BEETLE VENTURES PVT. LTD, MUMBAI V. ACIT 16(2) , MUMBAI

ITA 836/MUM/2022

AI Insights

M/s. Beetle Ventures Private Limited appealed against the order of the Learned Commissioner of Income Tax (Appeals)-5, Mumbai, which had confirmed the addition of share premium income under section 56(2)(viib) of the Income Tax Act, 1961. The primary contention was the rejection of the valuation report by the Assessing Officer, which was based on the discounted cash flow method, a method approved under Rule 11UA of the I.T. Rules. The Tribunal considered the detailed submissions, including a new valuation report from a merchant banker, and found that the valuation was reasonable and substantiated by the market behavior and expert opinions.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 123195 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-09-2022
• Assessment Year: misc
• Appeal Filed On: 28-12-2022
• Other Referred Cases: Prakashnath Khanna Vs. CIT, Securities & Exchange Board of India & Ors, Rameshwaram Strong Glass Pvt. Ltd. v. ITO, DQ (International) Ltd. vs. ACIT, M/s. Clearview Healthcare P. Ltd. v. ITO, M/s Lalithaa Jewellery Mart Pvt. Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Share purchase agreement; Additional evidence; Fair market value; Valuation report
• Section: 142(1); 56(2); 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited Unit No. 155 Shah & Nahar Industrial Estate S.J. Marg, Lower Parel (W) Mumbai - 400013 PAN: AAFCB9355H v. ACIT – 16(2) Room No. 440, 4 th Floor Aayakar Bhavan, M.K. Road Mumbai - 400020 (Appellant) (Respondent) Assessee Represented by : Shri Jayesh Dadiya Department Represented by : Shri Chetan M. Kacha Date of Hearing : 12.09.2022 Date of Pronouncement : 01.12.2022 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals)-5, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 27.02.2020 for the A.Y. 2015-16. 2. At the outset, we notice that the appeal filed by the assessee is with a delay of 730 days, it is observed that appellate order was passed on 2 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited 27.02.2020 and the assessee has filed this appeal only on 29.04.2022. Assessee submitted that the order of the First Appellate Authority was served on the assessee on 29.02.2020 and before filing the appeal Government of India has declared lockdown due to Covid-19 pandemic. In this regard assessee also filed detailed affidavit to explain the delay. Ld.DR objected for condonation of delay. 3. Considered the submissions of both parties, we noticed that the delay is caused due to the lockdown enforced by the Government of India due to Covid-19 pandemic. The delay in filing the appeal is due to proper reasoning asccordingly the delay is condoned. 4. Brief facts of the case are, assessee filed its return of income on 30.09.2015 declaring total income of ₹.Nil and claimed loss of ₹.1,04,62,533/- and the return was processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”). Subsequently case was selected for scrutiny under CASS. Accordingly, notices u/s. 143(2) and 142(1) were issued and served on the assessee. In response authorized representative of the assessee attended and submitted the relevant information as called for. 5. Assessee is engaged in the business of online retail sale of pharmaceuticals, medical and orthopedics goods and toiletry articles. The 3 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited company is incorporated on 11.06.2014 i.e., in the current Assessment Year. Assessee declared income under the head income from Business and Profession. During the current assessment year assessee has issued shares at a face value ₹.10/- with a premium of ₹.1240/-. Assessing Officer issued notice u/s. 142(1) of the Act to the assessee asking the assessee to justify and furnish the details of Large Share Premium received during the year. In response assessee vide order sheet dated 13.12.2017 and vide letter dated 15.12.2017 submitted that assessee has issued the shares during the year with a premium of ₹.1240/- per equity share and the shares have been issued at a price which have been determined based on the valuation report received from the professional organization. The copy of the valuation report was already submitted before the Assessing Officer dated 10.11.2017. It was submitted that the valuation of the shares was valued adopting one of the accepted method specified under Rule 11UA of I.T.Rules and assessee is a newly formed startup company with a unique platform for range of medical and healthcare services. This company is founded by three promotors namely Jagat Parikh, Ryan Albuquerque and Jaydev Sanghavi. All the promotors have a wide experience of working with multinational and consulting firm for around 15 to 20 years before starting up this venture. The method 4 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited adopted for value the shares are one of the approved method that is Discounted Cash Flow analysis method, based on this method shares were valued at ₹.1253/- per share. 6. After considering the submissions of the assessee, Assessing Officer rejected the submissions of the assessee by observing that the valuation report is prepared which is suitable to the objective of the assessee and the report issued by the professional has expressed the disclaimer that this report should not be used for any other purpose, nor should it be reproduced or quoted from, either in whole or in part, without the express written permission. Further he observed that projections of the future business of the assessee company have been worked out by the management. Based on the projections and estimates of the management, the professional worked out the intrinsic value of the company by adopting discounted cash flow method. Further, he observed that the professional has expressed that they have not sought to establish the reliability of the above information furnished to them. They have not carried out any work in the nature of audit and/or due diligence and have assumed the correctness and completeness of all the information and data supplied by the assessee. Further, they have expressed that this report is based on economic, market and other conditions currently prevailing 5 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited and the information made available to them. It should be understood that the subsequent developments may affect their views and that they are under no obligation to update, revise or reaffirm the views expressed by them in this report. Further, he observed that the valuation report was obtained from Chartered Accountant whereas as per rule, they are supposed to obtain from a Merchant Banker. 7. With the above said observations, Assessing Officer observed that the valuation done by the valuer cannot be accepted both on the reasonable and technical ground. The entire value of share premium received of ₹.3,87,47,520/- on allotment of 31248 shares is considered in excess of fair market value of shares of ₹.10 per share. Therefore the premium received is considered excess in view of the section 56(2)(viib) of the Act and the same was added to the total income of the assessee. 8. Aggrieved, assessee preferred an appeal before the Ld.CIT(A) and before the Ld.CIT(A) assessee submitted as under: - (i). The Valuation Report prepared by the Accountant gives detailed scientific reasoning for arriving at the Fair Market Value of the share premium of Rs.1253/- for share of the appellant company. (ii). The business model of the appellant was unique and it is not unusual that the valuation of its shares would be done at a premium. 6 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited (iii). The shares were subscribed by reputed high net worth individuals and corporate and by promoter themselves. (iv). The issue of shares at high premium should not attract the provision of Section 56(2)(viib) of the Act in the case of the appellant as the purpose of the appellant was not tax abuse but genuine business transaction. (v). Rule 11UA(2) of the I.T. Rules gives an option to choose the most appropriate method for determination of Fair Market Value. Accordingly, the appellant has chosen the Discounted Free Cash Flow method. As per the technical guidance of the ICAI, Cash Flow Projections should reflect the best estimates of the management. In the case of the appellant, the business model was unique and therefore, the best estimate of the management is reflecting in the Valuation Report of the appellant. (vi). The investors who are high networth individuals and company have made the investment after considering the projection of the management and their judgment cannot be questioned by the Revenue authorities. (vii). The case of the appellant company is that of a startup and therefore, the valuation ought not to be questioned by the Revenue authorities more particularly, when the genuineness of the investment and the identity and creditability of the investors are not at all doubted. 9. After considering the submissions of the assessee, Ld.CIT(A) rejected the submissions made by the assessee with the following observations: - “3.3.3 Since the Valuation Report on the basis of which premium of Rs.1240/- on a share of face value of Rs.10/- is being justified by the appellant itself is doubtful, it is held that the case of the appellant squarely falls under the provision of sub-clause (viib). From strict interpretation of clause (viib), it would be clear that the creditworthiness and status of the investors have no role in 7 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited the application of the vestors have n provision. The Hon'ble Supreme Court has stated in the case of Prakashnath Khanna Vs. CIT, (2004) 266 ITR 1 that interpretation should avoid the danger of a priori determination of the meaning with ones own pre conceived notion. It is also seen that the case laws relied upon by the appellant are all fact based where facts of each case are different. In the present case, the premium charged on a share of Rs.10/- is Rs.1240/- per share, i.e. the premium is 124 times more than the face value of shares. From perusal of the facts of the case, it is obvious that there is no justification or scientific basis for the shares of the appellant company to command a premium of Rs.1240/-. After considering the totality of the facts and the position of law, I have come to a conclusion that the AO has rightly made this addition. Ground of appeal no. 2 is dismissed.” 10. Aggrieved, assessee is in appeal before us raising following grounds in its appeal: - “(1) The Ld. CIT(Appeal) has erred in law and on the facts of the case in confirming the action of the Assessing Officer in taxing share premium of Rs.3,87,47,520 as Income under section 56(2)(viib) of the Income Tax Act. The action is unjustified and unwarranted. Without prejudice, the addition is excessive. (2) The Ld. CIT(Appeal) has erred in law and on the facts of the case in confirming the action of the Assessing Officer in rejecting in toto the valuation by Chartered Accountant under Rule 11UA of the Income Tax Rules. The action is unjustified and unwarranted as the rejection is mainly on technical ground. (3) The Ld. CIT(Appeal) has erred in law and on the facts of the case in confirming the action of the Assessing Officer in not referring the entire valuation exercise to an another independent valuer before finalizing the assessment. The action is unjustified and against the spirit of the Law. (4) Your Petitioners craves leave to add, amend, alter and / or withdraw the aforesaid ground of appeal.” 8 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited 11. At the time of hearing, Ld. AR of the assessee brought to our notice basic facts on record and he submitted that assessee has issued 31248 equity shares at ₹.1250/- with a premium ₹.1240/-. He submitted that the promotors held only 3082 shares and balance 28246 shares were issued to the outsiders and before issuing the shares assessee has obtained the valuation report in which Discounted Cash Flow method was adopted to arrive of the value of the shares which is one of the approved method under Rule 11UA of the I.T. Rules. Ld. AR submitted that the Assessing Officer has reviewed the disclaimer made by the valuer in their report and merely relying on the disclaimer and the valuations done by the Chartered Accountant was rejected by the Assessing Officer. He submitted that subsequently assessee acquired the valuation report from the mercantile banker and even the mercantile banker has arrived at the similar valuation. Assessee filed an application for filing the additional evidences and submitted the valuation report from mercantile banker which is placed on record. 12. On the other hand, Ld. DR relied on the findings of the lower authorities and since assessee has filed additional evidences in support of the valuation report, he submitted that this issue may go back to Assessing Officer for verification. 9 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited 13. Considered the rival submissions and material placed on record, we observe that assessee has issued shares with a premium of ₹.1240 and before issuing the shares assessee has valued the shares from a Chartered Accountant firm and along with the valuation they have filed detailed disclaimer for the report given by them. By considering the disclaimer made in the report the Assessing Officer came to the conclusion that the valuer has merely obtained the values from the assessee and carried out the valuation as per the requirement of the assessee and accordingly he rejected the valuation report with the above observation as well as the valuation report should have been obtained from the merchant banker rather than the Chartered Accountant firm. Even Ld.CIT(A) has sustained the additions as well as findings of the Assessing Officer. We have considered the issue under consideration carefully and we observe that in the first year of operation assessee has issued 31248 shares with a premium and valued by adopting one of the method approved in the Rule 11UA of the I.T. Rules. As per the facts on record we observe that assessee has selected one of the method approved in the Rule 11UA of I.T. Rules and it is supposed to get report from merchant bankers but assessee has taken the report from Chartered Accountant Firm. Except 10 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited the report obtained from the Chartered Accountant Firm assessee has followed the due process of law. 14. With regard to the disclaimer made by the valuer it is a standard practice of the Valuer’s to give a disclaimer in any report issued by them and merely based on the above said disclaimer Assessing Officer carried away with the disclaimer and made the disallowance u/s. 56(2)(viib) of the Act. Before us assessee has filed a new report from merchant banker which also supports and approves the method adopted by the Chartered Accountant Firm. We observe that tax authorities have not pointed out any discrepancies in adopting the valuation method except pointing out certain observation made in the disclaimer in the valuation report. 15. Since the assessee has submitted report from merchant banker which is more or less similar to the valuation report submitted by the Chartered Accountant Firm and Ld. DR made a submission that it may remit back to the file of the Assessing Officer so that it can be properly verified. We observe that even valuation report obtained from the merchant bankers even they have issued a limitations and warrantees to the valuation report. Therefore, the disclaimer of a valuer cannot be a basis for disallowing the proper allotment of shares. It is not a bar on the 11 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited assessee to issue shares with a premium as per companies Act. As far as invoking provisions of section 56(2)(viib) of the Act various courts have held as under: - “Securities & Exchange Board of India & Ors [2015 ABR 291- (Bombay HC)] "48.6 Thirdly, it is a well settled position of law with regard to the valuation that valuation is not an exact science and can never be done with arithmetic precision. The attempt on the part of SEBI to challenge the valuation which is by its very nature based on projections by applying what is essentially a hindsight view that the performance did not match the projection is unknown to the law valuations. Valuation being an exercise required to be conducted at a particular point of time has of necessity to be carried out on the basis of whatever information is available on the date of the valuation and a projection of future revenue that valuer may fairly make on the basis of such information." Rameshwaram Strong Glass Pvt. Ltd. v. ITO (2018-TIOL- 1358-ITAT-Jaipur) "4.5.2. Before examining the fairness or reasonableness of valuation report submitted by the assessee we have to bear in mind the DCF Method and is essentially based on the projections (estimates) only and hence these projections cannot be compared with the actuals to expect the same figures as were projected. The valuer has to make forecast on the basis of some material but to estimate the exact figure is beyond its control. At the time of making a valuation for the purpose of determination of the fair market value, the past history may or may not be available in a given case and therefore, the other relevant factors may be considered. The projections are affected by various factors hence in the case of company where there is no commencement of production or of the business, does not mean that its share cannot command any premium. For such cases, the 12 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited concept of start-up is a good example and as submitted the income-tax Act also recognized and encouraging the start-ups." DQ (International) Ltd. vs. ACIT (ITA 151/Hyd/2015) "10...... In our considered view, for valuation of an intangible asset, only the future projections along can be adopted and such valuation cannot be reviewed with actuals after 3 or 4 years down the line. Accordingly, the grounds raised by the assessee are allowed". The aforesaid ratios clearly endorsed our view as above. 34. In any case, if law provides the assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected because neither the Assessing Officer nor the assessee have been recognized as expert under the law. 35. There is another very important angle to view such cases, is that, here the shares have not been subscribed by any sister concern or closely related person, but by an outside investors like, Anand Mahindra, Rakesh Jhunjhunwala, and Radhakishan Damania, who are one of the top investors and businessman of the country and if they have seen certain potential and accepted this valuation, then how 40 or Ld. CIT(A) can question their wisdom. It is only when they have seen future potentials that they have invested around Rs.91 crore in the current year and also huge sums in the subsequent years as informed by the ld counsel. The investors like these persons will not make any investment merely to give dole or carry out any charity to a startup company, albeit their decision is guided by business and commercial prudence to evaluate a start-up company like assessee, what they can achieve in future. It has been informed that these investors are now the major shareholder of the assessee company and they cannot become such a huge equity stock holder if they do not foresee any future in the assessee company. In a way Revenue is trying to question even the commercial prudence of such big 13 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited investors like. According to the Assessing Officer either these investors should not have made investments because the fair market value of the share is Nil or assessee should have further invested in securities earning interest or dividend. Thus, under these facts and circumstances of the case, we do not approve the approach and the finding of the ld. Assessing Officer or ld. CIT(A) so to take the fair market value of the share at 'Nil' under the provision of Section 56(2)(viib) and thereby making the addition of Rs.90.95 crores. The other points and various other arguments raised by the ld counsel which kept open as same has been rendered purely academic in view of finding given above. 36. Other grounds are either consequential or have become academic, hence same are treated as infructuous. In the result appeal of the appellant assessee is allowed." Mumbai ITAT in Vodafone M-Pesa Ltd., ITA Nos. 1073 & 2032/Mum/2019, AY 2015-16, Bench 'F', order dated 13.12.2019 wherein in the valuation report, it is recorded that- "In particular, it may be noted that we have relied upon the information provided by the management. We have been given to understand that the information provided is correct and accurate......" In view of the above, the AO held that the valuer has not independently valued the prospects of the assessee company and has merely relied on the information supplied by the assessee company. Based on the above as also the finding that actual performance was very far away from the projections in the report thereby the projections were not scientific and management provided figures as suitable to them for charging premium on shares, the AO himself computed the fair market value of shares and made addition of Rs.207.99 cr. u/s. 56(2)(viib), In considering the above facts, the ITAT relying upon the decision of Delhi ITAT in Cinestaan Entertainment P. Ltd. 14 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited v. ITO, Delhi Bench 'B', ITA No.8113/Del/2018, AY 2015- 16, order dated 27.05.2019 held as under- "18. Considered the rival submission and material placed on record, we notice from the records that assessee has issued rights shares to its shareholders with share premium after duly valuing the shares based on DCF method and the valuation was done by a merchant banker. At the time of assessment proceedings, assessee has submitted valuation report and the AO verified the valuation report and found that all the projections and other information was submitted by the assessee to the valuer in order to justify the issue of shares at a premium and he came to conclusion that the valuer has also not applied the information supplied by assessee independently or verified the figures or projections independently. This is the main reason for rejecting the valuation report submitted by the assessee. Since AO has rejected the valuation report, he himself proceeded to value the fair market value of the shares based on net assets method. Since AO has rejected the valuation report even though it was done by valuer, which is independent entity. We observe that the reason for rejecting the valuation report by the AO was well answered by Ld. CIT(A) and also Ld. CIT(A) has appreciated the fact that assessee has option to choose one of the method i.e. net asset method or DCF method, whichever is favourable to them. 19. Since Ld. CIT(A) has already addressed the issue of method of valuation which has to be adopted, therefore we do not intend to go into which method has to be adopted and accordingly, we notice that the department is in appeal against Ld. CIT(A) and in our considered view, Ld. CIT(A) has properly rejected the method adopted by the AO and proceeded to accept the DCF method adopted by the assessee. Therefore, we are inclined to dismiss the ground raised by the department. 20. Coming to the findings of Ld. CIT(A), we notice that Ld. CIT(A) has accepted the DCF method adopted by the assessee and he analyzed the factual performance of the 15 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited assessee subsequent to issue of shares. The valuation of shares are for that matter any valuation is itself is a projection of future events or activities and no doubt it has to be done with some accuracy, however no person in the world at the time of projecting events or result to project with 100% of accuracy and actual events are highly volatile and highly dependent on so many factors. Assessee has projected based on the fact that software of wallet and association of ICICI bank will increase the market share and accordingly, they have projected the figures and further the valuer has adopted the projection figures provided by the assessee and it is left to the wisdom of valuer to accept or reject or to carry out independent investigation raised with the valuer and legislature in more than one place depends on the skills of the professionals like merchant banker only to value the valuation of shares or other volatile securities. Since, Ld. CIT(A) has compared the factuals with projections and assessee has achieved 40% of the actual results is too harsh to the assessee and the valuation is done in order to carry out certain activities by the management. In this case, the valuation was used to issue of rights shares. The AO or Ld. CIT(A) is trying to evaluate the accuracy of the valuation at the time of assessment, this is not proper and also the factuals are based on so many factors subsequent to adoption of projection and valuation. Accordingly, we are not in a position to accept the method adopted by Ld. CIT(A)." Delhi ITAT in case of M/s. Clearview Healthcare P. Ltd. v. ITO, ITA No.2222/Del/2019, AY 2014-15, order dated 03.01.2020-wherein it is held as under- "5. I have heard both the parties and perused the relevant records especially the orders of the revenue authorities and the case law cited by Ld. Counsel for the assessee. I find that assessee has continuously impressed on one significant basic factual aspect to establish the correctness of share premium obtained u/s 56(2)(viib) of the Act by stating that on 01/12/2014 (during AY 2015- 2016) share of Clearview Healthcare Pvt Ltd (assessee herein) were sold to Medipass SRL Italy @ 380.53 per 16 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited share (which in turn valued shares of Clearmedi Healthcare Private Limited @ 615 per share) and for which necessary copy of Resolution dated 20/12/2013 duly attested by Notary public of Italy were submitted to AO during assessment itself and it was categorically stated in reply that the said transaction has actually taken placed at agreed rate of Rs 380.53 per share of Clearview Healthcare Pvt Ltd (Rs 615 per share of Clearmedi Healthcare Private Limited) (refer assessee's paper book pages 143-144 letter dated 23.12.2016 addressed to AO in assessment proceedings, same reply in letter to AO Dated 19.12.2016 paper book pages 153) clearly justifies instant share premium of Rs 150 per share and AO wrongly added Rs 16 per share as alleged excessive premium (which amounted to Rs 919,632/- in aggregate) within the meaning of provisions of section 56(2)(viib) of the Act (explanation to section 56(2)(viib) clause (ii) thereof where judicious satisfaction of AO is talked about). This plea of assessee has considerable cogency. The second plea is that when ultimately shares are bought by foreign buyer on basis of detailed due diligence which is reflected from share purchase resolution and share purchase agreement already placed on records and money paid for share purchase by foreign buyer is beyond shadow of doubt it cannot be said that subsequent money which is paid by foreign buyer to share holders sellers in India who have subscribed share at premium in subject period is not a clean money which defense of assessee also has considerable cogency. Further, plea of assessee that once assessee has given approved valuer (CA) report justifying share premium raised which is based on valid and prescribed method being DCF and said report is in accordance with ICAI norms and no where AO has countered said report by substitute valuation from alternate expert on basis of chosen DCF method and assessee's valuation is justified by subsequent sale/purchase and there is no unaccounted money involved even remotely, I find that the same is not tenable and the addition made by AO us 56(2)(viib) read with rule 11UA is held to be unlawful. Further plea of assessee that assessee does not come within mischief of 17 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited stated provision as manifest from cursory look to explanatory memorandum to Finance Act, 2012 by which stated provision was brought into the law and stated share premium is a clean money and so is not covered within provisions of section 56(2)(viib) of the Act (legislative intent is to apply said provision where money received is not clean and is unaccounted money received in garb of share premium where as no where it is case of revenue that stated money is not clean money. For the sake of convenience, I am reproducing the legislative intent behind section 56(2)(viib) inserted by Finance Act 2012 as under:- "As per memorandum explaining provisions to Finance Bill 2012: "....Share premium in excess of the fair market value to be treated as income Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head "Income from other sources". It is proposed to insert a new clause in section 56(2). The new clause will apply 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 issue of shares. In such a case if the consideration received for issue of shares 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 chargeable to income tax under the head "Income from other sources. However, this provision shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund. Further, it is also proposed to provide the company an opportunity to substantiate its claim regarding the fair market value. Accordingly, it is proposed that the fair market value of the shares shall be the higher of the value- (i) as may be determined in accordance with the method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value of its assets, 18 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited including intangible assets, being goodwill, know- how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years..." 5.1 I further find that the issue in dispute is squarely covered by the decision of the ITAT 'A' Chennai Bench decided in ITA Nos.663, 664 & 665/Chny/2019 in case of M/s Lalithaa Jewellery Mart Pvt. Ltd decided on 14.06.2019 wherein, it was held that: "15. Now coming to valuation of shares, as rightly submitted by the Ld. counsel for the assessee, there are two limbs in Section56(2)(viib) of the Act. As per explanation to Section 56(2)(viib) of the Act, the first limb is valuation to be made as per the prescribed method. In fact, the method for valuation of shares is prescribed under Rule 11UA of the Income-tax Rules, 1962. The second limb is the valuation of the company based on value on the date of issue including its assets. Assets include intangible assets such as goodwill, knowhow, patents, copyrights, trademarks, licences, franchises, etc. The Assessing Officer has not taken into consideration the second limb in explanation to Section 56(2)(viib) of the Act. The second limb provides that when valuation was made by the company, if the Assessing Officer is not satisfied about the valuation, he has to call for material from the assessee how the valuation was made by the assessee- company. Satisfaction of the Assessing Officer as referred in explanation to Section 56(2)(viib) of the Act would be judicial satisfaction of the Assessing Officer. Judicial satisfaction means the Assessing Officer has to take into consideration the well established method of valuation of shares including the assets as explained in Explanation 2 to Section 56(2)(viib) of the Act. It cannot be arbitrary. The Assessing Officer has to take note of the judicial and established principles in arriving at his satisfaction. In this case, the Assessing Officer has not found any specific fault 19 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited in rejecting or not satisfying with the valuation made by the assessee. When the Assessing Officer has not found any defect or error in the valuation of shares by the assessee company, it may not be necessary to apply the method of valuation prescribed under Rule 11UA of the LT. Rules. Therefore, this Tribunal is unable to uphold the valuation made by the Assessing Officer under Rule 11UA of the Income tax Rules, 1962." 5.2 Keeping in view of the facts and circumstances of the case and by applying the principles from the aforesaid decision and legislative intent behind insertion of section 56(2)(viib), I hold that addition made by AO on account of alleged excess share premium is unjustified when those very shares are sold in next financial year at much higher amount after proper due diligence, that to a nonresident buyer and further there is no case of unaccounted money being brought in garb of stated share premium, hence, addition made w/s 56(2)(vii) of the Act is hereby deleted." 16. Respectfully following the above decisions, we are inclined to delete the additions proposed by the Assessing Officer. Accordingly, ground raised by the assessee is allowed. 17. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 01 st December, 2022 Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 01/12/2022 Giridhar, Sr.PS 20 ITA NO. 836/MUM/2022 (A.Y: 2015-16) M/s. Beetle Ventures Private Limited Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum