ND’s Art World Pvt. Ltd Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that addition towards difference of share premium u/s. 56(2)(viib) of the Act by rejecting the valuation determined by the assessee without referring the matter for valuation to DVO is unjustified. Matter remanded for referring the same to DVO.
Facts- The assessee’s case was selected for limited scrutiny under CASS and the assessment was completed u/s. 143(3) of the Act dated 28.12.2018, where AO determined the total income at Rs.23,68,86,730/- by making various additions/disallowances.
AO had called for calculation of share premium where the assessee company had issued 1780 shares with face value of Rs.10/-and premium of Rs.98,280/-. The assessee was also sought for to furnish financials of A.Ys. 2016-17 and 2017-18 and on perusal of the same, it was found that the assessee has increased value of the asset by calculating upward revaluation in the balance sheet of A.Y. 2015-16 thereby arriving at the valuation of the shares at higher value of the assets under Rule 11UA of the Act. AO made an addition on the difference of share premium of Rs.80,465/- per share aggregating to Rs.14,33,27,700/-, thereby disallowing u/s. 56(2)(viib) of the Act. Further, AO also confirmed addition u/s. 36(1)(vii) of the Act.
CIT(A) confirmed the addition. Being aggrieved, the present appeal is filed.
Conclusion- Held that the difference of share premium was added u/s. 56(2)(viib) of the Act where the A.O. has rejected the valuation determined by the assessee as per the valuation report submitted by the assessee vide letter dated 13.12.2018. The A.O. further has failed to accept the valuation report of the assessee for the reason that the valuer has not adopted any methodology or reference for the purpose of calculation of the land value without considering the factors such as value of the land as per stamp authority, land market price, location factors and the value at which the neighboring lands were sold during that period etc. It is observed from the said fact that the A.O. has not referred the said matter for valuation to the DVO while he has merely rejected the valuation report submitted by the assessee. It is pertinent to point out that the lower authorities have failed to exercise the option of referring the matter to the DVO for the purpose of valuation of the assets which are very much within the purview of the jurisdiction of the lower authorities. In our considered opinion, we deem it fit to remand this issue back to the file of the A.O. for the purpose of valuation of the assets by referring the same to the DVO and to consider the said issue in light of the valuation report of the DVO.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals)-24, Mumbai (‘ld.CIT(A) for short) passed u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’) vide order dated 18.09.2019, pertaining to the Assessment Year (‘A.Y.’ for short) 2016-17.
2. The assessee has challenged the addition of Rs.14,32,27,700/- u/s. 56(2)(viib) of the Act, disallowance of Rs.20,41,019/- u/s. 36(1)(vii) of the Act and disallowance of Rs.75,00,508/- u/s. 36(1)(vii) of the Act.
3. The brief facts of the case are that the assessee company engaged in the business of Art Direction, Set construction, studio and equipment hire. The assessee filed its return of income dated 17.10.2016, declaring total income of Rs.8,41,17,500/-. The assessee’s case was selected for limited scrutiny under CASS and the assessment was completed u/s. 143(3) of the Act dated 28.12.2018, where the Assessing Officer (A.O. for short) determined the total income at Rs.23,68,86,730/- by making various additions/disallowances. It is observed that the A.O. had called for calculation of share premium where the assessee company had issued 1780 shares with face value of Rs.10/-and premium of Rs.98,280/-. The assessee was also sought for to furnish financials of A.Ys. 2016-17 and 2017-18 and on perusal of the same, it was found that the assessee has increased value of the asset by calculating upward revaluation in the balance sheet of A.Y. 2015-16 thereby arriving at the valuation of the shares at higher value of the assets under Rule 11UA of the Act. The A.O. made an addition on the difference of share premium of Rs.80,465/- per share aggregating to Rs.14,33,27,700/-, thereby disallowing u/s. 56(2)(viib) of the Act on the ground that the premium value under Rule 11UA cannot be taken using the revaluation of the assets thereby recomputing the premium value at Rs.17,815/- per share as against the assessee’s valuation of Rs.98,280/- per share. It was also observed that the assessee had written off bad debts amounting to Rs.2,30,00,230/-for which the assessee had given the following bifurcation :
