INCOME TAX ACT, 1961

Section 56(2)(viib)

Income from other sources - Valuation of shares under section 56(2)(viib) - Computation of FMV of shares at premium -

Assessee-company had issued shares from assessment year 2011-12 to 2013-14 three times and subscriber of shares were LMI Ltd. only in all three time, share of face value of Rs. 10 was issued with premium of Rs. 20 per share based on the valuation report certified by an independent Chartered Accountant. Since assessee-company had issued 5,07,94,056 number of shares at a premium of Rs. 20 and the excess value comes to Rs. 2.25 which was taxable for income from other source as per the provision of section 56(2)(viib) comes out of Rs. 11,42,86,626 which was added back by him to the income of the assessee. But nowhere AO had disturbed the method or value substantiated by the assessee, except for the aforesaid reason. CIT(A) held that since 5,07,94,056 shares were actually allotted in the financial year pertaining to next assessment year, therefore, no addition can be made in terms of section 56(2)(viib), however, he made enhancement of Rs. 20 per share for 2,40,83,333 equity shares allotted during the year.Held: Report of the Valuer of the assessee company based on NAV method cannot be tested in terms of rule 11U/11UA on the ground that the Rules do not prescribe valuation as per 'Net Asset Value' method. The substantiation of the fair market value of the assessee had to be first tested on the basis of the valuation done by the assessee and it cannot be tested from the lens of rule 11UA, which can be applied in case sub-clause (i) had been exercised. When option of sub-clause (i) had not been exercised, then CIT(A) cannot resort to apply the same and reject the substantiation provided in sub-clause (ii) that it is not in accordance with sub-clause (1). There was no justification for reducing the value of shares to Rs. 10 and disallowing premium Rs. 20, as assessee was able to substantiate that the shares issued at Rs. 30 per share was less than the FMV and consequently the enhancement made by the CIT(A) for making the addition under section 56(2)(viib) was set aside and the addition was therefore, deleted.

REFERRED : Vaani Estates (P) Ltd. v. ITO 172 ITR 571 : 2018 TaxPub(DT) 6719 (Chen-Trib), CIT v. SPL Siddhartha Ltd. (2012) 345 ITR 223 (Del) : 2012 TaxPub(DT) 1806 (Del-HC). Azimuth Investments Ltd. v. Asstt. CIT (Del) ITA No. 283/Del/2013, CIT v. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC) : 1981 TaxPub(DT) 902 (SC), CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) : 1967 TaxPub(DT) 347 (SC).

FAVOUR : In assessee's favour.

A.Y. : 2013-14 & 2014-15

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