MANJULABEN JAYANTIBHAI PATEL,KHAMBHAT V. THE ADDLCIT, NATIONAL FACELESS ASSESSMENT CENTRE, DELHI JURIDICTIONAL AO : THE ITO, WARD- 1(3)(1), PETLAD

ITA 1559/AHD/2024

AI Insights

The case revolves around the valuation of shares allotted to Manjulaben Jayantibhai Patel by Baroque Pharmaceutical Ltd., which involved converting unsecured loans into share capital. The Assessing Officer valued these shares at a higher rate than the valuation report provided by an independent valuer, leading to an addition of Rs. 7,33,534 under section 56(2)(vii)(c)(ii) of the Income Tax Act. The CIT(A) upheld this addition through an ex-parte order. However, the Tribunal found that the shares were allotted to comply with a bank's loan condition and not for transferring higher value shares at lower rates, thus allowing the appeal and deleting the additions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 35049 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK KUMAR SUTHAR
• Assessee Lawyers: ARTI N. SHAH; CONVERTING LOAN OF RS.; INTO SHARE
• Keywords: Capital asset; TDS; Valuation report
• Section: 147; 22

Judgement Text

"THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH Before Shri Sanjay Garg, Judicial Member Manjulaben Jayantibhai Patel, C/o. Replica Remedies, Sokhada Taluka, Khambhat-388620 PAN: AGOPP1472B (Appellant) Vs The Income Tax Officer, Ward-1(3)(1), Ahmedabad (Respondent) Assessee by: Ms. Arti N. Shah, A.R. Revenue by: Shri Ashok Kumar Suthar, Sr. D.R. Date of hearing : 04-03-2025 Date of pronouncement : 24-03-2025 आदेश/ORDER The present appeal has been filed by the Assessee against the order passed by the Learned Commissioner of Income Tax (Appeal)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)’] dated 04.07.2024 arising from the order passed u/s. 147r.w.s.144 of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2016-17. ITA No. 1559/Ahd/2024 Assessment Year 2016-17 I.T.A No. 1559/Ahd/2024 Manjulaben Jayantibhai Patel, A.Y. 2016-17 2 2. The sole issue involved in this appeal is relating to the valuation of shares allotted to the assessee by the company namely Baroque Pharmaceutical Ltd. while converting the unsecured loans given to the said company of Rs. 10,39,000/- . The Assessing Officer calculated the value of the shares as per Rule 11UA of the Income Tax Rules and made the impugned addition of Rs. 7,33,534/- u/s. 56(2)(vii)(c)(ii) of the Income Tax Act read with rule 11(UA) of the Income Tax Rules on account of difference in the valuation of shares calculated as per rule 11(UA) as compared to the valuation given in the valuation report obtained from independent valuer. 3. The Assessing Officer has passed the order u/s. 147 r.w.s. 144 of the Income Tax Act rejecting the return filed by the assessee stating that the return filed by the assessee was an invalid return. The CIT(A) dismissed the appeal of the assessee by way of an ex-parte order passed on 04-07-2024. 4. The ld. counsel for the assessee has submitted that it was not a case of transferring the money in kind i.e. by way of shares by way of transferring the higher value shares at low rates. The ld. counsel for the assessee has explained that, in fact, the company Baroque Pharmaceutical Ltd. for the purpose of its business needs had taken loan of Rs. 22 crores from State Bank of India that one of the conditions in the loan agreement was that the company will convert the unsecured I.T.A No. 1559/Ahd/2024 Manjulaben Jayantibhai Patel, A.Y. 2016-17 3 loans obtained from private parties into share capital. Under the circumstances, the company had allotted shares to the assessee by converting loan of Rs. 10,39,000/- into share capital. The valuation of shares as obtained from the private valuer and accordingly the shares were allotted at Rs. 1000 per share. However, the ld. Assessing Officer calculated the value of the shares as per Rule 11UA at Rs. 1706/- per share. 5. The ld. counsel for the assessee has demonstrated that there were various discrepancies in the calculation of value of shares by the Assessing Officer. She has demonstrated that the Assessing Officer failed to compute book value of assets, the amount of income tax/TDS/TCS credit or advance tax, and unamortized expenditure etc. The ld. counsel has further submitted that it is not a case of passing for higher value of shares at lower rates, rather the unsecured loan were converted into share capital because of the business needs, especially due to the condition put by the bank for grant of loan to the company for its business needs. She, therefore, has contended that no addition was warranted in this case. The ld. Departmental Representative, however, has relied on the findings of the lower authorities. 6. I have considered the rival contentions and gone through the records. The ld. counsel for the assessee has demonstrated that it is not a case of allotment of shares of higher value at I.T.A No. 1559/Ahd/2024 Manjulaben Jayantibhai Patel, A.Y. 2016-17 4 lower rates with a purpose of transferring capital asset of higher value for less money. In fact, the company Baroque Pharmaceutical Ltd. had obtained loan of Rs. 22 crores for its business needs from the bank and to comply the conditions of the loan sanction letter, the outstanding loan of Rs. 10,39,000/- given by the assessee was converted into share capital. Even, the ld. counsel has also demonstrated various discrepancies in the valuation done by the Assessing Officer. In view of this, I do not find justification on the part of the Assessing Officer to make impugned additions and the same are ordered to be deleted. 7. In the result, the appeal of the assessee stands allowed Order pronounced in the open court on 24-03-2025 Sd/- (Sanjay Garg) Judicial Member Ahmedabad : Dated 24/03/2025 आदेश क\u0006 \u0007\bत ल प अ\u000fे षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, I.T.A No. 1559/Ahd/2024 Manjulaben Jayantibhai Patel, A.Y. 2016-17 5 उप/सहायक पंजीकार आयकर अपील\u0012य अ\u0013धकरण, अहमदाबाद "