Assessee issued 70 lakh equity shares of Rs 10/-each at a premium of Rs 5 per share, receiving a total premium of Rs 3.5 Crores. A.O. invoked the provisions of S. 56(2)(viib) and determined the fair market value of each share at Rs 6.65/-. The premium received was added back to the total income of the assessee. The CIT(A) rejected the valuation of the assessee and A.O and applied rule 11UA to determine the value at Rs 10.05/-.  The assessee challenged the order before the Tribunal.

The assessee submitted that it had obtained the permission of the competent authority for the change of land use from agricultural to institutional for art, culture and convention centre. The total area of the land was 51366.94 sq. yards, while the circular rates of the institutional area were Rs. 22,000/-per sq. yard. The total value of land would come to Rs 113 crores. After adding the total assets (9.18 lakh) and reducing the total liability of Rs.46.56 crores, net asset value comes to Rs.66.54 crores. If the net asset value is divided by the number of equity shares issued (10.10 lakh), the value of each share is Rs.658.83 crores.

The Tribunal accepted the assessee submissions, held the valuation of the shares should be made based on various factors and not merely on the financials/balance sheet as done by lower authorities. Further, it held that valuation could not be rejected, where it demonstrated the fair market value of the asset is more than the value of the balance sheet. (AY. 2014-15)