DRISHYA POLYFILLS PRIVATE LIMITED,SURAT vs. ASSTT./DY. CIT, CIRCLE-1(1)(1), SURAT

This is an appeal filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi [In short, ‘the ld. CIT(A)] dated 18/07/2025 for the assessment year (AY) 2017-18 wherein the assessee has raised following grounds of appeal:

That on the facts and in the circumstances of the case as well as in law, Id. CIT (A), NFAC, Delhi [CIT (A)] has erred in upholding the incorrect view of id. A.O. that the certificate issued by the auditor of the appellant company as a corroborative evidence in support of fair market value (FMV) of equity shares of the company as per Rule 11UA (2) (a) of the I.T. Rules, 1962, is not a valid certificate required under said Rule 11UA (2) (a) because the auditor is out of ambit of definition of 'Accountant as per Rule 11U(a), whereas in fact no such certificate of 'Accountant' is required for the purpose of determining FMV under Rule 11UA (2)(a), which has to be determined on the basis of 'Balance-Sheet' as defined under Rule 11U(b), and certificate of auditor was obtained just as a supporting document of FMV as per Balance-Sheet. (2) That both Id. AO and CIT (A) have erred in assuming the auditor's certificate obtained by the management as a supporting evidence of 'FMV' as per Rule 11UA (2) (a), to be the certificate of 'Accountant as required under 11UA (2) (b) for issuing shares on discounted cash flow (DCF) method, which was not the case of appellant company, and thereby erred in making and sustaining the addition of Rs. 15,05,860/- u/s 56 (2) (viib) of the Act. (3) That on the facts and circumstances of the case as well as in law, the Id. CIT (A) has erred in confirming the addition of Rs. 15,05,860/- u/s 56 (2) (viib) of the Act, which is clearly wrong, unjustified and contrary to the provisions of law and Rules as mentioned hereinabove. Appellant prays for deleting the wrong and unjustified addition so made. (4) Appellant craves leave to add, alter, delete or modify any ground of appeal."

Facts of the case, in brief, are that the assessee company M/s Drishya Polyfills Private Limited had filed its return of income for the A.Y. 2017-18 on 01/11/2017 declaring total income of ₹ 20,69,090/-. Thereafter, the case was selected for scrutiny and assessment under Section 143(3) of the Income Tax Act, 1961 (in short, the Act) was completed on 27/09/2019 and the return of income as declared by the assessee was accepted. However, the ld. Pr.CIT vide its order dated 24/02/2022 passed under Section 263 of the Act and set aside the order of the Assessing Officer with a direction to pass fresh assessment order after taking into consideration the issues which have already been considered and decided. Accordingly, the Assessing Officer vide its order dated 18/03/2023 passed consequential order under Section 144 read with section 263 of the Act and added ₹ 15,05,860/- by following the direction of the ld. Pr.CIT on the ground that the assessee- company had issued 22145 shares on 20/06/2016 to its directors and their relatives at a premium of ₹ 68 and face value of ₹ 10 per share aggregating to ₹ 78 per share by issuing shares at a premium rate, the company received shares premium of ₹15,05,860/- which was not considered at the time of original assessment.

Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the ld. CIT(A), who vide the impugned order dated 18/07/2025, confirmed the addition made by the Assessing Officer under Section 56(2)(viib) of the Act on the ground that the assessee-company has adopted fair market value/book value of shares and premium on the basis of certificate issued under Rule 11UA of the Income Tax Rules, 1962 (in short, the Rules) by the Chartered Accountant Shri Manish Jajoo who was the same Chartered Accountant, who was appointed by the company as an auditor under Section 44AB of the Act in violation of Sub-Rule (a)(i) of the Rule 11UA of the Rules and confirmed the order of the Assessing Officer that he rightly added the share premium of ₹ 15,05,860/- under Section 56(2)(viib) of the Act.

Further aggrieved by the order of the ld. CIT(A), the assessee is in appeal before this Tribunal.

Before us, the assessee submitted a paper book containing following details: (i) Copy of resolution of Board of Directors of appellant company for allotment of 22,145 equity shares @ Rs. 78/- per share (comprising of face value of Rs. 10/- and share premium of Rs. 68/- per share). (ii) Copy of certificate of chartered accountant certifying the fair market value (FMV) of shares of appellant company on NAV method at Rs. 78/- per share. However, this valuation is as per NAV method as prescribed in Rule 11UA (2) (a) and not as per DCF method as prescribed in Rule 11UA (2) (b). This certificate was obtained as a supporting document of NAV valuation as per last audited Balance-Sheet. (iii) Copy of last audited Balance-Sheet of appellant company as on 31/03/2015 as adopted in the AGM, evidencing that the FMV of shares of the appellant on NAV method prescribed in Rule 11UA (2) (a) works out at Rs. 78/- per share. Thus, the shares were allotted at FMV as per Rule 11UA (2) (a) i.e. at NAV. (iv) Copy of Return of Allotment filed with the ROC in form no. PAS-3 in respect of allotment of above shares.

The ld. Sr.DR, on the other hand, supported the orders of the lower authorities.

We have carefully considered the facts of the case and the material available on record and also considered the submissions made by the appellant's counsel and it is found that the Coordinate Bench of Delhi Tribunal in the case of DCIT Vs Continental Corrugators Pvt. Ltd. in ITA No. 1538/Del/2022 order dated 08/02/2024 has already decided this issue as under:

We have heard the parties in length and perused the assessment order as well as first appellate order. The document referred to and relied upon has been taken cognizance in terms of Rule 18(6) of the Income Tax [Appellate Tribunal) Rules, 1963. The case laws referred to and relied upon have been taken into account.

1 In the case in hand, the solitary question presented for determination is whether the consideration received by the assessee towards premium on issue of equity shares represents the FMV or exceeds the FMV and whether deeming provisions of Section 56(2)(viib) of the Act are attracted in the facts of the case.

2 As pointed out on behalf of the assessee, the FMV in the instant case has been determined on the basis of book value of assets and liabilities in tune with Rule 11UA(2)(a) of the Income Tax Rules r.w. Section 56(2)(viib) of the Act.

3 As further pointed out, the figures adopted for the purposes of valuation as per book value or NAV method, are corroborated by the audited financial statement filed by the assessee. Besides, there is no requirement in law to furnish valuation report from independent valuer for the purposes of determination of valuation under Rule 11UA(a) of the Rules.

We observe that the book value of assets and liabilities adopted for the purposes of NAV method of valuation is in consonance with 7 Drishya Polyfills P Ltd. Vs DCIT last audited balance-sheet items as on 31.03.2016 whereas the allotment has been stated to be made in November, 2016 during the Financial Year 2016-17 relevant to Assessment Year 2017-18. The AO mi irected himself in law on seeking valuation report which requirement do not emanate from the law codified in this regard. The phraseology of clause (a) to sub-rule (2) of Rule 11IUA read with Explanation (a) to Section 56(2)(viib) do not thrust the requirement of Valuation Report for substantiation of valuation under NAV method

We thus see that the conclusion of facts arrived at by the CIT(A) and the primary facts on which such conclusion is based bears a direct nexus. The CIT(A), in our view, has applied its mind to the relevant consideration while determining the issue. The audited balance-sheet testifies the FMV. We thus see no perceptible reason to deviate from the findings of the CIT(A)." Since, the Coordinate Bench of Delhi Tribunal has already decided this issue in favour of the assessee, thus, respectfully following the same, we delete the addition made by the Assessing Officer.

In the result, this appeal of the assessee is allowed. Order is pronounced under the provisions of Rule 34 of IT(AT) Rules, 1963 on 21/07/2026. (T. R. SENTHIL KUMAR) ACCOUNTANT MEMBER Surat Dated 21/07/2026 *Ranjan आदेश"ȧĤǓ"ͧ "ͪ "\ Ē ȯͪ""/ Copy of Order Forwarded to:-