M/S. AAHVAN AGENCIES LIMITED,,AHMEDABAD vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1),, AHMEDABAD

PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- This assessee’s appeal for A.Y. 2012-13, arises from order of the CIT(A)-1, Ahmedabad dated 30-11-2016, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.

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The fact in brief are that assessee has filed return of income on 29th

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sources. The total amount of difference in the said valuation in respect of the aforesaid companies of Rs. 1,87,49,397/- was shown u/s. 56 of the act. The assessing officer on verification of the balance sheet of Subidha Dairy Pvt. Ltd. observed that the said company was holding the fully paid equity share (quoted shares) as mentioned at page 4 of the assessment order as investment as on 31st march, 2011. The assessing officer has further observed that assessee company has acquired the shares of Subidha Dairy Pvt. Ltd. and M/s Osia Enterprise Pvt. Ltd. both unquoted companies, however in the balance sheet of these companies it was noticed that these companies were holding the investment in the quoted shares of other companies , therefore, it is required to value the same as per market rate of quoted shares prevailing in the stock exchange on the date of valuation on 31st March, 2012. The assessing officer has stated that assessee has adopted a colorable device to reduce its income on account of transfer of quoted shares by way of acquiring the shares (unquoted of M/s Subidha Dairy Pvt. Ltd. and M/s Osia Enterprise Ltd.). The assessing officer was of the view that the assessee company was holding the quoted shares of limited companies and this has also be taken into account for the valuation of the shares of the assessee company as per the appropriate Rule 11 UA of the IT Rules. Consequently, the assessing officer has added the difference amount on account of prices of quoted shares to the amount for Rs. 1,82,87,906/- to the total income of the assessee as worked out at pages 8 and 13 of the assessment order.

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dated 25th Sep, 2018 With the assistance of the Ld. Counsel we have gone through the aforesaid decisions of ITAT Mumbai and ITAT Delhi benches and noticed that ITAT Delhi in the above referred case has adjudicated the same issue on identical facts and decided the issue in favour of the assessee. Relevant part of the decision is reproduced as under:-

“6. We have heard the rival submissions of the parties and perused the material available on record. In the present case, the assessee has acquired shares of TEPL at Rs.5 per shares. The shares were acquired by the assessee from three companies as discussed in the preceding paragraphs. The assessee claimed to have valued the shares of TEPL as per the provisions of Rule 11UA of the Rules and filed a copy of the report prepared by the Chartered Accountants in support his claim to justify the price of shares at which these were acquired. However, the Assessing Officer was of the view that the assets declared by the TEPL in its balance sheet should have been valued as per the circle rate while determining the value of the shares acquired by the assessee. Accordingly, the Assessing Officer determined the value of the shares at Rs. 45.72 per shares of TEPL. Thus, the difference of Rs. 40.72 was treated as income from other sources of the assessee under the provisions of Section 56(2)(viia) of the Act. The view taken by the Assessing Officer was subsequently confirmed by the learned CIT(A).

"56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub- section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :-- (i)XXXXXXXXXXXXXX (viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,-- (i) XXXXXXXXXX (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration : Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) ofsection 47. Explanation.--For the purposes of this clause, "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);]"

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(b) "fair market value" of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed" 6.3 Similarly, the provisions of 11UA of the Rules are summarized 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:-- (A-L) × the fair market value of unquoted equity shares = (PE) (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 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, 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 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;" 6.4 On the plain reading of above Rule, it is revealed that while valuing the shares the book value of the assets and liabilities declared by the TEPL should be taken into consideration. There is no whisper under the provision of 11UA of the Rules to refer the fair market value of the land as taken by the Assessing Officer as applicable to the year under consideration. Therefore, we are of the view that the share price calculated by the assessee of TEPL for Rs. 5 per shares has been determined in accordance with the provision of Rule 11UA. In holding so, we find support and guidance from the judgment relied by the learned Authorized Representative which has been discussed in the preceding paragraphs. Therefore, we have no hesitation in reversing the order of the lower authorities. Hence, the grounds of appeal of the assessee are allowed. Now coming to the Stay Petition filed by the assessee 722/Del/2017. At the outset, we observe that the main appeal of the assessee has already been adjudicated in favour of the assessee vide Para No. 6 of this order. Therefore, we do not find any reason to adjudicate the Stay Petition separately. Hence, the stay petition filed by the assessee is dismissed as infructuous.

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We have also perused the order of ITAT Mumbai Bench (2018) 99 taxmann.com 157 (Mumbai-Trib) Smiti Holding & Trading Co. (P) Ltd. vs. Principal CIT dated 25th Sep, 2018 as referred above decided in favour of the assessee. Relevant part of the this decision of the Co-ordinate Bench is reproduced as under:- “We find that the assessee had submitted computation of value per share under Rule 11UA of M/s. Suprasad Investment & Trading Co. Pvt. Ltd. along with balance sheet as on 31.03.2012 vide letter dated 28.01.2016. It is evident from the official seal dated 28.01.2016 of the office of Asstt./Dy. CIT-8(2)( 1) Mumbai, indicating the receipt. – At this juncture, for reference, we produce below Rule 11UA as in force in AY 2013-14. "Rule HUA(l)(c)(b) 5^r market value of unquoted equity shares : 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 =(A-L)x(PV)/(PE), where, A= book value of all 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 applicable thereto; (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;".

consideration. There is no whisper under the provision of 11UA of the Rules to refer the fair market value of the land as taken by the Assessing Officer as applicable to the year under consideration. Therefore, we are of the view that the share price calculated by the assessee of TEPL for Rs. 5 per shares has been determined in accordance with the provision of Rule 11UA. In holding so, we find support and guidance from the judgment relied by the learned Authorized Representative which has been discussed in the preceding paragraphs. Therefore, we have no hesitation in reversing the order of the lower authorities. Hence, the grounds of appeal of the assessee are allowed."

Order pronounced in the open court on 21-02-2019 (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 21/02/2019

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आदेश क" ""त"ल"प अ"े"षत / Copy of Order Forwarded to:-