Laxmi Real Infra (P) Limited, Khurda V. ITO, Ward-1(1), Bhubaneswar

ITA 14/CTK/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9116 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 07-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Fair market value
• Section: 56(2); 13; 20

Judgement Text

P A G E 1 | 14 IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK SMC BENCH, CUTTACK BEFORE SHRI CHANDRA MOHAN GARG , JUDICIAL MEMBER ITA NO . 14 /CTK/20 20 ASSESSMENT YEAR: 2015 - 16 LAXMI REAL INFRA (P) LTD., PLOT NO.225, CUTTACK ROAD, LAXMI SAGAR, CHHAK, BHUBANESWAR. VS. ITO, WARD - 1(1), BHUBANESWAR. PAN/GIR NO. AABCL 7346 Q (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI P. R.MOHANTY , AR REVENUE BY : SHRI S.C.MOHANTY , DR DATE OF HEARING : 18 / 1 2 / 20 20 DATE OF PRONOUNCEMENT : 08 / 1 /20 2 1 O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) - 2 BHUBANESWAR DATED 18.3.2019 FOR THE ASSESSMENT YEAR 2014 - 15 . 2. THE ONLY ISSUED INVOLVED IN THIS APPEAL IS THAT THE LD CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.31,05,900/ - AS INCOME FROM OTHER SOURCES U/S.56(2)(VIIB) OF THE ACT. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE (DEVELOPER). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RECEIVED TOTAL CONSIDERATION OF RS.76,20,000/ - INCLUDING PREMIUM AND HAS ISSUED ITA NO.14/CTK/2020 ASSESSMENT YEAR : 2015 - 16 P A G E 3 | 14 SHOWN RS.76,20,000/ - UNDER THE HEAD SHARE APPLICATION MONEY PENDING ALLOTMENT. ON THE BASIS OF BALANCE SHEET DRAWN UP AS ON 31.3.2015, THE FMV U/S.56(2) (VIIB) OF THE ACT R.W.R 11U A WAS CALCULATED BY THE FMV AS UNDER: STATEMENT OF COMPUTATION OF FMV OF UNQUOTED EQUITY SHARES AS ON 30.03.2015 PARTICULARS AMOUNT BOOK VALUE OF ASSETS (A) (REFER TO NOTE NO. 1) BOOK VALUE OF LIABILITIES (L) (REFER TO NOTE NO.2) AMOUNT OF PAID UP EQUITY SHARES (PE) (REFER TO NOTE NO.3) PAID UP VALUE OF EQUITY SHARE (PV) (A - L) FAIR MARKET VALUE OF UNQUOTED EQUITY SHARE (A - L)/PE*PV) 3,53,83,598* 3,29,23,611 8,50,000 100 24,59,987 289.41 NOTE NO. 1 - CALCULATION OF BOOK VALUE OF ASSETS PARTICULARS AMOUNT TOTAL VALUE OF ASSETS LESS: MISC. EXPENSES TO THE EXTENT NOT WRITTEN OFF ADVANCE TAX . TAX DEDUCTED AT SOURCE / TCS 3,S4>?4,9PI 16,304 25,000 0 BOOK VALUE OF ASSETS 3,53,83,598 NOTE NO. 2 - CALCULATION OF BOOK VALUE OF LIABILITIES PARTICULARS AMOUNT TOTAL VALUE OF LIABILITIES LESS: PAID UP SHARE CAPITAL RESERVES & SURPLUS PROVISION FOR TAXATION AMOUNT SET APART FOR EQUITY AND PREFERENCE DIVIDEND ANY AMOUNT REPRESENTING PROVISIONS MADE FOR UNASCERTAINED LIABILITIES ANY AMOUNT REPRESENTING CONTINGENT LIABILITIES 3,54,24,902 8,50,000 15,59,986 91,305 0 0 BOOK VALUE OF LIABILITIES 3,29,23,611 NOTE NO.3 - CALCULATION OF AMOUNT OF PAID UP OF EQUITY SHARES PARTICULARS AMOUNT PAID UP SHARE CAPITAL RS.8,50,000 AMOUNT OF PAID UP SHARE CAPITAL RS.8,50,000 ITA NO.14/CTK/2020 ASSESSMENT YEAR : 2015 - 16 P A G E 5 | 14 FROM THE ABOVE TABLE IT IS SEEN THAT SHARE APPLICATION PENDING ALLOTMENT' IS SHOWN AS A SEPARATE HEAD LIKE SHARE HOLDERS FUND BUT NOT TAKEN ANYWHERE IN THE LIABILITY PART. IN THE ABOVE TABLE POINT 1 AND 2 ARE TAKEN AS EQUITY PART AND POINT 3 AND 4 ARE TAKEN AS LIABILITY PART. IT IS ALWAYS PRESUMED THAT WHEN TH E APPLICANT FOR SHARES HAVE AGREED TO TAKE THE SHARES AT A PREMIUM AND MADE A COMMITMENT THE SAME IS NOT CONSIDERED AS LIABILITY. AND IF YOU SEE THE POST FACTO, THE SAME HAVE BEEN ALLOTTED ON THE SAME DAY (30/03/2015) AND RESOLUTION WAS PASSED AND FILED WI TH REGISTRAR OF COMPANIES. NOWHERE IN THIS CONTEXT HAS BEEN EXPLAINED THAT SHARE APPLICATION MONEY PENDING ALLOTMENT WILL BE CONSIDERED AS LIABILITY. NOTE - 2 CALCULATION OF BOOK VALUE OF LIABILITIES TOTAL VALUE OF LIABILITIES IN THE LIABILITIES SIDE OF R S. 3,54,24,902/ - LESS: PAID UP SHARE CAPITAL RS. 8,50,000/ - RESERVES & SURPLUS RS. 15,59,986/ - PROVISION FOR TAXATION RS. 91,305/ - ----------------------- RS.1,01,21,291.00 L IABILITIES RS. 2,53,03,611.00 HENCE FINALLY 1. THE BOOK VALUE OF ASSETS = A = 3,53,83,598/ - 2. TOTAL VALUE OF LIABILITIES = L = 2,53,03,611/ - 3. AMT. OF PAID UP EQUITY SHARE = PE= 8,50,000/ - 4. PAID VALUE OF EQUITY SHARE = PV = 100/ - A - L = 1,00,79,987.00 FMV = 1,00,79,987X100 = 1,186.00 8,50,000 6. ON CONSIDERATION OF ABOVE, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT AND WITHOUT TREAT ING THE SHARE ITA NO.14/CTK/2020 ASSESSMENT YEAR : 2015 - 16 P A G E 7 | 14 PROVISIONS OF THE COMPANIES ACT, 1956 AND THESE FACTS ARE NOT DISPUTE D BY EITHER PARTY . HE SUBMITTED THAT THE ONLY DISPUTE IS REGARDING THE VALUATION OF FMV AS REQUIRED U/S 56(2)(VIIB) OF THE I.T. ACT AND RULE 11(UA) OF THE I.T. RULES ALTHOUGH BOTH PARTIES EMPLOY THE SAME METHODOLOGY I.E., FMV = (A L)_ X (PV) BUT DIFFER IN CALCULATING THE VALUE OF L WHICH REPRESENTS THE VALUE OF TOTAL LIABILITY AS THE AO INCLUDES THE A MOUNT OF RS. 76,20,000/ - IN THE LIABILITY AND THE ASSESSEE EXCLUDES THE SAME AS THE SHARES ARE ALREADY ALLOTTED AND TRANSACTION IS COMPLETE AND IN ABSENCE OF ANY FURTHER ACTION THE LIABILITY SEIZES TO EXIST. THIS INCLUSION & EXCLUSION BY THE AO & ASSESSEE GIVES RISE TO FMV OF SHARES AT RS. 310.59 & RS. 1188/ - PER SHARE RESPECTIVELY. 9 . REPLYING TO ABOVE, LD DR SUPPORTED THE ORDERS OF LOWER AUTHORI TIES. 10. ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS, I OBSERVE THAT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RECEIVED TOTAL CONSIDERATION OF RS.76,20,000/ - INCLUDING PREMIUM AND HAS ISSUED EQUITY SHARES FOR A CONSIDERATION THAT EXCEEDS THE FACE VALUE OF THE SHARES. THE CONTENTION OF THE ASSESSEE IS THAT IN THE RELEVANT ASSESSMENT YEAR, THE COMPANY WANTED TO ISSUE SHARES AT A PREMIUM AND THE COMPANY M/S. CLUBSIDE DEAL COM PVT. LTD. WAS INTERESTED TO TAKE SHARES IN THE COMPANY AT A PREMIUM ALONG WITH SRI HARILAL PATEL AND SRI VASANT KUMAR PATEL. BUT THE EFFECTIVE DISPUTE IS REGARDING THE VALUATION OF FMV AS REQUIRED U/S 56(2)(VIIB) OF THE I.T. ACT AND RU LE 11(UA) OF THE I.T. RULES ALTHOUGH BOTH PARTIES EMPLOY THE SAME ITA NO.14/CTK/2020 ASSESSMENT YEAR : 2015 - 16 P A G E 9 | 14 ALL THE ABOVE VALUATION HAVE BEEN TAKEN ON THE BASIS OF SCHEDULE - III OF THE COMPANIES ACT.2013 (SPECIFICALLY THE VALUE OF LIABILITY) BUT THE AO HAS MADE A MISTAKE IN CALCULATING THE LIABILITY FIGURER: - HE HAS CALCULATED THE LIABILITY AS FOLLOWS: . TOTAL VALUE OF LIABILITIES IN LIABILITY SIDE OF BALANCE SHEET = 3,54,24,902,00 LESS: PAID UP SHARE CAPITAL 8,50,000/ - RESERVES & SURPLUS 15,59,986/ - PROVISION FOR TAXAT ION 91,305/ - RS. 25,01.291/ - RS. 3.29.23.611/ - THE AO ALSO MENTIONED THAT THE AMOUNT OF RS. 76,20,000/ - IS ONLY UNSECURED LOAN AGAINST WHICH EQUITY SHARES ARE ALLOTTED DURING FY 2014 - 2015. BUT THE FACT IS THAT, THE AMOUNT WAS SHOWN UNDER THE HEAD UNSECURED LOAN DURING THE FY 2013 - 2014, BUT SUBSEQUENTLY DURING THE FY 2014 - 2015 , IT WAS CONVERTE D INTO SHARE APPLICATION MONEY PENDING ALLOTMENT AFTER RECEIVING CONFIRMATION FROM THE PARTIES AND ALSO THE SHARES W ERE ALLOTTED WITHIN THE FINANCIAL YEAR ITSELF. THEREFORE , AO MISUNDERSTOOD THAT THE UNSECURED LOAN HAS BEEN CONVERTED INTO EQUITY. 11. AO HAS WRITTEN THAT, AS PER RULE 11UA, THERE IS NO PROVISION TO DEDUCT PENDING SHARE APPLICATION MONEY WHILE CALCULATING THE FMV OF UN QUOTED EQUITY SHARES. HOWEVER , THERE IS ALSO NO PROVISION THAT IT WILL NOT BE DEDUCTED , BECAUSE IT IS IN THE NATURE OF EQUITY AND NOT OF THE NATURE OF LIABILITY. IN THIS CONTEXT, I AM OF THE VIEW THAT IT IS THE PREROGATIVE OF ITA NO.14/CTK/2020 ASSESSMENT YEAR : 2015 - 16 P A G E 11 | 14 TRANSACTIONS INTENDED T O AVOID TAX LIABILITY AND TO TACKLE THE PROBLEM OF BLACK MONEY AND WERE NEVER INTENDED TO BE MADE APPLICABLE ON GENUINE, BONAFIDE AND PURELY COMMERCIAL TRANSACTIONS. 1 3 . THE LD AR RELIED ON VARIOUS JUDICIAL PRECEDENTS WHEREIN THE ASSESSEE HIGHLIGHTED THA T THE BONAFIDE BUSINESS TRANSACTIONS CANNOT BE TAXED UNDER 56(2)(VII) AND THAT THE PROVISIONS OF SECTION 56(2) WERE TO STRIKE AT THE GENERATION AND USE OF UNACCOUNTED MONEY AND WAS NEVER INTENDED THE HONEST AND BONAFIDE TRANSACTIONS WHERE CONSIDERATION FOR TRANSFER WAS CORRECTLY DISCLOSED BY THE ASSESSEE . BEFORE ME, LD A.R. ALSO RELIED ON THE DECISION OF THIS BENCH IN THE CASE OF ITO VS M/S. ASHOKA INDUSTRIES LTD IN ITA NO.304/CTK/2018 FOR A.Y.2013 - 14 ORDER DATED 10.8.2020, WHEREIN, IT HAS BEEN HELD AS UND ER: 6. LD DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT SINCE RULE 11UA(2) WAS INSERTED W.E.F. 29.11.2012 AND THE ASSESSEE HAD RECEIVED THE CONSIDERATION AMOUNT TOWARDS ISSUE OF SHARES PRIOR TO 21.11.2012 , THE PROVISIONS OF RULE 11UA(2) WERE NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND, THEREFORE, THE MARKET VALUE OF THE SHARES WAS REQUIRED TO BE DETERMINED AS PER RULE 11 UA( 1 )(C)(B) AND NOT AS PER RULE 11UA(2), LD DR SUBMITTED THAT, A CCORDINGLY, THE AO ADOPTED THE FAIR MARKET VALUE OF THE SHARES AT RS.49.22 PER SHARE AND TAXED THE EXCESS RECEIPT OF RS.130.78 AS INCOME OF THE ASSESSEE TO BE TAXED U/S.56(2)(VIIB) AS INCOME FROM OTHER SOUR CES. 7 . LD DR FURTHER SUBMITTED THAT THE LD CIT(A) WAS NOT RIGHT IN HOLDING THAT THE ASSESSEE IS ENTITLED TO VALUE THE SHARE AS PER PROVISIONS OF RULE 11UA (2) W.E.F 29.11.2012 ESPECIALLY WHEN THE ASSESSEE HAD RECEIVED THE CONSIDERATION AMOUNT TOWARDS IS SUE OF SHARES PRIOR TO 29.11.2012 ON 21.11.2012. LD DR STRENUOUSLY ITA NO.14/CTK/2020 ASSESSMENT YEAR : 2015 - 16 P A G E 13 | 14 10. WE ALSO FIND THAT THE JAIPUR BENC H OF ITAT IN THE CASE OF SAFE DECORE PVT LTD., (SUPRA) HAS HELD THAT THE ASSESSEE CANNOT BE DENIED THE BENEFIT OF DISCOUNTED FREE CASH FLOW METHOD ONLY BECAUSE THE CONSIDERATION AMOUNT WAS RECEIVED MUCH BEFORE RULE 11UA(2) CAME INTO FORCE, WHICH IS ONE OF THE METHOD TO BE ADOPTED BY THE ASSESSEE FOR VALUING THE FAIR MARKET RATE. THE ABOVE DECISION HAS BEEN FOLLOWED BY THE LD CIT(A) IN THE IMPUGNED ORDER IN DELETING THE ADDITION. WE ALSO FIND THAT IN THE PRESENT CASE SHARES HAVE BEEN ISSUED BY THE ASSESS EE AT RS.180/ - PER SHARE AS AGAINST THE FAIR MARKET VALUE OF RS.189/ - DETERMINED AS PER DISCOUNTED FREE CASH FLOW METHOD AND, THEREFORE, NO ADDITION IS REQUIRED TO BE MADE IN THE HANDS OF THE ASSESSEE U/S.56(2)(VIIB) OF THE ACT THEREFORE, WE FIND NO INFI RMITY IN THE IMPUGNED ORDER OF THE LD CIT(A) TO INTERFERE. ACCORDINGLY, WE UPHOLD THE FINDINGS OF THE LD CIT(A) AND REJECT THE GROUND OF APPEAL OF THE REVENUE. 1 4 . IN THE PRESENT CASE AT HAND, THE ASSESSEE HAD ALLOTTED THE SHARES AT A RATE OF RS.600/ - PER SHARE AND RS.250/ - PER SHARE, WHICH IS WELL WITHIN THE LIMITS OF THE FAIR MARKET VALUE OF THE SHARES. THEREFORE, THE PROVISIONS OF SECTION 56(2) (VIIB) OF THE ACT ARE NOT ATTRACTED. FURTHER, THE AO HAS COMPUTED THE FAIR MARKET VALUE OF UNQUO TED EQUITY SHARES AS ON 30.3.2015 U/S.56(2)(VIIB) R.W.R 11UA OF THE I.T.RULES AT RS.289.41 PER SHARE AS AGAINST THE FMV ADOPTED BY THE ASSESSEE AT RS.1188/ - . THE VALUE ADOPTED BY THE ASSESSEE IS AS PER THE LIABILITY SIDE OF THE BALANCE SHEET, WHEREIN, THE ASSESSEE HAD DEDUCTED RS.76,20,000/ - PLACED UNDER THE HEAD SHARE APPLICATION MONEY PENDING ALLOTMENT, WHICH IS NOT DISPUTED BY THE LD D.R. THEREFORE, I AM OF THE CONSIDERED VIEW THAT THE FMF ADOPTED BY THE ASSESSEE AT RS.1188/ - PER SHARE IS CORRECT A ND, ACCORDINGLY, ALLOW THE APPEAL OF THE ASSESSEE.