July 2022
Where under a joint venture agreement shares were issued to a resident venture and a non-resident venture at a differential price and the AO has not disputed or questioned the financial, technical and professional credentials of the venturists for entering into the joint ventures agreement, addition cannot be made under section 56(2)(viib) by disregarding the method of valuation adopted by the assessee
17 DCIT vs. Mais India Medical Devices (P.) Ltd [[2022] 139 taxmann.com 94 (Delhi-Trib.)] A.Y.: 2014-15; Date of order: 31st May, 2022 Section: 56(2)(viib), Rule 11UA
Where under a joint venture agreement shares were issued to a resident venture and a non-resident venture at a differential price and the AO has not disputed or questioned the financial, technical and professional credentials of the venturists for entering into the joint ventures agreement, addition cannot be made under section 56(2)(viib) by disregarding the method of valuation adopted by the assessee
FACTSThe assessee company was incorporated on 01.03.2012 on the basis of joint venture agreement between M/s Sysmech Industries LLP, a resident and M/s Demas Company, a non-resident. Both the joint venture partners agreed to contribute to the project cost of the assessee company in the ratio of 60 and 40 while keeping share holding ratio 50:50.
On the basis of valuation of equity shares at Rs. 59.99 per share following the DCF method assessee issued shares to non-resident shareholder at the rate of Rs. 60 per share after necessary compliances under FEMA etc. However, shares to the resident shareholder were issued at Rs. 40 per share.
The assessee filed return of income declaring loss of Rs. 2,97,79,141 and the case was picked up for limited scrutiny to furnish the various details including the share valuation as computed under Rule - 11UA of the I
