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Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI RAVISH SOOD
आदेश / ORDER
PER RAVISH SOOD, JM:
The present appeal filed by the assessee company is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 31.05.2023, which in turn arises from the order passed by the A.O under Sec.143(3) r.w.s. 143(3A) & 143(3B) of the Income-tax Act, 1961 (in short ‘the Act’) dated 15.04.2021 for the assessment year 2018-19. The assessee company has assailed the impugned order on the following grounds of appeal:
“1 Ld. CIT(A) erred in confirming addition of Rs.38,31,080/- made by AO on account of alleged excess consideration received against issue of shares exceeding the fair market value of shares, invoking sec. 56(2)(viib). The addition made by AO and sustained by Ld. CIT(A) is arbitrary, contrary to evidences on record, illegal and is not justified. 2 Ld. CIT(A) erred in affirming the action of AO of calculating the fair market value of Rs. 13/- per share in place of Rs.24/- per share, disregarding legal and cogent evidences available on record. The addition made by AO and sustained by Ld. CIT(A) is arbitrary, baseless and not justified. 3 Ld. CIT(A) erred in confirming the action of AO in adopting the value of land at Rs.70 lakhs per hectare in place of Rs.70 lakhs per acre, ignoring the fair market value of shares submitted by the appellant prescribed under Rule 11UA. 4 The appellant reserves the right to amend, modify or add any of the ground/s of appeal.”
Succinctly stated, the assessee company had e-filed its return of income for A.Y.2018-19 on 30.09.2018, declaring an income of Rs. Nil. Subsequently, the case of the assessee company was selected for limited scrutiny for verifying the 3 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai applicability of Section 56(2)(viib) of the Act as regards the “large share premium” received during the year under consideration.
During the assessment proceedings, it was observed by the A.O that while the “book value” of the shares of the assessee company was Rs.10/- per share on 31.03.2015, it had calculated the same as on 31.03.2017 at Rs. 23.88 per share (R/o. Rs.24/-), and based on the same issued 348280 shares at a premium of Rs. 14/- per share. The A.O. called upon the assessee company to put forth an explanation as to on what basis it had issued 348280 shares at a premium of Rs.14/- each. In reply, the assessee company submitted as follows:
“1. Book Value per share as on 31.03.2017 was Rs.23.88 per share on the basis the assessee company issued 348280 shares at premium of Rs.14/- each. 2. Fair Market Value of shares is Rs.24/- each. (Face Value Rs.10+Premium Rs.14)(rounded off) 3. Certificate from charted accountant alongwith calculation of book value of assets as on 31.03.2017 is enclosed."
On a perusal of the records, it was observed by the A.O that the assessee company had purchased “agricultural land” admeasuring 1.82 hectares (195835 Sq. Feet.) (Kh No. 9/12, Kh. No.405-406) at Village-Karanja, Dhamdha Road, Tehsil & District: Durg for an amount of Rs.64,77,842/- on 18.06.2013. He further observed that the assessee had claimed that usage of the aforesaid land was changed from agricultural to industrial vide order dated 13.03.2014. Also, it was observed by the A.O. that the assessee had got the aforesaid land revalued by a Registered Valuer at Rs.3,15,00,000/- vide his valuation report dated 31.03.2016. On being queried
4 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai about the 348280 shares that were issued at a premium of Rs.14/- per share, the assessee company tried to justify the same based on the fact that its “agricultural land” was converted into industrial land, which, thus, had resulted in increase the value of its land and the same was reflected in its balance sheet. However, the aforesaid explanation of the assessee did not find favor with the A.O. The A.O was of the view that the revaluation of the land by the assessee company based on the report of the registered valuer was only backed by a process of estimation and was not supported by the value of any other property falling within the same vicinity. Also, the A.O. observed that the valuation adopted by the assessee company could not be acted upon for the reason that it was not supported by data taken from the Sub- register office (State Govt. Department) or any DLC/Circle Rate. On the basis of his aforesaid conviction, the A.O. declined to consider the valuation report and rejected the same.
Once again, the assessee, on being called upon to substantiate the share premium of Rs.14/- per share that was charged on issuing 348280 shares, submitted that as the appreciation to the land value was added as per “Note-5” to the fixed assets and a corresponding effect was given to “Note-3”- reserves and surplus of its financial statement for the year under consideration, therefore, in spite of no profit or loss, there was spike in the valuation of its shares on 31.03.2017 to Rs. 23.88 per equity shares. However, the A.O. did not find favor with the aforesaid explanation of the assessee company. The A.O. held a conviction that the revaluation of the land could not be accepted as a solitary basis for the share premium charged by the 5 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai assessee company as the same would be possible only on the basis of its profit or loss. The A.O. observed that as the assessee company had not carried out business activities, the amount of share premium of Rs.48,75,920/- received as a share premium was without any basis. Accordingly, the A.O., based on his aforesaid deliberations, vide draft assessment order u/s. 143(3) of the Act proposed an addition of Rs.48,75,920/- u/s. 56(2)(viib) of the Act.
The A.O. forwarded the aforesaid draft assessment order a/w. final “Show Cause Notice” (SCN) dated 06.04.2021 to the assessee company. Although the assessee company tried to substantiate its claim as regards the valuation of the land admeasuring 1.82 hectares as was so projected by it but the same did not find favor with the A.O, who observed as under:
6 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai
7 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai
On the basis of his aforesaid observations, the A.O. worked out the Fair Market Value (FMV) of the shares as of 31.03.2017 at Rs.13.30/- (R/o. Rs.13/-). Accordingly, the A.O., after adopting FMV of the shares at Rs.13/- per share, therein, vide his order passed u/s. 143(3) r.w.s. 143 (3A) & 143(3B) dated 15.04.2021 worked out the excess share premium charged by the assessee company u/s.56(2)(viib) at Rs.38,31,080/- and determined the income of the assessee company at Rs.38,31,080/-.
Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. The CIT(Appeals) found no infirmity in the view taken by the A.O as regards the addition made u/s.56(2)(viib) of the Act of Rs.38,31,080/- as well
8 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai as the very basis for determining the FMV of shares @ Rs.13/- per share as against Rs.24/- per share charged by the assessee company and, observed as under:
“The Assessing Officer erred in making addition of Rs. 38,31,080/- on account of alleged excess consideration received against issue of shares exceeding the fair market value of shares, invoking sec. 56(2)(vib). The addition made by AO is arbitrary, contrary to evidence on record, illegal and is not justified. 5.1(a). As per the AO : "The return of income was filed declaring total loss of Rs. 4,83,79,681/-, which has been assessed by National c-Assessment Centre u/s 143(3) vide order dated. 15.04.2021 at Rs. 4,45,48,601/-, making an addition of Rs. 38,31,080/- on account of share premium u/s 56(2) (viib). During the year under consideration, the appellant company received share capital of Rs. 48,75,920/-, by issuing 3,48,280 shares at a premium of Rs. 14/- per share. The AO made an addition on account of share premium of Rs. 38,31,080/- received by the appellant company. During the assessment proceedings, the appellant had submitted computation of fair market value of the equity shares which was certified by the auditor of the company. In the said computation also, the fair value of the equity shares has been computed in the manner as prescribed under Rule 11 UA". 5.1 (b). The AO observed that the appellant company converted a piece of land (agriculture land) to industrial land and increased the valuation of land which was reflected in the balance sheet. The valuation report of the Registered Valuer was also furnished by appellant. The contention of appellant regarding valuation of shares has been considered to be not acceptable by the AO and consequently proposed an addition of Rs. 38,31,080/-. The AO issued show cause notice and considered the objections of the assessee before making the addition. This addition made in the assessment is the subject matter of this appeal for adjudication. (ii). The appellant filed written submissions during the course of appeal proceedings. It is stated by the appellant that: "The AO worked out the value of land @Rs. 70 lakh per acre and arrived at the revalued figure of Rs. 1,27,40,000- [Rs. 07 lakh per acre x1.82 hectare]. On this basis, he reworked the revaluation reserve at Rs. 62,62,158/- [Rs. 1,27,40,000/- () Rs. 64,77,842/- being original cost) and arrived at the fair market value of the shares at Rs. 13.45 per share, which he rounded off to Rs. 13 per share. This way, he worked out the share premium as per FMV at Rs. 3-/ per share and since the appellant had issued 3,48,280 shares at a premium of Rs. 14/- per share, the alleged excess premium of Rs. 38,31,080/- [3,48,280 shares x Rs. 11/- per share being difference between Rs. 14/- & Rs. 3/-] was added by AO invoking sec. 56(2)(viib)."
9 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai
It is submitted that the difference has arisen because of-the reason that the rate of land per acre (Rs. 70 lakh per acre), accepted by the AO, has been multiplied by him with the area of land in hectare instead of in acres. When the rate applied by the AO is per acre, then the area of land in acres should have been multiplied. It is undisputed that area of land was 1.82 hectare, which is equal to 4.4973 acre and if this area is multiplied by the accepted rate of Rs. 70 lakh per acre, it will give value of Rs. 3,14,81,100/- which, when rounded of comes to Rs. 3,15,00,000/- which is the value taken by the valuer/appellant. Therefore, the entire difference in working out the premium gets washed out only on account of wrong multiplication done by the AO. At the cost of repetition, we may reiterate that the rate per acre has been multiplied by the AO with the area in hectares. Shares issued at the value worked out as per Rule 11 UA(2)(a) And Justification of value of land of Rs.70 lakh per acre. The only dispute raised by the AO in the calculation of FMV is that the book value of revalued land could not be taken at Rs. 70 lakh per acre and as observed by the AO on page no. 5 of the assessment order (para no. 2) In the valuation report, the amount taken is Rs. 70 lakh per acre instead of Rs. 63.13 lakh. 5.2 (a). I have carefully considered the written submissions of the appellant. The AO had given facts of the case and pointed out the defects in the valuation report. The AO found that the Valuation of land taken by valuer at Rs.70 lacs per acre instead of per hectare as per DLC/Circle rate chart, So the calculation per hectare @ 70lacs Comes out Rs.1,27,40,000/-. Moreover, the AO stated that:" in the valuation report there is no mention on what basis the value is adopted at Rs. 70 lacs/acre against govt. rate of Rs. 613 lacs/hectare. He also observed that :" the prescribed rates on Hectare basis, whereas, assessee has taken the rate of Acre basis. Actually 1 Hectare is equal to 2.47 Acre. So on the above facts, the valuation report is not accepted, which was already rejected". The reasoning stated by the AO in rejecting the valuation report seems to be in line with market rates prescribed by the government. In this view of the matter, there is no ground for agitation over the valuation adopted by the AO and consequently, the grounds of Rs. 48.75appeal on this point needs no consideration. 5.2(b). The AO having not accepted the valuation report proceeds to revalue the land pointing out the deficiencies in the valuation report. On the other hand, the appellant mistook the AO's valuation stating that he valuation is not per hectare and it's per acre and that there is difference in average and hectare and also the extent of land. The AO's finding is that the government rate was Rs.613 lakhs/hectare. All these things do indicate that there is ample confusion which leads to misunderstandings of statements of facts. The AO, on the other hand, stated that a show cause notice followed by a draft assessment order was issued to the assessee before finalizing the assessment. After considering the facts and circumstances of the case and 10 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai also the deficiencies found by him in the valuation report, the AO's action to revalue the land seems to be fair and the appellant's ground of appeal
, in this regard deserves, to be rejected. GROUND No. 2 : Assessing Officer erred in calculating the fair market value of Rs. 13/-per share in place of Rs. 24/- per share, disregarding legal and cogent evidence available on record. The addition made by AO is arbitrary, baseless and not justified. 5.3.(i) In the assessment, the AO had given valuation of shares and in doing so, the AO found that the assessee had claimed on excessive side Rs.48,75,920; thus working out to disallowance of Rs. 38,31,080 under section 56(2)(viib) of the Act. 5.3.(ii). The appellant submitted that :" In this regard, necessary explanation has already been submitted vide para no. 12, to 14. above in respect of ground no. 1 wherein it has been established that the FMV of the shares was Rs. 24/- per share only and the AO was not justified in bringing ti down of Rs. 13/- per share. Even otherwise, the calculation by which the AO has worked out the FMV at Rs. 13/- per share is wholly incorrect as the rate of acre has been multiplied with the area of land in hectare whereas the area in acre should have been multiplied and fi it was done so, the FMV would have come to Rs. 24/- per share only. This point has been elaborated in explanation given in respect of ground no..1". 5.3.(iii). This ground is inter connected with ground no.1 mentioned above. The AO had given analysis of the valuation and worked out value per share and also share premium per share. It's a logical valuation purely depended upon the facts of the case. I see no reason to interfere in the valuation adopted by the AO. Consequently, the ground of objection raised by the appellant deserves to be rejected. GROUND No.
3. Without prejudice to above grounds, the AO erred in adopting the value of land at Rs.70 lakhs per hectare in place ofRs.70 lakhs per acre, ignoring the fair market value of shares submitted by the appellant prescribed under Rule 11 UA 5.4(i) discussed. This ground is relatable to the ground No.1 where the facts of the case have been 5.4(ii). The written submissions filed by the appellant have been elaborately discussed in ground No.. 5.4(iii). As has been stated supra, this ground is related to ground no.1 and appellant's ground of appeal in this regard deserves to be rejected.
11 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai
GROUND No. 4 : The appellant reserves the right to add, amend or alter any ground's of appeal. The appellant had not modified or amended the grounds of appeal nor fined additional grounds. Hence, this ground is technically held as rejected.
6. All the grounds raised by the appellant are rejected and in the result, the appeal is dismissed.”
The assessee, being aggrieved with the order of the CIT(Appeals), has carried the matter in appeal.
I have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities as well as the material available on record.
At the threshold of the hearing of the appeal, Shri R.B Doshi, Ld. Authorized Representative (for short ‘AR’) for the assessee company submitted that the controversy involved in the present appeal finds its genesis in the valuation of the land at Village: Karanja, Bhilai, that was taken by the A.O on an incorrect basis as against that claimed by the assessee company. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that the agricultural land of the assessee company measuring 1.82 hectares at Vill. Karanja, Tehsil & Dist. Durg, pursuant to the diversion letter dated 09.05.2014, was converted into diverted land, i.e. non- agricultural land for industrial use (Dal Mill). The Ld. AR, in support of his aforesaid contention, took me through the copy of the report of valuation in “Form O-1” dated 31.03.2016 of the government-approved valuer, Pages 27 to 31 of APB. Rebutting the value adopted by the A.O., it was submitted by the Ld. AR that he had wrongly valued the land by taking the same as agricultural land and adopting a value of Rs.63.13 lacs per hectare. Carrying his contention further, it was submitted by the 12 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai Ld. AR that as per the valuation report of the government-approved valuer, the value of the aforesaid land, i.e., 1.82 hectares at Vill. Karanja was taken at 70 lacs per acre. Referring to the anomaly in the valuation carried out by the A.O., the Ld. AR submitted that not only had he erred in taking the land of the assessee company as agricultural land but also had wrongly valued the same at a substantially low amount, i.e., at Rs.63.13 lac per hectare as against that as was claimed by the assessee, i.e., at Rs.70 lac per acre. The Ld. A.R had drawn my attention to the government guidelines rate wherein the value of the agricultural land at Karanja, Bhilai (Sr. No.12) was stated at Rs.63.13 lacs per hectare. The Ld. AR submitted that as the land in question, pursuant to a diversion letter dated 09.05.2014, had been converted into diverted land, i.e., non-agricultural land for industrial usage (Dal Mill), the valuation of the same as per the government guidelines for the year 2016-17 (Rule 7, Para 9) was to be determined by applying the multiple factor of 2.5. The Ld. A.R had drawn my attention to the relevant extract of the Government Valuation (Rule 7), Page 34 of APB. On the basis of his aforesaid contentions, the Ld. AR submitted that as the A.O. had, based on misconceived facts, valued the aforesaid land, i.e., at Village Karanja, Bhilai; therefore, the addition so made by him u/s. 56(2)(viib) of the Act, which in turn was taken by the assessee company on the basis of the valuation of the land by the government-approved valuer, was liable to be vacated.
Per contra, the Ld. Departmental Representative (for short, “DR”) relied on the orders of the lower authorities.
13 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai
I have thoughtfully considered the aforesaid issue, i.e., the addition made by the A.O u/s. 56(2)(viib) of the Act, which, as stated by the Ld. AR and, rightly so, is primarily based on the valuation of the land at Village Karanja, Bhilai. Although it is the claim of the Ld. AR that the land under consideration, i.e., at Vill. Karanja, Bhilai had been converted into diverted land, i.e., non-agricultural land for industrial usage (Dal Mill), which fact he had tried to justify by referring to the valuation report dated 31.03.2016 of the government approved valuer, Pages 27 to 31 of APB, but I find that the said factual position had not been appreciated by the A.O while framing the assessment. Considering the aforesaid fact, I am of the considered view that the matter in all fairness requires to be revisited by the A.O. The A.O shall, in the course of set-aside proceedings, verify the aforesaid claim of the assessee, i.e., as to whether or not the 1.82 hectares of land which was originally purchased by it at Village Karanja, Bhilai on 18.06.2013 as an “agricultural land,” had thereafter, been converted by diversion letter dated 09.05.2014 into land for an industrial purpose (Dal Mill.). If the claim of the assessee company is found to be in order, then the A.O. shall determine the FMV of the said land by making reference to the District Valuation Officer (DVO). Also, I may herein observe that the maintainability of the claim of the assessee, that as per government guidelines (Rule 7), the value of the agricultural land at Vill. Karanja, Bhilai, as per the said rule, was to be subjected to a multiple factor of 2.5 for arriving at the value of the land in case the same is converted into diverted land shall also be looked into by the lower authorities in the course of the set-aside proceedings. I, thus, in terms of my aforesaid observations, set aside the 14 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai order of the CIT(Appeals) and restore the matter to the file of the A.O. for fresh adjudication. Needless to say, the A.O. shall, in the course of the set-side proceedings, afford a reasonable opportunity of being heard to the assessee company, which shall remain at liberty to substantiate its claim on the basis of fresh documentary evidence. Thus, the Grounds of appeal No. 1 to 3 raised by the assessee company are allowed for statistical purposes in terms of the aforesaid observations.
The Ground of appeal No. 4, being general, is dismissed as not pressed.
In the result, the appeal of the assessee is allowed for statistical purposes in terms of the aforesaid observations.
Order pronounced in open court on 18th day of October, 2023. Sd/- (रवीश सूद /RAVISH SOOD) �या�यक सद�य/JUDICIAL MEMBER रायपुर/ RAIPUR ; �दनांक / Dated : 18th October, 2023. **#SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
1. 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent.
3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6.
15 Shree Sita Pulses Private Limited Vs. DCIT-1(1), Bhilai