Sri Sakthi Textiles Limited, Coimbatore V. DCIT Corporate Circle 1, Coimbatore

ITA 1228/CHNY/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 5880 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 25-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S BHARATH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Principle of natural justice; Fair market value; Valuation report; TDS; Set aside
• Section: 143(3); 201; 72; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! . , ! ' BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A NO.1228/CHNY/2019 ( / ASSESSMENT YEAR:2013-14) M/S. SRI SAKTHI TEXTILES LTD POST BOX NO.36,MILLS PREMISES, POLLACHI, COIMBATORE-642 001. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1, COIMBATORE. PAN : AACCS 7189R ( /APPELLANT) /RESPONDENT/ / APPELLANT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR. S.BHARATH, CIT /DATE OF HEARING : 20.01.2021 /DATE OF PRONOUNCEMENT : 01.02.2021 / O R D E R PER G.MANJUNATHA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST ORDER OF THE LEARNED CIT(A)-1, COIMBATORE DATED 15.03.201 9 AND PERTAINS TO ASSESSMENT YEAR 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1) THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-1, COIMBATORE IS OPPOSED TO TO LAW AND F ACTS. 2) THE LD, COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SIMPLY REPEATING THE FAIR MARKET VALUE OF THE SH ARES DETERMINED BY THE ASSESSING OFFICER WITHOUT APPRECI ATING THE 2 ITA NO.1228/CHNY/2019 FACT THAT YOUR APPELLANT HAD BASED THE VALUATION OF SHARES ON THE STRENGTH OF A VALUATION REPORT ISSUED BY A CHAR TERED ENGINEER, WHO IS AN EXPERT IN MATTERS RELATING TO V ALUATION. 3) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS OVERLOOKED A VITAL FACT THAT WHEN A CHARTERED ENGIN EERS VALUATION IS NOT ACCEPTABLE TO THE ASSESSING OFFICE R AS WELL AS THE COMMISSIONER OF INCOME TAX (APPEALS) THE RIGHT COURSE WOULD BE TO SECURE A VALUATION REPORT FROM THE DIST RICT VALUATION OFFICER OF THE INCOME TAX DEPARTMENT. 4) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS THUS VIOLATED THE PRINCIPLE OF NATURAL JUSTICE BY BRUSHI NG ASIDE THE SUPPORTING MATERIAL IN THE FORM OF ANOTHER EXPERTS OPINION. 5) THE LD. COMMISSIONER OF INCOME TAX HAS ALSO ERRE D IN COMING TO A UNILATERAL CONCLUSION THAT ASSESSING OF FICERS VALUATION WAS RIGHT WITHOUT TAKING INTO THE FOLLOWI NG FACTUAL POSITION RELATING TO THE IMMOVABLE ASSETS OWNED BY THE ASSESSEE AND SHOWN, AT HISTORICAL COST IN THE BOOKS OF ACCOUNTS. A) THE COMPANY OWNS 36 ACRES OF LAND ON COIMBATORE POLLACHI MAIN ROAD 3 KILOMETRES FROM POLLACHI TOWN. B) 12.96 ACRES OF LAND BELONGING TO SRI SAKTHI TEXT ILES B UNIT SITUATED AT SAMATUR VILLAGE OF POLLACHITALUK. C) 5 CENTS OF PRIME LAND IN CHENNAI CITY (ON ST.MAR IS ROAD) WHICH IS IN CLOSE PROXIMITY TO ADYAR PARK HOT ELS IN ADYAR WHOSE VALUE WOULD BE EASILY 5 CRORES PER GROU ND. 6) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BY NOT SECURING AN EXPERT OPINION AND DISREGARDING CHARTER ED 3 ITA NO.1228/CHNY/2019 ENGINEERS REPORT, SUCH ACTION OF THE CIT(A) HAS TO BE SET ASIDE BY THE HONBLE INCOME TAX APPELLATE TRIBUNAL. 7) THE LDCIT(A) HAS ALSO OVERLOOKED THE DECISION OF THE HONBLE ITAT KOLKATA BENCH IN THE CASE OF ASG LEATH ER (P) LTD. VSINCOME TAX OFFICER IN TA NO.2562(KOL) OF 201 7 MEMBERS HAVE OBSERVED THAT THE FAIR MARKET VALUE OF THE SHARES COULD BE BASED ON MARKET VALUE OF ASSETS AS FURNISHED BY THE ASSESSEE ON THE BASIS OF A REGISTERED VALUER S REPORT. 8) THE AO HAS FAILED TO CONSIDER A SUBTLE POINT THA T ANY PRUDENT BUSINESSMAN WHEN ALLOTTING SHARES TO A NEW PARTY, IN RESPECT OF LAND AND BUILDINGS OWNED AND HELD BY THE APPELLANT COMPANY FOR OVER 5 DECADES, WOULD ARRIVE THE MARKET VALUE OF ASSETS AS ON DATE OF ALLOTMENT AND ONLY AFTER TAKIN G INTO ACCOUNT THE MARKET VALUE OF THE ASSETS THE PROPOSAL TO ALLOT SHARES AT A PARTICULAR VALUE WOULD BE ADOPTED AND I N THE APPELLANTS CASE VAST STRETCH OF INDUSTRIAL AND SITU ATED IN CLOSE PROXIMITY TO POLLACHI TOWN AND LANDIN SAMATHUR VILL AGE WITHIN POLLACHITALUK AND ALSO VACANT SITE LOCATED IN ADYAR , CHENNAI. 9) THE LD. COMMISSIONER OF INCOME TAX APPEALS HAS A LSO FAILED TO CONSIDER THE OBSERVATIONS OF HONBLE MUMB AI TRIBUNAL IN THE CASE OF GREEN INFRA LTD. VS ITO (20 13)38 TAXMANN.COM 253/ 145 LTD 240 MUM. TRIB) WHEREIN T HE HONBLE MEMBERS HAVE OBSERVED AS UNDER: THE ITAT OBSERVED THAT NO DOUBT A NON-EST COMPANY OR A ZERO BALANCE COMPANY ASKING FOR A SHARE PREMIUM OF RS. 490 PER SHARE DEFIES ALL COMMERCIAL PRUDENCE BUT A T THE SAME TIME THE FACT CANNOT BE IGNORED THAT IT & A PREROGATIVE OF THE BOARD OF DIRECTORS OF THE COMPAN Y TO 4 ITA NO.1228/CHNY/2019 DECIDE THE PREMIUM AMOUNT AND IT IS THE WISDOM OF T HE SHAREHOLDER WHETHER THEY WANT TO SUBSCRIBE TO SUCH A HEAVY PREMIUM THE REVENUE AUTHORITIES CANNOT QUESTI ON THE CHARGING OF SUCH HUGE PREMIUM, WITHOUT ANY PREM IUM FROM ANY LEGISLATED LAW OF THE LAND. THOUGH THIS DECISION WAS RENDERED PRIOR TO THE AMEN DMENT MADE IN 2012, THE OBSERVATIONS ARE VERY RELEVANT AS IN THE APPELLANTS CASE THERE IS ABSOLUTELY NO DOUBT AS TO THE GENUINENESS OF THE TRANSACTION, IDENTITY OF THE PAR TY AND ALSO THE PAYMENT HAVING BEEN RECEIVED THROUGH PROPER BAN KING CHANNELS ONLY. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPAN Y IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF YARN, F ILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 20013-14 ON 28 .09.2019 DECLARING LOSS OF ` 31,27,463/-. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ISSUED 7,69,260 EQ UITY SHARES HAVING FACE VALUE OF RS.10/- AT A PREMIUM OF RS.14 2/- PER SHARE TO GRAGHASAKTHI INFRASERVICES PVT.LTD. AND TH US, RECEIVED TOTAL SHARE PREMIUM OF ` 10,92,34,920/-. THE ASSESSMENT FOR, IMPUGNED ASSESSMENT YEAR WAS COMPLETED U/S. 143(3) OF THE ACT, ON 17.03.2016 ACCEPTING RETURNED LOSS. SUBSEQU ENTLY, PCIT-1, COIMBATORE HAD INITIATED REVISION PROCEEDIN GS U/S.263 OF THE ACT, AND SET ASIDE ORDER DATED 17.03.2016 TO THE FILE OF 5 ITA NO.1228/CHNY/2019 ASSESSING OFFICER TO REDO ASSESSMENT AFRESH AFTER V ERIFICATION OF THE ISSUE OF TAXABILITY OF SHARE PREMIUM COLLECTED BY ASSESSEE U/S.56(2)(VIIB) OF THE INCOME TAX ACT, 1961. CONSEQ UENT TO 263 PROCEEDINGS, ASSESSING OFFICER HAS TAKEN UP THE CAS E FOR ASSESSMENT AND CALLED UPON THE ASSESSEE TO JUSTIFY ISSUE OF SHARES AT PREMIUM OF ` 142 PER SHARE/-. IN RESPONSE, ASSESSEE VIDE FILED LETTER DATED 15.11.2018 SUBMITTED THAT V ALUE OF SHARES HAS BEEN ARRIVED AT CONSIDERING FAIR MARKET VALUE O F NET ASSET OF THE COMPANY FOR WHICH NECESSARY VALUATION REPORT FR OM INDEPENDENT CHARTERED ACCOUNTANT AS WELL AS FROM ST ATUTORY AUDITOR OF THE COMPANY HAS BEEN OBTAINED. FURTHER, VALUATION REPORT ISSUED BY INDEPENDENT CHARTERED ACCOUNTANT I S SUPPORTED BY VALUATION REPORT OF CHARTERED ENGINEER IN RESPECT OF IMMOVABLE PROPERTIES OWNED BY COMPANY. AS PER SA ID VALUATION REPORT, FAIR MARKET VALUE OF SHARES IS MO RE THAN VALUE OF SHARES ISSUED BY ASSESSE. HENCE, THERE IS NO PLA CE FOR INVOKING PROVISIONS OF SECTION 56(2)(VIIB) OF THE A CT. 4. THE ASSESSING OFFICER WAS NOT CONVINCED WITH EXP LANATION FURNISHED BY THE ASSESSEE AND ACCORDING TO HIM, VAL UATION 6 ITA NO.1228/CHNY/2019 CERTIFICATE OBTAINED FROM INDEPENDENT CHARTERED ACC OUNTANT AS WELL AS FROM STATUTORY AUDITOR OF THE COMPANY IS BE ING SUBMITTED BY THE ASSESSEE FOR FIRST TIME. NEITHER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS NOR DURING THE COUR SE OF REVISION PROCEEDINGS DID ASSESSEE STATE THAT IT HAD VALUATION REPORT FROM CHARTERED ACCOUNTANT IN SUPPORT OF SHAR E PRICE. THEREFORE, HE OPINED THAT AT THE TIME OF ISSUE OF S HARES AT PREMIUM, NEITHER VALUATION REPORT FROM INDEPENDENT CHARTERED ACCOUNTANT NOR CHARTERED ENGINEER REPORT IN SUPPORT OF VALUE OF IMMOVABLE PROPERTY WAS AVAILABLE. THEREFORE, THE AS SESSING OFFICER OPINED THAT ASSESSEE HAS FAILED TO SUBSTAN TIATE VALUE OF SHARES TO THE SATISFACTION OF ASSESSING OFFICER AND ACCORDINGLY, REJECTED VALUATION REPORT FURNISHED BY ASSESSEE A ND HAS ADOPTED NET ASSET METHOD, AS PRESCRIBED UNDER RULE 11UA(2) TO DETERMINE VALUE OF SHARES. FURTHER, AS PER NET A SSET VALUE METHOD, NET VALUE OF THE COMPANY WAS NEGATIVE AND T HEREFORE, OPINED THAT ISSUE OF SHARES AT PREMIUM OF RS.142 PE R SHARE, DOES NOT SUPPORT ASSET VALUE OF THE COMPANY AND AC CORDINGLY, MADE ADDITION TOWARDS SHARE PREMIUM OF ` 10,92,34,920/- 7 ITA NO.1228/CHNY/2019 UNDER SECTION 56(2)(VIIB) OF THE ACT. THE RELEVANT FINDINGS OF THE ASSESSING OFFICER ARE AS UNDER :- 5.. SUBMISSION FILED BY ASSESSEE IS GIVEN DUE CONS IDERATION. 5A. THE INFORMATION THAT VALUATION CERTIFICATION WA S OBTAINED FROM AN INDEPENDENT CHARTERED ACCOUNTANT AS WELL AS , FROM THE STATUTORY AUDITOR OF THE COMPANY IS BEING SUBMI TTED FOR THE FIRST TIME NOW. NEITHER DURING THE COURSE OF OR IGINAL ASSESSMENT PROCEEDINGS, NOR DURING THE COURSE OF RE VISION PROCEEDINGS DID ASSESSEE STATE THAT SHE ALSO HAD A VALUATION REPORT FROM ANOTHER CHARTERED ACCOUNTANT IN THE MATTER, OTHER THAN THE STATUTORY AUDITOR. IF THERE EXISTED ANY SUCH REPORT THEN, SHE WOULD HAD FURNISHED THE SAME BEFORE THE PR,CIT DURING THE COURSE OF REVISION PROCEEDING S ITSELF, ASSESSEE HAS NOT PROVIDED ANY E-MAIL COMMUNICATION WITH THE CHARTERED ACCOUNTANT, OR EVIDENCE THAT VALUATIO N FEES WAS PAID TO HIM THROUGH CHEQUE FOR THE VALUATION WO RK, OR TDS DEDUCTED FROM THE PROFESSIONAL FEES, IF ANY, PA ID FOR THE WORK. ETC. IN ORDER TO ESTABLISH THAT SUCH A VALUAT ION REPORT WAS REALLY AVAILABLE AT THE TIME OF ISSUE OF THE SH ARES AT A PREMIUM. THE CLAIM NOW MADE THAT SHE HELD ANOTHER VALUATION REPORT THEREFORE IS ONLY AN AFTERTHOUGHT TO WRIGGLE OUT OF THE ISSUE, THEREFORE, EXISTENCE OF THE SECOND REPORT AT THE TI ME OF ISSUE OF THE SHARES AT PREMIUM IS REFLECTED. 5B. WITHOUT PREJUDICE 10 ABOVE, ON EXAMINING BOTH T HE VALUATION REPORTS IT IS NOTICED THAT THE VALUATION HAVE BEEN DONE ON THE BASIS OF NET ASSET VALUE. HOWEVER, WHIL E ADOPTING THE VALUE OF FIXED ASSET, THE MARKET VALUE OF CERTIFIED BY AN ENGINEER, IS STATED TO BE ADOPTED. I.E. THE 8 ITA NO.1228/CHNY/2019 VALUE OF FIXED ASSET HAVE BEEN TAKEN AT ` . 7000 LAKHS AS AGAINST BOOK VALUE OF RS.1075 LAKHS AS ON 31/3/12. AS PER RULE 11UA(2) OF THE IT RULE 1962, THE BOOK VALUE OF THE ASSETS HAVE TO BE CONSIDERED WHILE ASCERTAINING FA IR VAIUE OF UNQUOTED EQUITY SHARES AS ON A VALUATION DATE. THUS , IF THE METHOD PRESCRIBED UNDER RULE 11UA(2) IS APPLIED, TH E FAIR VALUE, OF ASSESSEES SHARE WILL BE BELOW PAR VALUE A S WORKED OUT BELOW; (IAKHS) FIXED ASSET AT BOOK VALUE RS. 1075.00 (+) NET CURRENT ASSETS RS552.30 RS. 1627.30 (-) NET CURRENT LIABILITY RS. 649.48 LONG TERM BORROWINGS RS. 584.01 SHARE APPLICATION MONEY PENDING RS. 940,94 ALLOTMENT NET VALUE (-) RS. 547.13 THUS, IT CAN BE SEEN THAT THE NET WORTH OF ASSESSEE IS A NEGATIVE FIGURE. THEREFORE. QUESTION OF FAIR MARKET VALUE OF THE SHARES, AT PER THE NET ASSET VALUE METHOD, BEING AR OUND RT152 DOES NOT ARISE. THE MARKET VALUE AT THE MOST CAN BE THE PAR VALUE OF THE SHARES. THUS, THE SHARE PREMIU M AMOUNT RECEIVED BY ASSESSEE IS LIABLE TO BE TAXED U NDER SECTION 56(2)(VB) OF INCOME-TAX ACT. 1961. 5C. WHEN THE STATUE PRESCRIBES CERTAIN RULES AND PR OCEDURES TO BE FOLLOWED, THE SAME HAS TO BE ADHERED WITH TO BE ELIGIBLE FOR CLAIMING ANY BENEFIT/ ADVANTAGE/EXCEPT IONS COVERED UNDER THE RELEVANT SECTION OF THE ACT. THE VERY 9 ITA NO.1228/CHNY/2019 PURPOSE OF HAVING SPECIFIC DEFINITIONS OR CONDITION S IN AN ACT OR RULE WILL BE DEFEATED IF THEY ARE NOT FOLLOWED A ND BENEFIT OR EXCEPTIONS MENTIONED IN THOSE ACT/RULE ARE AVAIL ED. THEREFORE, DEFAULT IN COMPLYING WITH THE SPECIFIC R EQUIREMENT OF THE RELEVANT SECTION OR RULE WILL DISENTITLE ASS ESSEE TO THE BENEFIT/ADVANTAGE/EXCEPTIONS CONTAINED IN THE SAID RULE/ACT AND THE GENERAL PROVISIONS OF THE ACT WOULD BE APPL ICABLE. VARIOUS JUDICIAL FORUMS HAVE HELD THAT WHERE A METH OD HAS BEEN PRESCRIBED BY THE LEGISLATURE, THAT METHOD ALO NE SHALL BE FOLLOWED. IT BE PERTINENT TO MENTION THAT WHEN T HE LEGISLATURE IN ITS WISDOM HAS ALSO GIVEN A FORMULAE LOT COMPUTATION OF (HE FAIR MARKET VALUE IT CANNOT BE I GNORED OR ALTERED BY THE AUTHORITIES BELOW. WHERE THE ACT PRE SCRIBES A RULE, IT HAS TO BE STRICTLY AND MANDATORILY FOLLOWE D, AND FURTHER IF THE STATUTE HAS CONFERRED A POWER TO DO AN ACT A ND HAS LAID DOWN THE METHOD IN WHICH THAT POWER IS TO BE EXERCI SED, IT NECESSARILY PROHIBITS THE DOING OF THE ACT IN ANY O THER MANNER THAN THAT HAS BEEN PRESCRIBED. THIS VIEW IS SUPPORT ED BY HE FOLLOWING DECISIONS: 1. HONBLE SUPREME COURT IN THE CASE OF CHANDRAKISH OREJHA VS. MAHAVIR PRASAD & OTHERS, ORDER DATED 21/9/1999 2. HONBLE SUPREME COURT IN THE CASE OF SHARAT HAN SINGHANIA& OTHERS VS. CWT. ORDER DATED 16.2.1994, CASE NO 1213 OF 1990 IN THE PRESENT CASE THE VALUATION REPORT IS NOT PRE PARED BY AN ACCOUNTANT AS RULE 11UA(2)(B) OF THE INCOME-TAX RULES, 1962. ALSO, THE NET ASSETVALUE OF THE SHARES DO NOT JUSTIFY ANY PREMIIUM 10 THE PAR VALUE OF THE EQUITY SHARES ISSUED AS WORKED OUT AT PARA 5B ABOVE.. THUS, THE MARKET VALU E OF THE SHARES ISSUED BY THE ASSESSEE COMPANY DURING THE YE AR IS 10 ITA NO.1228/CHNY/2019 NEITHER SUPPORTED WITH ANY AUTHENTIC DOCUMENT, NOR SUPPORTED BY NET WORTH OF THE COMPANY, THEREFORE, THE FACE VALUE OF THE SHARE WILL HAVE TO BE ADOPTED/CONSIDER ED AS THE FAIR MARKET VALUE OF THE FRESH SHARES ISSUED. THE P REMIUM RECEIVED AGAINST THE FRESH SHARES ISSUED WOULD THER EFORE BE LIABLE ,TO BE TAXED AS PER THE PROVISIONS OF SECTIO N 56(2)(VIIB) OF THE INCOME-TAX ACT, 1961. IN VIEW OF THE FACTS DISCUSSED ABOVE THE, SHARE PREMIUM AMOUNT OF ` 10,92,34.920/- RECEIVED DURING THE YEAR, IS BEING BROUGHT TO TAX UNDER SECTION36(2)(VI IB) OF THE INCOME-TAX ACT. 1961. 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE PREFERRED AN APPEAL BEFORE LEARNED CIT(A). BEFORE T HE LEARNED CIT(A), THE ASSESSEE HAS REITERATED ITS SUBMISSIONS MADE BEFORE ASSESSING OFFICER AND ARGUED THAT WHEN ASSES SEE ISSUES SHARES AT PREMIUM AND ISSUE OF PRICE OF SHAR ES DOES NOT EXCEED FAIR MARKET VALUE OF SHARES, THEN THERE IS N O PLACE FOR APPLICATION OF PROVISIONS OF SECTION 56(2)(VIIB) O F THE ACT. THE ASSESSEE FURTHER CONTENDED THAT FOR THE PURPOSE OF THIS CLAUSE, FAIR MARKET VALUE OF SHARES SHALL BE VALUE AS MAY B E DETERMINED IN ACCORDANCE WITH SUCH METHOD, AS MAY B E PRESCRIBED OR AS MAY BE SUBSTANTIATED BY THE COMPAN Y TO THE SATISFACTION OF ASSESSING OFFICER, BASED ON THE VAL UE ON THE 11 ITA NO.1228/CHNY/2019 DATE OF ISSUE OF SHARES OF ITS ASSETS INCLUDING INT ANGIBLE ASSETS BEING GOODWILL, KNOW-HOW, PATENTS, COPYRIGHTS, TRAD EMARKS ETC. WHICHEVER IS HIGHER. THEREFORE, IF ASSESSEE SUBSTAN TIATES FAIR MARKET VALUE OF SHARES WITH NECESSARY EVIDENCE, THE N THERE IS NO SCOPE FOR DETERMINATION OF SHARE PRICE IN ACCORD ANCE WITH PRESCRIBED METHOD I.E RULE 11UA OF INCOME TAX RULES 1962. 6. THE LEARNED CIT(A) HOWEVER, WAS NOT CONVINCED WI TH EXPLANATION FURNISHED BY THE ASSESSEE, AND ACCORDI NG TO HIM, WHEN ASSESSEE HAS CHOSEN ONE OF THE PRESCRIBED METH OD AS PER RULE 11UA I.E., NET ASSET VALUE METHOD OR DETE RMINED BY CHARTERED ACCOUNTANT OR MERCHANT BANKER USING DISC OUNTED FREE CASH FLOW METHOD IN ACCORDANCE WITH RULE 11UA, THEN ROLE OF CHARTERED ACCOUNTANT AND HIS VALUATION REPORT WOULD COME INTO PLAY. IN CASE, WHERE ASSESSEE ITSELF STATED TH AT IT HAD RESORTED TO NET ASSET VALUE METHOD IN TERMS OF EXPL ANATION (A)(II) TO SECTION 56(2)(VIIB), THEN VALUATION REPO RT OF CHARTERED ACCOUNTANT IS NOT RELEVANT, AS VALUATION IS NOT BAS ED ON DCF METHOD. THE LEARNED CIT(A) FURTHER OBSERVED THAT I T IS SEEN THAT ASSESSEE FAILED TO SUBSTANTIATE VALUATION OF S HARES TO THE 12 ITA NO.1228/CHNY/2019 SATISFACTION OF ASSESSING OFFICER, WHICH IS PRIMARY REQUIREMENT OF EXPLANATION (A)(II) TO SECTION 56(2)(VIIB). IT I S SEEN THAT EVEN VALUATION REPORT OF CHARTERED ACCOUNTANT WHICH IS P RIMARILY RELIED ON VALUATION OF AN ENGINEER DID NOT SUBSTANT IATE THE BASIS FOR VALUATION OF LAND. IT DID NOT STATE AS TO HOW MARKET VALUE OF LAND IS ARRIVED AT. THEREFORE, IT CANNOT BE SAID TH AT ASSESSEE HAS SUBSTANTIATED / JUSTIFIED ON THE BASIS OF VALUE OF ITS ASSETS TO THE SATISFACTION OF THE ASSESSING OFFICER. IN SUCH CASE, ONLY OPTION WITH THE ASSESSING OFFICER IS TO DETERMINE F AIR MARKET VALUE IN ACCORDANCE WITH METHOD PRESCRIBED UNDER RU LE 11UA OF INCOME TAX RULES, AND ACCORDINGLY CONFIRMED ADDI TIONS MADE BY THE ASSESSING OFFICER. AGGRIEVED BY LEARNE D CIT(A) ORDER, THE ASSESSEE IS APPEAL BEFORE US. 7. THE LEARNED A.R FOR THE ASSESSEE SUBMITTED THAT LEARNED CIT(A) HAS ERRED IN SIMPLY REPEATING FAIR MARKET VA LUE OF SHARES DETERMINED BY THE ASSESSING OFFICER WITHOUT APPRE CIATING THE FACT THAT ASSESSEE HAD BASED ON THE STRENGTH OF VA LUATION REPORT ISSUED SHARES AT PREMIUM. THE AR FURTHER S UBMITTED THAT LEARNED CIT(A) HAS ERRED IN HOLDING THAT RELE VANCE OF VALUATION REPORT OF CHARTERED ACCOUNTANT /ENGINEER COMES INTO 13 ITA NO.1228/CHNY/2019 PLAY ONLY WHEN THE COMPANY RESORTED TO EXPLANATIO N (A)(I), IGNORING THE FACT THAT AS PER PROVISIONS OF EXPLAN ATION PROVIDED UNDER SECTION 56(2)(VIIB), IT IS OPTION OF THE ASSE SSEE EITHER TO CHOOSE EXPLANATION (A)(I) OR (A)(II) AND, IF ASSES SEE CHOOSES EXPLANATION (A)(II), THEN PRESCRIBED METHOD FOR DET ERMINATION OF SHARE PRICE I.E RULE 11UA DOES NOT APPLICABLE. THE AR FURTHER SUBMITTED THAT IT IS NOT A CASE OF ASSESSING OFFICE R THAT ASSESSEE HAS NOT FILED ANY VALUATION REPORT TO SUBS TANTIATE SHARE PRICE TO HIS SATISFACTION. IN FACT, THE ASSE SSING OFFICER HIMSELF ADMITTED THAT ASSESSEE HAS FILED VALUATION REPORT IN SUPPORT OF SHARE PRICE. HOWEVER, REJECTED SUCH VALU ATION REPORT ONLY ON FLIMSY GROUNDS THAT SAID REPORT WAS NOT PLA CED AT THE TIME OF 143(3) ASSESSMENT OR EVEN BEFORE LEARNED CI T(A) AT REVISION PROCEEDINGS, IGNORING THE FACT THAT EVEN IF, VALUATION REPORT IS OBTAINED SUBSEQUENT TO THE ISSUE OF SHARE S, THEN IT DOES NOT MATTER, IF ASSET BASE OF THE COMPANY SUP PORTS SUCH VALUATION. THE AR FURTHER SUBMITTED THAT VALUATION REPORT ISSUED BY INDEPENDENT CHARTERED ACCOUNTANT, WHICH WAS SUPP ORTED BY CHARTERED ENGINEER REPORT CLEARLY ENVISAGES THE FACT THAT NET ASSET VALUE ARRIVED AT BY VALUER IS ON THE BAS IS OF HUGE LAND 14 ITA NO.1228/CHNY/2019 BANK OWNED BY THE ASSESSEE AND VALUE OF SUCH LAND BANK AT CURRENT MARKET PRICE IS WORTH ABOUT ` 70.00 CRORES . THEREFORE, ASSESSING OFFICER AS WELL AS LEARNED CIT(A) WERE IN CORRECT IN INVOKING PROVISIONS OF SECTION 56(2)(VIIB) OF THE A CT TO BRING SHARE PREMIUM AMOUNT INTO TAX. 8. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T IT IS A MATTER OF FACT, AS PER FINDINGS OF ASSESSING OFFICE R, THE ASSESSEE HAS NOT FILED VALUATION REPORT AT THE TIME OF 143(3) PROCEEDINGS OR PROCEEDINGS BEFORE PCIT U/S. 263 OF THE ACT. FURTHER, ASSESSING OFFICER HAS NOT GONE INTO VALUAT ION REPORT FILED BY ASSESSEE DURING SUBSEQUENT PROCEEDINGS. TH EREFORE, IN ALL FAIRNESS, ISSUE MAY BE SET ASIDE TO THE FILE OF ASSESSING OFFICER AND DIRECT HIM TO CONSIDER VALUATION REPORT FILED BY ASSESSEE TO DETERMINE SHARE PRICE IN ACCORDANCE WIT H RULE 11UA OF INCOME TAX RULES, 1962. 9. WE HAVE HEARD BOTH PARTIES, PERUSED MATERIALS AV AILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. PROVISIONS OF SECTION 56(2)(VIIB) DEALS WITH CASES WHERE A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC AR E 15 ITA NO.1228/CHNY/2019 SUBSTANTIALLY INTERESTED, RECEIVES IN ANY PREVIOUS YEAR FROM ANY PERSON BEING A RESIDENT ANY CONSIDERATION FOR ISS UE OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AG GREGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS F AIR MARKET VALUE OF THE SHARES TO BE TAXED AS INCOME OF THE A SSESSEE. FURTHER, FAIR MARKET VALUE HAS BEEN EXPLAINED, AS P ER WHICH FAIR MARKET VALUE OF THE SHARES SHALL BE VALUE, AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED OR AS MAY BE SUBSTANTIATED BY THE COMPAN Y TO THE SATISFACTION OF THE ASSESSING OFFICER BASED ON THE VALUE ON THE DATE OF ISSUE OF SHARES OF ITS ASSETS, INCLUDING I NTANGIBLE ASSETS BEING GOODWILL, KNOW-HOW, PATENTS, COPYRIGHTS, TRAD EMARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS OR COM MERCIAL RIGHTS OF SIMILAR NATURE, WHICHEVER IS HIGHER. FROM THE READING OF PROVISIONS OF SECTION 56(2)(VIIB) AND EXPLANATION (A)(I) AND (A)(II), IT IS VERY CLEAR THAT IF PREMIUM CHARGED ON ISSUE OF SHARES EXCEEDS FAIR MARKET VALUE OF SHARES, THEN E XCESS AMOUNT CHARGED FOR ISSUE OF SHARES IS TREATED AS IN COME OF THE ASSESSEE. FURTHER, TO DETERMINE FAIR MARKET VALUE OF SHARES, IT IS FOR ASSESSEE TO CHOOSE EITHER A PRESCRIBED METHO D WHICH IS 16 ITA NO.1228/CHNY/2019 RULE 11UA OF THE ACT, OR THE ASSESSEE MAY ARRIVE AT FAIR MARKET VALUE, BUT SUCH VALUE SHOULD BE SUBSTANTIATED TO TH E SATISFACTION OF THE ASSESSING OFFICER BASED ON THE VALUE ON THE DATE OF ISSUE OF SHARES, CONSIDERING ITS ASSETS INCLUDING INTANGI BLES ETC. IN THIS CASE, ASSESSEE HAS CHOSEN EXPLANATION (A)(II) TO DETERMINE FAIR MARKET VALUE OF SHARES AND AS SUCH QUESTION OF DETERMINATION OF SHARE PRICE IN ACCORDANCE WITH SUC H METHOD AS MAY BE PRESCRIBED DOES NOT ARISE AND ACCORDINGL Y, ASSESSING OFFICER CANNOT GO INTO RULE 11UA TO DETER MINE SHARE PRICE IN ACCORDANCE WITH NET ASSET VALUE METHOD. F URTHER, WHEN THE ASSESSEE HAS CHOSEN EXPLANATION (A)(II) A ND DETERMINED FAIR MARKET VALUE OF SHARES HAVING REGAR D TO ITS ASSETS, THEN SUCH FAIR MARKET VALUE SHOULD BE SUBST ANTIATED TO THE SATISFACTION OF THE ASSESSING OFFICER. IN THIS CASE, ASSESSEE HAS FILED VALUATION REPORT FROM INDEPENDENT CHARTER ED ACCOUNTANT AS WELL AS FROM STATUTORY AUDITOR OF THE COMPANY, WHICH WAS FURTHER SUPPORTED BY VALUATION REPORT OF CONSULTING CIVIL ENGINEER AND VALUER FOR VALUATION OF IMMOVABL E PROPERTY. AS PER VALUATION REPORT OF INDEPENDENT CHARTERED AC COUNTANT, VALUE OF PER EQUITY SHARES HAS BEEN ARRIVED AT ` 152/- PER 17 ITA NO.1228/CHNY/2019 SHARE WHICH WAS FURTHER SUPPORTED BY VALUATION REPO RT ISSUED BY STATUTORY AUDITOR OF THE COMPANY. THE SAID VALUATI ON REPORT IS ON THE BASIS OF VALUATION OF LAND AND INDUSTRIAL BU ILDING POSSESSED BY ASSESSEE COMPANY AT SENGAMPALAYAM VILL AGE POLLACHI TALUK, COIMBATORE DIST, AS PER WHICH ASSES SEE COMPANY OWNED MORE THAN 35.65 ACRES OF LAND, AND TH E PRESENT MARKET VALUE OF SAID LAND IS ABOUT 72 CRORE S. THE SAID VALUATION REPORT IS FURTHER STATES THAT TOTAL VALUE OF ASSET INCLUDING LAND, BUILDING AND OTHER ASSETS IS AT RS. 77.50 CRORES. FROM THE ABOVE, IT IS VERY CLEAR THAT ASSESSEE HAS FILED NECESSARY EVIDENCES INCLUDING VALUATION REPORT FRO M INDEPENDENT CHARTERED ACCOUNTANT TO SUPPORT FAIR MA RKET VALUE OF SHARES ARRIVED AT AS ON DATE OF ISSUE OF SHARES AS PER EXPLANATION (A)(II). THEREFORE, WE ARE OF THE CONSI DERED VIEW THAT THE ASSESSEE HAS SUBSTANTIATED FAIR MARKET VAL UE OF SHARES AS ON THE DATE OF ISSUE OF SHARES. 10. COMING BACK TO OBSERVATIONS OF THE ASSESSING OF FICER REGARDING VALUATION REPORT. THE ASSESSING OFFICER N EVER STATED THAT ASSESSEE HAS NOT FILED VALUATION REPORT IN SUP PORT OF FAIR 18 ITA NO.1228/CHNY/2019 MARKET VALUE OF SHARES. IN FACT, ASSESSING OFFICER HAS CATEGORICALLY ADMITTED THAT ASSESSEE HAS FILED VALU ATION REPORT FROM INDEPENDENT CHARTERED ACCOUNTANT AS WELL AS ST ATUTORY AUDITOR OF ASSESSEE COMPANY. BUT, HE HAS IGNORED VA LUATION REPORT FILED BY ASSESSEE ONLY FOR THE REASON THAT S UCH REPORTS WERE NOT FILED DURING ORIGINAL ASSESSMENT PROCEEDIN GS OR EVEN DURING REVISION PROCEEDINGS. WE HAVE GONE THROUGH R EASONS GIVEN BY THE ASSESSING OFFICER FOR REJECTION OF VAL UATION REPORT AND WE DO NOT OURSELVES SUBSCRIBE TO THE FINDINGS R ECORDED BY ASSESSING OFFICER, BECAUSE HE CANNOT REJECT VALUATI ON REPORT MERELY FOR THE REASON SUCH VALUATION REPORT WAS NOT FILED AT THE TIME OF ASSESSMENT PROCEEDINGS. FURTHER, TIMING OF FILING VALUATION REPORT AT THE TIME OF ORIGINAL ASSESSMEN T PROCEEDINGS U/S.143(3) OR DURING REVISION PROCEEDINGS U/S.263 O F THE ACT IS NOT A RELEVANT CRITERIA TO DECIDE WHETHER FAIR MAR KET VALUE OF SHARES ISSUED BY ASSESSEE IS SUBSTANTIATED TO THE SATISFACTION OF ASSESSING OFFICER OR NOT. BUT, WHAT IS RELEVANT IS WHETHER VALUATION REPORT SUPPORTS SHARE PRICE DETERMINED BY THE ASSESSEE OR NOT. IN THIS CASE, VALUATION REPORT OBT AINED BY THE ASSESSEE FROM INDEPENDENT CHARTERED ACCOUNTANT SUPP ORTS 19 ITA NO.1228/CHNY/2019 SHARE PRICE. THEREFORE, WHEN THE ASSESSEE HAS SUBST ANTIATED SHARE PRICE TO THE SATISFACTION OF THE AO WITH THE HELP OF VALUATION REPORT, EVEN IF, SUCH VALUATION REPORT IS OBTAINED SUBSEQUENT TO THE DATE OF ISSUE OF SHARES, IT DOES NOT ALTER THE SITUATION. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ASSESSING OFFICER AS WELL AS LEARNED CIT(A) WERE ER RED IN REJECTING VALUATION REPORT FILED BY ASSESSEE ON TH IS COUNT. 11. COMING BACK TO THE OBSERVATIONS OF LEARNED CIT( A). THE LEARNED CIT(A) OBSERVED THAT RELEVANCE OF VALUATION REPORT OF CHARTERED ACCOUNTANT COMES INTO PLAY ONLY WHEN ASSE SSEE CHOOSES EXPLANATION (A)(I) TO DETERMINE FAIR MARKET VALUE OF SHARES, BUT NOT WHEN ASSESSEE HAS RESORTED TO EXPLA NATION (A)(II) TO SECTION 56(2)(VIIB) OF THE ACT. THE SAID FINDINGS OF LEARNED CIT(A) IS CONTRARY TO LAW AND ABSURD, BECAU SE PROVISIONS OF EXPLANATION (A0(II) OF THE ACT IS VER Y SPECIFIC, AS PER WHICH, WHEN SHARE PRICE IS DETERMINED IN ACCORD ANCE WITH EXPLANATION (A)(II), FAIR MARKET VALUE OF SHARE SHO ULD BE SUBSTANTIATED TO THE SATISFACTION OF ASSESSING OFFI CER AND SUCH SATISFACTION MAY BE BY WAY OF VALUATION REPORT OR ASSET VALUE 20 ITA NO.1228/CHNY/2019 OF THE COMPANY. IN THIS CASE, THERE IS NO DISPUTE OF WHATSOEVER WITH REGARD TO THE FACT THAT ASSESSEE HAS FILED VAL UATION REPORT TO SUBSTANTIATE FAIR MARKET VALUE OF SHARES TO THE SATISFACTION OF THE ASSESSING OFFICER. THEREFORE, WE ARE OF THE CON SIDERED VIEW THAT LEARNED CIT(A) HAS ERRED IN HOLDING THAT WHEN ASSESSEE HAS CHOSEN NET ASSET VALUE METHOD, THE RELEVANCE OF VALUATION REPORT FROM CHARTERED ACCOUNTANT DOES NOT COME INT O PLAY. WE, FURTHER ARE OF THE CONSIDERED VIEW THAT WHEN AS SESSEE HAS EXERCISED ITS OPTION GIVEN AS PER EXPLANATION (A)(I I) TO SECTION 56(2)(VIIB) OF THE ACT, THEN HE SHOULD SUBSTANTIATE FAIR MARKET VALUE OF SHARES TO THE SATISFACTION OF ASSESSING OF FICER BASED ON THE VALUE AS ON DATE OF ISSUE OF SHARES OF ITS A SSETS ETC. SINCE ASSESSEE HAS FILED VALUATION REPORT TO SUBS TANTIATE FAIR MARKET VALUE OF SHARES AS ON THE DATE OF ISSUE AND SUCH VALUATION REPORT IS BASED ON ASSETS OF THE COMPAN Y, WE ARE OF THE CONSIDERED VIEW THAT ASSESSEE HAS SATISFIED CO NDITIONS PRESCRIBED UNDER EXPLANATION (A)(II) TO SECTION 56( 2)(VIIB) OF THE ACT AND IN SUCH SITUATION, THERE IS NO SCOPE FOR T HE ASSESSING OFFICER TO INVOKE PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT TO TAX SHARE PREMIUM COLLECTED ON ISSUE OF SHARES. THE LEARNED 21 ITA NO.1228/CHNY/2019 CIT(A) WITHOUT APPRECIATING THESE FACTS HAS SIMPLY CONFIRMED ADDITIONS MADE BY ASSESSING OFFICER. HENCE, WE DIRE CT THE ASSESSING OFFICER TO DELETE ADDITIONS MADE TOWARDS SHARE PREMIUM ON ISSUE OF SHARES U/S.56(2)(VIIB) OF THE ACT. 12. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST FEBRUARY, 2021 SD/- SD/- ( . ) ( . ) (DUVVURU RL REDDY) ( G.MANJUNATHA ) ! $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ! /CHENNAI, ' /DATED, 1 ST FEBRUARY, 2021 DS )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 1 /DR 6. /GF .