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.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal in ITA No.7801/Del/2018 for A.Y. 2013-14 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-2, New Delhi in appeal No.10278/16-17 dated 10.10.2018, (hereinafter referred to as ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 11.03.2016 by the ld. Income Tax Officer, New Delhi (hereinafter referred to as ld. AO).
2. The ground No. 1 is with regard to challenging the jurisdictional ground on the issuance of notice u/s. 143(2) of the Act. No arguments were advanced by the ld. AR at the time of hearing on this ground. Hence the same is dismissed as not pressed.
3. The grounds no. 2, 3 and 4 raised by the assessee are challenging the addition made in the sum of Rs. 1,75,00,000/- u/s. 56(2)(viib) of the Act.
4. We have heard rival submissions and perused the materials available on record. The assessee is engaged in the business of software development, market research and public opinion polling, business and management consultancy etc. The assessee company was incorporated on 24.12.1999. The assessee issued 50 lakhs shares of Rs. 20 per share comprising of 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. 50 per share. Accordingly the subscribed share capital of the assessee company increased from 8,67,000 shares to 58,67,000 shares. The paid up share capital increased from Rs 86,70,000/- to Rs. 2,11,70,000/-, resulting in an increase of Rs. 1,25,00,000/- (50 lakhs shares x Rs. 2.5 per share). Similarly there was increase in share premium which was reflected under the head ‘reserve and surplus’ in the balance sheet to the tune of Rs. 3,75,00,000 (50 lakhs x Rs. 7.5 per share). The assessee was asked by the ld. AO to furnish the justification for the premium received in respect of the issue of shares. The assessee provided a reply dated 12.01.2016 together with the valuation report wherein the value of each share was computed @ Rs. 20.98 per share. The basis of said value as per ‘ liability approach’ is as under:-
