Case Law Details
CNR Leading Softek Pvt Ltd Vs ITO (ITAT Delhi)
ITAT Delhi held that NAV method adopted by the assessee is one of the recognized methods provided in rule 11UA of the Rules. Accordingly, the addition made u/s. 56(2)(viib) of the Act, is hereby directed to be deleted.
Facts-The assessee is engaged in the business of software development, market research and public opinion polling, business and management consultancy etc. The assessee issued 50 lakhs shares of Rs. 20 per share comprising face value of Rs. 10 and share premium of Rs. 10. However during the under consideration, the assessee has received only Rs. 10, which included share premium of Rs. 7.50 per share and face value of Rs. 2.50 per share. Accordingly, the subscribed share capital of the assessee company increased from 8,67,000 shares to 58,67,000 shares and share premium which was reflected under the head ‘reserve and surplus’ in the balance sheet, as per ‘liability approach’. Accordingly, the AO valued the share of the company using Net Asset Value Method both under ‘asset approach’ as well as under ‘liability approach’.
Accordingly, the ld. AO determined the fair market value of the share of the assessee company @Rs.14 as against the issue price of 50 per share. Hence the excess portion of Rs. 3.50 per share * 50 lakhs shares worked out to 1,75,00,000/- which was sought to be added by the ld. AO as income u/s. 56(2)(viib) of the Act. This action of the ld. AO was upheld by the Ld. CIT(A).
Conclusion-Held that the value determined by the ld. AO is totally flawed and since no mistake is found by us in the valuation adopted by the assessee, we hold that addition made by the ld. AO would have no legs to stand. In any case, NAV method adopted by the assessee is one of the recognized methods provided in rule 11UA of the Rules. Accordingly, the addition made by the ld. AO in sum of Rs. 1,75,00,000/- u/s. 56(2)(viib) of the Act, is hereby directed to be deleted. Since the addition is deleted on this aspect of the issue, the other grounds raised by the assessee on the non-applicability of provisions of section 56(2)(viib) of the Act in the instance case, need not be gone into and they are left open. Accordingly, the grounds raised by the assessee are allowed.
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