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TMI Blog2022 (9) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... held There cannot be any estoppels against statute. A property which is not otherwise taxable, cannot become taxable because of misunderstanding or wrong understanding of law by the Assessee or because of his admission or on his misapprehension. If in law an item is not taxable, no amount of admission or misapprehension can make it taxable - Department cannot rely upon any such admission or misapprehension if it is not otherwise taxable. Thus, it is jurisdictional error where AO not being convinced himself about applicability of Rule 11UA proceeded to make the valuation according to method of 11UA on the basis that at some stage assessee itself had applied the method. Even if preferential shares and equity shares are considered to be falling within the purview of Section 56(2)(viib) of the Act, they stand on different footing . While the equity shareholders are the real owners of the company, the preference shareholders are not in fact, the owners of the company, they get preference over the equity shareholders on certain aspects. Hence the Net asset value of the company really represents the value of Equity shares and not Preference shares - As held Mumbai Bench in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice issued u/s 142(1) dated 11.04.2016 07.03.2016 to furnished the detail of; Large share premium received during the year (verify applicability of sec. 56{2}(viib) 3. After taking the responses of assessee the Ld. AO made the addition with following findings :- 8. The reply of assessee was duly considered but found not acceptable because assessee itself is not convinced whether Rule 11 UA should be a ppl icable to preference share or not. If it is not applicable then why he has received the share premium on issuance of preference share as per rule 11UA read with u/s 56(2) (vii b) of the IT Act and why at the time of issuance of preference shares assessee did not considered other provision and remedial action available, if ? No doubt, there may not be applicability of Rule 11UA on issuance of preference share but the assessee itsel f has treated the preference share as same as equal and at par to u n quoted equity share and has determined the fair market value, of the share premium u/s 56(2) (vii b) of the IT Act read with rule 11 UA. Of course, No matter that rule 11UA says about unquoted equity shares but there is only difference of treatment that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2)(viib) are wholly inapplicable in respect of the aforesaid transaction (as the consideration was received in AY 2012-13) and further, the reliance placed on the said provision is based on a complete misreading of the same and thus, the addition so made is liable to be deleted. 3. That in doing so, the valuation report so furnished by assessee - appellant, wherein, the value per share was worked out at Rs. 354/- per share under Rule 11UA(l)(c)(c), by a professional accountant/ valuer has been arbitrarily discarded and rejected by lower authorities and that too by applying the wrong methodology as envisaged in the said Rule and thus, the valuation of share so adopted by lower authorities at Rs. 213/- per share is unjust, improper and needs to be rejected. The learned CIT(A) has also ignored the fact that these were preference shares which are redeemable and not convertible into equity shares and is thus liability of the company. 1.3 That the adverse findings recorded by the Commissioner of Income Tax (Appeals) while sustaining the impugned addition have been recorded with preconceived notions and by arbitrarily brushing aside the detailed submissions/evidences/material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of law on the basis of principles of estoppels, it comes up, that as such it is not one of the specific grounds raised but being a question of law, can be suitably considered to be falling under the general ground no. 1. Remaining grounds when taken along are based on same set of facts and law and cover the controversy as to if the tax authorities below have fallen in error and applied provisions of Rule 11 UA for the valuation of preferential shares issued for Rs. 344/- each and the valuation of Rs. 354/- per share is correct and the value would not be Rs. 213/- per shares. In this context, at the outset, it can be observed from the assessment order that Ld. AO was carried away by the fact that assessee has taken two different pleas with regard to valuation of preferential shares and that the assessee was itself not convinced Rule 11UA should be applicable or not. However, the assessment orders shows that even the Ld. AO was not convinced of applicability of Rule 11UA. As it applies to unquoted equity shares but he applied the valuation method of Rule 11UA upon the preferential shares considering them to be similar. 10. In this context, the Bench is of firm opinion that L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within its ambit and there in no reference to the preference shares. Thus, the only method for determining the FMV of the preference shares is Rule 11UA(1)(c)(c), which is reproduced herein below: the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of which such valuation. 12.1 Thus the the Ld Tax authority below had fallen in error in applying method of valuation of unquoted equity on preferential shares and the possible correct method was to apply Rule 11UA(1)(c)(c) only. 13. Lastly, it can be observed that Ld. AO had arrived at valuation of Rs. 213/- on following basis : (a) The fair market value of the shares shall be the value- (i) as may be determined in accordance with such method as may be prescribed as rule 11UA. On the perusal of the section 56(2)(viib) of the income Tax Act , it is very clear that the fair value of the unquoted equity shares will be determined in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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