ITO Vs Priya Estate Developers Private Ltd. (ITAT Chennai)
Assessee being a real estate developer, allotted 10060 equity shares as per the fair market value (FMV) computed in accordance with Sec.56(2)(viib) read with Rule 11U / 11UA. Money was not introduced in this year, but it was given in earlier years as promoter’s loans which were converted into equity share capital in this year. AO did not accept the valuation on the ground that the valuer did not mention the methodology of valuing the property. The purpose of issuing valuation certificate was not mentioned. Assessee submitted that one of the promotor was holding 50% shareholding as on 17-02-2014. She funded Rs.37.18 Crores as long-term borrowing for purchase of immovable property. Due to inordinate delay in development of property, promotor requested the assessee to convert the same into equity share capital. The valuation arrived based on value of assets on the
date of issue of shares in terms of explanation in clause (a)(ii) of Sec.56(2)(viib) and therefore, valuation report as per Rule 11UA was not required. AO rejected assessee’s submissions on the ground that the valuation report ignored the outstanding liabilities and accordingly, the amount of Share premium of Rs.3721.19 Lacs was brought to tax u/s 56(2)(vii) (b).
