Safetix Protective Equipments Pvt Ltd, Noida V. ACIT, Circle-3, Noida

ITA 2744/DEL/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7937 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2015-2016
• Appeal Filed On: 28-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH DUBEY
• Keywords: Fair market value
• Section: 56(2)(vii)(b); 154; 143(3); 56(2); 201

Judgement Text

Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH “G”: NEW DELHI ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (Through Video Conferencing) ITA. No. 2744/Del/2019 (Assessment Year : 2015-16) M/s. Safetix Protective Equipments Pvt. Ltd., 19, Sector : 90, Noida – 201 305. PAN: AAECM2826P Vs. ACIT, Circle : 3, Noida. (Appellant) (Respondent) Assessee by : Shri Rakesh Garg, Advocate; Department by : Shri Prakash Dubey, Sr. D. R.; Date of Hearing 16/09/2021 Date of pronouncement 23/11/2021 O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the assessee against the order passed by the ld CIT(A)-1, Noida dated 29-10-2018 wherein, the appeal filed by the assessee against the assessment order passed under section 143(3) of the Act by the ld ACIT, Circle-3, Noida dated 27/12/2017 was dismissed. Therefore, the assessee is aggrieved and is in appeal before us. 2. The assessee has raised the following grounds of appeal:- “1. Because the CIT(A) has erred on facts and in law in while passing the order, holding that nobody appeared and that no compliance was made to the notice issued for hearing, the order of the CIT(A) is erroneous, misconceived and be quashed. 2. Because the CIT(A) has erred on facts and in law in computing the FMV of the shares of FV of Rs.10/- each at Rs.175/- per share as against Rs.290/- per share as computed by the assessee based on the Chartered Accountant’s certificate dated 06.10.2014, the value adopted by the Assessing Officer is erroneous, misconceived and the addition of Rs.1,03,50,000/- made under section 56(2)(viib) and upheld be deleted. 3. Because on a proper interpretation of the provisions of section 56(2)(viib) read with Rules 11U and 11UA and the facts and circumstances of the case, the working done by the AO and upheld by the CIT(A) of the FMV of the shares of Rs.10/- each at Rs.175/- is erroneous and misconceived, and making addition of Rs.1,03,50,000/- on the basis of the same treating the premium as excessive / as excess premium is erroneous and be deleted. 4. Because on a proper interpretation of the facts and circumstances of the case, it would be found that the FMV of the shares of the face value of Rs.10/- each is Page | 2 Rs.290/- per share as arrived by the Chartered Accountants vide their certificate dated 06.10.2014 is based on the valuation date as defined in the Rule 11U and as such, the addition made by the AO and upheld by the CIT(A) of Rs.1,03,50,000/- be deleted. 5. Because the CIT(A) has failed to appreciate the facts and circumstances of the case as well as the written submissions filed, in as much as the shares have been issued at premium to the family members of the directors/shareholders only and not to any outsider, the provisions of section 56(2)(viib) are not applicable, the addition made be deleted. 6. Because the CIT(A) has failed to give an opportunity to the assessee to disprove the certificate of the Chartered Accountants dated 06.10.2014 and also has not pointed out therein as to how the FMV arrived by the Chartered Accountants vide their certificate dated 06.10.2014 is incorrect, summarily rejection of the same without examining the veracity of the same is against the principles of natural justice, the addition of Rs. 1,03,50,000/- made be deleted.” 3. Brief facts of the case shows that the assessee is a company engaged in the business of manufacturing and exporting leather gloves and trading of footwear. The assessee filed its return of income at Rs. 51,00,080/- on 30/09/2015. Return of income was picked up for scrutiny. 4. During the year under consideration the assessee issued 90000 equity shares of face value of Rs. 10/- each at a share premium of Rs. 280/- per share . Thus, the security premium of Rs. 252 lacs was received. The ld AO asked the assessee to justify the valuation as per Rule 11/ 11UA of IT Rules 1962. The assessee submitted that the shares were valued at Rs 290 per share as per valuation certificate issued by the Chartered Accountant. The ld AO verified the certificate issued by the Chartered Accountant which was issued on 06/10/2014. The Chartered Accountant certified that the fair market value of each equity share as on 30/09/2014 is Rs. 294 per share. The ld AO noted that the said certificate did not have any enclosure or any calculation to show the computation of fair market value as envisaged in the Rules 11 UA of IT Rules. The chartered accountant in his certificate has mentioned that accounts and other documents produced before him were unaudited. When questioned , the assessee submitted a calculation sheet on the basis of unaudited half yearly accounts to show the fair market value as on 30/09/2014. This, calculation sheet was not signed or certified. Therefore, the ld AO ignored the same. He adopted the formula mentioned in Rule 11UA and determined the fair market value of the unquoted equity shares at Rs. 170.95 per share as per net book value. Therefore, he held that the shares were issued at premium of Rs. 280/- per shares the fair market value of shares [ premium portion] is only Rs 165/- per shares Therefore excess premium received of Rs. 115/- per share was taxed u/s 56(2)(vii)(b). So, he Page | 3 made an addition of Rs. 1,03,50,000/- and assessment was made at Rs. 1,54,50,100/- as per order dated 27/12/2017 u/s 143(3) of the Act. 5. The assessee preferred an appeal before the CIT(A). Before ld CIT(A) the assessee submitted that the provision of section 56(2)(vii)(b) were brought on the statue as a measure to prevent generation and circulation of unaccounted money. It was submitted that it is a family owned company wherein no outsider is involved. Each of the allottee is assessed to the income tax and their PAN is also given. Therefore, it was submitted that the provision of section 56(2) should not be applied. The ld CIT(A) dismissed the submissions of the assessee and upheld the order of the AO. 6. The assessee aggrieved with that order has prepared this appeal before us. At the time of hearing the assessee preferred petition under Rule 29 of ITAT Rules. The additional evidences submitted , which were also supported by an affidavit of the Director of the company. The additional evidences submitted by the assessee are half yearly audited accounts of the assessee as on 30.09.2014. The assessee submitted that the addition has been made by the ld AO for the reason that the accounts of the assessee were not audited as on 30/09/2014. Therefore, it was submitted that the main reason for making the addition and rejecting the certificate of the chartered accountant was only that assessee has not submitted the audited accounts. It was further stated that at the time of assessment preceding the assessee was not aware that valuation has to be based on the audited accounts. As now audited accounts have been submitted which could not be submitted earlier same may be admitted. With respect to the admission of the additional evidence the ld AR supported his argument by the decision of the Hon‟ble Delhi High court in case of CIT Vs. Text Hundred Pvt. Ltd in ITA No. 207/2010 dated 14/01/2011. The ld AR also referred to a petition u/s 154 of the Act filed before ld CIT(A). The fact shows that the ld CIT(A) has decided the appeal without giving any opportunity of personal hearing to the assessee. The assessee submitted in response to the notice of hearing issued on 12/09/2018 for fixing date of hearing on 27/09/2018, a reply on 26/09/2018 along with its submission. Such submission was made on 27/09/2018. On that date the case was adjourned to 05/10/2018. On 05/10/2018 also assessee submitted written submission dated 22/09/2018. However, on 05.10.2018 the hearing did not take place but submissions were taken. Assessee submits that it was informed to the assessee that next date of hearing would be intimated. Thereafter no date of hearing was fixed and appeal order was received. Therefore, the contention of the assessee is that without proper opportunity of hearing the case of the assessee was dismissed by the ld CIT(A). 7. The ld DR vehemently supported the orders of the lower authorities. Page | 4 8. We have carefully considered the rival contentions and perused the orders of the lower authorities. Apparently in this case the assessee is a private limited company owned by one family. The assessee issued 90000 equity shares to the family members at a premium of Rs. 280 per share. The above share premium was justified by the assessee by submitting a certificate of chartered accountant stating that the fair market value of each equity shares as on 30/09/2014 is Rs. 290 per share. We find on the basis of the board resolution that on 16/12/2014 , 25000 equity shares were allotted. Further, 65000 equity shares were allotted on 23/12/2014. Pricing of the share was determined by the chartered accountant at Rs. 285/- per share which was rounded off to Rs. 290 per share. For determination of the fair market value of the shares assessee submitted a certificate of the chartered accountant further same was without any annexure or any working. The certificate of the chartered accountant also did not show which method of the valuation whether the discounted cash flow method or book value method has been followed. When the ld AO asked the assessee to show the working, assessee submitted a working for financial year 2014-15 on a half yearly basis showing that fair market value per share is Rs. 285 and same were rounded to Rs. 290 per share. As the working is also unsigned and not substantiated by the assessee also, ld Ao did not consider the same. Working was provided is placed at page number 55 of the paper book and same is as under:- Page | 5 9. Therefore, ld AO rejected the same and computed the valuation of the share adopting the net assets method adopting the figures stated in the balance sheet as on 31/03/2014. He derived at the valuation of Rs. 175 per share and made addition, which was confirmed by the ld CIT(A). It is apparent that allotment is made on two different dates. Neither the ld AO (who took valuation on 31.03.2014) or the Chartered accountant who valued the shares ( as on 30/09/2014) valued the property as on the „valuation date‟. The „valuation date‟ is defined under Rule 11UA of The Income tax Rules 1962 being the date on which property or consideration is received by the assessee. The consideration is received by the assessee as submitted before us being 25000 shares on 16.12.2014 and for 650000 shares on 23/12/2014. Therefore, both the valuation does not give the correct picture of the fair market value of the equity shares issued by the assessee company. In view of this, as well as on the issue of the fact that assessee has filed an application for additional evidence and also for the reason that the assessee was unheard before the ld CIT(A) as stated by the assessee, We set aside the whole issue back to the file of the ld AO with direction to the assessee to comply with the provisions of Rule 11UA of the Act by substantiating the fair market value of unquoted equity shares on the valuation date as per provision of Rule 11UA (1)(c)(b) of the Rules. The ld AO may verify the same and decide the issue on the merits of the case about taxability of excess amount received over the fair market value of the shares of the assessee company. 10. In the result the appeal of the assessee is allowed for statistical purposes Order pronounced in the open court on 23/11/2021. -Sd/- -Sd/- (SUCHITRA KAMBLE) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23/11/2021 *AKKEOT* Copy forwarded to 1. Appellants; 2. Respondents 3. CIT 4. CIT (Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, New Delhi