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TMI Blog2019 (7) TMI 1074X X X X Extracts X X X X X X X X Extracts X X X X ..... tment along with names and addresses of the persons to whom the shares were allotted. He also asked the assessee to furnish calculation of the valuation made as per Rule 11UA to verify taxability u/s 56(2)(viib) of the IT Act. The assessee filed necessary details along with explanation and the valuation made for arriving at the fair market value of the shares. It also filed a valuation report in respect of the immovable property held by the assessee issued by an approved property dealer in which the fair market value of the same was enhanced substantially to justify the higher valuation of the shares allotted at such high premium. 3. However, the Assessing Officer was not satisfied with the submissions made by the assessee. He noted that the assessee has allotted 1800000 shares to two companies, namely, M/s Elecon Securities Pvt. Ltd. and M/s Ordinary Financial Services Pvt. Ltd. on 31.03.2014. He 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntories has got increased by a sum of Rs. 18,00,00,000/- which is equivalent to the share capital received by the appellant during the year. The aforesaid analysis clearly reveals that on account of the receipt of the share capital, there is no increase in any fixed asset or cash, however there is increase in the inventory of the equivalent amount. This fact is further confirmed by the appellant as it has issued 9,00,000 shares each to M/s Elecon Securities Pvt. Ltd. and M/s Ordinary Financial Services Pvt. Ltd. @Rs. 100 per share and in consideration of the aforesaid shares, the appellant has not received any sum in cash, but has received share capital of the equivalent amount from 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 Rs. 99.36/- per share, and contended that since the shares had been allotted @Rs. 100 per share, as such, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion is whether the consideration for the allotment of the shares is at fair market value or not. If the consideration received by the appellant is at fair market value, then no addition can be made and if it is otherwise, the excess would be chargeable to tax as income from other sources. 5.4 The second contention of the appellant is that in case of exchange of asset there can be no difference between the value of asset received and asset given, since the book value of shares received as well as issue price of shares allotted was the same and therefore no difference in the valuation thereof could be alleged. It is an admitted fact that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under section 224 of the Companies Act, 1956 (1 of 1956) and where the balance-sheet on the valuation date is not drawn up, the balance-sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the annual general meeting 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 subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted money will be relevant only when the amount of premium given by the new shareholders has benefitted the existing shareholders. In other words, for the applicability of the provisions of section 56(2)(viib), the existing shareholders should have provided unaccounted money to the new shareholders who have to give money to the company by way of high premium on the shares allotted to them. 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 Rs. 10 each. The total funds belonging to the shareholders before allotment of shares was Rs. 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 Rs. 84.23 per share. The company has issued further 1800000 shares at Rs. 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 Rs. 18,64,02,502/-. On this basis, the intrinsic value of shares comes to Rs. 99.36 per share. Accordingly the benefit which can accrue to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y transaction took place. He accordingly submitted that the 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 Rs. 10 each at a premium of Rs. 90 per share aggregating to Rs. 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 Rs. 84.24 per share and, accordingly, made addition of Rs. 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Rs. 84.24 per share and, accordingly, made addition of Rs. 2,83,68,000/- to the total income of the assessee being the excess of Rs. 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 Rs. 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 nor any money transaction to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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