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TMI Blog2021 (2) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... to the findings recorded by Assessing Officer, because he cannot reject valuation report merely for the reason such valuation report was not filed at the time of assessment proceedings. Timing of filing valuation report at the time of original assessment proceedings u/s.143(3) or during revision proceedings u/s.263 of the Act is not a relevant criteria to decide whether fair market value of shares issued by assessee is substantiated to the satisfaction of Assessing Officer or not. But, what is relevant is whether valuation report supports share price determined by the assessee or not. In this case, valuation report obtained by the assessee from independent Chartered Accountant supports share price. Therefore, when the assessee has substantiated share price to the satisfaction of the AO with the help of valuation report, even if, such valuation report is obtained subsequent to the date of issue of shares, it does not alter the situation. Assessing Officer as well as learned CIT(A) were erred in rejecting valuation report filed by assessee on this count. CIT(A) observation that relevance of valuation report of Chartered Accountant comes into play only when assessee chooses E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in simply repeating the fair market value of the shares determined by the assessing officer without appreciating the fact that your appellant had based the valuation of shares on the strength of a valuation report issued by a Chartered Engineer, who is an expert in matters relating to valuation. 3) The Ld. Commissioner of Income Tax (Appeals) has overlooked a vital fact that when a Chartered Engineers Valuation is not acceptable to the Assessing Officer as well as the Commissioner of Income Tax (Appeals) the right course would be to secure a valuation report from the District Valuation Officer of the Income Tax Department. 4) The Ld. Commissioner of Income Tax (Appeals) has thus violated the principle of Natural Justice by brushing aside the supporting material in the form of another experts opinion. 5) The Ld. Commissioner of Income Tax has also erred in coming to a unilateral conclusion that Assessing Officers Valuation was right without taking into the following factual position relating to the immovable assets owned by the Assessee and shown, at historical cost in the books of accounts. a) The company owns 36 Acres of land on Coimbatore Pollachi Main road ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very relevant as in the appellant s case there is absolutely no doubt as to the genuineness of the transaction, identity of the party and also the payment having been received through proper banking channels only. 3. Brief facts of the case are that assessee company is engaged in the business of manufacturing of yarn, filed its return of income for assessment year 20013-14 on 28.09.2019 declaring loss of ₹ 31,27,463/-. During the year under consideration, the assessee has issued 7,69,260 equity shares having face value of ₹ 10/- at a premium of ₹ 142/- per share to Graghasakthi Infraservices Pvt.Ltd. and thus, received total share premium of ₹ 10,92,34,920/-. The assessment for, impugned assessment year was completed u/s. 143(3) of the Act, on 17.03.2016 accepting returned loss. Subsequently, PCIT-1, Coimbatore had initiated revision proceedings u/s.263 of the Act, and set aside order dated 17.03.2016 to the file of Assessing Officer to redo assessment afresh after verification of the issue of taxability of share premium collected by assessee u/s.56(2)(viib) of the Income Tax Act, 1961. Consequent to 263 proceedings, Assessing Officer has taken up the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company is being submitted for the first time now. Neither during the course of original assessment proceedings, nor during the course of revision proceedings did assessee state that she also had a Valuation Report from another Chartered Accountant in the matter, other than the Statutory Auditor. If there existed any such report then, she would had furnished the same before the Pr,CIT during the course of revision proceedings itself, Assessee has not provided any e-mail communication with the Chartered Accountant, or evidence that valuation fees was paid to him through cheque for the valuation Work, or TDS deducted from the professional fees, if any, paid for the work. etc. in order to establish that such a Valuation Report was really available at the time of issue of the shares at a premium. The claim now made that she held another Valuation Report therefore is only an afterthought to wriggle out of the issue, Therefore, existence of the second Report at the time of issue of the shares at premium is reflected. 5b. Without prejudice 10 above, on examining both the Valuation Reports it is noticed that the valuation have been done on the basis of Net Asset Value. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that when the legislature in its wisdom has also given a formulae lot computation of (he fair market value it cannot be ignored or altered by the authorities below. Where the Act prescribes a rule, it has to be strictly and mandatorily followed, and further if the statute has conferred a power to do an act and has laid down the method in which that power is to be exercised, it necessarily prohibits the doing of the act in any other manner than that has been prescribed. This view is supported by he following decisions: 1. Hon ble Supreme Court In the case of chandrakishoreJha Vs. Mahavir Prasad Others, order dated 21/9/1999 2. Honble Supreme Court In the case of Sharat Han Singhania Others Vs. CWT. order dated 16.2.1994, case no 1213 of 1990 In the present case the Valuation Report is not prepared by an Accountant as Rule 11UA(2)(b) of the Income-tax Rules, 1962. Also, the net assetvalue of the shares do not justify any premiium 10 the par value of the equity shares Issued as worked out at Para 5b above.. Thus, the market value of the shares issued by the assessee company during the year is neither supported with any authentic document, nor supported by net worth o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer, which is primary requirement of explanation (a)(ii) to Section 56(2)(viib). It is seen that even valuation report of Chartered Accountant which is primarily relied on valuation of an Engineer did not substantiate the basis for valuation of land. It did not state as to how market value of land is arrived at. Therefore, it cannot be said that assessee has substantiated / justified on the basis of value of its assets to the satisfaction of the Assessing Officer. In such case, only option with the Assessing Officer is to determine fair market value in accordance with method prescribed under Rule 11UA of Income Tax Rules, and accordingly confirmed additions made by the Assessing Officer. Aggrieved by learned CIT(A) order, the assessee is appeal before us. 7. The learned A.R for the assessee submitted that learned CIT(A) has erred in simply repeating fair market value of shares determined by the Assessing Officer without appreciating the fact that assessee had based on the strength of valuation report issued shares at premium. The AR further submitted that learned CIT(A) has erred in holding that relevance of valuation report of Chartered Accountant /Engineer comes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious 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 fair market value of the shares to be taxed as income of the assessee. Further, fair market value has been explained, as per which fair market value of the shares shall be value, as may be determined in accordance with such method as may be prescribed or as may be substantiated by the company to the satisfaction of the Assessing Officer based on the value on the date of issue of shares of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, whichever is higher. From the reading of provisions of section 56(2)(viib) and Explanation (a)(i) and (a)(ii), it is very clear that if premium charged on issue of shares exceeds fair market value of shares, then excess amount charged for issue of shares is treated as income of the assessee. Further, to determine fair market value of shares, it is for assessee to choose either a prescribed method which is Rule 11UA of the Act, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has filed valuation report from independent Chartered Accountant as well as statutory auditor of Assessee Company. But, he has ignored valuation report filed by assessee only for the reason that such reports were not filed during original assessment proceedings or even during revision proceedings. We have gone through reasons given by the Assessing Officer for rejection of valuation report and we do not ourselves subscribe to the findings recorded by Assessing Officer, because he cannot reject valuation report merely for the reason such valuation report was not filed at the time of assessment proceedings. Further, timing of filing valuation report at the time of original assessment proceedings u/s.143(3) or during revision proceedings u/s.263 of the Act is not a relevant criteria to decide whether fair market value of shares issued by assessee is substantiated to the satisfaction of Assessing Officer or not. But, what is relevant is whether valuation report supports share price determined by the assessee or not. In this case, valuation report obtained by the assessee from independent Chartered Accountant supports share price. Therefore, when the assessee has substantiated s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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