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Method as per sub rule (2) of Rule 11UA in order to determine the Fair Market Value of the equity shares of the company. Now while going through the said report as obtained from the firm of chartered accountant, it was noticed that they have given details pertaining to 3 (three) Private Limited companies viz., Manifold Agricrops Private Limited, Sidhidata Solar Urja Private Limited and Palimarwar Solar Project Private Limited, none of whom has any business connection and or association with the assessee. Accordingly, there is no relationship and or logic to accept the said calculation sheet/valuation report as the determining basis for the share premium charged on equity shares by the company. In view of this fact, the entire share premium amounting to Rs.5,00,000/-is disallowed and added back with the net profit of the assessee under section 56 (2) (viib) of the I.T. Act.

[Addition of Rs. 5,00,000/- is made]

2. Share Premium Charged on fresh issue of Preference Shares:

The assessee has credited a sum of Rs 8,00,00,000/- during the previous year as share premium under the head Reserves and Surplus in its Balance Sheet received on issue of preference share capital. The terms of reference as set out in the valuation report of the firm of chartered accountant is limited to valuation of equity shares. However, the assessee company has taken that as the basis for justifying the share premium charged on issue of preference share issued by it during the year. It is pertinent to refer to the terms and conditions attached to the preference shares issued by the company. The terms and conditions of the preference shares as observed from the audited balance sheet states that preference shares are non-cumulative compulsorily convertible preference shares which would be deemed within 20 years from the date of issue into equity shares at par and as far as dividend is concerned, the shareholders would be entitled to receive dividend @ 8% which can go upto 12% in case dividend on equity shares are declared and not otherwise. Moreover, the preference shareholder has no right to vote. Further, attention is particularly invited to Section 56(2) (viib) read together with Rule 11UA of the Income Tax Rules and is reproduced hereunder:

PE = total amount of paid up equity share capital as shown in the balance-sheet;

PV = the paid up value of such equity shares; or I.T.A. No.: 2011/Kol/2018 C.O. No.: 117/Kol/2018 Assessment Year: 2013-14 M/s. LNB Renewable Energy Pvt. Ltd.

(b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method.] Rule 11UA(1) (c) (b) deals with the valuation methods and procedure and also suggest alternative Sub rule (2) which gives the option to the assessee to apply either option (a) or option (b) in respect of equity shares. However, only Rule 11UA (1) (c) (c) provides that the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be priced it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation.

11UA(2)(c) it concerned, the assessee during the Remand Proceedings has obtained report of the valuer. As per the valuer the value of each preference shares comes to Rs. 237.50 and value of equity shares is corning to Rs. 23.75. Since the assessee has issued the shares at a price less than the price determined by the valuer, therefore, u/s. 56(2)(viib) the shares has not been issued in excess of the fair market value of the shares under Rule 11UA, therefore, the addition made by the AO cannot be sustained.