Valuation per share as per Rule 11UA of the Income Tax Rules, 1962

THE INCOME TAX APPELLATE TRIBUNAL
“F” Bench, Mumbai
 Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)

 I.T.A. No. 6940/Mum/2018 (Assessment Year 2015-16)

Vardhman Entertainment
& Hospitality Pvt.Ltd.
113, Commerce House,
140, N.M.Road, Fort
Mumbai-400 023
PAN : AACCV9193Q
(Appellant) 

Vs.

ACIT-2(3)(1)
Room No.552,
Aaykar Bhawan,
M.K.Road
Mumbai-400 020
(Respondent)

Assessee by Shri Vimal Punmiya
Department by Ms. Usha Gaikwad

Date of Hearing 31.05.2021
Date of Pronouncement 01.07.2021

 O R D E R

Per Shamim Yahya (AM) :-

This appeal by the Assessee is directed against the order of learned CIT(A)-06 dated 26.09.2018 and pertains to Assessment Year 2015-16.

2. The grounds of appeal read as under :

1. Addition u/s. 56(2)(vii)(b). of the I.T. Act: Rs. 60,67,4297-

1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the Ld. Assessing Officer in invoking theprovisions of section 56(2)(viib) of the Act and making an addition of Rs. 60,67,429/- in a case where a wholly owned subsidiary company issued shares to its Holding Company in consideration of transfer of assets and liabilities of a division to it by the holding company at a value determined under the Scheme of Arrangement duly approved by the learned High Court of Bombay. The wholly owned subsidiary company has issued shares for the net value of the assets and liabilities so transferred, the total values of shares issued is same as of the net value of assets and liabilities of the division so transferred. The issue price per share also meet the criteria of books value of share as prescribed under the Rule 11UA of the Income Tax Rules.

2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the Ld. Assessing Officer of taking a different date that the appointed date of the Scheme of Arrangement under which the shares are issued and further erred in reducing the Deferred Tax Liability from the Total Assets while calculating the book value of shares. It may be noted that the Deferred Tax Liability is not an ascertained liability but only a notational amount shown in accounts to comply with the prescribed Accounting Standards.

3. On the facts and in the circumstances of the case and in law, the learned CIT(A)has erred in confirming the action of the Ld. Assessing Officer in making an addition u/s 56(2)(viib) of the Act where the difference between the issue price of shares and that book value computed by the learned Assessing Officer is not even 3% of the issue price.

3. Brief facts of the case are that during the year under consideration, the assessee company had issued 1055205 equity shares to M/s.Vardhaman Developers Ltd. The face value of these equity shares was Rs.10/- and the shares were issued at a premium of Rs.190/-. Total amount of share premium received by the assessee during the year was Rs.20,04,88,950/-. The assessee was requested by AO to furnish identityof the investor, valuation report of the equity shares and justification of share valuation along with proof of the transactions. The assessee vide submitted the valuation report, Form No.PAS-3 approvals of general body and board of directors and the business transfer agreement approved by Hon'ble Bombay High Court between the assessee and M/s.Vardhaman Developers Ltd. (VDL). The share valuation report showed that the assessee had adopted the Net Asset Value method for computing the valuation shares. It was stated in the valuation report that the values as appearing in the audited books of accounts of the assessee and Amusement Park Undertaking had been taken as on 31.03.2013 and provision account for half year ended 30.09.2013 had been considered for share valuation. It was also stated  that the business of operating amusement park of VDL is transferred to its wholly owned subsidiary company i.e.Vardhaman Entertainment & Hospitality Pvt. Ltd, (VE&HPL) by way of business transfer agreement. As per the agreement the share of VE&HPL had to be transferred to VDL and the assessee VE&HPL would remain subsidiary ofVDL. As the structure of the company did not change, the valuation was done as per the NAV method / taking the date of balance-sheet of amusement park undertaking ofVDL as at 31.03.2013, which came at Rs.2110.41 lakhs. The AO was not satisfied with the determining the value of the shares, the AO proceeded to compute the valuation as per IT. Rule 11UA considering the book value of the assets as on the data available in the balance-sheet of the assessee as on 31.03.2014.

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