Mantram Commodities Pvt. Ltd., Faridabad V. ITO ward 1(5), Faridabad

ITA 6170/DEL/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 1493 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 22-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROVIN RAWAL
• Assessee Lawyers: BY INVOKING SECTION
• Keywords: Depreciation; Fair market value; Valuation report; Set aside
• Section: 68; 56; 143(3); 133(6); 201; 13; 20

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : SMC - 2 : NEW DELHI (THROUGH VIRTUAL HEARING) BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER ITA NO. 6170 /DEL/201 9 ASSESSMENT YEAR : 20 1 5 - 16 MANTRAM COMMODITIES PVT. LTD., FF - 9, VISHNU PLACE, NEAR NEELAM FLYOVER , SECTOR - 20B, FARIDABAD. PAN: AAHCM9517C VS ITO, WARD 1(5), FARIDABAD. (APP ELL A NT ) (RESPONDENT) A SSESSEE BY : SHRI RAJIV SAXENA, ADVOCATE RE VENUE BY : SHRI ROVIN RAWAL, ADDL.CIT DATE OF HEARING : 21 . 0 1 . 20 2 1 DATE OF PRONOUNCEMENT : 12 . 0 2 . 20 2 1 ORDER PER R. K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER S DATED 2 9 TH MARCH, 201 9 OF THE CIT(A) , FARIDABAD, RELATING TO ASSESSMENT YEAR 20 15 - 16 . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND HAS NOT CONDUCTED ANY BUSINESS ACTIVITY DURING THE RELEVANT ASSESSMENT YEAR. IT FILED ITS RETURN OF INCOME ON 10 TH SEPTEMBER, 2015 DECLARING THE TOTAL INCOME AT RS.1,64,750/ - . THE AO, DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, NOTED THAT ITA NO. 6170 /DEL/201 9 2 THE ASSESSEE COMPANY HAS RECEIVED RS.42 LAKHS AS SHARE PREMIUM DURING THE YEAR ON ISSUE OF 60000 SHARES AT A PREMIUM OF RS.70/ - . HE NOTICED THAT THE SHARES HAVE BEEN ALLOTTED ON 31 ST MARCH, 2015 TO THE FOLLOWING C OMPANIES/PERSONS: - NAME OF PERSON, NO. OF SHARES NOMINAL VALUE PER SHARE(RS.) PREMIUM PER SHARE(RS.) AMOUNT OF PREMIUM(RS.) TOTAL AMT. PAID INCLUDING PREMIUM(RS.) GANGASHIV CONTRACTORS PVT. LTD. 33125 10 70 2318750 2650000 AMAR SHREE INDUSTRIES PVT. LTD. 26875 10 70 1881250 2150000 TOTAL 60000 4200000 4800000 3. THE AO OBTAINED INFORMATION U/S 133(6) FROM THE ABOVE REFERRED INVESTORS. FROM THE PERUSAL OF THE INFORMATION, HE OBSERVED THAT THE COVERING LETTER OF ALL THE COMPANIES IS OF SAME FONT AND N ONE OF THE COMPANIES HAVE ANY TELEPHONE NUMBER AGAINST THEM. THE FINANCIAL STATEMENT OF THESE COMPANIES INDICATE THAT THESE ARE SHELL COMPANIES AND HAVE NO REAL BUSINESS. THE ASSESSEE ALSO DID NOT FILE THE BANK ACCOUNT STATEMENT OF THE ABOVE COMPANIES. FROM THE VARIOUS DETAILS FURNISHED BY THOSE COMPANIES, THE AO NOTED THAT THOSE DETAILS ARE OF TYPICAL PAPER COMPANIES HAVING NO REAL BUSINESS BUT ONLY CREDIT AND EQUAL AMOUNT OF DEBIT ENTRIES. HE, THEREFORE, WAS OF THE VIEW THAT THE CREDIT WORTHINESS AND GENUINENESS OF THE TRANSACTION REMAIN HIGHLY SUSPICIOUS. HE, THEREFORE, CONFRONTED THE SAME TO THE ASSESSEE AND ASKED IT TO SUBSTANTIATE THE INGREDIENTS OF SECTION 68 OF THE IT ACT. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND FOLLOWING T HE DECISION S OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. DURGA PRASAD MORE REPORTED IN 82 ITR 540 , MCDOWELL & CO. LTD. VS. CTO (1985) 154 ITR 148 AND ITA NO. 6170 /DEL/201 9 3 SUMATI DAYAL VS. CIT (1995) 214 ITR 802, THE AO MADE ADDITION OF RS.48 LAKHS TO THE TOTAL INCOME O F THE ASSESSEE U/S 68 OF THE IT ACT. WHILE DOING SO, THE AO FURTHER OBSERVED THAT SINCE THE ADDITION ON ACCOUNT OF SHARE PREMIUM AND SHARE CAPITAL HAS ALREADY BEEN MADE U/S 68 OF THE ACT, NO SEPARATE ADDITION IS BEING MADE U/S 56(2)(VIIB) OF THE ACT . WHILE HOLDING SO, HE REJECTED THE CALCULATION MADE BY THE ASSESSEE IN TERMS OF SECTION 11UA FOR CALCULATING THE SHARE PREMIUM ON THE GROUND THAT THE COMPANY IS NOT HAVING ANY WORTH OF RECEIVING ANY SHARE PREMIUM. 4. IN APPEAL, THE LD.CIT(A) DELETED THE ADDITIO N MADE U/S 68 OF THE ACT ON THE GROUND THAT SUCH SHARE CAPITAL WAS NOT RECEIVED BY THE ASSESSEE DURING THE YEAR, BUT, WAS RECEIVED IN F.Y. 2013 - 14 RELEVANT TO ASSESSMENT YEAR 2014 - 15 AND THE ASSESSEE HAS ONLY ALLOTTED THE SHARES DURING THE YEAR. HE, HOWEV ER, CONFIRMED THE ADDITION MADE BY THE AO U/S 56(2)(VIIB) OF THE ACT BY OBSERVING AS UNDER: - 12.10 HOWEVER, IT IS NOTED FROM THE PERUSAL OF BANK STATEMENTS AND CONFIRMED COPIES OF ACCOUNT OF M/S GANGA SHIV CONTRACTORS PVT. LTD. AND AMAR SHREE INDUSTRIES P VT. LTD., THAT AMOUNT IN REFERENCE OF RS.48,00,000/ - HAS BEEN RECEIVED BY THE APPELLANT DURING F.Y. 2013 - 14 AND SHARES HAVE BEEN ALLOTTED ON THE PREMIUM TO THE INVESTORS DURING THE PREVIOUS YEAR UNDER CONSIDERATION. THUS FROM THE FACTS, IT HAS BEEN FOUND THAT NO CREDITS HAVE BEEN INTRODUCED IN THE BOOKS OF ACCOUNT OF THE APPELLANT DURING THE YEAR UNDER CONSIDERATION. IN THE CIRCUMSTANCES, IT IS HELD THAT NO ADDITION U/S 68 CAN BE MADE OUT OF OPENING BALANCES FOR ASSTT. YEAR 2015 - 16. UNDER THE FACTS, IT I S HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING ADDITION OF RS.48,00,000/ - U/S 68 OF THE ACT. THE SAME IS HEREBY DELETED. HOWEVER, IN VIEW OF DISCUSSION MADE AS ABOVE, FURTHER ADDITION MADE BY THE AO U/S 56(2)(VIIB) OF THE ACT FOR RS.42,00,000/ - IS CONFIR MED. GROUND NO.3 AND ADDITIONAL GROUND ARE PARTLY ALLOWED. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS: - ITA NO. 6170 /DEL/201 9 4 1. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMIN G THE ASSESSMENT FRAMED BY LD. AO U/S 143(3) OF THE INCOME TAX ACT 1961. 2. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE INCOME OF APPELLANT ASSESSEE BY SUM OF RS. 42,00,000/ - BY INVOKING SECTION 56(2)(VIIB) OF THE ACT WHEREIN RE JECTING THE VALUATION METHOD TAKEN BY APPELLANT ASSESSEE. 3. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE ADDITION WITHOUT GIVING COGENT REASONS AND BY RECORDING INCORRECT FACTS AND BY DISREGARDING THE ALL THE DOCUMENTARY EVIDENCE S FURNISHED BY ASSESSSEE. 4. THAT, THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY GROUND EITHER BEFORE OR DURING THE HEARING OF THESE GROUNDS. IT IS PRAYED THAT IT BE HELD THAT ADDITIONS/DISALLOWANCE ARE NOT IN ACCORDANCE WITH LAW AND THEREFORE, THE ADDITIONS/DISALLOWANCE SO MADE MAY KINDLY BE DELETED AND APPEAL OF THE APPELLANT MAY KINDLY BE ALLOWED. 6 . THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGED THE ORDER OF THE CIT(A) IN UPHOLDING THE ADDITION OF RS.42 LAKH U/S 56(2)( VIIB) OF THE ACT. REFERRING TO THE ABOVE PROVISION WHICH WAS INSERTED BY THE FINANCE ACT, 2012 AND AS EXISTED DURING THE RELEVANT ASSESSMENT YEAR, THE LD. COUNSEL SUBMITTED THAT AS PER THE SAID PROVISION WHERE A COMPANY RECEIVES ANY CONSIDERATION FOR ISSU E OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES SHALL BE TAXABLE AS INCOME FROM OTHER SOURCES. FURTHER, CLAUSE (A)(I) OF EXPLANATION PROVIDES THAT FAIR MARKET VALUE OF THE SHARES SHALL BE THE VALUE AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. HE SUBMITTED THAT FOR THE PURPOSE OF SECTION 56(2)(VIIB) OF THE ACT, THE VALUATION OF THE SHARES HAS TO BE DONE IN ACCORDANCE WITH RULE 11UA OF THE INCOME TAX RULES. THE LD. COUNSEL ALSO REFERRED TO THE PROVISIONS OF RULE 11UA AND SUBMITTED THAT AS PER THE AFORESAID ITA NO. 6170 /DEL/201 9 5 RULES, THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES FOR THE PURPOSE OF SUB - CLAUSE ( I) OF CLAUSE (A) OF EXPLANATION TO CLAUSE (VIIB) OF SUB - SECTION (2) OF SECTION 56 SHALL BE DETERMINED UNDER CLAUSE (A) OR CLAUSE (B) AT THE OPTION OF THE ASSESSEE. HE SUBMITTED THAT A S PER CLAUSE (B) VALUE HAS TO BE DETERMINED BY THE MERCHANT BANKER AS PER DISCOUNTED FREE CASH FLOW METH OD, WHEREAS AS PER CLAUSE (A) THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES SHALL BE EQUAL TO: BOOK VALUE OF ASSETS BOOK VALUE OF LIABILITY X TOTAL AMOUNT OF PAID UP PAID UP VALUE OF SUCH SHARES EQUITY SHARE CAPITAL 7 . HE SUBMITTED THAT THE ASSESSEE IN THE INSTANT CASE HAS ISSUED SHARE CAPITAL @ 80 PER SHARE, I.E., FACE VALUE OF 10 + PREMIUM OF 70 PER SHARE) AS ON 31.03.2015. HE SUBMITTED THAT THE VALUE OF EACH SHARE WAS IN ACCORDANCE WITH RULE 11UA O F THE IT RULES AND IN SUPPORT OF VALUE OF EACH SHARE THE ASSESSEE HAD ALSO FURNISHED VALUATION CERTIFICATE OF A CHARTERED ACCOUNTANT. THE LD. COUNSEL DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING DETAILS/CALCULATION : - BOOK VALUE OF ASSETS BOO K VALUE OF LIABILITY X TOTAL AMOUNT OF PAID UP PAID UP VALUE OF SUCH SHARES EQUITY SHARE CAPITAL I.E., 2,45,41,950 9933026 X 10 17,80,000 = RS.82.07/ - BOOK VALUE OF ASSETS AS ON 3 1.03.2014 : CASH AND CASH EQUIVALENT - RS. 6,18,035/ - SHORT TERM L OANS AND ADVANCES - RS. 2,38,07,381/ - OTHER CURRENT ASSETS - RS. 1,16.534/ - TOTAL RS. 2,45,41,950 ITA NO. 6170 /DEL/201 9 6 BOOK VALUE OF LIABILITY AS ON 31.03.2014: TRADE PAYABLES - RS. 98,89,9 50/ - OTHER CURRENT LIABILITIES - RS. 1,655/ - SHORT TERM PROVISION: RS. 41,.421/ - TOTAL: RS. 99.33,026 PAID VALUE OF SHARES : RS. 17,80,000/ TOTAL AMOUNT OF PAID UP EQUITY SHARE: RS. 10/ - 8. REFERRING TO THE ABOVE, HE SUBMI TTED THAT THE AFORESAID VALUATION WAS FURNISHED BEFORE THE AO TO JUSTIFY THAT THE SHARES ISSUED BY THE ASSESSEE WAS AT FAIR MARKET VALUE WHICH WAS COMPUTED IN ACCORDANCE WITH THE RULE 11UA(2)(A) OF THE IT RULES, 1962. HOWEVER, THE AO ARBITRARILY REJECTED THE VALUATION FURNISHED BY THE ASSESSEE BY HOLDING THAT THE ASSESSEE IS NOT HAVING ANY WORTH OF RECEIVING ANY SHARE PREMIUM. HE SUBMITTED THAT THE AO HAS ADOPTED THE FMV OF SHARES AT RS.10/ - (AT THE FACE VALUE) WITHOUT APPRECIATING THE FORMULA PROVIDED I N RULE 11UA AND HAS COMPLETELY GIVEN A GO BY TO THE VALUE OF ASSETS AND LIABILIT IES SHOWN IN THE BALANCE SHEET. HE HAS NOT MADE ANY ATTEMPT TO COMPUTE THE VALUE OF SHARES OF THE ASSESSEE IN ACCORDANCE WITH RULE 11UA OF IT RULES, 1962. HE SUBMITTED THAT T HE ADOPTION OF THE FAIR MARKET VALUE OF SHARES @ RS.10 PER SHARE AS AGAINST RS.82 PER SHARE AS COMPUTED BY THE ASSESSEE WITHOUT RECOURSE TO THE FORMULA AS PROVIDED IN RULE 11UA IS UNSUSTAINABLE IN LAW AS FOR THE PURPOSE OF SECTION 56(2)(VIIB) OF THE ACT, T HE FAIR MARKET VALUE OF THE SHARES HAS TO BE COMPUTED ONLY IN ACCORDANCE WITH RULE 11UA. FURTHER, THE LD. CIT(A) WITHOUT CONSIDERING THE STATUTORY PROVISION AND WITHOUT COMPUTING THE FAIR MARKET VALUE OF SHARES AS PER RULE 11UA, ARBITRARILY UPHELD THE FIN DING OF THE AO. ITA NO. 6170 /DEL/201 9 7 9. REFERRING TO THE ORDER OF THE CIT(A) AS WELL AS THE ASSESSMENT ORDER, THE LD. COUNSEL SUBMITTED THAT NONE OF THE AUTHORITIES BELOW HAS FOUND ANY FAULT IN THE COMPUTATION OF FAIR MARKET VALUE PRODUCED IN THE ASSESSMENT PROCEEDINGS. BOT H THE LOWER AUTHORITIES HAVE SUMMARILY REJECTED THE COMPUTATION ON ASSUMPTION AND PRESUMPTION AND WITHOUT ANY BASIS. REFERRING TO VARIOUS DECISIONS, THE LD. COUNSEL SUBMITTED THAT THE ADDITION U/S 56(2)(VIIB) OF THE ACT CAN BE MADE ONLY ON THE GROUND THAT CONSIDERATION FOR ISSUE OF SHARES EXCEEDS THE FAIR MARKET VALUE OF THE SHARES. HOWEVER, WHAT WILL BE THE FAIR MARKET VALUE OF THE SHARES, THE STATUTE HAS PROVIDED A MECHANISM UNDER RULE 11UA AND FAIR MARKET VALUE HAS TO BE DETERMINED ONLY ON THAT BASIS A ND NOT ON ASSUMPTION AND PRESUMPTION. HE SUBMITTED THAT WHEN THE STATUTE PROVIDES FOR A PARTICULAR PROCEDURE, THE AUTHORITY HAS TO FOLLOW THE SAME AND CANNOT BE PERMITTED TO ACT IN CONTRAVENTION OF THE SAME. 10 . SO FAR AS THE DECISION RELIED ON BY THE CI T(A) IN THE CASE OF AGRO PORTFOLIO PVT. LTD. VS. ITO VIDE ITA NO.2189/DEL/2018, ORDER DATED 16 TH MAY, 2018 IS CONCERNED, HE SUBMITTED THAT THE FACTS OF THAT CASE IS CLEARLY DISTINGUISHABLE AS, IN THAT CASE, THE SHARES WERE VALUED ON THE BASIS OF DISCOUNTED CASH FLOW METHOD AND THE TRIBUNAL NOTED THAT THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE TO SUBSTANTIATE THE BASIS OF PRO JECTIONS OF CASH FLOW BUT RELIED ON THE VALUER S REPORT VEHEMENTLY CONTEN D ING THAT SUCH A REPORT CANNOT BE DISTURBED BY THE LD. AO AND A T NO POINT OF TIME THE ASSESSEE TRIED TO EXPLAIN WHERE DID THE LD. AO WENT WRONG IN HIS COMMENTS ON THE FIGURES REFLECTED IN THE ABOVE VALUATION REPORT OF THE EXPERT. THE ITA NO. 6170 /DEL/201 9 8 LD. COUNSEL SUBMITTED THAT SINCE THE ASSESSEE HAD ISSUED SHARES AT FAIR MARKET VALUE COMPUTED IN ACCORDANCE WITH RULE 11UA OF THE RULES, NO FAULT HAS BEEN FOUND IN THE METHOD APPLIED BY THE ASSESSEE AND THE ADDITION U/S 56(2)(VIIB) WAS MADE MERELY ON ASSUMPTIONS AND PRESUMPTIONS, THEREFORE, THE ADDITION MADE BY THE AO AND SUSTAINED BY THE CIT(A) BEING NOT IN ACCORDANCE WITH THE LAW SHOULD BE DELETED. 11 . THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE CIT(A). REFERRING TO PARA 12.2 OF THE ORDER OF THE CIT(A), THE LD. DR DREW THE ATTENTION TO THE SAME WHICH READS AS UNDE R: - 12.2 THE VALUATION REPORT FOR THE SHARES AS FURNISHED BY THE APPELLANT UNDER RULE 11UA(2) HAS BEEN PERUSED. IT IS NOTED THAT THE APPELLANT IN THE SAID REPORT HAS CONSIDERED SHARE PREMIUM OF RS.1,28,28,924/ - AS ON 31.03.2014. FROM THE ABOVE FACTS IT HA S BEEN NOTED THAT THE APPELLANT HAS NO BUSINESS WORTH. THERE IS NO TANGIBLE BUSINESS ACTIVITY BEING CARRIED OUT BY THE APPELLANT SINCE INCORPORATION. THERE ARE NO FIXED ASSETS OR ANY OTHER INTANGIBLE ASSETS IN POSSESSION OF THE APPELLANT TO JUSTIFY SUCH KI ND OF CASH FLOW IN THE PRI O R YEARS. IN THE ABSENCE OF ANY BUSINESS WORTH OF THE APPELLANT, THE RELIANCE OF THE APPELLANT ON THE VALUATION REPORT FOR THE PREMIUM CHARGED OF RS.70/ - ON EACH SHARE UNDER RULE 11UA DOES NOT CARRY ANY FORCE. SUCH VALUATION REPOR T HAS BEEN FOUND WITHOUT ANY BASIS AND THUS, IS REJECTED. RELIANCE IS HEREBY PLACED UPON THE DECISION OF HON'BLE ITAT DELHI IN THE CASE OF AGRO PORTFOLIO PVT. LTD, VS. ITO 2018, 171/ITD/74 (DEL). THEREFORE, IN THE ABSENCE OF BUSINESS WORTH OF THE APPELLANT THE RELIANCE OF THE APPELLANT ON THE VALUATION REPORT FOR THE PREMIUM CHARGED OF RS.70/ - ON EACH SHARE UNDER RULE 11UA DOES NOT CARRY ANY FORCE. 12 . REFERRING TO THE ABOVE, HE SUBMITTED THAT THE LD.CIT(A) WHILE SUSTAINING THE ADDITION MADE U/S 56(2)(V IIB) HAS GIVEN JUSTIFIABLE REASONS AND, THEREFORE, THE SAME SHOULD BE UPHELD. ITA NO. 6170 /DEL/201 9 9 13 . I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE ASSESSING OFFICER AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE ME. I FIND, THE AO, IN THE INSTANT CASE, MADE ADDITION OF RS.48 LAKHS U/S 68 OF THE IT ACT ON THE GROUND THAT THE ASSESSEE COULD NOT SUBSTANTIATE WITH EVIDENCE TO HIS SATISFACTION REGARDING THE CR EDIT WORTHINESS OF THE SHARE APPLICANTS AND THE GENUINENESS OF THE TRANSACTION IS DOUBTFUL. THE AO, FURTHER HELD THAT THE ASSESSEE IS NOT HAVING ANY WORTH OF RECEIVING OF SHARE PREMIUM AND THE CALCULATION MADE BY THE ASSESSEE IN TERMS OF RULE 11UA FOR CAL CULATING THE SHARE PREMIUM IS TO BE REJECTED. SINCE THE AO HAD MADE ADDITION U/S 68 OF THE ACT, HE DID NOT MAKE ANY SEPARATE ADDITION U/S 56(2)(VIIB) OF THE IT ACT. I FIND THE LD.CIT(A) DELETED THE ADDITION MADE BY THE AO U/S 68 OF THE IT ACT ON THE GROU ND THAT NO CREDITS HAVE BEEN INTRODUCED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND, THEREFORE, NO ADDITION U/S 68 CAN BE MADE OUT OF OPENING BALANCES FOR A.Y. 2015 - 16. THE REVENUE IS NOT IN APPEAL AGAINST THE ABOVE FIN DING OF THE CIT(A), THEREFORE, I AM NOT CONCERNED ABOUT THE SAME. HOWEVER, THE LD.CIT(A) HELD THAT THE ASSESSEE HAS NO BUSINESS WORTH AND THERE IS NO TANGIBLE BUSINESS ACTIVITY BEING CARRIED OUT BY THE ASSESSEE SINCE INCORPORATION. THERE ARE NO FIXED ASSE TS OR ANY OTHER INTANGIBLE ASSETS IN POSSESSION OF THE ASSESSEE TO JUSTIFY THE PREMIUM CHARGED BY THE ASSESSEE ON ISSUE OF SHARES. HE, THEREFORE, HELD THAT THE RELIANCE OF THE ASSESSEE ON THE VALUATION REPORT FOR THE PREMIUM CHARGED AT RS.70/ - ON EACH SHA RE UNDER RULE 11UA DOES NOT CARRY ANY FORCE. RELYING ON THE ITA NO. 6170 /DEL/201 9 10 DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF AGRO PORTFOLIO PVT. LTD. VS. ITO, 171 ITD 74, THE LD.CIT(A) HELD THAT THE VALUATION REPORT FOR THE PREMIUM CHARGED OF RS.70/ - ON EACH SHARE UNDER RULE 11UA DOES NOT CARRY ANY FORCE. 14. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT FOR THE PURPOSE OF SECTION 56(2)(VIIB) OF THE ACT THE VALUATION OF THE SHARES HAS TO BE DONE IN ACCORDANCE WITH THE RULE 11UA OF IT RULES, 1962. AS PER THE SAID RULE, THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES FOR THE PURPOSE OF SUB - CLAUSE (I) OF CLAUSE (A) OF EXPLANATION TO CLAUSE (VIIB) OF SUB - SECTION (2) OF SECTION 56 SHALL BE DETERMINED UNDER CLAUSE (A) OR CLAUSE (B), AT THE OPTION OF THE ASSESSEE. IT IS HIS SUBMISSION THAT THE ASSESSEE IN THE INSTANT CASE HAS ISSUED THE SHARE CAPITAL @ RS.80 PER SHARE (FACE VALUE OF RS.10 PER SHARE + PREMIUM AT RS.70 PER SHARE) AS ON 31.03.2015 AND THE VALUATION OF EACH SHARE WAS IN ACCORDANCE WITH RULE 1 1UA OF THE ACT. IT IS ALSO HIS SUBMISSION THAT WHEN THE STATUTE PROVIDES FOR A PARTICULAR PROCEDURE, THE AUTHORITY HAS TO FOLLOW THE SAME AND CANNOT BE PERMITTED TO ACT IN CONTRAVENTION OF THE SAME. 1 5 . I FIND MERIT IN THE ABOVE ARGUMENT OF THE LD. COUNS EL. THE PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT READS AS UNDER: - ( VIIB ) WHERE A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON BEING A RESIDENT, ANY CONSIDERATION FOR IS SUE OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES: PROVIDED THAT THIS CLAUSE SHALL NOT APPLY WHERE THE CONSIDERATION FOR ISSUE OF SHARES IS RECEIVED ITA NO. 6170 /DEL/201 9 11 ( I ) BY A VENTURE CAPITAL UNDERTAKING FROM A VENTURE CAPITAL COMPANY OR A VENTURE CAPITAL FUND; OR ( II ) BY A COMPANY FROM A CLASS OR CLASSES OF PERSONS AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEHALF. EXPLANATION. FOR THE PURPOSES OF THIS C LAUSE, ( 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 9 ; 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 RI GHTS OF SIMILAR NATURE, WHICHEVER IS HIGHER; ( B ) 'VENTURE CAPITAL COMPANY', 'VENTURE CAPITAL FUND' AND 'VENTURE CAPITAL UNDERTAKING' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN CLAUSE ( A ), CLAUSE ( B ) AND CLAUSE ( C ) OF EXPLANATION TO CLAUSE ( 2 3FB ) OF SECTION 10 ; 1 5 .1 SIMILARLY, THE PROVISIONS OF RULE 11UA OF THE ITAT RULES, 1962 READ AS UNDER: - (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB - CLAUSE ( B ) O F CLAUSE ( C ) OF SUB - RULE (1), THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES FOR THE PURPOSES OF SUB - CLAUSE ( I ) OF CLAUSE ( A ) OF EXPLANATION TO CLAUSE ( VIIB ) OF SUB - SECTION (2) OF SECTION 56 SHALL BE THE VALUE, ON THE VALUATION DATE, OF SUCH UNQUOTED EQUI TY SHARES AS DETERMINED IN THE FOLLOWING MANNER UNDER CLAUSE ( A ) OR CLAUSE ( B ), AT THE OPTION OF THE ASSESSEE, NAMELY: ( A ) THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES = (A L) (PV), (PE) WHERE, A = BOOK VALUE OF THE ASSETS IN THE BALANCE - SHEET AS REDUCED BY ANY AMOUNT OF TAX PAID AS DEDUCTION OR COLLECTION AT SOURCE OR AS ADVANCE TAX PAYMENT AS REDUCED BY THE AMOUNT OF TAX CLAIMED AS REFUND UNDER THE INCOME - TAX ACT AND ANY AMOUNT SHOWN IN THE BALANCE - SHEET AS ASSET INCLUDING THE UNAMORTISE D AMOUNT OF DEFERRED EXPENDITURE WHICH DOES NOT REPRESENT THE VALUE OF ANY ASSET; L = BOOK VALUE OF LIABILITIES SHOWN IN THE BALANCE - SHEET, BUT NOT INCLUDING THE FOLLOWING AMOUNTS, NAMELY: ( I ) THE PAID - UP CAPITAL IN RESPECT OF EQUITY SHARES; ( II ) THE AMOUNT SET APART FOR PAYMENT OF DIVIDENDS ON PREFERENCE SHARES AND EQUITY SHARES WHERE SUCH DIVIDENDS HAVE NOT BEEN DECLARED BEFORE THE DATE OF TRANSFER AT A GENERAL BODY MEETING OF THE COMPANY; ITA NO. 6170 /DEL/201 9 12 ( III ) RESERVES AND SURPLUS, BY WHATEVER NAME CALLED, EVEN IF THE RESULTING FIGURE IS NEGATIVE, OTHER THAN THOSE SET APART TOWARDS DEPRECIATION; ( IV ) ANY AMOUNT REPRESENTING PROVISION FOR TAXATION, OTHER THAN AMOUNT OF TAX PAID AS DEDUCTION OR COLLECTION AT SOURCE OR AS ADVANCE TAX PAYMENT AS REDUCED BY T HE AMOUNT OF TAX CLAIMED AS REFUND UNDER THE INCOME - TAX ACT, TO THE EXTENT OF THE EXCESS OVER THE TAX PAYABLE WITH REFERENCE TO THE BOOK PROFITS IN ACCORDANCE WITH THE LAW APPLICABLE THERETO; ( V ) ANY AMOUNT REPRESENTING PROVISIONS MADE FOR MEETING LIABI LITIES, OTHER THAN ASCERTAINED LIABILITIES; ( VI ) ANY AMOUNT REPRESENTING CONTINGENT LIABILITIES OTHER THAN ARREARS OF DIVIDENDS PAYABLE IN RESPECT OF CUMULATIVE PREFERENCE SHARES; PE = TOTAL AMOUNT OF PAID UP EQUITY SHARE CAPITAL AS SHOWN IN THE BAL ANCE - SHEET; PV = THE PAID UP VALUE OF SUCH EQUITY SHARES; OR ( B ) THE FAIR MARKET VALUE OF THE UNQUOTED EQUITY SHARES DETERMINED BY A MERCHANT BANKER AS PER THE DISCOUNTED FREE CASH FLOW METHOD. 1 6 . A COMBINED READING OF SECTION 56(2)(VIIB) READ WITH RULE 11UA STATES THAT FOR THE PURPOSE OF SECTION 56(2)(VIIB) OF THE ACT THE VALUATION OF THE SHARES HAS TO BE DONE IN ACCORDANCE WITH RULE 11UA AND THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES FOR THE PURPOSE OF SUB - CLAUSE (I) OF CLAUSE (A) OF EXPL ANATION TO CLAUSE (VIIB) OF SUB - SECTION (2) OF SECTION 56 SHALL BE DETERMINED UNDER CLAUSE (A) OR CLAUSE (B), AT THE OPTION OF THE ASSESSEE. WE FIND, IN THE INSTANT CASE THE ASSESSEE HAS VALUED ITS SHARES AT RS.82.07 AS PER THE VALUATION CERTIFICATE ISSUE D BY THE CHARTERED ACCOUNTANT. ALTHOUGH THE SAID VALUATION REPORT WAS SUBMITTED BEFORE THE AO TO JUSTIFY THAT THE SHARES ISSUED BY THE ASSESSEE WAS AT FAIR MARKET VALUE, IT WAS COMPUTED IN ACCORDANCE WITH RULE 11UA(A) OF IT RULES, 1962 , HOWEVER, I FIND, T HE AO REJECTED THE SAME HOLDING THAT THE ASSESSEE IS NOT HAVING ANY WORTH OF RECEIVING ANY SHARE PREMIUM. HE HAS IGNORED THE VARIOUS ASSETS SHOWN BY THE ASSESSEE IN THE BALANCE SHEET SUCH AS CASH AND CASH EQUIVALENT OF RS.6,18,035/ - , - SHORT - TERM LOANS A ND ADVANCES OF RS.2,38,07,381/ - AND OTHER CURRENT ASSETS OF ITA NO. 6170 /DEL/201 9 13 RS.1,16,534/ - . THE AO DID NOT APPLY THE FORMULA PROVIDED IN RULE 11UA AND DID NOT MAKE ANY ATTEMPT TO COMPUTE THE VALUE OF SHARES OF THE ASSESSEE IN ACCORDANCE WITH RULE 11UA OF IT RULES, 1962 W HICH HAS BEEN UPHELD BY THE LD.CIT(A). IN MY OPINION, WHEN THE STATUTE PROVIDES FOR A PARTICULAR PROCEDURE, THE AUTHORITY HAS TO FOLLOW THE SAME AND CANNOT BE PERMITTED TO ACT IN CONTRAVENTION OF THE SAME. IT HAS BEEN HELD BY HON BLE SUPREME COURT IN THE CASE OF A.K. R O Y VS. STATE OF PUNJAB AIR 1986 2160 THAT WHERE A STATUTE REQUIRES TO DO A CERTAIN THING IN A CERTAIN WAY, THE THING MUST BE DONE IN THAT WAY OR NOT AT ALL. OTHER METHODS OR MODE OF PERFORMANCE ARE IMPLIEDLY AND NECESSARILY FORBIDDEN. 1 7 . SO FAR AS THE DECISION OF THE TRIBUNAL IN THE CASE OF AGRO PORTFOLIO PRIVATE LTD. (SUPRA) RELIED ON BY THE LD. CIT(A) IS CONCERNED, THE SAME IN MY OPINION IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THAT CASE, THE SHARES WERE VALUED ON THE BAS IS OF DISCOUNTED CASH FLOW METHOD AND IT WAS FOUND BY THE TRIBUNAL THAT THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE TO SUBSTANTIATE THE BASIS OF PROJECTIONS IN CASH FLOW BUT RELIED ON THE VALUER S REPORT CONTENDING THAT SUCH A REPORT CANNOT BE DISTURBED BY T HE AO AND AT NO POINT OF TIME THE ASSESSEE TRIED TO EXPLAIN WHERE DID THE AO WENT WRONG IN HI S COMMENTS IN THE FIGURES REFLECTED IN THE VALUATION REPORT. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS ISSUED THE SHARES AT FAIR MARKET VALUE COMPUTED IN ACC ORDANCE WITH RULE 11UA(A) OF THE IT RULES 1962 AND NO FAULT HAS BEEN FOUND IN THE METHOD APPLIED BY THE ASSESSEE AND THE LOWER AUTHORITIES HAVE MADE THE ADDITION U/S 56(2)(VIIB) PURELY ON PRESUMPTIONS AND SURMISES . T HEREFORE, ITA NO. 6170 /DEL/201 9 14 IN MY CONSIDERED OPINION, SUCH ACTION OF THE LOWER AUTHORITIES BEING NOT IN ACCORDANCE WITH LAW IS UNSUSTAINABLE. I, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION. T HE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED . 1 8 . IN THE RESU LT, THE APPEAL FILED BY THE ASSESSEES IS ALLOWED . THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 12 .0 2 .20 21 . SD/ - ( R. K. PANDA ) ACCOUNTANT ME MBER DATED: 12 TH FEBRUARY, 2021. DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI