessee, citing the judgment of the Hon'ble Delhi High Court in Indian Oil Panipat Power Consortium Ltd. Vs. ITO, which held that interest income earned prior to the commencement of business is a capital receipt. Consequently, the addition was vacated, and this ground was allowed. 3. Addition Related to Depreciation: The assessee did not advance any argument regarding the addition of Rs. 16,027/- out of depreciation. Therefore, this ground was dismissed as not pressed. General Grounds: The general ground of appeal was dismissed as not pressed. Conclusion: The appeal was partly allowed for statistical purposes, with the matter concerning the share premium addition remanded back to the A.O. for fresh adjudication, and the addition of interest income on FDRs was vacated. The depreciation-related addition was dismissed due to lack of argument.
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