DCIT, CC-3(3), KOLKATA, KOLKATA V. ORION ABASAAN PVT. LTD., KOLKATA

ITA 1117/KOL/2024

AI Insights

The case involves an appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals) which had deleted an addition of ₹8,92,98,728 made by the Assessing Officer (AO) under section 56(2)(viib) of the Income Tax Act, 1961, concerning share premium. The AO had added this amount as income, alleging that the assessee had not considered the liabilities while valuing the shares issued at a premium. The CIT(A) found that the valuation was correctly done by considering the net asset value method, which includes liabilities in the valuation of shares. The Tribunal dismissed the Revenue's appeal, agreeing with the CIT(A) and noting that the AO had misunderstood the valuation process.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772200 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2016-2017
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P.N. BARNWAL; MEANS OF ISSUING NEW SHARES. MS KAUSHALYA INFRASTRUCTURE DEVELOPMENT CORPORATION
• Assessee Lawyers: ABHISHEK BANSAL
• Keywords: Fair market value; Valuation report; Assessment record
• Section: 143(3); 56; 133(6); 6

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, KOLKATA BEFORE SHRI DUVVURU RL REDDY, VP AND SHRI RAJESH KUMAR, AM ITA No.1117/KOL/2024 (Assessment Year:2016-17) DCIT, Central Circle-3(3), Aaykar Bhavan Poorva, 110, Shantipally EM Bypass, Kolkata-700107 West Bengal Vs. Orion Abasaan Pvt. Ltd. 69, Girish Park, Kolkata-700006 West Bengal (Appellant) (Respondent) PAN No. AAACO08593P Assessee by : Shri Abhishek Bansal, AR Revenue by : Shri P.N. Barnwal, DR Date of hearing: 06.08.2025 Date of pronouncement: 28.08.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals) (hereinafter referred to as the “Ld. CIT(A)”] dated 27.12.2023for the AY 2016-17. 02. At the outset, we observe from the appeal folder that there is delay of 80 days, however, upon examination of records, we find that delay is only of 72 days. It was stated in the condonation petition that the delay has occurred due to obtaining the administrative approvals from the competent authorities, which took quite a long time and accordingly, the delay may be condoned. The ld. AR, on the other hand, did not oppose the condonation of delay. Considering the Printed from counselvise.com Page | 2 ITA No.1117/KOL/2024 Orion Abasaan Pvt. Ltd; A.Y. 2016-17 reasons cited before us, we are inclined to condone the delay and admit the appeal for hearing. 03. The only issue raised by the revenue in various grounds of appeal is against the deletion of addition of ₹8,92,98,728/- as made by the ld. AO in respect of share premium under section 56(2)(viib) of the Act, without providing opportunity to the ld. AO under Rule 46A of the Income Tax rules, 1961 [hereinafter ‘the Rules’] of the Act. 04. The facts in brief are that the assessee filed the return of income declared total income at ₹ nil after setting of brought forward losses of ₹37,622 from A.Y. 2009-10. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) for the verification whether the money was received from the disclosed sources and to verify the applicability of section 56(2)(viib) of the Act. Accordingly, the statutory notices under section 143(2) of the Act and notice under section 143(2) of the Act along with questionnaire were issued. The ld. AO also issued notice u/s 133(6) of the Act to the investor company i.e., o M/S Kaushallya Infrastructure and Development Corporation Limited,a holding company of the assessee, who subscribed the new shares but there was no reply from the M/S Kaushallya Infrastructure and Development Corporation Limited. The assessee submitted that no funds were received during the year and all amounts were payable to the holding company M/S Kaushallya Infrastructure and Development Corporation Limited as on 1.4.2015 which was not repaid and the shares were allotted out of the said outstanding amount to the holding company at the rate of 55 per share. The assessee also submitted valuation Report under Rule 11UA of the Rules following net asset value method, but the ld. AO stated that the liability has not been considered to find out the net asset Printed from counselvise.com Page | 3 ITA No.1117/KOL/2024 Orion Abasaan Pvt. Ltd; A.Y. 2016-17 value. Thereafter, the ld. AO noted that in Para 6 that as per section 56(2)(viib) of the Act, the CA should have calculated the book value of shares after considering the liabilities and in that case the book value of such shares would have been zero. The ld. AO thereafter recorded that the CA has not done his job ethically and the assessee has evaded huge tax by not considering the premium as income u/s 56(2)(viib) of the Act. Accordingly, the ld. AO stated that the premium received at ₹45 per share of ₹8,93,58,300 is added as income under section 56(2)(viib) of the Act in the assessment framed under section 143(3) of the Act dated 13.12.2018. 05. In the appellate proceedings, the ld. CIT (A) partly allowed the appeal of the assessee after taking into account the submission and contention of the assessee that the ld. AO has committed a factual mistake by observing that liabilities of the assessee were not considered while making the valuation report under Rule 11UA of the Rules. Whereas, as a matter of fact, the ld. CIT (A) noted that the valuation has correctly been made as per the Rule 11UA of the Rules by observing and holding as under: - DISCUSSIONS AND FINDINGS I have carefully examined the material on record including the assessment order as well as the submissions of the appellant. The appeal is therefore being disposed in a ground wise manner as under: Ground No. 1 is general in nature and does not require any adjudication. Ground No. 2 and 3 are against the addition of Rs. 8,93,58,300/- made by the AO by invoking the provision of Sec. 56(2)(viib) of the Act. The undisputed facts of the case are that during the year, the assessee company received shares premium of Rs. 8,93,58,300/- by issuing 19,85,740/- equity shares of Rs. 10/- each at a premium of Rs. 45/- each. In course of the assessment proceedings, the assessee company filed a Fair Market Value Certificate from M/s Barkha & Associates, Chartered Accountants certifying that the Fair Market Value of the shares issued by the company was Rs. 54.97 per share which was arrived as under:- i. Share Capital Rs, 6,00,000 ii. Reserves & Surplus Rs. 26,98,401 iii. Net Worth (i+ii) Rs. 32,98,401 Printed from counselvise.com Page | 4 ITA No.1117/KOL/2024 Orion Abasaan Pvt. Ltd; A.Y. 2016-17 iv. iv. No. of Shares 60,000 v. v. FMV (iii/iv) Rs. 54.97 per share The AO rejected the valuation certificate stating that “2. It is seen though the valuation has been claimed to have made as per net asset value method but the liability has NOT been considered to find out the net asset value.” The AO further observed as under:- “2.1 From the return filed for the AY2015- 16 it is seen that there are liability as under as on 31/03/2015:- Other long term liabilities Rs Trade payables 35,854/- Others 10,91,85,241/- Total 10,92,21,095/- Finally, the AO held as that :- “2.6 Hence, in continuation of para 2.2, 2.3 and 2.4 above, as per section 56 (2)(viib) the C A should have calculated the book value of such shares after considering the liabilities and in that case the book value of such shares would have been zero / negative. It has been submitted by the appellant that apart from the fact that the total value of assets and the total value of liabilities were reflected in Part-A-BS of the ITR, copies of Balance Sheet of the assessee company for the relevant year were also submitted before the AO during the course of assessment proceedings. This balance sheet consisted of details of Assets, Liabilities and Shareholders’ fund/net worth. It is a universally accepted fact that the net worth is the difference of Assets minus liabilities. The assessment records were called for and copies of balance sheet were found to be part of the assessment record. This information is also part of the ITR filed by the appellant for the A.Y: 2015-16 which was also undisputedly present before the AO, which the AO has himself confirmed in Point No. 2.1 of the assessment order. It is also pertinent to mention here that, a major part of the liabilities of the appellant, reflected in the Balance sheet and ITR to the tune of Rs. 10,91,85,241/- was in respect of M/s Kaushalya Infrastructure Development Corporation Pvt. Ltd which was converted into shares by the appellant by means of issuing new shares. M/s Kaushalya Infrastructure Development Corporation Pvt. Ltd is a group concern holding 72.25 % shares of the assessee company and is regularly assessed by the same AO which implies that the Return of Income and Tax Audit Report of M/s Kaushalya Infrastructure Development Corporation Pvt. Ltd was also readily available before the AO. It was also observed from the assessment records in the case of M/s Kaushalya Nirman Pvt. Ltd that in response to notice u/s 133(6) M/s Kaushalya Infrastructure Development Corporation Pvt. Ltd had responded and submitted relevant documents like the annual report for the relevant year. In any case no doubts have been raised by the AO regarding the said liability as well as the assets of the appellant company. Printed from counselvise.com Page | 5 ITA No.1117/KOL/2024 Orion Abasaan Pvt. Ltd; A.Y. 2016-17 Under Rule 11UA (as then applicable), the Fair Market Value is arrived at by deducting the Book Value of Liabilities from Book Value of Assets. It is needless to mention that in any case, the Book Value of Assets as reduced by Book Value of Liabilities would be equal to the shareholders’ fund/net worth. Since the valuer has computed FMV on the basis of Net Worth, there was no question of further deducting the liabilities from Net Worth and no error can be pointed out here from the Valuation Certificate produced during the course of assessment proceedings. It was only for the AO to verify the figures of total assets and total liabilities from the ITR or the balance sheet present before him, which the AO failed to do. In order to further substantiate this point, a reading of the calculation below would not render any difference of the Fair market value under both the methods: - Method 1: As adopted by the valuer i. Share Capital Rs.6,00,000 ii. Reserves & Surplus Rs. 26,98,401 iii. Net Worth (i+ii) Rs. 32,98,401 iv. No. of Shares 60,000 v. FMV (iii/iv) Rs. 54.97 per share Method 2: Assets minus liabilities i. Book Value of Assets Rs, 11,25,26,389 ii. Book Value of Liabilities Long Term Liabilities Rs.10,91,85,241 Current Liabilities Rs. 42,747 Rs. 10,92,27,988 iii. Net Asset Value (ii-iii) Rs. 32,98,401 iv. No. of Shares 60,000 v. FMV (iii/iv) Rs. 54.97 per share It is evident that there is no mistake in the calculation of the FMV in the 11UA certificate submitted by the appellant. Since it was self explanatory on the basis of the documents already before the AO, i.e ITR and copies of the balance sheet forming part of the Tax Audit Report, the FMV calculation was nevertheless correctly demonstrated in the 11UA certificate, since the FMV was arrived by the valuer by dividing the net worth (which is equal to book value of assets less book value of liabilities) by No. of Shares, there was no need to further deduct liabilities from the net worth and that the FMV arrived by the valuer is same as FMV as per method prescribed under Rule 11UA. So, the FMV of Rs. 54.97 per share as arrived by the valuer is liable to be accepted. However, as the shares have been issued by the assessee company at Rs. 55/- per share as against the FMV of Rs. 54.97 per share and no explanation is submitted by Printed from counselvise.com Page | 6 ITA No.1117/KOL/2024 Orion Abasaan Pvt. Ltd; A.Y. 2016-17 the appellant in respect of the same, I therefore confirm the addition to the extent of Rs. 59,572/- [i.e. 19,85,740/- x (55.00 minus 54.97) ] and the balance addition of Rs. 8,92,98,728/- is deleted. Accordingly, this ground is partly allowed. 06. After hearing the rival contentions and perusing the materials available on record, we find that in this case the only issue involved is valuation of shares under Rule 11UA of the Rules. The assessee issued equity shares to its holding company at a premium of ₹ 55 per share. The ld. AO made an addition u/s 56(2)(viib) of the Act, at the rate of Rs. 45 per share, thereby making a total addition of ₹8,93,58,300/- on issue of 19,85,740 preference shares. We have perused the valuation and FMV certificate given by the CA, Barkha Agarwal, copy of which is available in paper book at page number 1 and 2. We note that the assessee has also furnished before the AO the said valuation report but AO, under a wrong understanding of facts, observed that the liability should have been considered while making the valuation and held the FMV to be negligently arrived at while valuing the shares. However, as a matter of fact, we note that the valuation has correctly been made in the valuation report. We have extracted the operated part of valuation in the appellate order passed by the ld. CIT (A) above and note that ld CIT(A) has correctly appreciated the facts in right perspective. The ld. CIT (A) noted that where the shareholder net worth is taken for the purpose of valuation, then there is no need for taking the liability into consideration and if the total assets are taken for the purpose of valuation, then the liability needs to be reduced from the total assets. In any case, the net result as per both the system of valuation would be the same. Therefore, we do not find any infirmity in the order of the ld. CIT (A) and accordingly, we uphold the same by dismissing the appeal of the revenue. Printed from counselvise.com Page | 7 ITA No.1117/KOL/2024 Orion Abasaan Pvt. Ltd; A.Y. 2016-17 07. We also note that the revenue has raised an issue that no opportunity was allowed under Rule 46A. But as a matter of fact, we note that there is no new evidence before the appellate authority and therefore, on this ground also, the departmental appeal is dismissed. 08. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 28.08.2025. Sd/- Sd/- (DUVVURU RL REDDY) (RAJESH KUMAR) (VICE PRESIDENT) (ACCOUNTANT MEMBER) Kolkata, Dated: 28.08.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "