Notice u/s 142(1) was issued by the AO regarding issue of share capital. Assessee filed the confirmation of share application money received by the assessee along with the income-tax acknowledgement, balance sheet, capital account, P&L a/c and computation of total income of the investor. Other than this, no enquiry was made by the AO. Even the notice u/s. 142(1) and reply thereto by the assessee was not with respect to the issue of shares at premium. There was no communication between the AO and the assessee regarding the said issue. Valuation of the shares was not at all discussed. Tribunal held that Reading to the assessment order clearly shows that the AO has not at all applied his mind that there was an issue of shares during the year at premium. Further, while valuing the shares as on 31st Dec., 2013, the valuer has taken share application money as shareholders’ funds and therefore, the value of number of shares (existing) have gone up. If the share application money was included in the net worth of the company, then the denominator should also be increased by the number of shares representing the share application money. Assessee has not increased the number of equity shares representing the share application money while working out the fair market value of each share. Thus, the valuation made by net assets method is flawed. Argument of the assessee that in subsequent years’ assessment proceedings, the AO has accepted the valuation of Rs. 400 per share cannot hold water as the assessment order of this year is required to be tested on the parameters of ingredients of s. 263. Therefore, the order passed under s. 143(3) by the AO is erroneous insofar as prejudicial to the interest of Revenue in (1) not at all examining the issue of share premium, (2) accepting share valuation report as it is without examining it and (3) accepting flawed valuation of shares by net assets method by allowing inclusion of share application money pending allotment in net worth/ Thus, the order of the Principal CIT passed u/s. 263 was upheld. (AY. 2014-15)