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Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR
Before: SHRI PAVAN KUMAR GADALE & DR. DIPAK P. RIPOTE
Assessee by None Revenue by Ms. Nidhi Nair, JCIT-DR Date of hearing 08.08.2023 Date of pronouncement 10.08.2023 ORDER PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the assessee against the order of Ld. CIT(A), Ajmer dated 08th August, 2017 emanating from assessment order dated 09.03.2016 passed under section 143(3) of the Act for A.Y. 2013-14. The assessee has raised the following grounds of appeal:- “Under the facts of the circumstances of the case the Ld. CIT(A) has erred in confirming the following issues / additions.
(A) Restricting disallowing a sum of Rs. 20,000/- for administrative nature. (B) Disallowances / Addition of Rs. 13,52,000/- (Rs. 14,63,000/- - 1,11,000/-) u/sec. 56(2)(viib). (C) Any other matter with prior approval of the Hon'ble Bench.
In this case on following dates, none appeared on behalf of the assessee. i. 19.01.2023 ii. 08.08.2023 2.1 The notice for scheduling the hearing for 08th August, 2023 was issued on 04th July, 2023. Ld. DR was requested to serve the notice through department. Accordingly, ld. DR served the notice through Income Tax Department on 11.07.2023. Ld. DR submitted the copy of notice showing the service. Ld. DR also submitted his report confirming the service of notice on the assessee. We have verified that notice has been duly served. We have already mentioned that on 08th August, 2017, none appeared for the assessee.
Ld. DR relied on the orders of the authorities below.
Findings & Analysis 4. We have heard DR and perused the records. Ground No. B 5. The brief facts related to Ground No. B are discussed hereunder. The assessee is a company in which public are not substantially interested. During the year, the assessee has issued share of face value Rs. 10/- at a premium of Rs. 30/-. Assessee issued Rs. 3,50,000/- new shares at Rs. 40/- per share. The assessee collected share premium for 3,50,000/- shares @ Rs. 30/- per share of Rs. 01,05,00,000/-. The said amount of Rs. 1,05,00,000/- is shown as security premium in the balance-sheet. Since the assessee is a company in which the public are not substantially interested. The Assessing Officer invoked section 56(2)(viib) of the Act. The assessee had not submitted any certified copy of valuation during the assessment proceedings and also during the proceedings before the Ld. CIT(A). The Assessing Officer calculated the Fair Market Value of shares as per Rule 11UA of the Income Tax Rules. The Assessing Officer arrived at the fair market value of the shares of Rs. 1,25,37,000/- as against Rs. 1,40,00,000/- received by the assessee. Therefore, AO made addition under section 56(2)(viib) of the Act of Rs. 14,63,000/-.
Aggrieved by the said addition, assessee filed the appeal before the Ld. CIT(A). The Ld. CIT(A) re-worked the fair market value as per Rule 11UA as under:- “6.3 I have gone through the Rule 11UA of IT. Act 1962 carefully. The fair market value of the equity shares issued by the appellant company has to be computed as per Sub-clause (b) of clause (c) of Sub-rule 1 of Rule 11UA On the basis of the Balance Sheet dated 31.03.2013 of the appellant, the fair market value as per Sub-clause (b) of clause (e) of Sub-rule 1 of Rule 11UA has to be computed as under: Non current assets Investment Rs. 1,30,49,547/ Current Rs. 2,75,000/- assets Rs. 98,13,182/ Total assets; (a) Rs. 2,31,37,729/- Long term liabilities Rs. 5,20,000/- Current liabilities excluding provision For taxation Rs. 79,66,703/ (961703+15000+990000) Creditors+ Audit Fees+ Outstanding Payable) Total liabilities Rs. 84,86,703/- Fair market value per share; 2,31,37,729 (-) 84,86,703 i.e. 14651026/4,00,000 i.e. Rs. 36.62." As the fair market value of the equity shares issued by the company computed as per rule 11UA comes to Rs. 36.62 per share, therefore the excess of consideration received for issue of equity shares over the fair market value of the equity shares issued would be Rs. 13,52,000/-[4,00,000 x (40 - 36.62)]. As the AO has made the addition of Rs. 14,63,000/-, therefore the addition of Rs. 13,52,000/- is confirmed and remaining addition of Rs. 1,11,000/- is hereby deleted.”
Thus, Ld. CIT(A) confirmed addition of Rs. 13,52,000/- instead of Rs. 14,63,000/- done by the AO. Aggrieved by the same, assessee filed appeal before us. Before us, no new facts have been produced by the assessee. We have studied the balance-sheet submitted by the assessee. It is a fact that assessee is a company in which public are not substantially interested. The share holding of assessee company is as under:- Name of Shareholder % of Holding Ajit Kumar Jain 35 Arihant Kumar Burad 34 Nitesh Mundra 14 Sunil Ranka 14
Thus, it can be seen that assessee is a company in which public are not substantially interested. Section 56(2)(viib) of the Act is reproduced for ready reference.
56..... (2)..... (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 issue 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- (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 clause- (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; or
Therefore, as per section 56(2)(viib) when a company in which a public are not substantially interested receives any consideration for issuing of shares that exceeds the face value of shares. The amount by which it exceeds the fair value of shares is taxable as income of the assessee of the year. In this case, it is observed that assessee has issued shares at a premium of Rs. 30/-. It is a company in which a public is not substantially interested. Therefore, provisions of section 56(2)(viib) are applicable. As per section 56(2)(viib) , fair market value of the shares is calculated as per Rule 11UA of the Income Tax Rules. Rule 11UA(b) is reproduced as under:- [(b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner, namely:- the fair market value of unquoted equity shares =(AL) (PE) X (PV) 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 unamortised 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: (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 income-tax paid, if any, less the amount of income-tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law; (v) any amount representing provisions made for meeting liabilities, 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 balance-sheet;] PV= the paid up value of such equity shares;]”
Thus, fair market value has to be calculated as per Rule 11UA. We have verified the calculation of the Assessing Officer as well as the Ld. CIT(A) cross checked it with balance-sheet. We agree with Ld. CIT(Appeal’s) calculation. We do not find any mistake in the Ld. CIT(Appeal’s) calculation therefore, the fair market value of shares as calculated by Ld. CIT(A) is upheld. Accordingly, the addition of Rs. 13,52,000/- under section 56(2)(viib) is upheld. Ground No. A 11. The Assessing Officer made a disallowance of Rs. 45,000/- which was 15% of the total administrative expenses claimed by the assessee on account of assessee’s non submission of a relevant bills and vouchers. Even before Ld. CIT(A), assessee could not submit all the necessary documents, bills & vouchers to substantiate the claim of administrative expenses. Therefore, Ld. CIT(A) upheld the disallowance of Rs. 20,000/- out of total administrative expenses claimed. During the proceedings, this Tribunal observe that no document has been filed by the assessee to prove that the disallowance made in the assessment order and sustained by the CIT(A) is factually incorrect. Assessee has not filed any bills & vouchers to substantiate the said claims. The onus was on assessee to prove the genuineness of the expenditure and to prove that the expenditure was wholly and exclusively incurred for the business of the assessee. Assessee has failed to prove the same. 12. In this facts and circumstances of the case, we have upheld the disallowance of Rs. 20,000/-. Ground no. A of the assessee is dismissed. 13. In the result, both the grounds of appeal
raised by the assessee are dismissed. Ground No. C
14. Assessee has not raised any additional ground and accordingly, Ground No. C is general in nature and does not need adjudication. Ground No. C is dismissed.