GENESIS DREAM MERCHANTS P. LTD.,DELHI V. INCOME TAX OFFICER, WARD-12(1), NEW DELHI, DELHI

ITA 2870/DEL/2023

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Genesis Dream Merchants Pvt. Ltd. appealed against the order of the Commissioner of Income Tax (Appeals), which upheld the addition of Rs. 2,63,42,586 to the assessee's income under section 56(2)(viib) of the Income Tax Act, 1961. The addition was based on the difference between the premium per share calculated by the assessee and that determined by the Assessing Officer. The Tribunal found that the Assessing Officer should have referred the valuation to the DVO instead of making his own assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126203 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA
• Assessee Lawyers: K. SAMPTAH
• Keywords: Set aside; Fair market value; Valuation report; Satisfaction; Subsequent Assessment; Dismissed; National Faceless Appeal; Commissioner; Immovable properties; Commissioner of Income Tax; AMP; Statistical purposes; Deleted; Department; Explanation
• Section: 250

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’: NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.2870/Del/2023 (ASSESSMENT YEAR 2017-18) Genesis Dream Merchants Pvt. Ltd. 4, MMTC/STC Market, Geetanjali Enclave, New Delhi-110017. PAN-AAACG3907B Vs. Income Tax Officer, Ward-12(1) New Delhi. (Appellant) (Respondent) Assessee by Shri K. Samptah, Adv. and Shri V. Rajkumar, Adv. Department by Sh. Rajesh Kumar Dhanesta, Sr. DR Date of Hearing 17/04/2025 Date of Pronouncement 23/04/2025 O R D E R PER MANISH AGARWAL, AM: This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals) [CIT(A), in short], National Faceless Appeal Centre (NFAC), Delhi dated 29.08.2023, for assessment year 2017-18 in appeal No. CIT(A), Delhi- 4/10578/2019-20 passed u/s 250 of the Income Tax Act, 1961 (the Act, in short). 2 ITA No.2870 /Del/2023 Genesis Dream Merchants Pvt. Ltd vs. ITO 2. The only effective ground of appeal taken by the assessee is against the confirmation of the addition of 26342586/- made u/s 56(2)(viib) of the Act after rejecting the valuation report submitted by the assessee. 3. Brief facts of the case are that assessee is a private limited company and e-filed its return of income on 12.09.2017 declaring total income at Rs. 4,67,930/-. The case of the assessee was selected under CASS for limited scrutiny for the reason “large share premium receipt during the year. To verify the applicability of section 56(2)(viib) of the Act”. Thereafter the Assessing Officer has examined the issue of shares at premium by the assessee company. During the course of assessment proceedings, the AO observed that the assessee has issued 13,84,630 equity shares of face value of Rs. 10/- at a premium of Rs. 71.28 per share which is based on the net asset value Method (NAV) adopted by the assessee for determination of fair market value of unquoted equity shares. However, AO has disagreed with the said valuation and worked out the premium at Rs. 62.26 per share and proposed to make an addition of the differential amount of Rs. 2,63,42,586/- u/s 56(2)(viib) of the Act. After considering the submissions of the assessee, the AO concluded that the assessee has wrongly taken the value of immovable property at circle rates and investment in shares had been taken at market value which is in shear contradiction to the provisions of rule 11UA(2) of Income Tax Rules, 1962. Thereafter the AO had made the addition of extra premium charged at Rs. 2,63,42,586/- as income of the assessee 3 ITA No.2870 /Del/2023 Genesis Dream Merchants Pvt. Ltd vs. ITO under the head “Income from Other Sources” in terms of section 56(2)(viib) of the Act. Against such order, the assessee preferred the appeal before ld. CIT(A) who vide impugned order has upheld the action of the AO and dismissed the appeal of the assessee, therefore, the assessee is in appeal before the Tribunal in the present case. 4. Before us, ld. AR of the assessee submitted that during the course of assessment proceedings, assessee has submitted the valuation report of an accountant as prescribed under rule 11UA(1)(c)(b) according to which value per share was worked out at Rs. 83.03 per share. While calculating the valuation, valuer has adopted the circle rate of the immovable properties which is in accordance with the amended provisions of rule 11UA(1)(c)(b) which is meant for valuation of unquoted shares. Ld.AR drew our attention to the amendment made in Rule 11UA(1)(c)(b) made by IT (Twentieth Amndt.) Rules, 2017 wherein it is provided that the value adopted or assessable by any authority of the government for the purpose of payment of stamp duty in respect of the immovable property is to be taken. He further submitted that the Assessing Officer has taken the book value of the immovable property for the purpose of determination of fair market value of the unquoted equity shares. Ld. AR further stated that, as per explanation (a)(ii) of section 56(2)(viib) the assessee has to substantiate the valuation of its share with reference to market value of its assets. Ld. AR further submitted that in case the AO had doubts in its mind with regard to the market value of the assets owned by the assessee, he could have referred for 4 ITA No.2870 /Del/2023 Genesis Dream Merchants Pvt. Ltd vs. ITO valuation before the DVO, however, no such action was taken and the AO himself has substituted the value of assests. He therefore prayed that the valuation done by the assessee which is based on the report of the valuer deserves to be accepted and additions made be deleted. 5. On the other hand, ld. Senior DR vehemently supported the order of the lower authority and submitted that the Assessing Officer has worked out the value of unquoted equity shares in terms of the rule 11UA(2) of the Income Tax Rules, 1962 where the book value of assets in the Balance Sheet should be taken for the purpose of determination of fair market value. He further submitted that the Assessing Officer has thus rightly taken the book value of the assets for the purpose of determining fair market value of unquoted shares allotted by the assessee company during the year under appeal and he prayed accordingly. 6. We have heard the rival submissions and perused the material available on record. In the instant case, the sole dispute is regarding the valuation of unquoted equity shares where in terms of rule 11UA(1)(c)(b) of the Income Tax Rules, 1962 whether the book value of the immovable property is to be taken or the circle rate of immovable property is to be considered for the purpose of valuation. From the perusal of the provisions of rule 11UA(1)(c)(b) it is seen that the amendment referred by the ld.AR has taken place w.e.f. 1.4.2018 5 ITA No.2870 /Del/2023 Genesis Dream Merchants Pvt. Ltd vs. ITO and applicable from AY 2018-19 and subsequent assessment years. However the Explanation (a) of section 56(2)(viib) provides as under: Explanation.—For the purposes of this clause,— (a)the fair market value of the shares shall be the value— (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; 7. In the instant case, the assessee has valued its shares in terms of Net Asset Value method as prescribed under Rule 11UA(1)(c)(b) of the Act. As observed above, in the said method for the year under appeal the book value of assets is to be considered however, the assessee has taken the market value of the assets which has been provided under clause (ii) of Explanation (a) of section 56(2)(viib) of the Act. The said clause provides that fair market value of the shares shall be the value of the assets including intangible assets of the company as on the date of issue of shares which connotes that the market value as on date of issue and not as per the book value or at cost. 8. In the instant case, the AO has taken the book value of the assets for the purpose of valuation of the shares however, the fair market value of the shares has to be computed by taking the market value of the assets of the company as on the date of issue of shares. 6 ITA No.2870 /Del/2023 Genesis Dream Merchants Pvt. Ltd vs. ITO As the AO was not agreed with the market value claimed by the assessee, therefore, the matter must be referred to the DVO for the purpose of determining the value of the assets of the assessee as on the date of issue of shares. Accordingly, the matter of determining the fair market value of shares as per method provided under clause (ii) of explanation (a) of section 56(2)(viib) of the Act is set aside to the file of AO for fresh adjudication after obtaining the report of the DVO with regard to the fair market value of immovable property as on the date of issue of shares. With this direction the ground of appeal taken by the assessee is allowed for statistical purposes. 9. As the result, the appeal of the assessee is partly allowed. Order pronounced on 23.04.2025. Sd/- Sd/- (SATBEER SINGH GODARA) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23.04.2025 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "