2019 (6) TMI 1675 - AT - Income Tax

Addition u/s 56(2)(viib) - unquoted equity shares were sold by the assessee at price more than Fare Market Value - shares were sold by the assessee at Rs. 100 per share as against its Fare Market Value of Rs. 98/- . - provision of round off the valuation of shares at the next rupee - assessee has submitted that the fair market value of the unquoted equity shares sold by the assessee was Rs. 98.61 per share and the same was rounded off by the assessee to Rs. 100/-. He has contended that even if the valuation so rounded off at Rs. 100/- may not be acceptable, the value as rounded off of to next rupee that is Rs. 99 should be adopted - HELD THAT - Even the learned counsel for the assessee has not been able to point out any provision in the Act or in the Rules which permits such rounding off of the valuation to the next rupee. This makes it clear that the valuation taken by the AO at Rs. 98/- instead of Rs. 98.61 while computing the amount to be added u/s 56(2)(viib) is also not correct - therefore, direct the AO to recompute the addition u/s 56(2)(viib) by taking the of valuation at Rs. 98.61 after necessary verification.Appeal of the assessee is partly allowed.

Issues involved: Addition of Rs. 3,68,000 under section 56(2)(viib) of the Income Tax Act, 1961 based on the valuation of unquoted equity shares sold by the assessee.

Detailed Analysis:

1. Valuation Discrepancy: The primary issue in this case revolved around the addition of Rs. 3,68,000 to the total income of the assessee under section 56(2)(viib) of the Income Tax Act, 1961. The assessee, a trading company, sold unquoted equity shares at Rs. 100 per share, while the fair market value was determined to be Rs. 98 per share. The Assessing Officer (AO) added the difference of Rs. 2 per share for 1,84,000 shares sold. The Ld. CIT(A) upheld this addition, citing the clear requirement to tax the excess amount received by the assessee over the fair market value. The Ld. CIT(A) dismissed the argument of rounding off the share price and confirmed the addition of Rs. 3,68,000.

2. Appellate Tribunal's Decision: The Appellate Tribunal considered the arguments presented by both sides. The counsel for the assessee contended that the fair market value of the shares should be rounded off to Rs. 99 instead of Rs. 98.61 or Rs. 100. However, the Tribunal noted that there was no provision in the Act or Rules allowing such rounding off to the next rupee. As a result, the Tribunal directed the AO to recompute the addition under section 56(2)(viib) by considering the valuation at Rs. 98.61 per share after necessary verification. Consequently, the appeal of the assessee was partly allowed by the Tribunal.

3. Judicial Interpretation: The Ld. CIT(A) and the Tribunal differed in their interpretation of the valuation issue. While the Ld. CIT(A) emphasized the literal interpretation of the statute, holding that the excess amount charged should be taxed, the Tribunal focused on the absence of a specific provision for rounding off in the Act or Rules. The Tribunal's decision to recompute the addition based on the actual valuation of Rs. 98.61 per share highlighted the importance of adhering to statutory provisions and the lack of flexibility in rounding off valuations in the absence of explicit legal provisions.

4. Final Outcome: The Tribunal's decision to partially allow the appeal by directing the AO to recompute the addition based on the correct valuation of the unquoted equity shares demonstrated a balanced approach considering statutory requirements and legal interpretations. The case underscored the significance of precise valuation methods in tax assessments and the necessity of adhering to established legal provisions while calculating taxable income.

In conclusion, the judgment addressed the valuation discrepancy in the sale of unquoted equity shares, highlighting the importance of accurate valuation methods and adherence to statutory provisions in tax assessments under section 56(2)(viib) of the Income Tax Act, 1961.

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