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TMI Blog2022 (12) TMI 672X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has followed the procedure laid down in Rule 3(8) of the Rules. Under the rules, in case of shares of unlisted company the fair market value shall be the value determined by a merchant banker. The merchant banker has also been defined in the Rules. The said rule has been reproduced by the Ld. Assessing Officer in the impugned order. It is evident that fair market value of the specified shares was to be taken as determined by the merchant banker. The assessee following above Rules, has adopted the fair market value of ₹194.15 as determined by the merchant banker. But the contention of the revenue in the grounds raised is that value as per the actual trade at the rate of ₹850 per share executed between the unrelated parties should have been adopted. No decision has been cited by DR, which could support the case of the Revenue and therefore we do not find any basis for adopting the fair market value as suggested by the DR based on an independent transaction of sale of shares of the assessee company between unrelated party. In the grounds raised before us, the Revenue has nowhere challenged correctness of fair market value determined by the merchant bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the trade between unrelated parties took place after the exercise of option under ESOP scheme by the employee, the said trade had taken place during the same financial year whereby the value of perquisite based on the fair market value so established could have been added to the salary income of the employee and appropriate TDS done by the assessee company. iv. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in rejecting the Fair Market Value (FMV) of Rs.850/- per share adopted by the Assessing Officer while upholding the value of Rs.194.15 per share computed by the Merchant Banker without appreciating that section 17(2)(vi) r.w. Rule 3(8) provides for adopting FMV of the shares which could not have been less than the actual trade @ Rs.850/- per share executed between the unrelated parties during the year itself. 2. Briefly stated facts of the case are that the assessee is engaged in manufacturing and sales of wines in India. A survey action under section 133A of the Act was carried out in the case of the assessee on 10/10/2018, wherein according to the Assessing Officer, the assessee violated provisions related to deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) a. Fair Market Value of the Shares 194.15 b. Exercise Price of the Shares 155.00 c. Perquisite per share [(a)-(b)] 39.15 d. Total Shares Issued 40,000 e. Total Perquisite [(c)*(d)] 15,66,000 2.3 The assessee company accordingly deducted tax at source (TDS) on the perquisite amount of ₹15,66,000/- in terms of section 192 of the Act and deposited the tax into Government account. 2.4 But according to the Assessing Officer, during relevant assessment year M/s Reliance capital had sold shares of the assessee company at the rate of ₹ 850 per share and therefore fair market value of the specified security (equity share of assessee company) should have been computed taking the market value at the rate of ₹850 per share. The Ld. Assessing Officer accordingly computed the quantum of perquisite and liability in terms of section 201(1) and interest under section 201(1A) of the Act as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transactions itself the reliance capital has sold its holding @ ₹850 per share and it is duly recorded in the registry. Hence, the applying of fair market value as per the prevailing market rates is the appropriate method. 7. In view of the above said observation, it is seen the assessee has credited the appropriate credit of perquisites in the salary of the director Rajeev Samant, hence the default thereof u/s 192 is worked out as under : Particulars Amount (₹) a. Fair Market Value of the Shares 850 b. Exercise Price of the Shares 155.00 c. Perquisite per share [(a)-(b)] 695 d. Total Shares Issued 40,000 e. Total Perquisite [(c)*(d)] 2,78,00,000 Less : Perquisite added 15,66,000 2,62,34,000 Sr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g into shares at the ₹155 per share. The employee Sh. Rajeev Samant exercised his option in the assessment year under consideration and converted those warrants into equity shares. The assessee as per section 17(2)(vi) of the Act treated the value of the said equity shares in terms of Explanation below the section, according to which fair market value of the said equity shares was reduced by the amount actually paid. Further, the Rule 3(8) of the Rules, provided that in case of shares of the company, which is not listed on the recognized stock exchange, the fair market value shall be such value of the shares in the company has determined by a merchant banker. The assessee adopted the fair market value of ₹194.15 per share determined by a merchant banker and accordingly worked out amount of perquisite to Sh. Rajeev Samant at ₹15,66,000/-. But the contention of the Revenue is that during the year under consideration shares of the assessee company were sold in an independent transaction at ₹850 per share and therefore the fair market value should have been taken at ₹850 per share and the perquisite should accordingly be computed at ₹2,78,00,000/- an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair market value should be the value of the share of the company as determined by a merchant banker on the specified date. The Merchant banker has determined the FMV of the shares at Rs. 104.54/- as on the date of exercising the option. The shares were issued to the employee @ Rs. 155 per share. The issue price is more than the FMV determined under Rule 3(8) of the IT Rules, there is no benefit or perquisites given by the appellant company to the employee on issuing the shares under ESOP. The AO has also not challenged the FM of the shares determined by the merchant banker. Therefore, the appellant was not liable to deduct TDS on such grant of shares under ESOP. The TDS If ability of Rs. 47 250/- imposed by the AO is deleted. Accordingly, the ground no.3 of the appeal is allowed. 6.2 Thus, the issue-in-dispute in the instant case is whether the fair market value of equity shares of the assessee as on the date of exercising of the option by the employee for converting the warrant into shares, as determined by the merchant banker should be adopted or fair market of equity shares should be adopted on the basis of a real-time transactions of sale of equity shares of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e means, i. the date of exercising of the option; or ii. any date earlier than the date of the exercising of the option not being a date which is more than 180 days earlier than the date of the exercising. 6.4 On plain reading of the above Rules, it is evident that fair market value of the specified shares was to be taken as determined by the merchant banker. The assessee following above Rules, has adopted the fair market value of ₹194.15 as determined by the merchant banker. But the contention of the revenue in the grounds raised is that value as per the actual trade at the rate of ₹850 per share executed between the unrelated parties should have been adopted. No decision has been cited by the Ld. Department Representative, which could support the case of the Revenue and therefore we do not find any basis for adopting the fair market value as suggested by the Ld. Departmental Representative based on an independent transaction of sale of shares of the assessee company between unrelated party. Once under the Rules it has been clearly specified that fair market value determined by the merchant banker has to be taken as the value of the shares and the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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