|The Tax Publishers2019 TaxPub(DT) 6729 (Del-Trib) : (2019) 075 ITR (Trib) 0538
INCOME TAX ACT, 1961
Since valuation of shares should be made on the basis of various factors and not merely on the basis of financials, the Revenue was not justified in computing the fair market value of shares of assessee-company on the basis of book value ignoring the fair market value of the land held by the assessee. Hence, the addition made under section 56(viib) was liable to be deleted.
Addition under section 56(2)(viib) - Valuation of shares made merely on the basis of financials - -
Assessee-company allotted 70 lakh equity shares of Rs. 10 each at a premium of Rs. 5 per share and received premium of Rs. 3.5 crores. AO invoking the provisions of section 56(2)(viib), made addition of Rs. 3,50,00,000 on the ground that the fair market value of shares comes to Rs. 6.65 per share as per the book value. Further, CIT (A) computed the fair market value of shares at Rs. 10.05 per share and gave part relief of Rs. 3,50,000 and sustained the addition of Rs. 3,46,50,000. Assessee contended that both AO and CIT (A) wrongly computed the fair market value of the shares on the basis of book value ignoring the fair market value of the land held by the company. Held: From the various details furnished by assessee, it was found that assessee obtained permission for change of use of its land holding from 'agricultural' to 'institutional' for art, culture and convention centre. On perusal of circle rate for such institutional area, the fair market value of the land came to Rs. 1,13,00,72,749. Further, when other assets of Rs. 9,17,608 were added to such asset and the total liability of 46,55,69,537 was deducted, then, the net asset came to Rs. 6,65,420,820. And when the same was divided by the number of equity shares of 10,10,000, then, the value per share came to Rs. 658.83, which was more than the premium of Rs. 5 charged by the assessee on a share of Rs. 10. Thus, assessee was correct in contending that valuation of shares should be made on the basis of various factors and not merely on the basis of financials. Therefore, substantiation of the fair market value on the basis of valuation done by the assessee simply could not be rejected where the assessee demonstrated with evidence that the fair market value of the asset was much more than the value shown in the balance sheet. Hence, the addition made under section was deleted 56(2)(viib).
FAVOUR : In assessee's favour
A.Y. : 2014-15
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