Rule 11UA(2)(A) R/w Explanation (A) To Sec 56(2)(Viib) Does Not Require Valuation Report For Substantiation Under NAV Method: Delhi ITAT
Pankaj Bajpai
17 March 2024 6:00 PM IST
Finding that the book value of assets and liabilities adopted for the purposes of NAV method of valuation is in consonance with last audited balance-sheet items, the Delhi ITAT clarified that the AO has misdirected himself on seeking valuation report which requirement do not emanate from the law codified in this regard. The Bench of Kul Bharat (Judicial Member) and Pradip...
Finding that the book value of assets and liabilities adopted for the purposes of NAV method of valuation is in consonance with last audited balance-sheet items, the Delhi ITAT clarified that the AO has misdirected himself on seeking valuation report which requirement do not emanate from the law codified in this regard.
The Bench of Kul Bharat (Judicial Member) and Pradip Kumar Kedia (Accountant Member) observed that “The phraseology of clause (a) to sub-rule (2) of Rule 11UA read with Explanation (a) to Section 56(2)(viib) do not thrust the requirement of Valuation Report for substantiation of valuation under NAV method”. (Para 9)
As per the brief facts of the case, the assessee-company is engaged in the business of corrugated boxes. The AO observed that the assessee has issued Rs.10 lakh equity shares of face value Rs.10/ - per share at Rs.36 per share, i.e., at a premium of Rs.26 per share. The shares were subscribed by the directors of the company in equal portion of 5 lakh shares each. In view of the absence of valuation report of Chartered Accountant in terms of Rule 11UA, the AO invoked the provisions of Section 56(2)(viib) and considered the premium amount of Rs.26 per share to be in excess of Fair Market Value (FMV) of equity shares of the company and consequently the excess consideration received on account of share premium on issue of equity shares were held to be assessable to tax u/s 56(2)(viib) of the Act.
The Bench noted that 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.
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, noted the Bench.
The Bench further noted that 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, even though 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.
Hence, observing that the audited balance-sheet testifies the FMV, the ITAT dismissed Revenue's appeal.
Counsel for Appellant/ Revenue: Rano Jain
Counsel for Respondent/ Taxpayer: Vivek Kumar Upadhyay
Case Title: DCIT verses Continental Corrugators Pvt. Ltd.
Case Number: I.T.A. No.1538/DEL/2022
