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TMI Blog2022 (2) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... section 56(2)(viib) and further we also noticed that shares were issued to its sister s concern only and the transactions are between two closely held companies and it cannot be classified or equated to generations/circulations of unaccounted money. Therefore, we do not find any reason to interfere with the finding of the CIT(A) and accordingly we deem it fit and proper to dismiss the ground raised by the revenue. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- The assessee has earned only ₹.3000/- as exempt income and Ld.CIT(A) has restricted the same to the extent of exempt income earned by the assessee. Therefore, the action of the Ld.CIT(A) is in line with the various judicial pronouncements which restricts the disallowance u/s. 14A of the Act to the extent of exempt income earned by the assessee. Therefore, we are inclined to dismiss the grounds raised by the revenue. Revenue appeal dismissed. - ITA No. 3599/MUM/2019 - - - Dated:- 4-2-2022 - Shri S. Rifaur Rahman, Hon'ble Accountant Member And Shri Pavan Kumar Gadale, Hon'ble Judicial Member For the Assessee : Shri Satish Modi For the Department : Shri S.N. Kabra ORDER PER S. RIFAUR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he face value of ₹.100/- each with a premium of ₹.24,900/- i.e. total premium received by the assessee is of ₹.4,99,24,500/- to its sister s concern M/s. Tyabji Estates Pvt. Ltd.,. The assessee calculated the fair market value of the shares by relying on the valuation report submitted by M/s. Dharmesh M. Kansara Associates, Chartered Accountants. As per the valuation report submitted the fair market value was arrived at ₹.37,890/- per share. During the assessment proceedings Assessing Officer rejected the submissions made by the assessee with the following observation: - 5.5.4 As can be seen from the above balance sheet as at 01/04/2013, the book value of assets is at ₹ 70,55,78,061/-. However, the shares has been valued at the value of assets on the basis of a provisional balance sheet where it is seen that value of assets has been valued at very high value at ₹ 154,98,38,696/-. It is relevant to mention here that though the assessee has filed a provisional balance sheet to justified the premium, the assets are not revalued and the balance sheet at 31/03/2014 is prepared in the book value only. The assessee has not filed any justification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer that as per the said explanation (a)(ii) of section 56(2)(viib) the assessee, can substantiate to the satisfaction of the assessing officer the fair market value of the shares based on the value, on the date of issue of shares, of its assets, including intangible asset. The assessee in order to substantiate the fair market value of the shares on the date of issue of shares relied upon the valuation report of the Chartered Accountant submitted during the course of assessment proceedings. The assessee brought to the notice of the assessing officer the fact that the Chartered Accountant had arrived to the value of ₹ 37,890/- per share on basis of revaluation of the assets on the date of issue of shares. The assessee further brought to the notice of the assessing officer the fact that the revaluation of immoveable property was on the basis of Stamp Duty valuation as per the stamp duty ready reckoner on the date of issue of shares and shares held as investments were based on the fair market value of the shares of each of the Company on the date of issue of shares by the assessee company. The assessing officer without pointing out any mistakes in the meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all the assets along with the supporting evidences such as stamp duty ready reckoner. The CIT (A) held that the assessee had as per explanation (a)(ii), submitted the valuation report; according to which the fair market value of the unquoted Shares came to ₹ 37,890/- and the assessee, however, in its case had adopted a value of ₹ 25,000/- only which was much less than the fair market value as per the valuation report. The CIT (A) held that it is at the option of the assessee to adopt the value as per the Explanation a(i) or a (ii) and the assessee was fully justified in adopting the Explanation a(ii). The CIT (A) was further of the view that the assessing officer has no jurisdiction to insist that the assessee should adopt only a particular method for determining the value of Shares and that the method of deriving the FMV of Shares could not be questioned as it is not open to the tax authorities to change the method of valuation, which has been applied. The CIT(A) while passing the order also took note of assessee s contention that the primary objective of section 56(2) (viib) was to plug the routing of black money through unjustified shares premium. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s Impact Retail tech Fund Pvt Itd. ITA NO 2050/Mum/2018 dated 05/03/2021, wherein the Hon ble Tribunal in para 14 on page 66 held as under : The tax authorities invoked the provision u/s 56(2)(viib) without bringing on record whether the investment received by the assessee are genuine or not. We notice that the provision introduced by the legislature in order to curb the practice of generation and circulation of unaccounted money. In the current case, the tax authorities have not brought on record any generation or circulation of unaccounted money, rather they acknowledged that the funds were invested by the holding company and received by the subsidiary company as advance towards Share Capital. It is not disputed that the net worth of Company is NIL because of investment in step down subsidiary company (due to provision towards revaluation of investment). It is also not disputed that the funds were moved from the holding company to the assessee and the funds were reinvested in the step down subsidiary company in order to revive the step down subsidiary in that process, the investment in such step down company is safeguarded. 15. Here is the situation, the funds intende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the adjusted value of the assets of the assessee comes to ₹ 1,54,98,38,696/ and the value of the Shares after deducting the liabilities ₹ 69,37,97,881/ the difference is ₹ 85,60,40,815/ hence the value is issued capital ₹ 22,59,200/ (22,592 Shares of ₹ 100 each) Fair Market Value = ₹ 37,891.30 (85,60,40,185/22,59,200 X 100) The Assessee submits that as against the fair market value of Shares at ₹ 37,891.30 per shares, the assessee has issued the shares at a premium of ₹ 24,900/- only therefore, no addition u/s 56(2) (viib) is called for. The assessee submits that Valuation of the Shares has to take into consideration various factors and not simply on the basis of financials. The substantiation of the true fair market value of the shares has to be first decided on the basis of the valuation done by the assessee and it cannot be decided from the lenses of rule 11UA which can be applied in case sub clause (i) of explanation (a) of section 56(2) (viib) has been exercised. The assessee state that FMV can be determined in either of the two manners whichever is higher i.e. as per Explanation (a)(i) or (a)(ii)of section 56(2)(viib) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. In view of the above submissions the assessee prays that the order of the Ld.CIT(A) ought to be upheld and department s appeal be dismissed. 11. Considered the rival submissions and material placed on record, we observed from the record that assessee has issued shares at premium by obtaining valuation report from the M/s. Dharmesh M. Kansara Associates, Chartered Accountants and the valuation report was based on the re valuation of the assets on the date of issue of shares. The value of each shares were arrived at ₹.37,890/- per share by adopting revaluation of assets. We observed from the record that the assessee was having immovable property which was revalued on the basis of stamp duty valuation as per stamp duty ready reckoner on the date of issue of shares and also shares held as investment were revalued based on the fair market value as on the date of issue of shares. 12. On a careful perusal of the order passed by the Ld.CIT(A), we observed that assessee has submitted the detailed working of the fair market value of all the assets along with supporting documents including stamp duty ready reckoner in order to substantiate the value arrived by the val ..... X X X X Extracts X X X X X X X X Extracts X X X X
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