9911796707
TMI Blog2019 (7) TMI 1074X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is evident from the audited balance sheet filed. Clause (b) and clause (j) of Rule 11UA makes it clear that for computing fair market value of the shares the value of the assets and liabilities as stated in the audited balance sheet immediately prior to the receipt of consideration should be adopted. If, on the date of receipt of the consideration, the balance sheet was not drawn up, then, the balance sheet drawn up as on a date immediately preceding the valuation date should be adopted i.e., the balance sheet of the immediately preceding year should be adopted. We find, in the instant case, on the valuation date i.e., on 31.03.2004, the balance sheet was not drawn up by the auditor as audited financials were drawn up only on 31st July, 2014 and, therefore, we concur with the observation of the CIT(A) that the valuation of assets and liabilities in the balance sheet of the immediately preceding year i.e., 31.03.2013 should have been adopted. Since the valuation done by the assessee was not in accordance with the Rule framed for valuation of unquoted shares i.e., the assessee has not taken the value of assets before introduction of share capital received through fresh allotmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that the assessee has not made valuation as per the method prescribed for valuation of the unquoted shares as per Rule 11UA(2) in a proper manner. The assessee has not taken the value as per Rule 11UA(2) applicable to its case. Further, the assessee has not taken the value of assets before the introduction of share capital received through fresh allotment. He noted that the assessee has included in the calculation the amount of fresh capital and, thus, has tried to inflate the value of allotted shares artificially to ₹ 100/-. Since the calculation furnished by the assessee was in violation of the prescribed method as per Rule 11UA, therefore, the Assessing Officer rejected the calculation of valuation of the fair market value of shares allotted and calculated the value of shares as under:- (A-L) -------------------- x PV PE (6407755 5000) --------------------------------------- x 10 i.e., ₹ 84.24 per share 7,60,000 4. The Assessing Officer accordingly treated the excess of ₹ 15.76 per share (i.e., 100-84.24) as the excess consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid two companies, which are reflected as inventory in its Balance Sheet as on 31.03.2014. During the assessment proceedings, the AO in accordance with Rule 11UA asked the appellant to furnish the fair market value of the shares in order to examine the taxability under the provisions of section 56(2)(viib) of the Act. The appellant furnished valuation computing the fair market value at ₹ 99.36/- per share, and contended that since the shares had been allotted @₹ 100 per share, as such, no addition is warranted u/s 56(2)(viib) of the Act. The AO examined the valuation furnished by the appellant and held that valuation furnished by the appellant is incorrect as appellant has not taken the value of asset before the introduction of the shares. The AO further computed the fair market value of the shares at ₹ 84.24 per share in accordance with Rule 11UA(2) by adopting the figures prior to the allotment of the shares. Thereafter difference of fair market value as computed by the AO and value at which shares were allotted was brought to tax u/s 56(2)(viib) of the Act by making an addition of ₹ 2,83,68,000/-. 5.3 The appellant has challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t shares of the allottee companies have been received at book value, as such, the consideration for the allotment of the shares was the shares of the allottee companies at book value. The appellant has failed to appreciate that under the statutory provision, if the consideration of the allotment of shares exceeds the fair market value of the shares issued, difference would be taxable. The determining factor for taxability u/s 56(2)(viib) is the fair market value of the shares of the appellant company, and consideration for such shares, and if there is difference the same can definitely be brought to tax. Here in this case, the AO in accordance with the rules has computed the fair market value of the shares of the appellant company at a value lesser than the consideration, and hence the contention of the appellant is not acceptable and therefore rejected. 5.5 The last contention of the appellant is that fair market value of the shares as computed by the AO @₹ 84.24 per share is not correct and the fair market value of the shares is ₹ 99.36 per share as computed in the valuation report submitted before the AO. It has been contended by the appellant that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting of the shareholders of the company; The aforesaid Rule makes it clear that Balance Sheet means Balance Sheet as drawn up on the valuation date which has been audited by the auditor of the company and where the Balance Sheet on the valuation date is not drawn up, the Balance Sheet drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the Annual General Meeting (AGM) of the shareholders of the company. In this case, on the date of the receipt of the consideration, the Balance Sheet of the appellant company was not drawn up, as same was drawn up only on 31.07.2014 which is evident from the audited Balance Sheet submitted by the appellant. Therefore, clause (b) and (j) of Rule 11U make it clear that for computing the fair market value of the shares, the value of the asset and liabilities as stated in the audited Balance Sheet immediately prior to the receipt the consideration should be adopted. If on the date of receipt of the consideration, the Balance Sheet was not drawn up, then the Balance Sheet drawn up as on a date immediately preceding the valuation date should be adopted i.e. Balance Sheet of the immediat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, in the case of the assessee company, the existing shareholders, who were the two shareholders and directors of the company, were holding only 76000 shares of ₹ 10 each. The total funds belonging to the shareholders before allotment of shares was ₹ 64,01,920/-. Accordingly, the existing shareholders on that basis who were entitled to receive the funds in the case of winding up, would be at ₹ 84.23 per share. The company has issued further 1800000 shares at ₹ 100/- each and, thereafter, the total number of shares had gone up to 18,76,000 and the total funds belonging to the shareholders including the premium received on allotment becomes ₹ 18,64,02,502/-. On this basis, the intrinsic value of shares comes to ₹ 99.36 per share. Accordingly the benefit which can accrue to the existing shareholders on 76000 shares could be only the difference between the intrinsic value of the shares of existing shareholders prior to allotment of shares and after the allotment which is ₹ 15.13 and on this basis, the increase in the value of existing shareholders comes to ₹ 11,52,000/-. Therefore, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition made by the Assessing Officer and sustained by the CIT(A) be deleted and the appeal filed by the assessee be allowed. 10. The ld. DR, on the other hand, strongly relied on the order of the CIT(A). He submitted that the assessee in the instant case has introduced share capital by issuing 1800000 equity shares of ₹ 10 each at a premium of ₹ 90 per share aggregating to ₹ 18 crores to two companies, namely, M/s Elecon Securities Pvt. Ltd. and M/s Ordinary Financial Services Pvt. Ltd. on 31.03.2014. The assessee has not made the valuation of shares as prescribed under Rule 11UA(2) and has not taken the value of assets before introduction of share capital received through fresh allotment. Since valuation was not in accordance with law, the Assessing Officer computed the fair market value at ₹ 84.24 per share and, accordingly, made addition of ₹ 2,83,68,000/-. He referred to the provisions of section 56(2)(viib) and the provisions of Rule 11UA(2) and submitted that the computation made by the Assessing Officer and upheld by the CIT(A) is proper. Referring to the decision of the Delhi Bench of the Tribunal in Agro Portfolio (P) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r rejected the valuation done by the assessee on the ground that the valuation so made by the assessee is not as per the method prescribed for valuation of the unquoted shares as per Rule 11UA(2) in a proper manner. We find the Assessing Officer calculated the fair market value of the unquoted shares at ₹ 84.24 per share and, accordingly, made addition of ₹ 2,83,68,000/- to the total income of the assessee being the excess of ₹ 15.76 per share for 18 lakhs shares. We find the ld.CIT(A) upheld the action of the Assessing Officer, the reasons for which have already been reproduced in the preceding paragraphs. It is the submission of the ld. counsel for the assessee that in view of the provisions of section 56(2)(viib) and in the light of the speech of the Finance Minister, the provision should be applicable only when there is investment of unaccounted money. Since in the instant case, there is no such introduction of unaccounted money and the intrinsic value of shares comes to ₹ 99.36 per share, therefore, no addition is called for. It is also his submission that while disposing the Stay Application the Bench had observed that no unaccounted money is involved ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
