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TMI Blog2019 (1) TMI 1635X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the A/R that fair market value of the shares has to be computed by taking the market value of the assets of the assessee company as on the date of issue of shares. We find that the land/property situated at Kolkata is not free from encumbrances as assessee had admitted that there is encroachment in the said land and, therefore, it becomes essential to value the said property after finding out the actual status of the land/property in question. The issue requires a proper verification and enquiry at the level of the AO and in case the AO does not agree with the value claimed by the assessee, the matter is required to be referred to the DVO for the purpose of determining the value of the assets of the assessee as on the date of issue of shares. Since the land in question is situated at Kolkata, therefore, a proper enquiry is required to be conducted to find out the true and correct value of the land at the hand of the assessee. Accordingly, the matter of fair market value of the shares as per the method provided under clause (ii) of Explanation (a) to section 56(2)(viib) is set aside to the record of the AO for fresh adjudication in terms of the above order. - ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ium received by the company. (e) In the facts and circumstances of the case ld. CIT (A) has erred in rejecting the valuation Report of Chartered Accountant as well as Approved Valuer for determining the value of equity shares of company to determine excess premium chargeable to tax u/s 56(2)(viib). The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may be please granted by valuing the shares in accordance with the report of Chartered Accountant as well as Approved Valuer and deleting the addition of ₹ 42,83,96,680/-. (f) In the facts and circumstances of the case ld. CIT (A) has erred in confirming the valuation of equity shares of the company done by ld. A.O. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by accepting the valuation done by assessee. 3. In the facts and circumstances of the case ld. CIT (A) has erred in not allowing the set off of the current year loss of ₹ 3,97,619/- from the addition made u/s 56(2)(viib). The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that the assessee proved the claim of issuance of shares at premium by furnishing the valuation reports of the Chartered Accountant as well as the prescribed valuer. 4. On the other hand, the ld. D/R has submitted that though during the assessment proceedings the assessee has claimed its valuation as per the prescribed method under Rule 11UA, however, even the value to be considered as per the value of the assets as on the date of issue of shares the assessee was not having any asset except the alleged land at Kolkata. The ld. D/R has submitted that the AO has conducted an enquiry through the TRO in the Office of Principal CIT, Kolkata for recovery of outstanding demand and found that the alleged land/property situated at premises no. 19/1, Burdwan Road, Alipore does not exist at the alleged place and further the Kolkata Municipal Corporation also confirmed that the premises no. 19/1, Burdwan Road, Alipore, Ward no. 74 does not exist in the system database of Kolkata Municipal Corporation. The ld. D/R has thus submitted that once the property was not found situated at the given address, then the value of the said property cannot be considered for the purpose of fair market p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt approved valuer. Further, a certificate from the ' relevant authority from Government of West Bengal certifying the value of the land was also produced. The Id. A/R has forcefully contended that when the Chartered Accountant has evaluated the information by using his expert knowledge and only on his satisfaction he has issued the Certificate, then the valuation report based on the certificate of the Chartered Accountant cannot be rejected without bringing the contrary material on record. The Id. CIT (A) has given the instance of DLC rates of the similarly situated land which also corroborates the claim of the assessee though the rates cited by the Id. CIT (A) were without any deduction on account of encroachments/encumbrances. Thus the Id. A/R has submitted that the rejection of valuation report by the Id. CIT (A) is not justified. He has further contended that the assessee had made a specific request for referring the land valuation to the DVO. However, the AO rejected the request for reference to the DVO on the reason that no such reference is possible under section 56(2)(viib) and that the reference under section 55A is related with capital gain income. The ld. A/R of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the consideration received by the assessee company for issue of shares and the fair market value of the shares. Thus in case the consideration received against the issue/allotment of shares exceeds the fair market value of the shares, the said excess amount received by the assessee has to be assessed as income from other sources. Explanation to Section 56(2)(viib) defines the fair market value of the shares. For ready reference, we reproduce provisions of section 56(2)(viib) and Explanation (a)(ii) as under :- 56. (1) xxxxx xxxxxx. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources , namely :- [(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this Clause shall not apply where the consideration for issue of shares is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g anything contained in sub-Clause (b) of Clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-Clause (i) of Clause (a) of Explanation to Clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under Clause (a) or Clause (b), at the option of the assessee, namely:- (a) the fair market value of unquoted equity shares = (A L) (PE) (PV), where, A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the value of the shares as per the second method provided in Clause (b) of Rule 11UA(2). The only dispute is the adoption of the value of the land which is shown as asset in the Balance Sheet at book value by the AO and at market price by the assessee. Going by the language and process as prescribed under Clause (a) of Rule 11UA(2), the only inference can be drawn is that the book value of the assets in the Balance Sheet has to be taken into account by reducing the book value of the liabilities as well as other deductions as prescribed thereunder and, therefore, the question of taking the market price of the asset does not arise under the said method. Since the assessee has not disputed the method and has opted only the net worth method as prescribed under the rule, therefore, we cannot go to examine the applicability of the other method in the case of the assessee. Thus when the rule does not provide the market price of the asset, then the assessee s claim has no leg to stand and accordingly the appeal of the assessee is without any merit. Thus, it is evident from the finding on this issue that the Tribunal has adjudicated the issue of valuation in terms of Clause(i) of Expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es issued by the assessee. The AO has taken the value of the said property as per the book value which is shown at the cost price and not at the market value whereas the ld. CIT (A) has conducted some verification at his level and found that the valuation of the property after applying 32% discount on account of encumbrance comes to ₹ 18,23,74,333/-. The fair market value of the shares as per clause (ii) of Explanation (a) to section 56(2)(viib) has to be taken based on the value of the assets including intangible assets of the company as on the date of issue of shares which connotes that the value as on the date of issue and not as per the book value or at cost. Hence we find merit in the submission of the learned A/R that fair market value of the shares has to be computed by taking the market value of the assets of the assessee company as on the date of issue of shares. We find that the land/property situated at Kolkata is not free from encumbrances as assessee had admitted that there is encroachment in the said land and, therefore, it becomes essential to value the said property after finding out the actual status of the land/property in question. Therefore, the issue requ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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