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TMI Blog2023 (12) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrovert this finding of the ld. CIT(A); therefore, the contention of the assessee that there was no basis given for rejecting the valuation report is found to be incorrect on facts and is accordingly rejected. No other arguments having been made by the assessee opposing or against the invocation of Section 56(2)(viib) of the Act in the present case, Ground raised by the assessee challenging the invocation of Section 56(2)(viib) of the Act in the present case is, therefore, dismissed. Addition enhanced by CIT(A) treating the difference in FMV of shares and their consideration as a whole, including face value of shares and premium , as liable to tax u/s 56(2)(viib) - While the section specifies that it would be invoked only when the consideration received exceeds the face value of shares, i.e. the assessee receives premium on issue of shares, the addition is to be made of the difference between fair market value of shares and the aggregate consideration received. Therefore, a plain reading of the section would reveal that the premium on issue of shares is relevant only for the purpose of invocation of section; while for the purpose of making addition to the income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, was added to the income of the assessee amounting in all to Rs. 1,00,50,000/-. 4. However, this addition was enhanced by the ld. CIT(A) in appeal before him treating the difference in FMV of shares and their consideration as a whole, including face value of shares and premium , as liable to tax u/s 56(2)(viib) of the Act , amounting to Rs. 1,34,00,000/-and hence the assessee is in appeal before us. 5. We have heard both the parties. We have also gone through the orders of the authorities below and also considered various documents and case-laws referred to by both the parties. The facts relating to the issue are that the assessee had issued, during the impugned year, 3,35,000 shares of face value Rs. 10/- each for a premium of Rs. 30/- per share. The assessee justified the premium by furnishing a computation using Fair Market Value method, which is reproduced at paragraph No.4 of the AO s order, as under:- Particulars Amount Rs. Market value of land (As per distressed value) 87,62,000 Other Fixed Assets 47,47,334 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting, therefore, that the assessee had issued shares for Rs. 40/- per share, he treated the consideration received in excess of premium of Rs. 1,00,50,000/- for the issue of 3,35,000 shares issued as taxable under Section 56(2)(viib) of the Act. The ld.CIT(A) agreed with the dismissal of the Fair Market Valuation of the shares by the Assessing Officer noting certain pertinent fact that the land, which had been valued at 10 times more than its purchase price for the purpose of deriving Fair Market Value of the shares, was purchased during the current year itself. He also noted the fact that the land was purchased for Rs. 8,74,460/- and its jantri value was Rs. 7,35,000/- @ Rs. 642/- per square meter, while the valuer had valued it at Rs. 87,62,000/- estimating the value of land at Rs. 8,000/- per sq. yard without giving any basis of such valuation.On this basis, he held the valuation report to be a self-serving valuation to which no credence could be given. His finding in this regard at paragraph No.6.2 of his order are as under:- 6.2 Having considered the facts and circumstances of the case and rival contentions, I find that the only substantial issue for decision in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at page Nos. 16 to 19 of the order as under:- . Having rejected the contentions of assessee as regards the quantum of FMV of shares issued and thus having affirmed in principle the action of AO in making the impugned addition u/s 56(2)(viib), I find that the quantification of deemed income needs some correction. While the AO has made addition of only the amount of premium as deemed income, in my considered opinion, it is the aggregate consideration of shares issued which is the deemed income as per provisions of this section as the FMV being negative is nil. Accordingly vide order sheet entry dated 30/5/2017 the AR of appellant was made aware of the provisions of section 56(2)(viib) and was asked to show cause why an enhancement be not made. On behalf of the appellant the AR of assessee vide his written submission dated 31/5/2017 submitted that: With reference to captioned subject we would like to state that vide above referred appeal and further submission made at personal hearing we have requested your authority to kindly delete the addition of Rs. 1,00,50,000/-made by the learned Assessing Officer under section 56(2)(viib) of the I. T. Act, 1961 since the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares as exceeds the fair market value of the shares shall be chargeable to income- tax under the head Income from other sources . However, this provision shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund. Further, it is also proposed to provide the company an opportunity to substantiate its claim regarding the fair market value. Accordingly, it is proposed that the fair market value of the shares shall be the higher of the value- (i) as may be determined in accordance with the method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value of its assets, including intangible assets, being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. This amendment will take effect from 1st April, 2013 and will, accordingly. apply in relation to the assessment year 2013-14 and subsequent assessment years. Hence, it is crystal clear that Memorandum Explaining the provisions of the Finance Bil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contention of the ld. Counsel for the assessee. As noted above by us and as is evident from the orders of the authorities below, the primary objection to the valuation report submitted by the assessee was the unusually enhanced value given to the asset of the assessee i.e. the land, which was noted to be valued at 10 times more than its purchase price. The assessee submitted a valuation report of the valuer for the valuation of piece of land at Rs. 87,62,200/- as against its purchase price of Rs. 8,74,460/-, but we have noted that the ld. CIT(A) found that while the asset was purchased in the same year at a fair lesser price and its jantri value was also fair less, the valuer had given no basis at all for valuing it at 10 times its actual cost at which it was acquired. The ld. Counsel for the assessee has not been able to controvert this finding of the ld. CIT(A); therefore, the contention of the assessee that there was no basis given for rejecting the valuation report is found to be incorrect on facts and is accordingly rejected. 12. No other arguments having been made by the assessee opposing or against the invocation of Section 56(2)(viib) of the Act in the present case, Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s exceeds the fair market value of the shares: 14. The bare perusal of the above reveals that the conditions specified in the said section which are necessary for invocation are that (i) the assessee is a company which is not a company in which the public are substantially interested; (ii) it receives, in any previous year, consideration for issue of shares which exceeds the face value of the shares; (iii) the aggregate consideration received for such shares as exceeds the fair market value of shares is then subjected to tax. 15. In the present case, the condition No.1 is not in dispute and is also not an issue in consideration before us. It is only the condition No.2 3 which has to be considered by us for deciding the issue raised by the assessee that scope of addition to be made under Section 56(2)(viib) of the Act is to be restricted only to the component of premium received by the assessee on issue of shares. While the section specifies that it would be invoked only when the consideration received exceeds the face value of shares, i.e. the assessee receives premium on issue of shares, the addition is to be made of the difference between fair market value ..... X X X X Extracts X X X X X X X X Extracts X X X X
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