Sadhvi Securities P.Ltd, New Delhi V. ACIT, Central circler-5, New Delhi

ITA 1047/DEL/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8203 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 11-02-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: ANUNAV KUMAR S
• Keywords: Application of stay; Fair market value; Valuation report
• Section: 56(2); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.1047/DEL/2019 ASSESSMENT YEAR: 2014-15 SADHVI SECURITIES P. LTD., 13/34, WEA, ARYA SAMAJ ROAD, KAROL BAGH, NEW DELHI. PAN: AAHCS7130D VS ACIT, CENTRAL CIRCLE-5, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V.P. GUPTA & SHRI ANUNAV KUMAR, ADVOCATES REVENUE BY : SHRI S.S. RANA, CIT, DR DATE OF HEARING : 02.05.2019 DATE OF PRONOUNCEMENT : 16.07.2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 15 TH JANUARY, 2019 OF THE CIT(A)-24, DELHI, RELATING TO ASSESSMEN T YEAR 2014-15. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF SHARE TRADING. IT FILED ITS RETURN OF INCOME ON 27.11.2014 DECLARING TOTAL INCOME OF RS.910/-. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS INTRODUCED SHAR E CAPITAL BY ISSUING 1800000 EQUITY ITA NO.1047/DEL/2018 2 SHARES OF RS.10 EACH AT A PREMIUM OF RS.90 PER SHAR E AGGREGATING TO RS.18 CRORE IN THE BALANCE SHEET AS ON 31.03.2014. SINCE THE ASSESSEE HAS CHARGED VERY HIGH PREMIUM ON THE SHARES SO ALLOTTED, THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH COMPLETE DETAILS OF THE SHARE ALLOTMENT ALONG WITH NAMES AND ADDRESSES OF THE PERSONS TO WHOM THE SHARES WERE ALLOTTED. HE ALSO ASKED THE ASSESS EE TO FURNISH CALCULATION OF THE VALUATION MADE AS PER RULE 11UA TO VERIFY TAXABILIT Y U/S 56(2)(VIIB) OF THE IT ACT. THE ASSESSEE FILED NECESSARY DETAILS ALONG WITH EXP LANATION AND THE VALUATION MADE FOR ARRIVING AT THE FAIR MARKET VALUE OF THE SHARES. I T ALSO FILED A VALUATION REPORT IN RESPECT OF THE IMMOVABLE PROPERTY HELD BY THE ASSESSEE ISSU ED BY AN APPROVED PROPERTY DEALER IN WHICH THE FAIR MARKET VALUE OF THE SAME WAS ENHA NCED SUBSTANTIALLY TO JUSTIFY THE HIGHER VALUATION OF THE SHARES ALLOTTED AT SUCH HIG H PREMIUM. 3. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE SUBMISSIONS MADE BY THE ASSESSEE. HE NOTED THAT THE ASSESSEE HAS ALLOT TED 1800000 SHARES TO TWO COMPANIES, NAMELY, M/S ELECON SECURITIES PVT. LTD. AND M/S ORDINARY FINANCIAL SERVICES PVT. LTD. ON 31.03.2014. HE NOTED THAT TH E ASSESSEE HAS NOT MADE VALUATION AS PER THE METHOD PRESCRIBED FOR VALUATION OF THE U NQUOTED SHARES AS PER RULE 11UA(2) IN A PROPER MANNER. THE ASSESSEE HAS NOT TAKEN THE VALUE AS PER RULE 11UA(2) APPLICABLE TO ITS CASE. FURTHER, THE ASSESSEE HAS NOT TAKEN THE VALUE OF ASSETS BEFORE THE INTRODUCTION OF SHARE CAPITAL RECEIVED THROUGH FRES H ALLOTMENT. HE NOTED THAT THE ASSESSEE HAS INCLUDED IN THE CALCULATION THE AMOUNT OF FRESH CAPITAL AND, THUS, HAS TRIED TO INFLATE THE VALUE OF ALLOTTED SHARES ARTIFICIALL Y TO RS.100/-. SINCE THE CALCULATION ITA NO.1047/DEL/2018 3 FURNISHED BY THE ASSESSEE WAS IN VIOLATION OF THE P RESCRIBED METHOD AS PER RULE 11UA, THEREFORE, THE ASSESSING OFFICER REJECTED THE CALCU LATION OF VALUATION OF THE FAIR MARKET VALUE OF SHARES ALLOTTED AND CALCULATED THE VALUE O F SHARES AS UNDER:- (A-L) -------- X PV PE (6407755 5000) ----------------------- X 10 I.E., RS.84.24 PE R SHARE 7,60,000 4. THE ASSESSING OFFICER ACCORDINGLY TREATED THE EX CESS OF RS.15.76 PER SHARE (I.E., 100-84.24) AS THE EXCESS CONSIDERATION RECEIVED AMO UNTING TO RS.2,83,68,000/- FOR ALLOTMENT OF SHARES BY THE COMPANY AND BROUGHT THE SAME TO TAX IN THE HANDS OF THE ASSESSEE U/S 56(2)(VIIB) OF THE IT ACT. 5. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF TH E ASSESSING OFFICER BY OBSERVING AS UNDER:- 5.2 GROUND NOS. 1 TO 4 RELATE TO THE ADDITION OF R S. 2,83,68,000/- MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 56(2)( VIIB) OF THE ACT. ON PERUSAL OF THE AUDITED FINANCIALS OF THE APPELLANT COMPANY AS ON 31.03.2014, IT IS EVIDENT THAT THE ISSUED, SUBSCRIBED & PAID UP CAPITAL OF TH E APPELLANT WAS RS. 7,60,000/- AS ON 31.03.2013, WHEREAS THE SAME GOT INCREASED TO RS. 1,87,60,000/- AS ON 31.03.2014. THIS CLEARLY SHOWS THAT DURING THE RELE VANT PREVIOUS YEAR THE APPELLANT HAS ISSUED 18,00,000 SHARES WITH FACE VAL UE OF RS.10/- PER SHARE TO THE TUNE OF RS. 1,80,00,000/-. THE AUDITED BALANCE SHEE T OF THE APPELLANT AS ON 31.03.2014 ALSO SHOWS THAT SECURITIES PREMIUM ACCOU NT HAS INCREASED BY RS. 16,20,00,000/-. AS SUCH, DURING THE YEAR, APPELLANT RECEIVED SHARE CAPITAL OF RS. 18,00,00,000/- INCLUDING SHARE PREMIUM @RS. 90/- PE R SHARE. OTHER CURRENT LIABILITIES OF THE APPELLANT REMAINED UNCHANGED AT RS. 5,000/-. THE BALANCE SHEET AS ON 31.03.2014 SHOWS THAT APPELLANT HAS NO FIXED ASSETS. HOWEVER, UNDER THE HEAD CURRENT ASSET, IT IS SEEN THAT CASH IN HAND HA S INCREASED BY A SUM OF RS. 910/- AS COMPARED TO THE BEGINNING OF THE YEAR. FURTHER, IN THE BALANCE SHEET, UNDER THE ITA NO.1047/DEL/2018 4 HEAD CURRENT ASSET, APPELLANT HAS ALSO SHOWN INVENT ORIES AS ON 31.03.2014 AT RS. 18,61,56,900/- AS AGAINST RS. 61,56,900/- AS ON 31. 03.2013. AS SUCH, INVENTORIES HAS GOT INCREASED BY A SUM OF RS. 18,00,00,000/- WH ICH IS EQUIVALENT TO THE SHARE CAPITAL RECEIVED BY THE APPELLANT DURING THE YEAR. THE AFORESAID ANALYSIS CLEARLY REVEALS THAT ON ACCOUNT OF THE RECEIPT OF THE SHARE CAPITAL, THERE IS NO INCREASE IN ANY FIXED ASSET OR CASH, HOWEVER THERE IS INCREASE IN THE INVENTORY OF THE EQUIVALENT AMOUNT. THIS FACT IS FURTHER CONFIRMED B Y THE APPELLANT AS IT HAS ISSUED 9,00,000 SHARES EACH TO M/S ELECON SECURITIES PVT. LTD. AND M/S ORDINARY FINANCIAL SERVICES PVT. LTD. @RS. 100 PER SHARE AND IN CONSIDERATION OF THE AFORESAID SHARES, THE APPELLANT HAS NOT RECEIVED AN Y SUM IN CASH, BUT HAS RECEIVED SHARE CAPITAL OF THE EQUIVALENT AMOUNT FROM THE AFO RESAID TWO COMPANIES, WHICH ARE REFLECTED AS INVENTORY IN ITS BALANCE SHEET AS ON 31.03.2014. DURING THE ASSESSMENT PROCEEDINGS, THE AO IN ACCORDANCE WITH R ULE 11UA ASKED THE APPELLANT TO FURNISH THE FAIR MARKET VALUE OF THE S HARES IN ORDER TO EXAMINE THE TAXABILITY UNDER THE PROVISIONS OF SECTION 56(2)(VI IB) OF THE ACT. THE APPELLANT FURNISHED VALUATION COMPUTING THE FAIR MARKET VALUE AT RS. 99.36/- PER SHARE, AND CONTENDED THAT SINCE THE SHARES HAD BEEN ALLOTTED @ RS. 100 PER SHARE, AS SUCH, NO ADDITION IS WARRANTED U/S 56(2)(VIIB) OF THE ACT. T HE AO EXAMINED THE VALUATION FURNISHED BY THE APPELLANT AND HELD THAT VALUATION FURNISHED BY THE APPELLANT IS INCORRECT AS APPELLANT HAS NOT TAKEN THE VALUE OF A SSET BEFORE THE INTRODUCTION OF THE SHARES. THE AO FURTHER COMPUTED THE FAIR MARKET VALUE OF THE SHARES AT RS. 84.24 PER SHARE IN ACCORDANCE WITH RULE 11UA(2) BY ADOPTING THE FIGURES PRIOR TO THE ALLOTMENT OF THE SHARES. THEREAFTER DIFFERENCE OF FAIR MARKET VALUE AS COMPUTED BY THE AO AND VALUE AT WHICH SHARES WERE A LLOTTED WAS BROUGHT TO TAX U/S 56(2)(VIIB) OF THE ACT BY MAKING AN ADDITION OF RS. 2,83,68,000/-. 5.3 THE APPELLANT HAS CHALLENGED THE AFORESAID ADDI TION BY CONTENDING THAT IT IS INCORRECT AS APPELLANT HAS NOT RECEIVED ANY MONE Y AS CONSIDERATION FOR THE SHARES, BUT HAS RECEIVED SHARES OF THE EQUIVALENT A MOUNT FROM M/S ELECON SECURITIES PVT. LTD. AND M/S ORDINARY FINANCIAL SER VICES PVT. LTD TO WHOM IT HAD ALLOTTED THE SHARES. IT HAS BEEN SUBMITTED BY THE A PPELLANT THAT THE AFORESAID PROVISION OF SECTION 56(2)(VIIB) HAS BEEN INSERTED TO CHECK INTRODUCTION OF UNACCOUNTED FUNDS IN THE COMPANY IN THE GARB OF SHA RE PREMIUM. I HOLD THAT THE AFORESAID SUBMISSION OF THE APPELLANT IS NOT IN ACC ORDANCE WITH THE MANDATE OF THE STATUTORY PROVISION OF SECTION 56(2)(VIIB) AS I T PROVIDES THAT WHERE A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTAN TIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON BEING A RESIDENT , ANY CONSIDERATION FOR ISSUE OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARE S, THE AGGREGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES SHALL BE CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THE EXPRESSION USED BY THE LEGISLATURE IS 'ANY CONSIDERATION AND NOT ANY SUM OF MONEY AS HAS BEEN USED IN CLAUSE (V), (VI), (VII)(A) OF SECTION 56(2) OF THE ACT. THEREFORE IF AN ASSESSEE RECEIVED CONSIDERATION IN ANY FORM BE IT M ONEY OR OTHERWISE, IN RESPECT OF THE ISSUE OF THE SHARES, WHICH EXCEEDS THE FAIR MARKET VALUE, THE SAME CAN BE BROUGHT TO TAX UNDER THIS SECTION. IN THE INSTANT C ASE, IN CONSIDERATION OF THE ALLOTMENT OF THE SHARES, THE APPELLANT HAS RECEIVED SHARES OF THE EQUIVALENT ITA NO.1047/DEL/2018 5 AMOUNT OF THE ALLOTTEE COMPANIES. THEREFORE, CONSI DERATION FOR THE ALLOTMENT OF THE SHARES IN THE INSTANT CASE WAS SHARES OF THE AL LOTTEE COMPANIES. AS SUCH, NOW THE ONLY QUESTION IS WHETHER THE CONSIDERATION FOR THE ALLOTMENT OF THE SHARES IS AT FAIR MARKET VALUE OR NOT. IF THE CONSIDERATION RECE IVED BY THE APPELLANT IS AT FAIR MARKET VALUE, THEN NO ADDITION CAN BE MADE AND IF I T IS OTHERWISE, THE EXCESS WOULD BE CHARGEABLE TO TAX AS INCOME FROM OTHER SOU RCES. 5.4 THE SECOND CONTENTION OF THE APPELLANT IS THAT IN CASE OF EXCHANGE OF ASSET THERE CAN BE NO DIFFERENCE BETWEEN THE VALUE OF ASSET RECEIVED AND ASSET GIVEN, SINCE THE BOOK VALUE OF SHARES RECEIVED AS W ELL AS ISSUE PRICE OF SHARES ALLOTTED WAS THE SAME AND THEREFORE NO DIFFERENCE I N THE VALUATION THEREOF COULD BE ALLEGED. IT IS AN ADMITTED FACT THAT SHARES OF T HE ALLOTTEE COMPANIES HAVE BEEN RECEIVED AT BOOK VALUE, AS SUCH, THE CONSIDERATION FOR THE ALLOTMENT OF THE SHARES WAS THE SHARES OF THE ALLOTTEE COMPANIES AT BOOK VA LUE. THE APPELLANT HAS FAILED TO APPRECIATE THAT UNDER THE STATUTORY PROVISION, I F THE CONSIDERATION OF THE ALLOTMENT OF SHARES EXCEEDS THE FAIR MARKET VALUE O F THE SHARES ISSUED, DIFFERENCE WOULD BE TAXABLE. THE DETERMINING FACTOR FOR TAXABI LITY U/S 56(2)(VIIB) IS THE FAIR MARKET VALUE OF THE SHARES OF THE APPELLANT COMPANY , AND CONSIDERATION FOR SUCH SHARES, AND IF THERE IS DIFFERENCE THE SAME CAN DEF INITELY BE BROUGHT TO TAX. HERE IN THIS CASE, THE AO IN ACCORDANCE WITH THE RULES H AS COMPUTED THE FAIR MARKET VALUE OF THE SHARES OF THE APPELLANT COMPANY AT A V ALUE LESSER THAN THE CONSIDERATION, AND HENCE THE CONTENTION OF THE APPE LLANT IS NOT ACCEPTABLE AND THEREFORE REJECTED. 5.5 THE LAST CONTENTION OF THE APPELLANT IS THAT F AIR MARKET VALUE OF THE SHARES AS COMPUTED BY THE AO @RS. 84.24 PER SHARE I S NOT CORRECT AND THE FAIR MARKET VALUE OF THE SHARES IS RS. 99.36 PER SHARE A S COMPUTED IN THE VALUATION REPORT SUBMITTED BEFORE THE AO. IT HAS BEEN CONTEND ED BY THE APPELLANT THAT AS PER CLAUSE (B) OF RULE 11U OF THE INCOME TAX RULES, BALANCE SHEET FOR THE PURPOSE OF DETERMINING FAIR MARKET VALUE HAS BEEN D EFINED TO MEAN THE BALANCE SHEET AS DRAWN ON THE VALUATION DATE AND SINCE VALU ATION DATE IN THE CASE OF THE APPELLANT COMPANY HAS BEEN 31.03.2014 AND ACCORDING LY BALANCE SHEET AS WAS PREPARED ON THE AFORESAID DATE AND AUDITED BY THE C HARTERED ACCOUNTANT WAS TO BE ADOPTED FOR THE PURPOSE OF DETERMINING FAIR MARK ET VALUE OF THE SHARES. IT IS SEEN THAT IN THE VALUATION REPORT, THE VALUER HAS A DOPTED THE FIGURES OF THE BALANCE SHEET AS ON 31.03.2014 WHILE COMPUTING THE FAIR MAR KET VALUE OF THE SHARES, WHICH INCLUDES THE FIGURES AFTER THE ISSUE OF THE S HARES. THE AFORESAID APPROACH OF THE ASSESSEE IS APPARENTLY INCORRECT AND NOT IN ACC ORDANCE WITH THE EXTANT RULES. THE VALUATION DATE HAS BEEN DEFINED IN RULE 11 U(J) WHICH READS AS UNDER: 'VALUATION DATE' MEANS THE DATE ON WHICH THE PROPER TY OR CONSIDERATION, AS THE CASE MAY BE, IS RECEIVED BY T HE ASSESSEE. THEREFORE, AS PER THE AFORESAID RULE, VALUATION OF THE SHARES IS TO BE MADE IMMEDIATELY PRIOR TO THE RECEIPT OF THE CONSIDERATI ON AND NOT SUBSEQUENT TO THE RECEIPT OF THE CONSIDERATION FOR THE ALLOTMENT OF T HE SHARES. HERE IN THIS CASE, IN ITA NO.1047/DEL/2018 6 THE VALUATION REPORT, THE VALUER HAS ADOPTED THE FI GURES AFTER THE RECEIPT OF THE CONSIDERATION, AS PRIOR TO THE RECEIPT OF THE CONSI DERATION THE VALUE OF INVENTORY WAS MERELY AT RS. 61,56,900/- AND AFTER THE RECEIPT OF THE CONSIDERATION THE SAME HAS GOT INCREASED TO RS. 18,61,56,900/-, WHICH IS A PPARENTLY INCORRECT. 5.6 FURTHER, THE BALANCE SHEET HAS ALSO BEEN DEFINE D IN RULE 11U(B) WHICH READS AS UNDER: (B) 'BALANCE-SHEET', IN RELATION TO ANY COMPANY, M EANS, (I) FOR THE PURPOSES OF SUB-RULE (2) OF RULE 11UA, THE BALANCE-SHEET OF SUCH COMPANY (INCLUDING THE NOTES ANNEXED THERETO A ND FORMING PART OF THE ACCOUNTS) AS DRAWN UP ON THE VALUATION DATE WHICH H AS BEEN AUDITED BY THE AUDITOR OF THE COMPANY APPOINTED UNDER SECTION 224 OF THE COMPANIES ACT, 1956 (1 OF 1956) AND WHERE THE BALANCE-SHEET ON THE VALUATION DATE IS NOT DRAWN UP, THE BALANCE-SHEET (INCLUDING THE NOTES AN NEXED THERETO AND FORMING PART OF THE ACCOUNTS) DRAWN UP AS ON A DATE IMMEDIATELY PRECEDING THE VALUATION DATE WHICH HAS BEEN APPROVED AND ADOP TED IN THE ANNUAL GENERAL MEETING OF THE SHAREHOLDERS OF THE COMPANY; THE AFORESAID RULE MAKES IT CLEAR THAT BALANCE SHEE T MEANS BALANCE SHEET AS DRAWN UP ON THE VALUATION DATE WHICH HAS BEEN AUDIT ED BY THE AUDITOR OF THE COMPANY AND WHERE THE BALANCE SHEET ON THE VALUATIO N DATE IS NOT DRAWN UP, THE BALANCE SHEET DRAWN UP AS ON A DATE IMMEDIATELY PRE CEDING THE VALUATION DATE WHICH HAS BEEN APPROVED AND ADOPTED IN THE ANNUAL G ENERAL MEETING (AGM) OF THE SHAREHOLDERS OF THE COMPANY. IN THIS CASE, ON T HE DATE OF THE RECEIPT OF THE CONSIDERATION, THE BALANCE SHEET OF THE APPELLANT C OMPANY WAS NOT DRAWN UP, AS SAME WAS DRAWN UP ONLY ON 31.07.2014 WHICH IS EVIDE NT FROM THE AUDITED BALANCE SHEET SUBMITTED BY THE APPELLANT. THEREFORE , CLAUSE (B) AND (J) OF RULE 11U MAKE IT CLEAR THAT FOR COMPUTING THE FAIR MARKE T VALUE OF THE SHARES, THE VALUE OF THE ASSET AND LIABILITIES AS STATED IN THE AUDITED BALANCE SHEET IMMEDIATELY PRIOR TO THE RECEIPT THE CONSIDERATION SHOULD BE ADOPTED. IF ON THE DATE OF RECEIPT OF THE CONSIDERATION, THE BALANCE S HEET WAS NOT DRAWN UP, THEN THE BALANCE SHEET DRAWN UP AS ON A DATE IMMEDIATELY PRE CEDING THE VALUATION DATE SHOULD BE ADOPTED I.E. BALANCE SHEET OF THE IMMEDIA TELY PRECEDING YEAR SHOULD BE ADOPTED. HERE IN THIS CASE, ON THE VALUATION DAT E, I.E. 31.03.2014, THE BALANCE SHEET WAS NOT DRAWN UP BY THE AUDITORS, AS AUDITED FINANCIALS WERE DRAWN UP ONLY ON 31.07.2014 AND HENCE THE VALUE OF ASSETS AND LIA BILITIES AS STATED IN THE BALANCE SHEET OF THE IMMEDIATELY PRECEDING YEAR I.E . 31.03.2013 SHOULD BE ADOPTED. I FIND THAT THE AO HAS CORRECTLY COMPUTED THE FAIR MARKET VALUE OF SHARES @ RS. 84.24 PER SHARE BY ADOPTING THE VALUE OF ASSETS AND LIABILITIES AS ON 31.03.2013, WHICH IS ABSOLUTELY IN ACCORDANCE WITH RULE 11UA(2) R/W CLAUSE (B) & (J) OF RULE 11U, AND HENCE THE ADDITION OF RS. 2, 83,68,000/- MADE BY THE AO IS CONFIRMED. ACCORDINGLY GROUND NOS. 1 TO 4 OF APPEAL ARE DISMISSED. ITA NO.1047/DEL/2018 7 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS:- 1. THAT THE CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS.2,83,68,000/- MADE BY THE ASSESSING OFFICER IN THE FACTS AND CIRCUMSTANCE S OF THE CASE OF THE APPELLANT WITHOUT APPRECIATING THAT NO ADDITION WAS CALLED FO R IN THE CASE OF THE APPELLANT IN TERMS OF SECTION 56(2)(VIIB) OF THE ACT READ WITH R ULE 11UA OF INCOME-TAX RULES. 2. THAT THE ORDER PASSED BY THE CIT(A) IS WITHOUT C ORRECTLY APPRECIATING AND DISCUSSING THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT. 3. THAT THE APPELLANT SEEKS THE LIBERTY TO ADD, AME ND AND MODIFY ANY OF THE GROUNDS AT ANY TIME BEFORE HEARING OF THE APPEAL. 7. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLE NGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFIC ER. REFERRING TO THE OBJECT AND PURPOSE OF THE PROVISIONS OF SECTION 56(2)(VIIB) IN SERTED BY THE FINANCE ACT, 2012 W.E.F. 01.04.2013 AND THE SPEECH OF THE FINANCE MIN ISTER WHILE INTRODUCING THE BILL, HE SUBMITTED THAT THE SAME WAS MEANT TO CURB GENERATIO N AND USE OF UNACCOUNTED MONEY. USE OF UNACCOUNTED MONEY WILL BE RELEVANT ONLY WHEN THE AMOUNT OF PREMIUM GIVEN BY THE NEW SHAREHOLDERS HAS BENEFITTED THE EXISTING SHAREHOLDERS. IN OTHER WORDS, FOR THE APPLICABILITY OF THE PROVISIONS OF SECTION 56(2 )(VIIB), THE EXISTING SHAREHOLDERS SHOULD HAVE PROVIDED UNACCOUNTED MONEY TO THE NEW S HAREHOLDERS WHO HAVE TO GIVE MONEY TO THE COMPANY BY WAY OF HIGH PREMIUM ON THE SHARES ALLOTTED TO THEM. HOWEVER, IN THE CASE OF THE ASSESSEE COMPANY, THE E XISTING SHAREHOLDERS, WHO WERE THE TWO SHAREHOLDERS AND DIRECTORS OF THE COMPANY, WERE HOLDING ONLY 76000 SHARES OF RS.10 EACH. THE TOTAL FUNDS BELONGING TO THE SHARE HOLDERS BEFORE ALLOTMENT OF SHARES WAS RS.64,01,920/-. ACCORDINGLY, THE EXISTING SHAR EHOLDERS ON THAT BASIS WHO WERE ITA NO.1047/DEL/2018 8 ENTITLED TO RECEIVE THE FUNDS IN THE CASE OF WINDIN G UP, WOULD BE AT RS.84.23 PER SHARE. THE COMPANY HAS ISSUED FURTHER 1800000 SHARES AT RS .100/- EACH AND, THEREAFTER, THE TOTAL NUMBER OF SHARES HAD GONE UP TO 18,76,000 AND THE TOTAL FUNDS BELONGING TO THE SHAREHOLDERS INCLUDING THE PREMIUM RECEIVED ON ALLO TMENT BECOMES RS.18,64,02,502/-. ON THIS BASIS, THE INTRINSIC VALUE OF SHARES COMES TO RS.99.36 PER SHARE. ACCORDINGLY THE BENEFIT WHICH CAN ACCRUE TO THE EXISTING SHAREH OLDERS ON 76000 SHARES COULD BE ONLY THE DIFFERENCE BETWEEN THE INTRINSIC VALUE OF THE SHARES OF EXISTING SHAREHOLDERS PRIOR TO ALLOTMENT OF SHARES AND AFTER THE ALLOTMEN T WHICH IS RS.15.13 AND ON THIS BASIS, THE INCREASE IN THE VALUE OF EXISTING SHAREHOLDERS COMES TO RS.11,52,000/-. THEREFORE, IT CANNOT BE ALLEGED THAT THERE HAS BEEN ANY INTENT ION TO INTRODUCE ANY UNACCOUNTED MONEY AS A RESULT OF PREMIUM ON ACCOUNT OF NEW SHAR ES. ACCORDING TO HIM, IN ANY CASE, THE BENEFIT GOING TO THE EXISTING SHAREHOLDER S PURSUANT TO ISSUE OF NEW SHARES COMES TO ONLY RS.11,52,000/-. 8. REFERRING TO THE COPY OF THE ASSESSMENT ORDER IN THE CASE OF M/S GANESH CREDIT AND INVESTMENT PVT. LTD., A SISTER CONCERN OF THE A SSESSEE, HE SUBMITTED THAT UNDER IDENTICAL CIRCUMSTANCES THE ASSESSING OFFICER, IN T HE ORDER PASSED U/S 143(3), HAS ACCEPTED SIMILAR CALCULATION WHERE THE ASSESSEE THE RE ALSO HAS ISSUED 1800000 EQUITY SHARES TO M/S ELECON SECURITIES PVT. LTD. AND M/S O RDINARY FINANCIAL SERVICES PVT. LTD. REFERRING TO THE FOLLOWING DECISIONS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) IS NOT PROPER:- ITA NO.1047/DEL/2018 9 I) ITO VS. VITAL COMMUNICATION LTD., ITA NO.2448/DEL/2 007, ORDER DATED 15 TH JUNE, 2016; II) VAANI ESTATES PVT. LTD. V. ITO, ITA NO.1352/CHNY/20 18 DECIDED ON 27.08.2018. III) VORA FINANCIAL SERVICES P. LTD. V . ACIT, ITA NO.53 2/MUM/2018 DECIDED ON 29.06.2018. IV) DCIT V. DR. RAJAN PAI (2016) 48 ITR (TRIB) 170 (BAN GALORE). V) EXTRACTS OF CERTAIN DECISIONS OF SUPREME COURT VI) K.P. VARGHESE V. ITO, (1981) 131 ITR 597 (SC). VII) CIT V. JH GOTLA (1985) 156 ITR 323 (SC). VIII) PAHARPUR COOLING TOWERS LTD. V. CIT (2011) 61 DTR 3 09. IX) CIT V. MODIPON LTD. (2011) 334 ITR 106 (HC) X) CIT V. MODIPON LTD., PAHARPUR COOLING TOWERS LTD. ( 2018)400 ITR 1 (SC) XI) PR. CIT V. IDMC LTD., (2017) 393 ITR 441 (GUJ.) XII) PR. CIT V. IDMC LTD., (2017) 10 TMI 732 (SC). XIII) CIT V. SURESH NANDA (2015) 375 ITR 172 (DEL). XIV) CIT V. HCL TECHNOLOGIES LTD. (2018) 404 ITR 719 (SC ). XV) SOUTHERN MOTORS V. STATE OF KARNATAKA AND ORS, AIR 2017 SC 476. 9. THE LD. COUNSEL FOR THE ASSESSEE, REFERRING TO T HE STAY APPLICATION NO.129/DEL/2019, ORDER DATED 6 TH MARCH, 2019 SUBMITTED THAT WHILE GRANTING STAY TO ITA NO.1047/DEL/2018 10 THE ASSESSEE, THE TRIBUNAL OBSERVED THAT NO UNACCOU NTED MONEY IS INVOLVED NOR ANY MONEY TRANSACTION TOOK PLACE. HE ACCORDINGLY SUBMI TTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) BE DE LETED AND THE APPEAL FILED BY THE ASSESSEE BE ALLOWED. 10. THE LD. DR, ON THE OTHER HAND, STRONGLY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE ASSESSEE IN THE INSTANT CASE HAS INTRODUCED SHARE CAPITAL BY ISSUING 1800000 EQUITY SHARES OF RS.10 EACH AT A PREMIUM OF RS.90 PER SHARE AGGREGATING TO RS.18 CRORES TO TWO COMPANIES, NAMELY, M/S ELECON S ECURITIES PVT. LTD. AND M/S ORDINARY FINANCIAL SERVICES PVT. LTD. ON 31.03.2014 . THE ASSESSEE HAS NOT MADE THE VALUATION OF SHARES AS PRESCRIBED UNDER RULE 11UA(2 ) AND HAS NOT TAKEN THE VALUE OF ASSETS BEFORE INTRODUCTION OF SHARE CAPITAL RECEIVE D THROUGH FRESH ALLOTMENT. SINCE VALUATION WAS NOT IN ACCORDANCE WITH LAW, THE ASSES SING OFFICER COMPUTED THE FAIR MARKET VALUE AT RS.84.24 PER SHARE AND, ACCORDINGLY , MADE ADDITION OF RS.2,83,68,000/-. HE REFERRED TO THE PROVISIONS OF SECTION 56(2)(VIIB) AND THE PROVISIONS OF RULE 11UA(2) AND SUBMITTED THAT THE C OMPUTATION MADE BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) IS PROPE R. REFERRING TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN AGRO PORTFOLIO (P) LTD. VS. ITO [2018] 94 TAXMANN.COM 112 (DELHI) , HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISI ON HAS HELD THAT WHERE THE ASSESSEE ALLOTTED SHARES TO A COMPAN Y AND FAIR MARKET VALUE OF SHARES WAS DONE BY A MERCHANT BANKER ONLY ON BASIS OF DIRE CT CASH FLOW (DCF) METHOD, ONLY DEPENDING ON DATA SUPPLIED BY ASSESSEE AND NO EVIDENCE WAS PRODUCED FOR ITA NO.1047/DEL/2018 11 VERIFYING CORRECTNESS OF DATA SUPPLIED BY ASSESSEE, ASSESSING OFFICER WAS JUSTIFIED IN REJECTING DCF METHOD AND ADOPTING NET ASSET VALUE M ETHOD. REFERRING TO THE DECISION IN THE CASE OF SUNRISE ACADEMY OF MEDICAL SPECIALITIES INDIA PVT L TD VS ITO [2018] 96 TAXMANN.COM 43 (KERALA) REPORTED IN 409 ITR 109, HE SUBMITTED THAT THE HON'BLE KERALA HIGH COURT IN THE SAID DECISION HAS HELD THAT IN CASE OF A COMPANY IN WHICH PUBLIC IS NOT SUBSTANTIALLY INTERESTED, ANY P REMIUM RECEIVED BY SAID COMPANY ON SALE OF SHARES, IN EXCESS OF ITS FACE VALUE, WOU LD BE TREATED AS INCOME FROM OTHER SOURCES, SATISFACTORY EXPLANATION UNDER SECTION 68 WOULD NOT SAVE COMPANY FROM EXCESS SHARE PREMIUM TAXABILITY UNDER SECTION 56(2) (VIIB). REFERRING TO THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE SUNRISE ACADEMY OF MEDICAL SPECIALITIES INDIA PVT LTD VS ITO [2018] 94 TAXMANN.COM 181 (KER ALA), HE SUBMITTED THAT THE HON'BLE KERALA HIGH COURT IN THE SAID DECISION HAS HELD THAT SHARE PREMIUM RECEIVED BY A COMPANY OVER AND ABOVE THE FAIR MARKET VALUE W HICH WAS NOT CORRECTLY OFFERED TO TAX, IS CHARGEABLE TO TAX U/S 56(2)(VIIB) AS INCOME FROM OTHER SOURCE, SATISFACTORY EXPLANATION UNDER SECTION 68 WOULD NOT SAVE COMPANY FROM EXCESS SHARE PREMIUM TAXABILITY UNDER SECTION 56(2)(VIIB). HE ALSO RELIE D ON THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF MADHURIMA INTERNATIONAL PVT. LTD VS PR.CIT-3 MUMBAI (I.T.A. NO.421/MUM/2017, ORDER DATED 28 TH APRIL, 2017, A.Y.2013-14 . 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BE FORE US. WE FIND THE ASSESSEE IN THE ITA NO.1047/DEL/2018 12 INSTANT CASE HAS RECEIVED SHARE CAPITAL OF RS.18 CR ORES BY ISSUING 18 LAKHS EQUITY SHARES OF RS.10 EACH AT A PREMIUM OF RS.90 PER SHAR E TO TWO COMPANIES, NAMELY, M/S ELECON SECURITIES PVT. LTD. AND M/S ORDINARY FINANC IAL SERVICES PVT. LTD. ON 31.03.2014. WE FIND THE ASSESSING OFFICER REJECTED THE VALUATION DONE BY THE ASSESSEE ON THE GROUND THAT THE VALUATION SO MADE BY THE ASS ESSEE IS NOT AS PER THE METHOD PRESCRIBED FOR VALUATION OF THE UNQUOTED SHARES AS PER RULE 11UA(2) IN A PROPER MANNER. WE FIND THE ASSESSING OFFICER CALCULATED T HE FAIR MARKET VALUE OF THE UNQUOTED SHARES AT RS.84.24 PER SHARE AND, ACCORDIN GLY, MADE ADDITION OF RS.2,83,68,000/- TO THE TOTAL INCOME OF THE ASSESSE E BEING THE EXCESS OF RS.15.76 PER SHARE FOR 18 LAKHS SHARES. WE FIND THE LD.CIT(A) U PHELD THE ACTION OF THE ASSESSING OFFICER, THE REASONS FOR WHICH HAVE ALREADY BEEN RE PRODUCED IN THE PRECEDING PARAGRAPHS. IT IS THE SUBMISSION OF THE LD. COUNSE L FOR THE ASSESSEE THAT IN VIEW OF THE PROVISIONS OF SECTION 56(2)(VIIB) AND IN THE LIGHT OF THE SPEECH OF THE FINANCE MINISTER, THE PROVISION SHOULD BE APPLICABLE ONLY WHEN THERE IS INVESTMENT OF UNACCOUNTED MONEY. SINCE IN THE INSTANT CASE, THERE IS NO SUCH INTRODUCTION OF UNACCOUNTED MONEY AND THE INTRINSIC VALUE OF SHARES COMES TO RS.99.36 PER SHARE, THEREFORE, NO ADDITION IS CALLED FOR. IT IS ALSO HIS SUBMISSION THAT WHILE D ISPOSING THE STAY APPLICATION THE BENCH HAD OBSERVED THAT NO UNACCOUNTED MONEY IS INV OLVED NOR ANY MONEY TRANSACTION TOOK PLACE. 12. WE DO NOT FIND ANY MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. A PERUSAL OF THE RULE 11U(B) AS REPRODUCED BY CIT(A ) AT PARA 5.6 OF HIS ORDER MAKES ITA NO.1047/DEL/2018 13 IT CLEAR THAT THE BALANCE SHEET MEANS THE BALANCE S HEET AS DRAWN UP ON THE BALANCE SHEET DATE WHICH HAS BEEN AUDITED BY THE AUDITOR OF THE COMPANY AND WHERE THE BALANCE SHEET ON THE VALUATION DATE HAS NOT BEEN DR AWN UP THE BALANCE SHEET DRAWN UP AS ON A DATE IMMEDIATELY PRECEDING THE VALUATION DA TE WHICH HAS BEEN APPROVED AND ADOPTED IN THE AGM OF THE SHAREHOLDERS OF THE COMPA NY. WE FIND IN THE INSTANT CASE, ON THE DATE OF RECEIPT OF THE CONSIDERATION THE BAL ANCE SHEET OF THE ASSESSEE COMPANY WAS NOT DRAWN UP AS THE SAME WAS DRAWN UP ONLY ON 3 1 ST JULY, 2014 WHICH IS EVIDENT FROM THE AUDITED BALANCE SHEET FILED. CLAUSE (B) A ND CLAUSE (J) OF RULE 11UA MAKES IT CLEAR THAT FOR COMPUTING FAIR MARKET VALUE OF THE S HARES THE VALUE OF THE ASSETS AND LIABILITIES AS STATED IN THE AUDITED BALANCE SHEET IMMEDIATELY PRIOR TO THE RECEIPT OF CONSIDERATION SHOULD BE ADOPTED. IF, ON THE DATE O F RECEIPT OF THE CONSIDERATION, THE BALANCE SHEET WAS NOT DRAWN UP, THEN, THE BALANCE S HEET DRAWN UP AS ON A DATE IMMEDIATELY PRECEDING THE VALUATION DATE SHOULD BE ADOPTED I.E., THE BALANCE SHEET OF THE IMMEDIATELY PRECEDING YEAR SHOULD BE ADOPTED. WE FIND, IN THE INSTANT CASE, ON THE VALUATION DATE I.E., ON 31.03.2004, THE BALANCE SHE ET WAS NOT DRAWN UP BY THE AUDITOR AS AUDITED FINANCIALS WERE DRAWN UP ONLY ON 31 ST JULY, 2014 AND, THEREFORE, WE CONCUR WITH THE OBSERVATION OF THE LD.CIT(A) THAT THE VALU ATION OF ASSETS AND LIABILITIES IN THE BALANCE SHEET OF THE IMMEDIATELY PRECEDING YEAR I.E ., 31.03.2013 SHOULD HAVE BEEN ADOPTED. SINCE THE VALUATION DONE BY THE ASSESSEE WAS NOT IN ACCORDANCE WITH THE RULE FRAMED FOR VALUATION OF UNQUOTED SHARES I.E., THE A SSESSEE HAS NOT TAKEN THE VALUE OF ASSETS BEFORE INTRODUCTION OF SHARE CAPITAL RECEIVE D THROUGH FRESH ALLOTMENT AND SINCE THE ASSESSING OFFICER HAS CORRECTLY DETERMINED THE VALUATION OF THE UNQUOTED EQUITY ITA NO.1047/DEL/2018 14 SHARES WHICH HAS BEEN UPHELD BY THE CIT(A), THEREFO RE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS DISMISSED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 1 6.07.2019. SD/- SD/- (SUCHITRA KAMBLE) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMFBER DATED: 16 TH JULY, 2019 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI