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TMI Blog2024 (9) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., the assessee company for the purposes of issuance of shares at premium thus is in accord with the deeming provision. CIT(A), as noted earlier, has proceeded on misconception of law and facts and erroneously proceeded on the assumption that while determining the FMV as per NAV method, the component of different assets held by the assessee company cannot be modified. This approach is contrary to the Explanation (a)(ii) of Section 56(2)(viib) of the Act. The method adopted for reworking of the subsidiary company by applying the DCF method or any known method is permissible as long as the assessee is able to establish the correctness of the valuation in the light of the valuation report furnished. Assessee, is free to adopt the FMV of the asset held by the subsidiary company and rework the value of investments held in the subsidiary company. Such approach do not run contrary to the object and purpose of Section 56(2)(viib). Appeal of the assessee is allowed. - Shri Pradip Kumar Kedia, Accountant Member And Shri Yogesh Kumar Us, Judicial Member For the Applicant : Shri Rajiv Khandelwal, Chartered Accountant, Shri Jaind Kumarm, Advocate For the Respondent : Shri Subhra Jyoti Chakr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) and 142(1) of the Act. In the course of the assessment proceedings, the AO inter alia observed that the assessee has received large premium on issue of equity shares to M/s. Legacy Food Pvt. Ltd. The AO observed that the assessee in consideration of issue of 10 lakh equity shares received a sum of Rs. 1 crore as share capital subscription and Rs. 7 crore as share premium thereon. On enquiry towards justification of share premium, the assessee pointed out before the AO that for the purposes of computation of FMV of its shares issued, the assessee has taken value of the property held in the name of overseas subsidiary company at a fair value of Rs. 51,92,50,000/- instead of book value of Rs. 21,42,27,200/-. The NAV of investment held in 100% subsidiary company has thus been accordingly adjusted to account for intrinsic value of shares held by Assessee-company in its subsidiary. The assessee contended that such approach in substituting the books value of the property held in the overseas subsidiary by the intrinsic value of the property is fair and reasonable and is in accord with the provisions of Rule 11UA(1)(c) read with Section 56(2)(viib) of the Act. Further, the Fair Market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that such methodology adopted by the assessee is not supported by prescribed method of valuation. Once the NAV method has been adopted, the assessee is not allowed to replace the book value of investment in wholly owned subsidiary from Rs. 21.41 crore stated to be market value of Rs. 51.92 crore based on value assigned to Assets of the subsidiary. It was further observed by the CIT(A) that the overseas report do not pertain to the relevant period and hence no cognizance of the same can be taken. The CIT(A) thus declined to interfere on such broad reasons. 5. Further aggrieved, the assessee preferred appeal before the Tribunal. 6. We have carefully considered the rival submissions and perused the first appellate order and the assessment order. The documents referred to in the course of hearing by the respective sides have also been taken into account. 7. In the present case, the assessee has challenged the additions made under Section 56(2)(viib) towards consideration received by way of allegedly excess share premium on issue of equity shares by the assessee-company. 8. As noted earlier, the assessee in the instant case has issued 10 lakh equity shares of Rs. 10/- at a premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned equivalent to INR 51.92 crore of value of shares of subsidiary company as against INR 21.24 crore reflected in its books. The assessee has thus rightly modified the value of investment and enhanced the book value of the assessee-company based on increase in the value of shares of subsidiary which justifies the share premium charged on issue of shares. 9.4 The AO has declined to admit the claim of assessee towards substitution of the investment value in the subsidiary company, as according to him, Rule 11UA do not permit the substitution of the book value for the purpose of determination of NAV which is the recognized method of valuation adopted by the assessee. Secondly, the value report is based on a disclaimer on the correctness of the valuation of the property in subsidiary company for the purpose of re-working the book value is based on the representations from management. The CIT(A) has also upheld the action of the AO citing constraints laid down by Rule 11UA whereby no option has been provided to modify the figures appearing in the balance sheet for the purposes of determination of NAV. 9.5 The assessee, on the other hand, contends that apart from the recognized methods ..... X X X X Extracts X X X X X X X X Extracts X X X X
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