Expert valuations for shares must be adhered to unless proven erroneous. Tax authorities cannot change methods without credible basis.

RDER

PER ANUBHAV SHARMA, JM

This appeal has been preferred by the Revenue against the order dated 08.07.2021 of Commissioner of Income Tax (Appeals)- 27, New Delhi [hereinafter referred to as ‘Ld. CIT(A)’] in Appeal No. 118/19-20/1239 arising out of an appeal before it against the order dated 27.11.2019 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, Central Circle-20, Delhi (hereinafter referred as the Ld. AO) for Assessment Year 2017-18.

2. The case of assessee was selected for limited scrutiny assessment, and the issue of shares premium received by way of issue of 1513040 shares to Enlightened Consultancy Services Private Limited @ Rs. 20 per shares, including share premium of 10 per shares, was examined. The assessee had claimed that the shares were issued against the unsecured loans received in preceding years from M/s Enlightned Consultancy Service Private Limited. The Assessing Officer considered the facts and was of the view that the assessee has not furnished report from merchant banker with respect to computation and rational behind price of each share for the purpose of Rule 11UA of the Income Tax Rules and made the addition by following observation in para 3.4 of the Assessment Order:

“3.4 In view of the above facts of the case it is clear that provision of Section u/s 56(2)(viib) of the I.T. Act, 1961 is applicable in the assessee's case. The amount after computing fair market value of shares as per rule 11UA is Rs. 81,10,640/- (formula for computing fair market value as per rule 11UA is (A-L)*PV/PE). Therefore, to compute price of each share the fair market value as computed above (81,10,640/-) is to be divided by total no. of shares issued (15,13,040/-). Hence, the computation done by AO as per Rule 11UA for price of each share is Rs. 5.36/- (81,10,640/15,13,040/-) as explained above. However assessee has issued 5% Preference share capital @ 20/- therefore Rs. 14.64 (20-5.35) per share is to be added back to the income of the assessee. The assessee has issued 1,513,040 Preference share @ 20 per share i.e. 10/-per share as Share Capital and 10/- per share as Security premium. Hence Rs. 2,21,50,906/- (14.64*1513040/-) is to be added back to the income of the assessee under the head other source according to section

56(2)(viib) of the Income Tax Act, 1961 .

3. In appeal, the same was deleted for which, the Revenue is in appeal, and raising the following grounds;-

“1. That the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 2,21,50,906/- u/s 56(2)(viib) of the I.T Act made by AO as assessee was unable to furnish the valuation report supporting his method adopted for determining the value of preference shares.

2. Whether in law and on facts of the case the order of the Ld. CIT(A) is erroneous and not tenable in law and on facts.

(a) The Ld. Commissioner of Income Tax (Appeals) is erroneous and not tenable in law and on facts.

(b) The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.

4. Heard and perused the records.

5. On appreciating the order of CIT(A), it can be seen that CIT(A) has deleted the addition by following conclusion:

“5.7 On the basis of above facts, law and legal precedents on the issue, it is observed that (i) There is no allegation of introduction of any unaccounted money through shell companies for subscribing to the NCRPS of the appellant company.

(ii) As per Rule 11UA, the prescribed methodology of determination of the Fair Market Value (FMV) of preference shares is not the same as that of the equity shares.

(iii) The AO had given SCN for addition u/s 68A, but later chose to make addit