Patel Minerals Pvt. Ltd. Vs ACIT (ITAT Jodhpur)
ITAT Jodhpur held that since fair market value of unquoted equity shares is to be determined in accordance with rule 11Uand 11UA of Income Tax Rules, addition by invoking provisions of section 56(2)(viib) not justified. Accordingly, appeal allowed and addition deleted.
Facts- Assessee (a company, not being a company in which public are substantially interested) had issued share on premium during the year. Total 1,70,000/-shares were issued at face value of Rs 10 and @ premium of Rs 20 per share at total consideration of Rs 51,00,000/- including premium received for Rs 34,00,000/- during the year. As noted earlier there was no business activity during the year as per submission filed, assessee was asked to justify the premium as per section 56(2)(viib) of the Act and rule 11UA of I.T. Rules. Assessee submitted share valuation report which was not as per rule 11UA but valuation of shares was done as per ‘Adjusted Net Asset Method and as per ‘future earning analysis. Not being satisfied with the submission, AO added Rs 51,00,000/ as Income of assessee company.
CIT(A) partly allowed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- We noted that assessee-appellant having placed on record the report of the accountant dated 05.01.2015 that the fair market value of the share shall be determined under various methods of valuation including discounted cash flow method. However as per explanation given under provision of section 56(2)(viib) of the Act, the fair market value of the shares shall be the value as may be determined in accordance with rule 11Uand 11UA of I.T. Rules. Therefore it is mandatory that the fair market value of the shares for the purpose of section 56(2)(viib) of the Act is determined as per the method prescribed under rule 11U and 11UA of the I.T. Act only and thus the fair market value of shares determined by any other method is not to be considered. Hence, we do not find any reason to sustain the addition of Rs. 51,00,000/- made by the ld. AO and sustained by the ld. CIT(A) and therefore, we direct the ld. AO to delete the addition so made in the hands of the assessee.
